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Toyota's Relational Contracts and the Decline of General Motors — HBS Working Knowledge

Toyota's Relational Contracts and the Decline of General Motors — HBS Working Knowledge | Change Leadership Watch | Scoop.it
What led to General Motors' decline? Long regarded as one of the best managed and most successful firms in the world, its share of the US market fell from 62.6 to 19.8 percent between 1980 and 2009, and in 2009 the firm went bankrupt.


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Toyota's practices were rooted in ...effective relational contracts-- ...based on subjective measures of performance ...enforced by the shadow of the future. 

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The authors argue that the conventional explanations for GM's decline are seriously incomplete...and make the case that one of the reasons that GM began to struggle was because rival Toyota's practices were rooted in the widespread deployment of effective relational contracts-- agreements based on subjective measures of performance that could neither be fully specified beforehand nor verified after the fact and that were thus enforced by the shadow of the future.

GM's history, organizational structure, and managerial practices made it very difficult to maintain these kinds of agreements either within the firm or between the firm and its suppliers.

...Two aspects of GM's experience seem common to a wide range of firms.

First, past success often led to extended periods of denial: Indeed a pattern of denial following extended success appears to be a worldwide phenomenon.

Second, many large American manufacturers had difficulty adopting the bundle of practices pioneered by firms like Toyota. 
   
See a companion piece, also referencing GM in Deb's comments in Change Management Resources ScoopIt newsletter:  

Moving Beyond Hierarchy - What is Working Now to Lead Through Change?

 

Deb Nystrom, REVELN's insight:

Denial of change after a long success, and failure to adapt to the new?  The cited Harvard working paper by Susan Helper and Rebecca Henderson gives implications of GM's history in looking at efforts to revive American manufacturing.   

It may not be news, yet it may be a good reminder to anyone under 50 employed by a legacy company like GM based on years of success, followed by decline.  


By the way, I'll be presenting with Ron Koller at the Michigan Labor Management Association conference on April 10, 2014 

Michigan: What’s in it for Me? “Why WE Makes Sense”
The Michigan Labor Management Association (MLMA) Partners in Progress Conference
Kellogg Conference Center

More information is here on my speaking events page.  


~  Deb    
 

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Smart profits, smart values and sustainability from a bank boss who dares to be different

Smart profits, smart values and sustainability from a bank boss who dares to be different | Change Leadership Watch | Scoop.it

Anders Bouvin is the boss of the most successful bank you've probably never heard of. And he, like the bank he runs, will challenge your preconceptions.   

    

For starters, this African-born, Swedish chief executive of Handelsbanken's growing UK operation doesn't receive an annual bonus, ...[and] has been with the Swedish bank for 28 years.

    

Most surprisingly, the 55-year-old supports west London's Queens Park Rangers Football Club with a passion intriguing for a Swede who spent the first 10 years of his life growing up in Zimbabwe.

   

….Anders Bouvin…was thrilled to be offered a job…in a company "whose values coincided completely with my own".

    

Those values - long-term-ism, and a philosophy of de-centralization encapsulated in the slogan "the branch is the bank" - seem almost too good to be true in a current banking era of fines, debt crises and outsourced customer service.

  

Big banks, according to the popular narrative, were the primary causers of the global debt crisis thanks to their reckless investment in high-risk mortgage-backed bonds.

    

Handelsbanken says its branches, such as this one in Aberdeen, come first


But Handelsbanken remained above the fray, emerging with a balance sheet strong enough to make European banking regulators purr with delight.


…next to no marketing keeps overheads down and return on equity up.

     

At Handelsbanken returning a share of the profits to long-term staff is also key. If the bank exceeds the average profitability rate of its peers, then surplus profits are put into a fund and distributed to all the staff.

    

Handelsbanken
*  Founded in 1871
*  Has no sales or market-share targets
*  Staff get flat salaries without bonuses
*  Claims to have achieved higher profitability than the average of its rivals for 41 years in a row


...Handelsbanken, headquarter[ed] in London, is expanding to meet increased demand while some of its larger rivals get smaller.


"Many banks are having to absorb huge losses and have had to shrink to repair their balance sheets... and there are clear indications that SMEs [small and medium-sized businesses] are bearing the brunt of this. It's very sad."


All in all, Anders Bouvin appears the least likely candidate for executive burnout you'll ever meet.

Related tools & posts by Deb:

     

    

  • Stay in touch with Best of the Best news, taken from Deb's  NINE multi-gold award winning curation streams from @Deb Nystrom, REVELN delivered once a month via email, available for free here, via REVELN Tools.

 

Deb Nystrom, REVELN's insight:

This is yet another positive example of how smart, people-centered values, with decision-making driven down the chain and low hierarchy, can drive profitability and sustainability, even in one of the most traditional industries. More information on comparisons with other business models to follow. ~ Deb


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Deb Nystrom, REVELN's curator insight, February 26, 3:02 PM

This is yet another positive example of how smart, people-centered values, with decision-making driven down the chain and low hierarchy, can drive profitability and sustainability, even in one of the most traditional industries. ~ Deb

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This Is Generation Flux: Meet The Pioneers Of The New (And Chaotic) Frontier Of Business | Fast Company

This Is Generation Flux: Meet The Pioneers Of The New (And Chaotic) Frontier Of Business | Fast Company | Change Leadership Watch | Scoop.it

That Fast Company identifies GenFlux seems a is a renegade idea way disrupting traditional HR staffing / people concepts for organizations.  Think "churn" as a way of being.


"The future of business is pure chaos. ...So it seems...today.  GenFlux is a mind-set that embraces instability...even enjoys--recalibrating careers, business models, and assumptions."


A variety of careers & ages are profiled in Fast Co's piece.  I remember back when "white water change" and "pinch-points of change," were 90's terms tossed out while working on the latest reorganization, staffing change or technology installation, followed by the brand, is "you" in so many words.  


Excerpts:  


"There's a difference between the broadcast and networked worlds," danah boyd (lower case by intention) and Senior Researcher at Microsoft, says. "Command and control and hierarchical structures are being disintegrated. Big companies are trying to make that slow down. They have massive internal structural issues."


...From classrooms arranged in rows of seats to tenured professors, from the assembly line to the way we promote executives, we have been trained to expect an orderly life.


Thrivers are the members of Generation Flux, who are less a demographic designation than a psychographic one.  


GenFlux is a mind-set that embraces instability, that tolerates--and even enjoys--recalibrating careers, business models, and assumptions.  ...To be successful, businesses and individuals will have to work at it.


This is no simple task. The vast bulk of our institutions--educational, corporate, political--are not built for flux. Few traditional career tactics train us for an era where the most important skill is the ability to acquire new skills.


"I don't have any personal challenges about throwing away the past. If you're not changing, you're giving others a chance to catch up." ~  Pete Cashmore, founder of the widely popular, Mashable, with more than 2 million twitter followers

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Championing a Radical Old Way of Doing New Global Business: High Profits & Low Power Centric Culture

Championing a Radical Old Way of Doing New Global Business:  High Profits &  Low Power Centric Culture | Change Leadership Watch | Scoop.it

Svenska Handelsbanken has championed an entirely different way of doing business, and has the profits, loyalty and longevity to prove that it works.

Three years ago, stock market analysts at Sweden’s main business paper set about using data from the London School of Business to find the world’s best performing share since the start of the 20th century.

The answer? Handelsbanken. Ten pounds invested in the Swedish bank in 1900 would have been worth about £20m by 2009, a rise of 1.9m pc. General Electric could manage only an 843,000pc rise.
 

And if you think the fruits of this astonishing return were limited to an elite club at the bank, you would be wrong.

Handelsbanken has an almost religious devotion to Oktogonen, its profit-sharing scheme. ...Every employee receives an equal share of the bank’s profits as long as it makes a return on equity greater than the average of its peer group.

   

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..branches ....scrutinise [head office] costs. If they are not happy...they make sure the head office ups their game...

     
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The money is then used to buy Handelsbanken shares for each staff member but these can be accessed only when employees reach the age of 60. This ultra-equitable approach means the bank teller whose career is spent cashing cheques will receive the same payout from Handelsbanken on retirement as its chief executive.


Afew other differences:


- It does not pay bonuses, with the exception of a small number of staff in its investment banking arm;
 

- It has no financial plans;
 

- The bank sets no sales targets for staff;
 

- It does not set out long-term goals and has no central marketing budget;
 

- Even its largest corporate customers must still bank with it at a branch level, and it has no credit scoring system.
 

...Anders Bouvin, UK chief executive explains....branches decide the costs of the head office. They scrutinise our costs. If they are not happy with the service, they make sure the head office ups their game...[or]...go elsewhere. The branch manager is the king of the bank,” he says.


Read the full post here.   Read more about the unusual 28 year career of Anders Bouvin, here.

   

Related tools & posts by Deb:

    

  • Stay in touch with Best of the Best news, taken from Deb's  NINE multi-gold award winning curation streams from @Deb Nystrom, REVELN delivered once a month via email, available for free here, via REVELN Tools.
     
Deb Nystrom, REVELN's insight:

This is a companion article, featuring the graphic shared by Niels Pflaeging on LinkedIn who mentions that  ...."companies like Handelsbanken have ....value creation and informal structures [that] are far more well-curated and developed than in command-and-control organizations."

~  Deb 

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Deb Nystrom, REVELN's curator insight, February 18, 8:11 PM

Sometimes numbers can be a trap.   This is one of two posts featuring this unique, profitable bank that has outperformed MANY competitors.  ~  Deb

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Executive Privilege & Power and Change Management, Facing Extinction?

Executive Privilege & Power and Change Management, Facing Extinction? | Change Leadership Watch | Scoop.it

Those in hierarchical positions of power have much to lose...[in a] redefined social contract that redistributes status...


Gail's 3rd post in a series about change in change management:

Organizations are ....dipping their toes into enterprise collaborative platforms that encourage symmetrical interactions and reduce hierarchy.


Technology tools like social media and gamification are unlocking this power by providing platforms that scale and enable dialogue.


This tentative tapping and experimentation with the speed of information sharing, clarification, engagement, and momentum is both exhilarating and threatening to many.


As we .... learn how to ride the vast waves of information [via]... desktops, we are evolving new cultures and new social contracts with each other.


Deb Nystrom, REVELN's insight:

Might the ever widening chasm of executive power and compensation collapse on itself?  It seems possible when reading Gail's series about change management, power, hierarchy, transparency and social connection.

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