My Twitter timeline is full of links to articles about dynamic startups, cutting-edge businesses, inspirational leadership, visionaries and hierarchy-free organisations with self-managed teams. Oh and change, of course. Lots of change.
Inevitably, this means that a lot of other things are bad. Or worse, BORING!
Bureaucracy, BORING! Big companies, BORING. Systems and processes, BORING. Hierarchy, BORING. Control, BORING. And as for middle-managers, well not only are they BORING, they are stifling everyone’s creativity too.
We all want to work for creative startups with charismatic leaders and no tiresome old processes. And no-one wants to be a bureaucratic company drone in a suit. That’s just BORING.
These obsessions are reflected in the changing HR job titles over recent years.
“I’m a training manager.”
“Oh, poor you. I’m in management development.”
“Management, eh? (Yawn) Well I mostly do leadership development now.”
Coaching and developing the next generation of charismatic and inspirational change leaders is where it’s at. Who wants to be training supervisors or, worse, grinding through stuff like process improvement?
Everybody knows that the middle managers who do all that tedious old monitoring and performance management are the main blockers of change. Without them, the charismatic leaders would be able to communicate directly with the workers and inspire them to, you know, just get on and do stuff. Get rid of all the middle managers. They’d none of them be missed.
You’ve probably gathered by now that I think this is all a load of nonsense. And with good reason.
Two recent surveys found that, far from being a drag on an organisation, it’s the middle managers who really make the difference. A five-year study by Stanford and Utah universities found that, in teams of ten people, replacing a low-performing boss with a high-performing boss raised productivity by 12%.
Wharton’s Ethan Mollick agrees. In his exquisitely titled study People and Process, Suits and Innovators he notes:
[V]ariation among middle managers has a particularly large impact on firm performance, much larger than that of those individuals who are assigned innovative roles.
[I]t is the individuals who fill the role of middle managers – the “suits” – rather than the creative innovators that best explain variation in firm performance.
The results also show that middle managers are necessary to facilitate firm performance in creative, innovative, and knowledge-intensive industries.
So the boring old suits do more for the organisation’s performance than those wacky innovators I hear so much about in my Twitter stream. Furthermore, without the suits, even the creative companies are unlikely to get very far.
My own experience bears this out. From what I’ve seen, organisations are rarely short of ideas. It’s the execution of those ideas that’s the problem. Thought leadership is all very well but if there is no-one capable of getting those thoughts off the flip-charts and into reality, they become just another interesting discussion. That’s where the suits come in.
The importance of middle managers shouldn’t really come as a surprise. The World Management Survey, probably the biggest and longest study of organisations in the world, found a high correlation between company productivity and run-of -the-mill management practices like setting targets, monitoring performance and providing incentives. (See previous post.) As Harvard’s Raffaella Sadun explains, the study backs up “common sense’ management with some robust statistical data. It suggests that at least some of the difference in performance between organisations is due to the quality of their middle-management.
But none of this is very modish. The new funky companies that the people in my Twitter stream seem to love don’t have boring old middle managers and they are all the better for it, so I’m told.
Except that they probably aren’t. We love the image of the small dynamic company but the reality is that most small firms are not very efficient. They invest less than large firms and often struggle to innovate. The seat-of-the pants style that makes them seem so much fun isn’t really a good way of getting things done. As the Economist says:
Size allows specialisation, which fosters innovation. An engineer at Google or Toyota can focus all his energy on a specific problem; he will not be asked to fix the boss’s laptop as well. Manufacturers in Europe with 250 or more workers are 30-40% more productive than “micro” firms with fewer than ten employees. It is telling that micro enterprises are common in Greece, but rare in Germany.
So the more of these wonderful small firms you have, the more likely your economy is to be a basket-case:
Consider the southern periphery of the euro area. Countries such as Greece, Italy and Portugal have lots of small firms which, thanks to cumbersome regulations, have failed lamentably to grow (see article). Firms with at least 250 workers account for less than half the share of manufacturing jobs in these countries than they do in Germany, the euro zone’s strongest economy. A shortfall of big firms is linked to the sluggish productivity and loss of competitiveness that is the deeper cause of the euro-zone crisis. For all the boosterism around small business, it is economies with lots of biggish companies that have been able to sustain the highest living standards.
Contrary to much of the political rhetoric around small businesses, they are not the drivers of economic growth. It is a very small subset of firms making the journey from small to medium-size that create the new jobs. The majority of small firms, on the whole, don’t.
Over the last few years, I have been fortunate to work with some companies, started up during the last decade, that have experienced these growing pains. It is rather like going though adolescence. Everyone knows the company is no longer a startup and that the random, anarchic style of working won’t cut it any more. Once you get over the 100 employee mark, you start to need processes, defined roles and systems. This is all the more so if you want to move into the B2B market. Consumers don’t care so much but business customers want to see the engine room before doing business with you.
This can feel like a wrench for those who loved the freewheeling style of the small startup. As the HR director of one of these companies wryly observed:
There’s a sense of teenagers being told to tidy their rooms. There’s a lot of ‘Awww Maaan! Do I really have to?’
Alas, yes you do, if you want to grow your business and join the big boys.
As these firms grow up, they start to do all that ‘boring’ stuff. They have systems, processes, organisation charts and middle-managers to make it all work.
But it is this, says Ha Joon Chang, that makes us prosperous. What differentiates the rich from the poor economies is the ability to organise on a large-scale.
What makes the poor countries poor is not the lack of raw individual entrepreneurial energy, which they in fact have in abundance. The point is that what really makes rich countries rich is the ability to channel the individual entrepreneurial energy into collective entrepreneurship.
If effective entrepreneurship ever was a purely individual thing, it has stopped being so at least for the last century. The collective ability to build and manage effective organisations and institutions is now far more important than the drives or even the talents of a nation’s individual members in determining its prosperity.
It is the legions of people in medium to large organisations, monitoring performance, setting up and refining systems, making small but regular improvements, coaching, coaxing and occasionally disciplining their staff, who slowly but surely improve productivity and grow the economy.
Small companies with charismatic leaders and no rules might be very exciting but they only get us so far. It’s the boring companies with boring bureaucracy, boring systems, boring measurements and boring middle managers in suits that make us rich.
Update: A fascinating article on how the humble checklist helps to manage the complex business of intensive care – and ultimately saves lives. (H/T to Luis in the comments thread.)
Update 2: Miljenko disagrees with me. Sort of.