This document discusses moving away from traditional management approaches and toward more flexible, decentralized leadership models. It argues that most organizations still use management models designed for efficiency in an industrial age, rather than addressing today's complex, knowledge-based economy. It advocates adopting principles of radical decentralization, like giving branches and teams full responsibility and freedom to act. Key aspects of this approach include using relative, self-adjusting targets rather than fixed plans and budgets, flexible resource allocation on demand rather than pre-set allocations, and disconnecting compensation from targets to reduce incentives for manipulation. The document uses the example of Handelsbanken to illustrate how such principles have led to that organization consistently outperforming peers.

1. Bye-Bye Management!
Why management is dispensable
and how leadership
for high performance
really works
Gisma, Hannover, 06.02.2012
Niels Pflaeging
BBTN Associate & Presidente MetaManagement Group
Econique – Diálogo CFO
18/19 de Mayo 2009

2. Niels Pflaeging
BBTN Associate & Presidente MetaManagement Group
Econique – Diálogo CFO
18/19 de Mayo 2009

3. 90%
Peter Drucker

4. McKinsey
Niels Pflaeging
BBTN Associate & Presidente MetaManagement Group
Econique – Diálogo CFO
18/19 de Mayo 2009
4

6. Industrial age ends: Knowledge economy advances:
high ”Supplies have the power“, ”Customers have the power“,
Evolution of mass markets: strong competition, individualized demand:
Taylorism as the superior model decentralized and adaptive model is superior!
Now, all these factors
are equally important!
Here, only efficiency Competitive
mattered, really! Characteristics success factors (CSF)
Dynamics 1. Discontinuous change - Fast response
and 2. Short life cycles - Innovation
complexity 3. Constant pressure on prices Operational excellence
-
Characteristics
4. Less loyal customers - Customer intimacy
• Incremental change
• Long life cycles 5. Choosy employees - Great place to work
6. Transparency, - Effective
• Stable prices
societal pressure governance
• Loyal customers
 High financial - Sustained superior
• Choosy employers expectations value creation/fin.perf.
• „Managed“ results
low
1890 1980 1990 2000 2010 2020
Most organizations still use a management model that was designed 2030
for efficiency, while the problem today is complexity.
6

9. “command and control“
• Too centralized
• Too inward-looking
• Too little customer-oriented
• Too bureaucratic
• Too much focused on control
• Too functionally divided
• Too slow and time-
consuming
• Too de-motivating
• …
9

10. One cannot talk sensibly about leadership, or people management,
nor design decent management processes, unless we clarify
beforehand our beliefs with regards to what
people in organizations are like.
We have to arrive at a shared understanding of human nature
and of the consequences of that for our organizations.
Niels Pflaeging, Leading with Flexible Targets

11. Theory X
vs.
Theory Y Douglas McGregor

12. Theory X Theory Y
Attitude
People dislike work, People need to work and want to take
find it boring, an interest in it. Under right conditions,
and will avoid it if they can. they can enjoy it.
Direction
People must be forced People will direct themselves
or bribed towards a target
to make the right effort. that they accept.
Responsibility
People would rather be directed People will seek and accept
than accept responsibility, responsibility, under the right
(which they avoid). conditions.
Motivation
People are motivated mainly Under the right conditions, people
by money are motivated by the desire to realize
and fears about their job security. their own potential.
Creativity
Most people have little creativity - Creativity and ingenuity are
except when it comes to getting widely distributed
round rules. and grossly underused.
Source:12
Douglas McGregor, ‘The Human Side of Enterprise’, 1960

13. Niels Pflaeging
BBTN Associate & Presidente MetaManagement Group
Econique – Diálogo CFO
18/19 de Mayo 2009

15. Theory X Theory Y
Attitude
People dislike work, People need to work and want to take
find it boring, an interest in it. Under right conditions,
?
and will avoid it if they can. they can enjoy it.
Direction
People must be forced People will direct themselves
or bribed towards a target
to make the right effort. that they accept.
Responsibility
People would rather be directed People will seek and accept
than accept responsibility, responsibility, under the right
(which they avoid). conditions.
Motivation
People are motivated mainly Under the right conditions, people
by money are motivated by the desire to realize
and fears about their job security. their own potential.
Creativity
Most people have little creativity - Creativity and ingenuity are
except when it comes to getting widely distributed
round rules. and grossly underused.
Source:15
Douglas McGregor, ‘The Human Side of Enterprise’, 1960

16. Org charts Performance Appraisals
Meritocracy Absenteeism managem
Time-based work contracts Extra hours
Motivation/incentives
Control of work hours
Individual targets
Job descriptions
Target negotiation
Career plans/paths
Salary ranges
Competence profiling
Knowledge management
Suggestion Schemes Bonuses
Training budgets
16 Personnel Development
Assessment Center
Vortrag: Niels Pfläging
Personnel cost

19. The BetaCodex: The 12 new laws of Leadership
§1 Freedom to act Connectedness not Dependency
§2 Responsibility Cells not Departments
§3 Governance Leadership not Management
§4 Performance climate Result culture not Duty fulfillment
§5 Success Fit not Maximization
§6 Transparency Intelligence flow not Power accumulation
§7 Orientation Relative Targets not Top-down prescription
§8 Recognition Sharing not Incentives
§9 Mental presence Preparedness not Planning
§10 Decision-making Consequence not Bureaucracy
§11 Resource usage Purpose-driven not Status-oriented
§12 Coordination Market dynamics not Commands
19

20. Sciences: Practice:
Thought leaders Stafford Beer Industry leaders
(selected) Margareth Wheatley
Niklas Luhmann
?
W. Edwards Deming
Kevin Kelly
Ross Ashby
Joseph Bragdon
…
Douglas McGregor
Chris Argyris Complexity
Jeffrey Pfeffer Theories
Reinhard Sprenger Industry
Stephen Covey
Howard Gardner Social Sciences
Viktor Frankl & HR
… Retail
Peter Drucker
Tom Peters Leadership & Services
Charles Handy Change
John Kotter
Peter Senge
Thomas Davenport
Strategy &
Performance Government
Peter Block
… Management & NGOs
Henry Mintzberg
Gary Hamel
Jeremy Hope
Michael Hammer
Thomas Johnson
Charles Horngren
…
20

21. Practice:
Industry leaders
(selected)
Industry
Retail
Services
Governments
& NGOs
21

22. ^

23. Periphery
Center
Decision
Information
Command
Impulse
Reaction
Centralist command and
control “collapses“ in
increasingly complex
environments
Quelle: Gerhard Wohland
23

24. The BetaCodex:
Thinking and working
on the model,
not
in the model.

25. Sustaining and
deepening of the
Integration decentralized model,
Evolution phase through generations
within the decentralized
model (culture of Transformation
empowerment and trust) through radical
decentralization of
decision-making
Differentiation Stagnation
phase within the tayloristic model
Low degree of decentralization/
Bureaucratization empowerment
through growing hierarchy
and functional differentiation
Pioneering
phase High degree of decentralization/
empowerment
Foundation Time scale: organization's age Several decades old

26. White paper – Making Performance Management Work 26 © BetaCodex Network – All rights reserved

27. Companies.
Don´t
Need.
Planning.
Eine Konsequenz aus dem Kodex.

28. White paper – Making Performance Management Work 28 © BetaCodex Network – All rights reserved

29. Management processes in command and control
organizations are “straight jackets”
Strategy “Fixed” performance contract
Strategic • Period [Fixed]
learning cycle • Targets [Fixed]
• Compensation [Fixed]
Annual plan
Fixed • Plan [Fixed]
Performance
Contract • Resources [Fixed]
Budget • Coordination [Fixed]
• Control [Fixed]
Management • Agreed through [Negotiation]
control cycle
• Signed by: [Manager/Director]
Control
Tayloristic management works like this: As centralistic-burocratic hierarchies,
held together through a regime of fixed performance contracts!
Source: BBRT
White paper – Making Performance Management Work 29 © BetaCodex Network – All rights reserved

31. White paper – Making Performance Management Work 31 © BetaCodex Network – All rights reserved

32. “I will prepare
myself and
my time
must come.”
Abraham Lincoln

33. The notion of
dividing an organization
into functions,
and then departments,
is fundamentally flawed.
But what is the alternative?

35. White paper – Making Performance Management Work 35 © BetaCodex Network – All rights reserved

38. White paper – Making Performance Management Work 38 © BetaCodex Network – All rights reserved

39. White paper – Making Performance Management Work 39 © BetaCodex Network – All rights reserved

40. The blue pill: Fixed, negotiated targets The red pill: Relative, self-adjusting targets
Target: absolute ROCE in % (here: 15%) Target: relative ROCE in % (to market)
Plan Actual Target Actual
Comparison:
Comparison: Market-Actual
Most Target: „ROCE Most
Plan-Actual
important in % better important
Market competitor than market Market competitor
average”
Actual (25%) (28%) Actual (25%) (28%)
Plan (21%) (21%)
(15%) [independent
[expected from expected
market Ø: 13%] market Ø]
• Interpretation within the plan-actual- • Interpretation within actual-actual compa-
comparison: Plan was outperformed by 6 rison: Performance was 4 percentage points
percentage points > positive interpretation below competition! > negative interpretation
• Better ROCE of the market average and the • Absolute assumptions at the moment of
most important competitor remain unnoticed! planning don´t matter.
• Targets always remain updated and relevant!
Source: Niels Pfläging

42. 42

43. The case of a radically decentralized organization:
Handelsbanken – an extraordinary leadership philosophy
The most important objective
within Handelsbanken Group:
“Higher Return on Equity than the
average of comparable banks in
the Nordic region and Europe.”
Made real through:
• Radical decentralization,
which in turn leads to…
• Best customer service
• Lowest cost
Alexander V Dokukin
 Consistently – over a period of 30 years – one of the most successful banks in
Europe, measured by almost all key performance indicators
(e.g. ROE, TSR, EPS, Cost/Income, customer satisfaction, …)
ROE = Return on Equity, TSR = Total Shareholder Return, EPS = Earnings per share
White paper – Making Performance Management Work 43 © BetaCodex Network – All rights reserved

44. How “radical decentralization“ is being reflected in the
company´s organizational structure and decision-making
Principles Customers
Customer intimacy
A large network of self-managed
teams with full responsibility for 600 branch managers
(Profit Centers)
customer results
Freedom and
capability to act 12 regional Fast, open
“Winning“ culture, combined with the managers information
freedom and ability to act (Invest Centers)
systems
Governance and
transparency CEO,
Framework for decision making with product firms,
clear values, limits and relative treasury, IT etc.
targets, plus transparency
Leads to maximum customer satisfaction!
Source: BBRT Making Performance Management Work
White paper – 44 © BetaCodex Network – All rights reserved

45. Relative target definition through “league tables“ (rankings) –
instead of planned, fixed targets and internal negotiation
Bank to bank
Return on Equity (RoE) Region to region
Principles
1. Bank D 31% Return on Assets(RoA)etc.
2. Bank J 24%1. Branch to branch
Region A 38% Cost/income ratio etc.
3. Bank I 20%2. Region C 27%
Relative targets and
relative compensation 4. Bank B 18%3. Region H 20%1. Branch J 28%
5. Bank E 15%4. Region B 17%2. Branch D 32%
6. Bank F 13%5. Region F 15%3. Branch E 37%
Continuous preparation/
social control 7. Bank C 12%6. Region E 12%4. Branch A 39%
8. Bank H 10%7. Region J 10%5. Branch I 41%
9. Bank G 8% 8. Region I 7% 6. Branch F 45%
“On demand“ flow of 6% 7. Branch C 54%
resources/ 10. Bank A (2%)9. Region G
10. Region D (5%)8. Branch G 65%
dynamic coordination 9. Branch H 72%
10. Branch B 87%
Leads to lowest operational cost!
White paper – Making Performance Management Work 45 © BetaCodex Network – All rights reserved

46. Flexible coordination and resources “on demand“ -
instead of allocations and budgets
Headquarters/
Region
Branches acquire resources
through internal markets
Resources Customer
Branch
(IT, HR etc.) demand
Branches Branches alone are Branches
decide over responsible for efficient observe
necessary use of resources customer
resource levels demand
Leads to eradicating and avoiding waste!
Source: BBRT Making Performance Management Work
White paper – 46 © BetaCodex Network – All rights reserved

47. White paper – Making Performance Management Work 47 © BetaCodex Network – All rights reserved

48. Bonus Variable Bonus
Common practice: hurdle area limit “Ceiling”
„Pay for performance“
compensation Salary/ Reduction Maximization Reduction incentive:
profile with fixed bonus incentive: Lower incentive: Anticipate postpone results to
performance contract: result even more results next period
Creates maniuplation
incentive in any situation! Base salary
80% 100%: 120% Performance as %
of target target of target of target realization
Linear compensation curve without breaks:
A better model: Result variable compensation becomes
oriented compensation decoupled from targets
profile with relative
performance Salary/ Free from
bonus incentive to manipulate
contracts:
No incentive to
manipulation.
Actual Actual Actual Performance in
result #1 result #2 result #3 relative evaluation
Source: Michael Jensen

49. 1 very simple principle:
Always disconnect compensation from targets.
Always.
49

50. Pay-for-performance is an outgrowth of behaviorism, which is
focused on individual organisms, not systems - and, true to its name,
looks only at behaviors, not at reasons and motives and the people who
have them.
I tell Fortune 500 executives (or at least those foolish enough to ask me)
that the best formula for compensation is this: Pay people well, pay them
fairly, and then do everything possible to help them forget about money.
How should we reward our staff? Not at all! They are not our pets.
Pay them well, respect and trust them, free them from disturbance,
provide them with all available information and support to perform
on the highest possible level. Alfie Kohn, Sociologist
1. Pay people well
2. Pay people fairly
3. And then do everything possible to take money off peoples minds!
All pay-for-performance plans violate that last precept!

51. 1 very simple principle:
Never use bonuses and incentives.
Apply profit sharing and/or shareholding concepts
for community.
51

52. 1 very simple principle:
Pay the person. Not the position.
Always.

53. “I don´t know if it is possible.
What I know: It is necessary.“
Tom Peters
Today we already know for sure it is possible.
And we have also learned how it can be done.
53

54. Whatwe
are
waiting

55. White paper – Making Performance Management Work 55 © BetaCodex Network – All rights reserved

56. 56

59. Make it real!
www.betacodex.org
A selection of associates:
Silke Hermann Niels Pflaeging Lars Vollmer
silke.hermann@ niels@betacodex.org vollmer@v-und-s.de
insights-group.de nielspflaeging.com www.lars-vollmer.com
Wiesbaden–New York São Paulo-New York-Wiesbaden Hannover/Stuttgart
Walter Larralde Valérya Carvalho Chris Catto
wlarralde@ valeria@betacodex.org christopher.catto@
on-strategy.com.mx Betaleadership.com putneybreeze.com.au
Mexico City São Paulo Melbourne