Skilled managers deliver good results as they motivate and grow their employees. Less successful managers might still deliver good results, but might not be doing the best for their employees, hence slowly de-motivating their staff, lowering performance and satisfaction.
Often, managers are made based on factors that directly affect the division’s bottom line rather than based on their inherent management capability that takes account of the people they manage. This has negative implications for the organization and all parties involved. A recent article in the McKinsey Quarterly noted that surveys typically show that for more than 75% of employees, dealing with their immediate boss is the most stressful part of their job.
If these shortcomings were eliminated, employees’ performance would increase. Furthermore, the organization would be optimized, if those who are most capable at leading people become managers.
We propose a new management system which applies a free market mechanism to human resource management, similar to what happens in professional team sports: Managers get a set of responsibilities and a budget for their team. Based on their style, they can build teams by offering employees a combination of salary, secondary benefits and working style to attract employees to their team. Employees have free choice of who to work for. Well-performing managers will receive increased budget and responsibilities. Poorly performing managers will receive less budget and responsibilities, until they might not be a manager anymore.
Today, managers are often made because they performed well in their past role – and hence get promoted one level higher. This continues until the manager does not do well any longer. Consequently, they do not get promoted and remain within their current role. This results in a constellation where everyone basically is one level above their capability, thus not delivering the best possible performance – to their staff and at the bottom line.
Managers are the kings of their teams. They make hiring and firing decisions, have full transparency of the employees and their salary. On the other side of this unequal relationship are employees who cannot choose who to work for easily. They have no transparency on salaries, tasks and other rewards. In some cases, the manager looks more after his own interest than after that of his staff. This can lead to unmotivated personnel and poor results, a low level of ownership as well as unhappy managers who feel they are not doing the best by their employees but just do not have the skill or cannot find satisfaction in leading people.
The fact that managers do not fully understand or care to understand their employees means that teams consist of managers and employees with different individual cultures and styles of working. Misalignment of culture within a team creates a low performance environment.
We propose a new system which works similar to the market for professional team sports players. In a cyclical process (we propose 2 years), managers can “advertise” jobs, employees can evaluate their job options and pick the most attractive one. This decision will be made based on three criteria: Compensation, task and best management, support and development. This is a democratic, free market situation. Some employees might prefer to work for a boss who gives them a lot of freedom; others might opt for someone who provides more guidance. Some employees might prefer an interesting task or flexible working hours to a high salary. The employee has choice and his decision is based on his priorities.
The proposed process is as follows:
1. Negotiation phase: At the start of each cycle, the manager receives responsibilities, budget, and a salary budget based on his/her performance in the last cycle. He/she can then create a draft of the department; offer a suitable employee a package that motivates this person (combination of task/responsibility, salary/secondary benefits and personal aspects such as coaching, a development plan etc.). During a transition period, contracts are negotiated between managers and employees. If a manager does not want an employee to work for him, the offer will be low and so unattractive that the employee feels the need to find another manager (similar diplomacy is used when managers feel they should let go of an employee). On the other hand, if the employee does not find a package attractive, he/she is free to look for a better option. Everyone can pick the best boss, and this can be an individual choice. This choice is made based on the quantitative and qualitative information that is available about the manager.
We propose to keep the pool of “accessible” managers/employees within function and product group, since skills will be easily transferrable, but this also depends on the type of business this model is implemented in.
2. Working together: Once the contracts are negotiated, the manager and employees work together for a full cycle. We suggest a 2-year cycle. A longer cycle (for instance, 3-5 years) will keep employees stuck with a manager, especially if they had made a wrong choice. Furthermore, it gives the manager little incentive to keep the employee happy in the first few years. Managers would only make an effort in the last 1-2 years so that the manager gets ranked highly at the end of the selection cycle by the employee. At the other extreme, a 1-year cycle would be too short. It might not give the employee and manager enough time to form a bond and a 1-year cycle could create too much volatility to the team.
Once teams of capable managers grow beyond the span of control (traditionally 7), the manager might choose to put team leaders in place. If he is a good manager he will make the right decision. If not, he will lose employees in the next cycle. We discussed a model where top management determines the number of employees they can hire, but decided to leave this decision to managers (see also “challenges”).
3. Double evaluation: To make the system work, managers are evaluated on two criteria:
a) Bottom line performance – good performance will increase a manager’s budget and responsibilities for the next cycle, poor performance will decrease their responsibilities and see the salary budget adjusted accordingly. Top management will determine this, as it is typically done in most corporations today.
b) Success as a manager – transparent evaluations by employees will be done bi-monthly to give everyone an overview of who is a good manager to work for. This takes into account the inherent and intangible managerial capabilities of people. It also creates full transparency amongst the organisation, which is likely to improve employee satisfaction and productivity.
a) Managers have to keep both, their deliverables and their employee’s satisfaction in mind. This makes sure that the system does not become a popularity contest but rather that managers have to be good managing each employee’s individual needs while keeping the deliverables in mind which then will maximise the team’s performance.
b) Managers who are not capable of managing the size of their team and fulfil their responsibility will automatically take a step back in the next cycle. This avoids the classic constellation in organisations, where managers get stuck one level above their capability. Furthermore, the system democratically finds the best spot for a manager whilst still allowing the best to move to the top.
c) Employees are empowered, deal with a transparent market and can decide whether they want to stay with the same manager or whether they want to move. This will increase overall job satisfaction, sense of ownership and performance. This does not imply that there will be high turnover within teams. In fact, turnover should be low as employees get the chance to be in teams that suit their style, personality and priorities. The few employees that move around will be those who have yet not found the right manager for them.
d) Compensation is not done based on service time or level, but based on bottom line performance and the actual value a person adds to the organization. As mentioned above, full salary and benefits transparency is necessary to motivate people, encourage entry level staff to get to the attractive jobs and retain high-performers through showing them the appreciation which they often miss when they leave a company.
e) This is a self-adjusting contract between employee and manager. If an employee feels that his work is not appreciated enough (through money or other benefits, including good management), he/she can move. A manager will only be able to compensate out of his salary budget. Some managers might want to retain more employees and thus pay them a lower salary to perform a lesser amount of work. Other managers might have a few high-performers that get paid accordingly and deliver a lot more results. Everyone can find his or her niche/team culture.
f) In reality, managers will be interested in retaining the largest part of their teams in order to minimise disruptions. This is fine, since jobs are still renegotiated and people have the opportunity to work their way up in teams. It has benefits for a manager is to get entry-level inbound employees (i.e. less experience, but also lower salary) and allow people who are at the top of the team and possibly over-qualified to move to managerial positions (hence making room for the rest of the team to move up and saving budget). Developing staff will become a natural part of the system.
g) The organization will work well because managers are chosen and supported bottom up while employees have a higher degree of control of how they get treated and will take more ownership. At the same time, the transparency of the system will allow top management and HR to learn about successful managers and which best practises motivate and retain high performers.
We recommend to start with a pilot in a specific product/functional area of the company. If it is for a multinational company, a geographical location choice needs to be made as well.
- Identify area and jobs suitable for the new model
- Educate all managers and employees
- Start with budget and responsibilities from existing organisation
- Hire external agency to support the first cycle of manager/employee negotiations
- Consider a test-run or a shorter initial cycle to allow for people’s misunderstandings
- Ramona Dumitrache
- Yutaro Ikegaya
- Maxim Markert
- João Brito Martins
- Juan-Martin Ortiz
- Sharada Selvanathan-GV
- Stephanie Weg
This is a great idea and I want it to work soo badly! Democratization of the workspace is probably the next frontier. I wonder, however, how do you factor in all the stuff that we know about biased decision-making. We know that individuals don't make rational decisions even when the outcome of the decision can have a direct impact on the individual's well being or happiness. How can we make sure that when people chose a manager they are either acknowledging or eliminating the bias? And then there's also the issue of how much past behavior can be predictive of future behavior. People will have to chose based on observable traits (information) and less on inherent/intangible leadership or managerial capabilities.
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Looking at the challenges - a) This system could become a popularity contest; managers might care for their reputation too much, weakening the organization. ....
I think this can be mitigated easily with the continual performance improvement at every level if each employee is allowed to think like a CEO - Ref. RIM’s T.A. McCann on how to manage others effectively-.
Employee before choosing a manger also spells out what she would like to deliver in the next one year and how she will do it. Once agreed upon she can choose the resources of her agreed upon requirement from the manager team. An employee also on individual basis can set her own targets and time lines. This way team members and team leader will manage and deliver of their own, requiring minimum intervention in "free market " organization structure. The major effort of the management will now be on - how to change the smell of the place for better.
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This approach is very effective and will shape the future.
I have had the opportunity to implement this in my BU in 2008-2009. We saw very impressive results.
The free-markets approach has wider application and should not be restricted to choosing managers alone.
We had implemented it across various aspects of management. I had written about them in my blog. In case you are interested, here are the links:
Organizations as free markets - some experiments http://tinyurl.com/69x9sau
Performance Management using Free markets approach http://tinyurl.com/3st2mge
Happy to share further if you are interested (I had 50 employees in my BU and it covered the geographies of Middle East and North Africa).
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I love the ethos behind this approach - great work :) It's really democratic which will generate better outcomes for the individuals and the organisation.
I wonder if it could be taken further though. How about the individuals electing the managers rather than the managers being chosen from on high? This would be even more democratic - no 'them and us' if you choose the boss.
For anyone interested in democratic thinking, you MUST register for Worldblu Live in San Francisco: http://worldblulive.com/
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Hi all--great idea. You might check out "Market-Based Management" (MBM). It's a management philosophy which attempts to use the principles of free societies to inform how individuals in a firm manage resources. It details what those principles are and then discusses what their application in day-to-day management might look like (the book "The Science of Success" goes into detail).
I write for a blog about MBM called Rooted in Prosperity--we'd love to have more people looking into how the philosophy of free-markets/free-individuals can improve management. http://rootedinprosperity.com/
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Great idea, folks!
You'd probably be happy to know that there are some companies out there already doing something similar to what you are proposing, so your concept is definitely valid and will definitely work.
Do you think this idea will work in any organization or just select few? What are the prerequisites? Do you need a specific type of culture to make this work?
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Good thought folks. Brief and well written. I particularly like it because it drives expectations from the managers to be good people leaders, which drives Managerial (and Ultimately Leadership) Excellence.
I have one question though. 'Organisation Structure is in fact a reflection of Business Strategy'. How many people should work in what function (and to which manager) is dectated by the Business Strategy. Its a resource allocation process within the company. If more and more employees want to work for certain managers and if they can't afford to employ them, would you suggest that those managers are in fact in a wrong role. Would you suggest that the senior leadership should consider moving the 'Managers in Demand' to a better role which can employ more staff
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Interesting and an alternative stance on the norm. I would like to see how it would be applied with the staff that sit in the bracket of 'just there for the money' or 'workers who go to work for social interaction' , as progress with these would create a differing reason for choosing your boss. The manager who does not tackle problems, cannot handle lazy workers & has no grasp of target orientation might be selected by poorly motivated workers (who do not want to be 'driven' harder). This is not criticism but constructive analysis of the initial theory.
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Hey team, your Hack is getting some publicity, not only here on the MIX (http://tinyurl.com/484e9gy), but more importantly on Vineet Nayar's HBR blog (http://tinyurl.com/48ubc6h). Kudos for creating such a distinctive Hack.
You might want to keep tweaking just to boost your chances of making the final cut, now we are in the last month of the competition: for example, what about the incentives at a more granular level? What happens when the wrong choice is made - do we reset into the roles we had before the self-selection? Should there be a trial period before the selection is firmed up? Should each employee have 1 or more "Get out of jail free" passes to lower the fear of being trapped in a role that doesn't turn out the way they expected?
Also, tell your classmates about your experience with the M-Prize challenge, and (if you can stand the rivalry) invite them to submit Hacks as well!
Well done,
Jeremy
MIX Team
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