Illusions of control: why Santa Claus won't manage your company
Put people at the center of your internal controls framework
Ho ho ho! Every year, on Christmas eve, a portly, white-bearded and red-garmented man delivers gifts to all the children in the world. With the help of a sleigh, reindeer, his bags and a few elves, it’s a small wonder he only needs a single night. Even if the reindeer could actually fly and there would be corrections for the world’s different time zones, the man’s performance is incredible. Still, millions of children believe in Santa Claus, as well they should. Not believing in Santa Claus, means you are officially off the gift list. In other words: the Santa Claus construction collapses when its fictional dynamics are unveiled.
Written by Alexander Van Caeneghem & Jean-Marie Bequevort
Just like Santa Claus, management solutions are fictions. Claims made in theory, action plans and management reporting aren’t necessarily false, but they are often deceptive in terms of their supposed effects. Figments of the imagination, rather than products of knowledge.
In his recent book Imagined Futures the German sociologist Jens Beckert points out the clear-cut similarities between economic theory and literary fiction. Both management theory and literary fiction describe a universe in which participants pretend the described reality is real.
The power of the concept lies in what the romantic poet Samuel Taylor Coleridge called ‘the willing suspension of disbelief’. Readers suspend their disbelief when a story sounds credible and convincing, without it having happened in real life.
Similarly, management pretends to be in control, rather than it actually is. It most heavily leans on all stakeholders’ silent agreement, for fear its construction - companies, processes, tools, people - disintegrates. Most managers, even those who feel in control, would do whatever it takes to sustain their belief.
Not very long ago, we experienced three specific cases of organizational failure to give up the illusion of control. Let’s have a look.
Case #1: The narrative fallacy - The Audio Equipment Manufacturer
In order to scale up and diversify its business, an audio equipment manufacturer had been buying several companies. Senior leadership left the integration to operational management, but wanted to ensure that the new subsidiaries were in control. “I want to gain assurance that they operate according to our accomplished standards”, the CFO confided.
After a remote data assessment, we flew to their latest and largest acquisition. Responding to our initial series of process audit questions, the local management team proudly stated they “had sharp controls in place, adjusted the process narratives and re-aligned all policies”.
During our fieldwork, we realized nobody was operating as per the narratives. Escalating the issue to the controller, we asked whether people had been trained on the new controls. “We have published the policies on the portal, distributed a corporate communication and held a conference call’, he replied. But when we inquired whether he checked that the message was received, understood and implemented, he could no longer hide his annoyance. The discussion ended with his “I can’t be behind everyone’s desk”.
Case #2: Unforeseen events - The Toy Retailer
A large toy retailer wanted to turn its performance around by increasing brand reach and putting customers first. The Chief Operating Officer was looking for “a compelling plan”. We were assured they had the required business expertise, but needed consultants to “dig into the data and support the marketing team with financial modeling and analysis”. We provided data on customer definition, segmentation and many more angles to help sales and marketing elaborate the plan.
At the end of the project, the COO expressed satisfaction with the plan. He expected it to bring double digit growth due to “clear capital allocation for new stores opening, a new incentive plan to drive channel performance and various point-of-sales initiatives”. A few months later, we asked how things had unfolded - according to plan? “Not really”, he replied. As it turned out, “many unforeseen events” they could not possibly have anticipated, had materialized, and basically ruined the plan.
Case #3: Need more work groups - The Food Producer
Discussing the scope for an audit of the strategic plan for a European food producer, management wanted a system to ensure trade-off and collaboration across all strategic projects. As we progressed through our fieldwork, we noticed that the key set of internal controls revolved around the implementation of “transversal platforms”. Those were supposed to each cover specific topics such as suppliers, investments, quality, et cetera, in what could be called workgroups. The platforms seemed to be well designed, with a clear scope, purpose and frequency - at least, as such they were presented.
Deeper analysis of those meetings, however, showed that occurrence and attendance were remarkably poor. To our surprise, around 60% of the meetings did not take place,or, when they did, managers were sending delegates who refrained from decision making. When we reported our observations to senior management, they had the answer ready: “We need a workgroup to tackle the problem”.
We Are Talking About People Here
Just like Santa Claus, the narratives, the development plan and the work groups are forms of fiction. With disbelief in the fictive nature of their control narratives suspended, the ‘actors’ in these cases proceeded as if their management solutions guaranteed control over the situation. As if their solutions would actually be able to streamline, govern and contain an unpredictable future.
Obviously the suspension of disbelief is not the only thing at stake here. As always, the cases are about poor implementation and embedding. But more importantly, we are talking about people here. A common issue in all cases above is that the internal controls and management systems failed to take into account people, human behavior and (unpredictable) reaction to controls.
An obsession with control has led to a proliferation of controls in place, new regulation, the scaffolding of supposedly automated controls and GRC tools being implemented, an endless stream of ideas and new frameworks from audit and advisory firms. Auditing fees paid by companies, for example, increased significantly following Sarbanes-Oxley. Still fraud, scandals and dysfunctional governance continue to happen, sometimes even by those who promotes the rules and controls. It typically boils down to an individual or a group of individuals that became rogue, and some others who are or feel too weak to react.
That is hardly a surprise. According to BCG’s Yves Morieux and Peter Tollmann, “no amount of structures, processes, and systems are ever enough to anticipate the kinds of problems employees face every day on the front line of the business”.
The question is: if we all know, why do we entertain the fiction? Is it crucial to the workings of our companies and economy?
Beyond Dead Ideas
The main challenge might well be to get over our anal fixation on control - and focus on the people aspect of governance. The solution does not lie in more functions, procedures and controls, but in finding out what the people in your company actually do, and why do they do what they do. Most people will act rational, at least from their own perspective. In our experience, they want to collaborate, while craving autonomy at the same time. People thrive on trust.
The essence of controls is people. The result is not about HR policies or processes, but about real action taken.
In order to ensure the correct topics are being addressed, you can ask the following questions to challenge your existing internal control agenda:
- How can we make sure to recruit the right people?
- How can we make to retain and nurture talent?
- How can we make sure our middle management have the adequate leadership skills?
- How can we make sure our people correctly react to incentives?
- How can we make sure to work with 3rd party providers with the adequate experience and expertise?
Imagine the impact. Imagine that you can devote the intelligence and skills of your employees to the core of the matter, not just to controls, policies, narratives and any other latest “dead ideas”.
That is our Christmas wish and resolution for 2018: do not add complexity, but put people at the center of your internal controls framework. Even if you don’t believe in Santa Claus - he’s gone for the year anyway.
This article is a slightly edited and condensed version of Three examples of organizational failure to give up the illusion of control, an article previously published in HR Zone.