2.4.1 Principles of decision making (Part 1)

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Managing the Company of the Future

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University of London

Managing the Company of the Future

532 ratings

The aim of the course is to provide you with a comprehensive framework for understanding both the traditional principles of management inside companies today as well as the alternative principles that are becoming increasingly important. It provides both theoretical and practical perspectives on the nature of management in today’s organisations.

From the lesson

Week 2

Welcome to Week 2 of 'Managing the Company of the Future'. This week, we'll be learning about traditional and alternative approaches to coordination and decision making, and how you can experiment with some of the new alternative ideas in your own company.

2.1 Defining your management model 11:18

2.2.1 Principles of co-ordination (Part 1) 8:10

2.2.2 Principles of Coordination (Part 2) 7:11

Steven Weber, University of Berkeley: Making our actions visible to others enables better coordination and overall social welfare3:44

2.2.3 Principles of co-ordination (Part 3) 6:01

2.3 Moving from bureaucracy to emergence 11:32

2.4.1 Principles of decision making (Part 1) 6:18

2.4.2 Principles of decision making (Part 2) 5:54

Gary Hamel, London Business School : A crowdsourcing approach to getting new ideas funded in large companies 4:15

2.4.3 Principles of decision making (Part 3) 6:47

2.5 Moving from hierarchy to collective wisdom 8:40

Week 2 summary7:36

Meet the Instructors

Julian Birkinshaw
Professor of Strategy & Entrepreneurship
London Business School

[MUSIC]

In this segment we're going to look at the second dimension of management,

which is about how do we make decisions.

So, if the previous segments were all about managing across, in other words how

do we coordinate activities, this is about managing down, managing the vertical.

How do we make decisions?

How do we make effective decisions?

Now, what are the basic principles of operating here?

Well the left-hand principle,

the traditional principle, is that old favorite, hierarchy.

Now, many people mix up hierarchy and bureaucracy as terms.

And indeed, if you're going to be absolutely technically precise about this.

Hierarchy is sometimes seen as an element of bureaucracy.

But for the point, point of view of, of, of this course, I'm making a distinction

between managing a cross coordination and managing down decision making.

So in the world of managing down, how do we make decisions?

We can make them through the hierarchy.

That's the established way of doing it.

What do we mean by hierarchy?

In this context, we mean something very specific.

We mean the legitimate authority that one person has

over another in an organization context.

So, hierarchy says that your boss has the right to tell you what to do.

And if you think about it, as soon as you get outside of the work context,

if your boss tells you to go and get him a beer, then perhaps that's not appropriate.

But in the, in the work context is it's entirely accepted that the principle of

hierarchy allows people above to tell people below what to do.

So, that's what it means.

And it refers to essentially acceptance, if you like, that the person at the top is

both, shall we say, higher than the person below in terms of some sort of formal.

position, but also that they typically know more or

certainly have more breadth of knowledge, and typically that they have some sort of

better understanding of what needs to be done.

And so this notion of hierarchy, of course,

is kind of baked into pretty much any organization structure we can think of.

And that is essentially the starting point.

Hierarchy has many benefits.

First of all, it provides structure for large organizations.

In fact, you know, there's a lot of talk about non-hierarchical organizations,

there's a notion of flat organizations.

But actually, that's a bit of nonsense.

The fact is that any large organization actually needs some level of hierarchy

in order to survive.

In fact you think of the, the world of open source software development, such as,

Linux, which were created as entirely flat structures.

Over the years they actually created.

Not because they wanted to be, because they had to.

They had created hierarchies in order to essentially create some sort of

order and structure.

So, we need structure for big organizations.

That's what hierarchy provides.

It also provides.

Rapid decision making, you know, you think about the old military logic.

If we wanted to make a decision, and we wanted to get everybody to follow that

decision quickly, actually hierarchy provides the best means of

disseminating a decision quickly through thousands of people.

And finally, hierarchy also ensures what you

might call alignment between power and accountability.

They often say that for

example journalists have power but no accountability.

[LAUGH] Well, in the world of organizations, power and

accountability, become aligned through the hierarchy.

The person at the top has power, has legitimate power over the people below,

but he or she is also accountable for that power.

If they get it wrong, they're the person who loses their job.

So that's the benefits of hierarchy.

And as I said, I am not going to be rude about the term of hierarchy,

because it turns out that we really do need hierarchy.

Yes, many organizations have too much hierarchy.

Yes, it is the case, I think that hierarchy has had a bad name

sometimes over the years, but we mustn't lose sight of its enormous benefits.

What are the costs of hierarchy?

What are the weaknesses of hierarchy?

Well, many of you experience this on a daily basis, but

let me just highlight four of them.

First of all, we assume that the boss knows best.

And of course sometimes the boss does know best,

sometimes the boss does not know best.

And it's very often the case,

particularly in a fast moving business context the person on

the front line actually understands what has to be done better than the boss.

So one of the weaknesses is,

is, is a boss always assuming that they actually have the right to,

to overrule, when in fact the smart decision might lie on the frontline.

Secondly, information often does not throw, flow freely enough between layers.

Whilst we can be very efficient at disseminating a decision through our

hierarchy, the reality is that the quality of communication in

many organizations is a little bit less than it should be.

And as a result over many, many layers of an organization, a particular story and

a particular piece of information will,

will get attenuated, will actually get lost.

The third point kind of relates to the second point, which is that

many managers actually fail to, shall we say, add value to their subordinates.

Some managers think their job is just about providing information flow.

Well, of course, nothing could be further from the truth,

because in today's world as technology allows us to

share information much rapidly and, and, and without regard to hierarchy,

quite clearly the manager cannot expect to simply be a conduit for information.

So managers do not add enough value.

That's one of the reasons, in fact,

why we should be flattening organizations to get fewer layers of hierarchy.

Not zero hierarchy, but fewer layers of hierarchy.

And then the final point I would make in terms of the weaknesses of hierarchy is

that, of course, it makes employees at the lower level feel a little bit disengaged.

Now we made the same point.

If you think about it, back around the story about bureaucracy.

Bureaucracy and hierarchy are actually kind of related in that respect, because

both of those systems end up, shall we say, substituting individual freedom and

right to make decisions for rule and systems that are governed from above.

So those are the four clear weakness to hierarchy.

In the next segment we are going to

talk a little bit about the alternative to hierarchy, which is collective wisdom.

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