Do you believe in inclusive or extractive management?
Daron Acemoglu and James Robinson have written a thoughtful argument explaining why some nations prosper while others fail. Some institutions, they claim, are inclusive – with incentives towards success, encouragement of innovation and sharing opportunities with all that participate. Others are extractive – designed to squeeze the maximum out of customers, employees and partners for the benefit of a narrow elite.
What these authors say at national institutional level can make you think about your own management preferences. Do you make a deliberate effort to:
- Recognize effort and reward it
- Encourage initiative and innovation
- Share opportunities with the people you work with
A bedrock of motivation is that each person’s efforts are recognized as such by management, and if not necessarily rewarded with money right now, at least appreciated. A basic function of visual management is to show to all the effort each team contributes:
At some point, each person also needs to see their overall efforts rewarded monetarily as well. There is nothing more embarrassing than having to ask for a raise, and disheartening to have it refused by management (who always has a good reason).
Financial managers, on the other hand, can focus exclusively on their incentives. A firm, for instance, can lose market share, reduce costs faster than sales loss (sales loss being linked to thoughtless cost cutting), use the apparent bottom-line improvement to find funding to acquire new businesses and thus show overall an increase of total sales, and sustain its share price, and top management bonuses. Managers behaving like “roving bandits” are seen as shareholders’ heroes. Extractive behavior at the firms’s level (imagine working there) is rewarded by extractive behavior at the financial level.
The trouble is that extractive behavior is so easy to fall into if one does not make a deliberate effort to build robust inclusive behaviors in the way the company works:
- profit sharing with employees
- dividend distribution to small shareholders (as opposed to value capture for financial shareholders)
- step by step salary progression
- internal promotion
- patent sharing with innovative employees
Mutual trust is the foundation of sustainable growth and immediate productivity. Mutual trust is based on the fact that management gives back as well as takes.
Do you see what you take from the people you work with? Do you see what you give back? Is this encouraging, just a fair shake, or cause for disgruntlement?
