Middle Management - A Redundant Species or A New Value-Adding Role

Estonian Annual
Leadership Conference 2003
Middle Management - A Redundant Species

Or A New Value-Adding Role
A presentation by
David Rees
Director, Cultural Fluency Training & Development Ltd, UK
Associate Faculty, Henley Management College, UK
Vanemuise Concert Hall, Tartu, Estonia

Thursday 4 September 2003
www.cultural-fluency.com
Tere
hommikust.
Two Case Studies from 1990’s
Case One
A few years ago, a lady (Gillian) could be

found lying on a camp bed in an old army
tent, situated in a muddy field high on
the Dorset cliffs near my home on the
south coast of England ……
Solution
All Gillian needed was an old beach

hut, a couple of men and a lorry –
not a medical case conference
involving 25 bureaucrats.
Case Two
A major UK retailer, Woolworths,

suddenly found a drop in its share
value due to a number of factors –
strategic, technical and behavioural ……
Transformational Solution
This had to include a change of strategy

(e.g. target market, store locations),
technical changes (e.g. product line,
information systems) and cultural change
(e.g. managerial style, customer
orientation).
Conclusions
In both these cases the role of middle

management was a crucial problem.
Each organisation was hindered in

delivering its products and services by
a steep hierarchy of decision-makers –
managers.
New Strategies
Classic responses to address these issues

have been to flatten organisational
structures and empower the front line
staff to make decisions and provide
customer solutions.
Cultural Change
These new strategies have to be

accompanied by cultural change – i.e.
‘changing the way we do things around
here’.
Cultural change has to be underpinned

by a change in values – principles,
beliefs and standards.
Example
So, if you are a retailer aiming to

resolve customer complaints more
speedily, you have to change sales
staff attitudes and behaviour, in
accordance with a new set of values.
Problem
Who sets the strategy, values and

culture?
Who implements it so that this reaches

the point of product/service delivery?
Ah ………??
So often we have seen attempts at
changing strategy and culture fail
because there is a disconnection
between top management and the
front line.
Top management conceive the

strategic and cultural change and
expect to see this implemented by
cascading the requirements through
the management structures.
Weakness – Actual or Potential
The cascading process is carried out as a
purely administrative function through
middle management.
Middle management often just pass on the

messages and expect the front line to
implement change at the interface with
the customer.
This often gives us a major problem with

embedding the change.
Proposal
New role for middle management:
“Managers of Value-Adding Activity”
- An integration of Value-Based
Management and Intellectual Capital
Management
Setting Vision & Business Objectives
Creating Creating
Culture Top Strategy
Management
Middle Management
What is our role?
Front Line
Delivering the Strategy,
Meeting objectives via the culture
Top
Management
New Role
“Managers of Value-
Adding Activity”
Front Line
What will these
value-adding
activities consist of?
Intellectual Capital
Intangible Assets
Corporate Corporate
Reputation Culture
Brand Goodwill
Image
Creative Experience
Power
Relationships
New
Ideas
Innovative Expertise/
Thinking Knowledge Know-how
Suppliers – Why do I
Employees - Why do I want you as a client? Community – How will this
want to work for this company’s activities
organisation? benefit local people?
Stakeholders
Partners - Why
Customers - Why do I should I share risk
want to buy from you? with you?
Shareholders - Why do I
want to invest in this
company?
Human Capital Management
The focus of this is:
 assessing the value of people in the

organisation
 understanding how people can add value
 measuring the changes in human capital
value
 linking human capital value to corporate
performance
To manage human capital effectively we need
a formal system to capture essential data.
We then use this data to make decisions on:
 who to employ, how many people to employ

 what standards of performance they
should achieve
 what actions managers need to take to
increase human value
 how to keep good performers
Human Capital Framework
There are three key elements to this framework:
1. Individual Human Asset Value

 the value individuals bring and create
2. Collective Human Asset Value

 the additional value created through individuals
working together
3. Satisfaction/Motivation Asset Value

 the influence of motivation on individual and
collective performance
Human Capital Framework Components
Individual Human Asset Management
Personal
Performance
Human Capital
Framework
Leadership
Working
Influence
Together
Collective Motivation
Value-Added Value-Added
Added Value Through
Working Together: Corporate Culture
People working together may produce

greater value than just the accumulated
individual asset value.
This is synergistic added-value.
We will call these aspects of working together
the ‘culture’ and ‘climate’ aspects of adding
value to human assets.
We need to understand how people work

together for two reasons:
6.To determine if the culture and climate

supports the organisation’s business
strategies.
2. To evaluate if the culture and climate helps
or impedes intended performance.
Sample Radar plot
Human Capital Balance Sheet
On the assets side of the balance sheet:

 Total of Individual Asset Value (IAV)
 Added Value from Organisational Culture (CFM)
 Added Value from Satisfaction (SI)
On the liabilities side of the balance sheet:

 Employment costs
 Cost to replace existing human assets
 Cost of re-building corporate culture and
satisfaction
Interpreting the Results
On their own, these calculations and results have
little meaning.
It is similar to the financial statements for a

company – the absolute figures do not mean a lot.
These figures are more meaningful if we:

 identify trends (are results going up or down?)
 compare with benchmarks (competitors,
partners, etc)
 evaluate against internal targets (e.g.
performance levels)
Applying our Results
Ratio Analysis – e.g. market capitalisation

to human asset value
Capital efficiency – e.g. use of human

capital against alternatives
Risk evaluation – e.g. impact of human

capital loss
Human Asset Register
• Keeping track of human capital ‘stock’
• Comparing this with competitors
• Reporting to stakeholders
SWOT Analysis of Human Capital
Generating current value Creating future value
* Customer service * Suggestions per

satisfaction person
Positive * Client manager * E-business

(asset) capability capability
Strength Opportunity
* Level of knowledge * Attrition rate for

sharing new graduates
* Absenteeism on
Negative order process team
(liability)
Weakness Threat
Balance of factors influencing added value contribution, Source: The Human Value of Enterprise, 2001
Maximisation of Human Capital
High
Difficulty of replacement Motivate Retain
Outsource? Subcontract?
Low
Low Added Value High
Added value vs. ease of replacement, Source: The Human Value of Enterprise, 2001
Business Transformation
Making change decisions

(i.e. does the transformation increase
or decrease human capital value?)
Measuring the effect of change

(how does human capital value change?)
Finally, what are the key challenges
facing Estonian organisations:
I suggest three:
5.Value-added leadership
- cultural change
2. Value-chain management
- systems development
3. Human capital managers
- management development
Value Added Leadership
Shifting the organisational culture

from ‘cost control’ to ‘adding-value’.
Value Chain Management
Organisational infrastructure
Support Human resource management

activities
Technology development
Margin
Procurement
Inbound Operations Outbound Marketing Service

logistics logistics and sales
Primary activities
Manager - As Manager of Human Capital
Leverage Performance
(The Psychological Contract)
Leadership Capability
(Personal Influence)
Manager of
Human Capital
Management Technical
Capability Capability
Implement Implement
Organisational Business
Strategy Strategy
Manage Administrative Manage Technical
Requirements Requirements
(Legitimate Authority) (Expert Power)
New Case Study
Inclarity
Small, entrepreneurial high-growth company

based in London, providing virtual and
extended office facilities for major
corporate clients (mainly telecoms services).
Turnover 2002: Approx £3.4m

Target Turnover – 2005: Approx £75m
IPO (stock market quotation) 2005/2006
This company has to demonstrate to the
stock market analysts why it is worth a
£75m valuation (or more!) when its tangible
assets are only about £1.5 m.
Inclarity’s challenge is to show that value

creation comes from its intellectual capital
– mainly its people.
A system of human capital management is,

therefore, being implemented to measure,
manage and report on its human capital.
Aitäh.

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Estonian Annual

Leadership Conference 2003

Middle Management - A Redundant Species

Vanemuise Concert Hall, Tartu, Estonia

A few years ago, a lady (Gillian) could be

All Gillian needed was an old beach

A major UK retailer, Woolworths,

This had to include a change of strategy

In both these cases the role of middle

Each organisation was hindered in

Classic responses to address these issues

These new strategies have to be

Cultural change has to be underpinned

So, if you are a retailer aiming to

Who sets the strategy, values and

Who implements it so that this reaches

Top management conceive the

Middle management often just pass on the

This often gives us a major problem with

New role for middle management:

“Managers of Value-Adding Activity”

 assessing the value of people in the

We then use this data to make decisions on:

 who to employ, how many people to employ

1. Individual Human Asset Value

2. Collective Human Asset Value

3. Satisfaction/Motivation Asset Value

People working together may produce

This is synergistic added-value.

We need to understand how people work

6.To determine if the culture and climate

On the assets side of the balance sheet:

On the liabilities side of the balance sheet:

It is similar to the financial statements for a

These figures are more meaningful if we:

Ratio Analysis – e.g. market capitalisation

Capital efficiency – e.g. use of human

Risk evaluation – e.g. impact of human

• Keeping track of human capital ‘stock’

• Comparing this with competitors

* Customer service * Suggestions per

Positive * Client manager * E-business

* Level of knowledge * Attrition rate for

Difficulty of replacement Motivate Retain

Making change decisions

Measuring the effect of change

Shifting the organisational culture

Support Human resource management

Inbound Operations Outbound Marketing Service

Small, entrepreneurial high-growth company

Turnover 2002: Approx £3.4m

Inclarity’s challenge is to show that value

A system of human capital management is,

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