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Moving managers to a higher plane of performance.

When I was learning to be a manager, reaching one's Management-By-Objective (MBO) goals was an article of faith. We met our management objectives to the letter, and we wouldn't have dreamed of deviating.

Many American executives might think it wonderful to have such an army of managers at their command. I call it a trap.

Specifically I offer the term "measurement trap" to refer to the pitfall of letting the measurement of employees' performance become a barrier to their performance. Keep your managers in a harness of set, empirical objectives, and you lock your organization into a condition of harmful rigidity probably accompanied by a false sense of well-being.

Losing The Company

If, in other words, managers think they're being judged solely on the basis of the number of trees they can count, they're liable to overlook the forest.

A corporate seminar that was described to me will serve to illustrate. The point of the exercise, the assembled managers were told, was to choose a new company logo. The managers were divided into teams, each of which was to come up with its own logo design. A group, composed of one representative from each team, then formed to examine the proposed designs and make a choice.

The ground rules: There could be no compromise. The group must choose one design without varying it. They had exactly one hour to make their decision. For every minute they went beyond an hour, the company would lose one percent of its value.

It might have seemed reasonable to expect, under these circumstances, that the managers would, if nothing else, make sure they made their choice on time. Instead, they ran late--as did group after group that engaged in this exercise. The managers were acting in heroic MBO style, standing up for their teams and fighting for the ideas in which they believed. Unfortunately, this approach sometimes cost them their company.

There is nothing inherently wrong with measurements: They are necessary management tools. The MBO formula is a rational way to judge performance; and it possesses the appealing trait of being relatively easy to handle. But real harm can result from its mechanistic use, its acceptance at literal face value, and--as the logo exercise suggested--its power to undermine broader and longer-range corporate objectives.

With particular respect to employee performance, measurements can cause harm when they are used in such a way as to give people a distorted sense of priorities; when they foster competition rather than teamwork among departments; when they become substitutes for direct, clear communication both vertically and horizontally in the organization; and when they inhibit creative approaches to problem-solving.

Measurements apt to produce these outcomes are those that too narrowly define a manager's role in terms of discrete results. Concentration solely on dry numbers and other supposedly objective standards can hide problems through simple omission, and create problems by implying successes and deficiencies where there are none. When all corporate incentives and rewards, moreover, are tied to the manager's ability to meet this number and that quota, the temptation becomes great for the manager to propose very "doable" objectives--and then, on completing them, do nothing more. Management of expectations becomes as important as the management of the business.

When things go wrong for the company, the manager protests, "It's not my fault: I met all of my objectives!" Managing by objective may insulate the manager from keeping in mind the most important objective of all--that of making the company itself succeed. If a numerical target places unnecessary bounds and limits on the individual employee's performance, it cannot help but hold back the company as a whole.

Our Business Problem

It should not be surprising to find plenty of victims of the measurement trap among large American corporations--which, being highly organized along hierarchical lines, are geared by necessity toward following an MBO-type pattern.

As CEO of Bell Atlantic, one of the "Baby Bells" created with the breakup of AT&T in 1984, I head what used to be part of the largest company in America.

Moving beyond its monopolistic past, Bell Atlantic now faces competition as never before. Our once-protected revenue streams are being challenged in all of our markets. Public phones, operator services, yellow pages, and even the local exchange business are being penetrated by large well-financed competitors. At the same time, we are now permitted into a number of new and related businesses. In short, we are presented both with a challenge and with a wonderful opportunity.

Far from assuming a defensive posture in this brave new world, we have chosen to set our sights high. Our aim: Seize the opportunities accompanying the growing worldwide demand for information and communication services. Our vision: To be a leading international communications and information-management company.

Our ability to achieve our goal is related--and not all that distantly--to our escaping the measurement trap. There are few steps from (A) traditional forms of employee performance measurement to (B) traditional types of employee performance to (C) lagging corporate performance in the marketplace.

Studies of world-class companies operating in dynamic markets show that the only truly sustainable competitive advantage is the ability to innovate--and do it faster than your competition.

Innovation, like quality, can't exist as one little square on the organization chart. It must be a characteristic of human resources, marketing, finance, and other functional areas--as well as R&D. Innovation has to be everywhere in the organization, or it's nowhere.

Sole concentration on the MBO formula leads to failure in this crucial regard. The MBO system alone can't mandate innovation; it can only set "objective" minimal standards for performance. When viewed in the context of a swiftly moving competitive industry, the MBO formula in itself is planned mediocrity. Its biggest flaw is that it gets only what it asks for; and it cannot ask for, say, creativity, coordinated effort, or commitment.

We cannot afford to operate within static linear formulas in a world in which innovation is at a premium and competitive advantage can evaporate overnight. The MBO formula, in other words, may have served us well as we got to where we are, but it can't take us where we need to go next. For Bell Atlantic, the measurement trap poses a clear and present danger.

Mixed Legacy

It is a danger that is easy to overlook. As senior managers in the Pennsylvania telephone company that is now a Bell Atlantic unit, my colleagues and I truly believed that completing 100 percent of one's objectives meant fulfilling all of one's obligations to the company. But it is now quite clear that if everybody follows that dictum, an organization eventually will grind itself down. In order to complete all of your own objectives all of the time, you inevitably will come into conflict with the goals of your teammates and the corporation itself.

Yet my attitude was typical among senior managers in the Bell System's twilight years of the late 70s and early 80s. Local telephone companies had an implementation mentality. Headquarters pointed out the target; we at the local phone companies hit it--no more, no less. We were more than order takers, managing by in-basket; but we weren't true executives either. We talked not about the marketplace, but about meeting production levels. There was no method for engaging managers in setting or prioritizing corporate-level issues. Even top managers could not have imagined introducing a new product, scuttling an obstructive approval procedure, or ignoring a corporate-mandated measurement.

Qualities crucial to competitive businesses, such as initiative, innovation, risk-taking, and accountability, had little to do with our management objectives, which we fulfilled zealously. That we knew nothing about competition in the marketplace, however, did not prevent us from battling our fellow business units and departments tooth and nail in order to prove our relative worth. Internal rivalries manifested themselves in our resource allocations, promotion policies, structures, and language. And our MBO results kept getting better. With management concentrating on short-term measurements instead of the underlying purposes behind them, measured results improved. The organization's real intent, on the other hand, was obscured.

With the enactment of the U.S. court decree that divided up the Bell System in 1984, the new regional telephone company known as Bell Atlantic inherited a proud legacy, a huge service responsibility, and some unique obstacles. Of most concern to us was the fact that the habits and practices that had been merely troublesome in the Bell System were, in our new competitive environment, downright threatening.

Many executives had become totally parochial in their outlook, intent only on group or division results. Departments, having evolved their own bureaucracies, battled for turf. Sacrificing a bit of group performance, budget, or headcount for the good of the corporation was regarded as odd or even disloyal. Some employees, prevented from exercising creativity or judgment, had lost faith in the importance of their work and had become cynical nonperformers. Routinely, resources were misallocated, efficiencies overlooked, opportunities missed, and customer problems ignored. We harangued our managers to be team players and work for the overall corporate good--while basing all rewards and warm fuzzies on divisive suborganizational goals.

Gradually it became clear to me that our values in some way were skewed--and that the measurement trap was a key common denominator.

Alternative Philosophy

We needed both a new standard for judging performance and a better way to encourage managers to perform. We realized we were charged not merely with replacing a measurement tool, but with addressing the whole style of workplace behavior of which the MBO system is characteristic.

Changing the way people behave in the workplace can be seen as a trivial distraction from business--or as the most elemental way to improve organizational performance. I am of the latter view. In reality, a large business consists of millions of day-to-day interactions among human beings. The sum of these interactions is the company; the nature of these interactions--whether contentious and turf-oriented, or accountable and team-oriented--determines how well the company operates.

Through an arduous multi-year process involving employees across all ranks, we set out to redefine our corporate culture.

We started by working with 3,500 of our managers to develop, in a genuinely participative fashion, a set of statements defining our visions and values. Concurrently we articulated a set of leadership obligations for executive management emphasizing an active, open-minded corporate style.

We proceeded to link our guiding philosophical principles with numerous specific types of behavior we wanted to see in the workplace. The terms we adopted to describe these behaviors were not new--in fact, they almost had become cliches in business literature. But we were convinced that the underlying themes, carefully aligned with our own vision and invested with our own brand of determination, would transform the corporation.

By accountability, for example, we meant that we expected managers to assume personal responsibility for the organization's success, well beyond anything a static "management objective" could ever imply. By empowerment we were telling employees that they were not restricted to doing what was in their job descriptions--that they were obligated, in fact, to do all that was necessary to get the job done.

All of our new principles and workplace behaviors revolved around the idea of getting the most out of our individual efforts as we worked for overall common goals. We sought to create one huge high-performance team.

We enlisted consulting firms such as Senn Delaney, Crosby Associates, and the Boston Consulting Group to assist us with the huge training task ahead. With their help, we developed experiential learning exercises to train ourselves in new team behaviors and skills. We learned that in our business world, "quality" should refer not to some elusive intangible, but to the idea of conforming to customer requirements 100 percent of the time. We realized that we could go far beyond merely tinkering with our complicated processes: We could re-engineer them completely. Our vocabularies came to include expressions such as "blue chip," "breaking the squares," and "going outside the nine dots," referring respectively to the notions of radically prioritizing work, sacrificing turf for the sake of the team, and taking unconventional actions.

We then set out upon a grueling series of face-to-face discussions with tens of thousands of managers and associates all across the company, articulating the nature and importance of the company's philosophical redefinition; and received, in the process, almost more input, coaching, and constructive criticism than my CEO ego could stand.

We also launched three-day exercises, based on the theme of "management by commitment," to differentiate clearly between commitment and compliance. We sought to assure that our managers were pulling in unison--and that they were committed to a new vision of the company and not merely compliant with someone else's distant clarion.

Finally, through this combination of efforts, we began getting through. Along the way people invented new concepts, teaching tools, and analogies that we incorporated into our new way of working together. Dedicated groups of middle level facilitators, whose job it was to drive our corporate cultural change, exercised remarkable courage and corporate leadership by "coaching" their bosses and pushing us along when spirits flagged.

In sum, we created The Bell Atlantic Way: An organized, participative method for workplace cooperation that attempts to match key principles with concrete behaviors and work practices.

These concepts, we found, were mutually supportive, addressing not only how we should perform our work, for example, but the quality of what we produced. Combined, these ideas promised to do more than fill the vacuum left by the de-emphasis of numerical measurements of performance; they also offered employees a positive and palpable set of guidelines for alternative behavior.

As we began to teach these behaviors in workshop settings, back them with monetary incentives, reinforce them constantly with internal communications, and, most importantly, insist that our officers and managers show them by example, we began to see a change.

Still, we had no illusions that the new ideas would sink in immediately, or that all employees would accept them. We recognized that the measurement trap was supported by a very powerful force: Inertia. The MBO system is the easy route to take--especially if employees have long been in the habit of following it. The Bell Atlantic Way, as my colleagues have observed, requires a great deal of start-up energy. Walk away from the process--cease the communications program, let the officers retreat behind their desks and charts--and you quickly lose all momentum. It took us many years to get deeply into the measurement trap; and it will take us years to get out. In any case, we have joined the battle.

Last year in an address to the New York Society of Security Analysts, I listed four areas that would be key to the profitable growth of our core business during this decade: regulatory reform, technology, new product introduction, and cost and quality competitiveness. These also happen to be four of the most dynamic, fast-changing aspects of our business environment. We have no choice but to address them.

I then named a fifth area in which we might achieve our biggest advance in productivity: Corporate culture. The term referred not to some precious internal flag-waving program, but to the recognition that our ability to remold our corporate culture into what we call "The Bell Atlantic Way" might determine our power to act effectively in these other top-priority areas.

Keys To Profitability

Regulatory reform, for example, is a two-edged sword: It lets us enter markets from which we had been restricted; and it lets others enter ours. And whether accomplished by Congressional action or court order, regulatory reform can create a major new competitive situation for us with the stroke of a pen.

With the possibility of our business environment changing so rapidly and dramatically, we need an operating philosophy that enables us to achieve more than the incremental level of change delivered by the MBO process alone. When the door of a new market opens, how fast can we capitalize on the opportunity--if at all? Is it realistic to claim that regulatory reform can translate into greater corporate profitability?

It is a claim we could never make if we were still driven by the MBO standard. We could not frame management objectives to say, "Come up with a new product that will redefine the market," or even, "Invent exciting new services that people will like."

Bell Atlantic, among all the Baby Bells, has taken the most aggressive approach toward the adoption of new technology. Since 1984 we have invested $18 billion in digital switches, software controls, and thousands of miles of fiber optic cable to modernize and expand our network.

The sheer complexity of the technology demands a shift to new workplace behaviors. Our people must install customer networks involving many departments and up to hundreds of thousands of lines--on time, and with minimal corporate supervision. They must operate sophisticated systems whose components are scattered across several states. They must wrestle with multiple major installation projects simultaneously. They also must keep up with technologies that are evolving with incredible speed. As one senior engineer noted, if we were still using the same MBO-type rules and behaviors we had followed a decade ago, these technologies would be obsolete by the time we installed them.

The only way we can hope to make our technology investments pay for themselves is to convert them into new products and services the public wants. We should be hard-pressed to do so if we were dragging the full weight of the measurement trap behind us. We are finding, happily, that our gradual disengagement from the trap is freeing up an entrepreneurial spirit that probably lay dormant within the organization all along.

Embodying this spirit is our Champion program, which could not have existed in a world ruled by the MBO approach. Champion provides seed money and guidance to help employees develop their own ideas for new products and services. Our "entrepreneurs" may earn a tidy share in the profits of successful concepts. The program has produced Thinx, an intelligent graphics program that reached the marketplace in 1990, winning rave reviews. Over 30 more products and services are now in the pipeline. We are serious enough about Champion to consider it a significant future revenue source in our strategic planning.

Cost and quality competitiveness is less newsworthy than regulatory reform, less dramatic than powerful new technologies, less glamorous than flashy new products. It is merely a vital underpinning for the other three. It is also an area inherently in conflict with the measurement trap. The same things you need to do to cut your costs and raise your service levels are likely to be the sorts of things that managers, ruled and rewarded by the MBO system, are most apt to resist and, perhaps in subtle ways, even sabotage.

A friend described to me the case of a manager at a leading manufacturing company who decided to leave corporate headquarters in favor of a management post in the field service organization. In a short time the manager became a company hero thanks to the outstanding performance of his service unit. Only gradually was it revealed that this unit wasn't doing much better than any other; the manager, through his experience at headquarters, knew precisely how to fashion the numbers in his reports to make his unit appear golden.

More For The Dollar

Rather than having managers who are experts at faking great job statistics, we need managers who are willing to jettison their own jobs if they are superfluous. We have actually had such cases at Bell Atlantic, where, since 1984, we have eliminated one whole level of management and reduced from 24,000 to 17,000 our total number of managers--making us the most productive among the seven Baby Bells.

Yet if Bell Atlantic has downsized effectively, it is because we have begun to emphasize a participatory management style that enables these often difficult economic measures to work. And, while asking much of our managers, we also have accepted that we must give in return: Not only performance awards, but the space for them to do their jobs.

In 1990 we finished consolidating all of the spending procedures we had inherited from the Bell System. The task meant boiling down a set of procedures more than a foot thick into a single document two dozen pages long.

That skinny little document speaks volumes about the new corporate culture we are trying to establish. Not only does it sweep away a stifling layer of MBO-style procedures; it also greatly increases the amount of money most managers may spend on their own authority. We replaced a rigid system of rules with one that gives greater responsibility to the individual. In short, we empowered our managers using real money.

We now talk about "best cost." That means, in essence, using good judgment to get the most out of the company dollar, as though it were your own. There is no simple numerical way to tell if a manager is getting best cost, especially if lowest price is not our only criterion for good purchasing decisions. But the company gets more for its salary dollar when it relieves managers of the measurement trap and gives them more free rein.

At Bell Atlantic, we have perceived the "measurement trap" to be a real problem with real costs. A nuisance and distraction in the old Bell System, it is a grave condition in our now highly competitive circumstances. The measurement trap significantly impedes companies' ability to achieve their goals and please their customers--and all the more so in a global marketplace. Companies can and should choose their own "Way" for eliminating the measurement trap; but choose, I believe, they must.

We have staked our profitability to an aggressive campaign of corporate cultural change. Our campaign, if successful in the long term, will enable us to reach a higher plane of performance--namely, the state of continuous innovation and competitive improvement on which our future depends. One important step toward this goal, we believe, will be our liberation from the measurement trap.

RAYMOND W. SMITH is chairman and chief executive officer of Bell Atlantic Corporation. Prior to that, he held the titles of president and vice chairman. Smith joined the Bell System in the state of Pennsylvania and held a number of positions, including director of finance and budgets for AT&T. Before becoming president of Bell of Pennsylvania and Diamond State Telephone in 1983, he held positions in operations, regulatory affairs, and engineering. He holds degrees from Carnegie Mellon University and the University of Pittsburgh.
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Bell Atlantic Corp.'s management by commitment
Author:Smith, Raymond W.
Publication:Business Forum
Date:Sep 22, 1992
Words:3760
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