THE CATCH-22 OF RANK-BASED MANAGEMENT

When I am conducting a workshop with corporate clients , especially if it is a change management workshop, I like to ask the participants to read the following quote and try to determine who said it as well as when it was said.

Every time we were beginning to form up into teams , we would be reorganized. I was to learn later in life that we tend to meet any new situation by reorganization and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency, and demoralization.

As it is the practice of rank-based organizations to mandate reorganizations from the top down, most participants assume the quote is quite recent. They are generally surprised to learn that this modernsounding sentiment is actually attributed to the Roman scholar Gauis Petronius Arbiter, who died in 66 A.D. To me the quote speaks to our history of rank-based organizations and the pressing need to finally question and abandon rank-based management. Let's look at a modern example, a retail store in Utah, not far from where I live.

The corporate office had directed that their chain of several stores all undergo a major redesign of their store layout. None of the store managers ”and of course none of the store employees ”had been asked for input on either the need for the change in layout or the best way to carry it out in each store. Nor were they ever given any information on the reasons behind the decision to redesign or the larger vision of the corporate office. The managers were just told that this is what was going to happen. Outside experts were hired to study each store and then create the new design that the store manager would make happen. Throughout their examination and redesign of each store, the outside experts, like the corporate office, never solicited input from either the manager or the employees. When the redesigns were completed, the store managers were charged with implementing them, with a tight deadline. Naturally, the managers, in rank-based fashion, then passed this pressure down to their employees .

This example is not unusual, but rather typical of the way most organizations are managed. It also illustrates the three hallmarks of a rank-based organizational strategy:

• Decision making is not shared, but rather conducted at the top and imposed on those below

• The expertise of outsiders is privileged over the tacit knowledge and practical wisdom of employees

• Information is not shared, but rather tightly controlled on a need-to-know basis, where only bits and pieces are given to subordinates of the rank-based leaders

Negative Effects on Employees and Customers

The store employees, seeing the chaos of the store redesign and the anxiety on the face of their manager, grew anxious and stressed themselves . In the absence of any real information, they likely invented explanations that were far worse than reality. The heightened tension had the predictable result of less friendly customer service.

When rank-based managers monopolize decision making and information, employees experience a lack of control over their work life and will excuse themselves from taking any responsibility for results. In retail, this means they lose interest in trying to serve customers or to satisfy customer needs. So it should not be unexpected when sales in the store go down.

The Catch-22

The whole point of the store redesign was to increase profitability in each store. Corporate sees this as something that should motivate store managers, since manager bonuses are tied to store profitability. From the perspective of the corporate office, the store managers should be very grateful for the initiative taken by the home office. Unfortunately, the redesign was conducted in a typically rank-based fashion. The managers were told what they had to do without having input into the decision-making process and without sharing in any of the information that might have helped reduce their anxiety. Instead, corporate hired outside experts, thereby showing no confidence at all in their own managers.

From the managers' perspective, corporate's apparently arbitrary action made them feel insecure about their job performance and thus in their job position. Even though this was not what corporate had in mind, due to the lack of information sharing it was the inference drawn. Notice that there were no negative intentions anywhere in this process ”from corporate to manager to store employee to customer ”but it led to heightened stress and anxiety, lower productivity, and an inevitable decrease in profitability.

Corporate has told the managers, in effect: Do as we tell you ”even though you had no part in the decision and were kept out of the information loop ”and at the same time increase store profitability if you want your compensation to increase. The managers are thus confronted with a catch-22: If they do what they're told, they are unlikely to increase profitability; and if they don't do what they're told, they might improve store profitability, but they'll be putting their job in jeopardy. Either way, the outcomes are less than optimal. No wonder both managers and employees are feeling stressed and anxious, frustrated and dissatisfied.

The Peer-Based Alternative

The core belief behind peer-based organizations is that everyone from the CEO to the front-line worker has equal standing when it comes to information sharing and decision making. This, of course, requires a different mind-set from that of rank-based thinking, as illustrated by the three hallmarks of a peer-based organizational strategy:

• Decision making is shared, and all members are invited to participate at the level where they are most comfortable.

• The tacit knowledge and practical wisdom of employees are privileged over the expertise of outsiders.

• Information is shared throughout the organization.

Chapter 6 described how to design an organization that is not limited in its success by rank-based thinking and the myth of leadership. This chapter provides greater detail about how a peer-based organization, through genuine communication, gains competitive advantage over its rank-based rivals by using the three strategies described below:

• Peer-based councils

• "Diamond strength"

• Rotational leadership