Niels Pflaeging argues that most organizations still use management models designed for efficiency in the industrial age that are not well-suited for today's complex, knowledge-based economy. He advocates adopting new models that emphasize decentralization, adaptability, customer orientation, and a focus on complexity rather than control. Pflaeging also discusses alternative approaches to strategy, performance management, compensation, and resource coordination that disconnect these functions from fixed targets and hierarchies to better enable organizations to respond to dynamic environments.

1. Niels Pflaeging
[ BBTN Associate & Presidente MetaManagement Group
Niels Pflaeging ]
BetaCodex Diálogo CFO wwwbetacodex.org
Econique – Network
18/19 de Mayo 2009

2. 90%
Peter Drucker

4. 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
• Incremental change 4. Less loyal customers - Customer intimacy
5. Choosy employees - Great place to work
• Long life cycles
• Stable prices 6. Transparency, - Effective
societal pressure governance
• Loyal customers
 High financial - Sustained superior
• Choosy employers expectations value creation/fin.perf.
• „Managed“ results
low
1890 Most organizations still use a management model that was designed 2030
1980 1990 2000 2010 2020
for efficiency, while the problem today is complexity. © BBTN – All rights reserved

7. “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
• …
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9. Periphery
Center
Information Decision
Command
Impulse Centralist command and
Reaction
control “collapses“ in
increasingly complex
environments
Source: Gerhard Wohland © BBTN – All rights reserved

11. 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.
Leadership e obiettivi flessibili
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12. Theory X
vs.
Theory Y Douglas McGregor

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

16. © BBTN – All rights reserved

19. Beyond Budgeting (1998-2002)
Beyond command and control (2003-2007)
Beyond incremental change (2008-)
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21. Sciences: Practice:
Thought leaders Stafford Beer Industry leaders
Margareth Wheatley
(selected) Niklas Luhmann (selected)
W. Edwards Deming
Kevin Kelly
Ross Ashby
Joseph Bragdon
…
Douglas McGregor
Chris Argyris Complexity
Jeffrey Pfeffer
Reinhard Sprenger theories Industry
Stephen Covey
Howard Gardner Social
Viktor Frankl
… sciences and
Retail
HR
Peter Drucker
Tom Peters Leadership & Services
Charles Handy change
John Kotter
Peter Senge
Thomas Davenport Strategy & Governments
Peter Block Performance & NGOs
… management
Henry Mintzberg
Gary Hamel
Jeremy Hope
Michael Hammer
Thomas Johnson
Charles Horngren
…
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22. Industry
Retail
Services
Governments.
& NGOs
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23. 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
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24. Traditional model (supports efficiency) New model (supports complexity)
Centralized Decentralized
hierarchy, network,
“command “sense
and control” and respond“
The old model is not
aligned with today’s
Critical success factors and
it does not support ‘Theory Y’.
> We need a new Relative
strategy model to cope with performance
complexity contracts
> We must change
the whole model!
Fixed
performance
contracts Dynamic
coordination
Fixed processes Dynamic
processes
control
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25. The BetaCodex:
Thinking and working
on the model,
not
in the model.

26. 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

29. • Consistently successful, for more than 40 years
• “Most innovative company in the U.S.“
(Fast Company)
• For the 8th year in a row among the 100 best employers in the
U.S. (“Fortune“ – best medium-sized employer).
Best employer in England for the third consecutive year.
Among the best companies to work for in the EU and Germany.
• All employees participate in the firm´s success and become
“virtual“ shareholders.
• No job titles. Little hierarchy.
No job descriptions - instead: “job sculpting“.
• Highly empowered teams. “Temporary leadership“
• “Since 1958, Gore has avoided traditional hierarchy. Instead, we have practiced a
team-based environment that stimulates personal initiative, innovation and
communcation between all our Associates.”
• “The fundamental belief in the people in our organzation
and in their ability continues to be the key to our success.“
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30. Apertura
30
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31. Apertura
31
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32. Fixed Targets – the “blue pill“!
Relative, self-adjusting targets
Target: absolute ROCE in % (here: 15%)
relative ROCE in % (to Market)
Target
Plan Actual
comparison:
comparison
Target: „ROCE Market-Actual Most
Plan-Actual
in % better important
than market Marketcompetitor
average”
Actual (25%) (28%)
Plan (21%)
[independent
(15%)
[expected
from expected
market Ø]
market Ø: 13%]
• Interpretation within the plan-actual-comparison:
actual-actual comparison:
Performance was 4 percentage points below
Plan was outperformed by 6 percentage points >
positive interpretation interpretation
competition! > negative
Apertura
• Better ROCE of the market average and the most don´t
Absolute assumptions at the moment of planning
matter.
important competitor remain unnoticed!
• Targets always remain updated and relevant!
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34. 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
Salary/ Free from
performance
bonus incentive to manipulate
contracts:
No incentive to
manipulation.
Actual Actual Actual Performance in
Source: Michael Jensen
result #1 result #2 result #3 relative evaluation
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35. 1 very simple principle:
Always disconnect compensation from targets.
Always.
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36. 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!
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37. 1 very simple principle:
Never use bonuses and incentives.
Apply profit sharing and/or shareholding concepts
for community.
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39. Companies.
Don´t
Need.
Planning.
Apertura
Eine Konsequenz aus dem Kodex. 39

41. Strategy “Fixed” performance contract
• Period [Fixed]
Strategic
learning cycle • Targets [Fixed]
• Compensation [Fixed]
Annual plan
Fixed • Plan [Fixed]
Performance
• Resources [Fixed]
Contract
Budget • Coordination [Fixed]
• Control [Fixed]
Management • Agreed through [Negotiation]
control cycle • Signed by: [Manager/Director]
Control
Apertura
Tayloristic management works like this: As centralistic-burocratic hierarchies, held
together through a regime of fixed performance contracts!
Source: BBRT
41 41
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42. Apertura
42
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43. 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
Apertura
(e.g. ROE, TSR, EPS, Cost/Income, customer satisfaction, …)
ROE = Return on Equity, TSR = Total Shareholder Return, EPS = Earnings per share
43
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44. Principles Customers
Customer intimacy
A large network of self-managed 600 branch managers
teams with full responsibility for (Profit Centers)
customer results
Freedom and capability to act
“Winning“ culture, combined 12 regional
managers Fast, open
with the freedom
(Invest Centers) information
and ability to act
systems
Governance and transparency
Framework for decision making CEO,
with clear values, limits and product firms,
treasury, IT etc.
relative targets, plus
transparency
Apertura
Leads to maximum customer satisfaction!
Source: BBRT
44
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45. Strategic „cascade”
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.
Relative targets and relative 3. Bank I 20%2. Region C 27%
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%
Continuous preparation/ 6. Bank F 13%5. Region F 15%3. Branch E 37%
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 9. Region G 6% 7. Branch C 54%
resources/ 10. Bank A (2%)
dynamic coordination
10. Region D (5%)8. Branch G 65%
9. Branch H 72%
10. Branch B 87%
Result & value contribution
Apertura
Leads to lowest operational cost!
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46. Headquarters/
Region
Branches acquire resources
through internal markets
Resources Customer
Branch
(IT, HR etc.) demand
Branches decide Branches alone are Branches
over necessary responsible for efficient observe
resource levels use of resources customer
demand
Apertura
Leads to eradicating and avoiding waste!
Source: BBRT
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47. Better to invest in
Better for society
Better to do business with 6. Sustainable value –
5. Ethical & social standards –
Beats peer group every year
4. Customer intimacy – Highest Support the long term interests of on ROE and cost-to-income
(independent) customer satisfaction the bank and society. ratio; highest total
scores in sector year-after-year; shareholder return in sector;
lowest customer complaints; devolved adaptive
monitors customer acquisitions/ organization is key driver of
defections. success.
3. Operational excellence –
Lowest costs of any bank in Europe;
lowest bad debts; cost reduction Better to work for
culture; flat organization (half a 1. Best people – SHB is first
head office person per branch choice financial services
versus five for rivals); internal company in Sweden for
market exerts constant pressure on graduates; employee
central services. turnover is lowest in sector;
2. Innovation – SHB voted joint challenge, personal
responsibility and freedom to
best Internet bank in Europe in
run their part of the
2000; any competitive products and
business; group-wide profit
solutions are fed back from sharing scheme.
Apertura
branches to product development.
Text relates to Svenska Handelsbanken
47
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48. Whatwe
are
waiting

49. © BBTN – All rights reserved

50. “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.
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51. © BBTN – All rights reserved

53. Make it real!
www.betacodex.org
A selection of associates:
Niels Pfläging Silke Hermann
MetaManagement Group Insights Group Deutschland
Al. Santos 1.991 Luisenplatz 1
BR - 01419-002 São Paulo D - 65185 Wiesbaden
niels@metamanagementgroup.com silke.hermann@insights-group.de
Skype: npflaeging Skype: silkehermann
www.nielspflaeging.com www.insights-group.de