Fair Process Managing in the Knowledge Economy Harvard Business Review
When employees don't trust managers to make good decisions or to bear with integrity, their motivation is seriously compromised. Their distrust and its attendant lack of appointment is a huge, unrecognized problem in most organizations. This consequence has e'er mattered, but it matters at present more than always, because knowledge-based organizations are totally dependent on the commitment and ideas of their employees.
Unfortunately, neither integrity nor proficient judgment tin can exist magically conferred on all the managers in an organization. But information technology is possible for peak executives to create processes that aid keep managers honest—and that also assistance build employees' trust. In this article, W. Chan Kim and Renée Mauborgne describe one such process, which grew out of their research into the links between trust, idea sharing, and corporate functioning. Their key finding is that employees will commit to a manager'south decision—fifty-fifty 1 they disagree with—if they believe that the process the managing director used to brand the determination was fair. Sounds simple, merely most organizations don't exercise fair procedure. And because they don't, they never know what they've lost in the way of ideas and initiatives.
A London policeman gave a woman a ticket for making an illegal turn. When the woman protested that there was no sign prohibiting the turn, the policeman pointed to ane that was bent out of shape and difficult to see from the road. Furious, the adult female decided to entreatment by going to court. Finally, the 24-hour interval of her hearing arrived, and she could inappreciably wait to speak her piece. Simply she had just begun to tell her side of the story when the magistrate stopped her and summarily ruled in her favor.
How did the woman feel? Vindicated? Victorious? Satisfied?
No, she was frustrated and deeply unhappy. "I came for justice," she complained, "but the magistrate never permit me explain what happened." In other words, although she liked the outcome, she didn't like the process that had created it.
For the purposes of their theories, economists presume that people are maximizers of utility, driven mainly by rational calculations of their own cocky-interest. That is, economists assume people focus solely on outcomes. That supposition has migrated into much of management theory and practice. It has, for instance, get embedded in the tools managers traditionally apply to control and motivate employees' behavior—from incentive systems to organizational structures. Just it is an supposition that managers would exercise well to reexamine because we all know that in real life it doesn't always concord true. People exercise care most outcomes, only—similar the adult female in London—they also intendance most the processes that produce those outcomes. They want to know that they had their say—that their indicate of view was considered even if it was rejected. Outcomes matter, simply no more than than the fairness of the processes that produce them.
Never has the thought of fair process been more important for managers than information technology is today. Fair process turns out to exist a powerful management tool for companies struggling to make the transition from a product-based to a cognition-based economy, in which value creation depends increasingly on ideas and innovation. Fair process profoundly influences attitudes and behaviors critical to high functioning. It builds trust and unlocks ideas. With it, managers can accomplish fifty-fifty the most painful and difficult goals while gaining the voluntary cooperation of the employees afflicted. Without fair process, even outcomes that employees might favor can be difficult to achieve—every bit the feel of an elevator manufacturer nosotros'll phone call Elco illustrates.
Skilful Outcome, Unfair Process
In the late 1980s, sales in the elevator industry headed south as overconstruction of office space left some large U.Due south. cities with vacancy rates as high as twenty%. Faced with diminished domestic need for its production, Elco knew it had to improve its operations. The company fabricated the conclusion to replace its batch-manufacturing system with a cellular approach that would allow self-directed teams to attain superior functioning. Given the manufacture's plummet, top management felt the transformation had to be fabricated in record time.
Lacking expertise in cellular manufacturing, Elco retained a consulting firm to design a chief program for the conversion. Elco asked the consultants to work rapidly and with minimal disturbance to employees. The new manufacturing system would be installed first at Elco'due south Chester plant, where employee relations were and then good that in 1983 workers had decertified their ain union. Subsequently, Elco would whorl the process out to its High Park plant, where a potent matrimony would probably resist that, or any other, modify.
Under the leadership of a much beloved found managing director, Chester was in all respects a model operation. Visiting customers were always impressed past the knowledge and enthusiasm of Chester's employees, then much and then that the vice president of marketing saw the plant as one of Elco's all-time marketing tools. "Only let customers talk with Chester employees," he observed, "and they walk abroad convinced that buying an Elco elevator is the smart pick."
But i twenty-four hours in January of 1991, Chester's employees arrived at piece of work to observe strangers at the plant. Who were these people wearing nighttime suits, white dress shirts, and ties? They weren't customers. They showed upwards daily and spoke in low tones to one another. They didn't collaborate with employees. They hovered backside people's backs, taking notes and cartoon fancy diagrams. The rumor circulated that after employees went habitation in the afternoon, these people would swarm across the plant floor, snoop around people's workstations, and have heated discussions.
During this period, the plant manager was increasingly absent. He was spending more than time at Elco's caput office in meetings with the consultants—sessions deliberately scheduled away from the plant then every bit not to distract the employees. Merely the plant managing director's absence produced the contrary effect. Equally people grew anxious, wondering why the helm of their transport seemed to be deserting them, the rumor mill moved into loftier gear. Everyone became convinced that the consultants would downsize the plant. They were certain they were almost to lose their jobs. The fact that the establish manager was e'er gone—apparently, he was avoiding them—and that no explanation was given, could just hateful that management was, they idea, "trying to pull one over on us." Trust and delivery at the Chester plant chop-chop deteriorated. Soon, people were bringing in newspaper clippings near other plants around the state that had been shut downward with the help of consultants. Employees saw themselves equally imminent victims of however another management fad and resented information technology.
In fact, Elco managers had no intention of closing the plant. They wanted to cut out waste, freeing people to enhance quality and produce elevators for new international markets. But plant employees could not have known that.
The Master Plan.
In March 1991, management gathered the Chester employees in a large room. Three months after the consultants had first appeared, they were formally introduced. At the aforementioned time, management unveiled to employees the principal plan for change at the Chester institute. In a meeting that lasted only xxx minutes, employees heard how their fourth dimension-honored way of working would be abolished and replaced by something called "cellular manufacturing." No one explained why the modify was needed, nor did anyone say exactly what would be expected of employees nether the new approach. The managers didn't mean to brim the problems; they but didn't feel they had the time to go into details.
The employees sat in stunned silence, which the managers mistook for credence, forgetting how many months it had taken them every bit leaders to get comfortable with the thought of cellular manufacturing and the changes it entailed. The managers felt good when the meeting was over, believing the employees were on board. With such a terrific staff, they thought, implementation of the new arrangement was bound to get well.
Master program in mitt, management speedily began rearranging the establish. When employees asked what the new layout aimed to achieve, the response was "efficiency gains." The managers didn't have time to explain why efficiency needed to exist improved and didn't desire to worry employees. But defective an intellectual understanding of what was happening to them, some employees literally began feeling sick when they came to work.
Managers informed employees that they would no longer be judged on individual performance only rather on the functioning of the prison cell. They said quicker or more experienced employees would have to option upwardly the slack for slower or less experienced colleagues. But they didn't elaborate. How the new system was supposed to work, management didn't make clear.
In fact, the new prison cell design offered tremendous benefits to employees, making vacations easier to schedule, for case, and giving them the opportunity to broaden their skills and engage in a greater multifariousness of piece of work. But lacking trust in the change procedure, employees could see only its negative side. They began taking out their fears and anger on one another. Fights erupted on the plant flooring as employees refused to help those they chosen "lazy people who tin can't finish their ain jobs" or interpreted offers of aid as meddling, responding with, "This is my job. You go on to your own workstation."
Chester'due south model workforce was falling autonomously. For the showtime time in the plant manager'south career, employees refused to do as they were asked, turning downward assignments "even if yous fire me." They felt they could no longer trust the once popular plant director, then they began to become around him, taking their complaints directly to his boss at the head office.
The plant director so appear that the new cell design would allow employees to human action as self-directed teams and that the role of the supervisor would be abolished. He expected people to react with excitement to his vision of Chester equally the image of the manufactory of the hereafter, where employees are empowered equally entrepreneurial agents. Instead, they were only confused. They had no thought how to succeed in this new environment. Without supervisors, what would they do if stock ran short or machines bankrupt down? Did empowerment mean that the teams could self-qualify overtime, address quality issues such as rework, or buy new motorcar tools? Unclear nearly how to succeed, employees felt gear up to neglect.
Time Out.
By the summer of 1991, both cost and quality performance were in a free fall. Employees were talking near bringing the union back. Finally, in despair, the institute manager phoned Elco'due south industrial psychologist. "I need your help," he said. "I take lost control."
The psychologist conducted an employee opinion survey to learn what had gone wrong. Employees complained, "Direction doesn't care near our ideas or our input." They felt that the company had scant respect for them every bit individuals, treating them as if they were not worthy of knowing about concern weather condition: "They don't bother to tell us where nosotros are going and what this means to united states." And they were deeply confused and mistrustful: "We don't know exactly what management expects of usa in this new cell."
What Is Fair Process?
The theme of justice has preoccupied writers and philosophers throughout the ages, but the systematic study of fair procedure emerged only in the mid-1970s, when two social scientists, John West. Thibaut and Laurens Walker, combined their interest in the psychology of justice with the study of process. Focusing their attending on legal settings, they sought to sympathize what makes people trust a legal organization then that they will comply with laws without being coerced into doing so. Their research established that people intendance every bit much nigh the fairness of the process through which an issue is produced as they exercise nearly the outcome itself. Subsequent researchers such as Tom R. Tyler and Due east. Allan Lind demonstrated the power of off-white procedure across diverse cultures and social settings.
We discovered the managerial relevance of fair process more than a decade ago, during a study of strategic determination making in multinational corporations. Many height executives in those corporations were frustrated—and baffled—by the manner the senior managers of their local subsidiaries behaved. Why did those managers so oftentimes fail to share data and ideas with the executives? Why did they demolition the execution of plans they had agreed to carry out? In the 19 companies we studied, we found a directly link betwixt processes, attitudes, and beliefs. Managers who believed the company'south processes were fair displayed a loftier level of trust and commitment, which, in turn, engendered active cooperation. Conversely, when managers felt fair process was absent-minded, they hoarded ideas and dragged their feet.
In subsequent field enquiry, we explored the relevance of fair process in other business contexts—for example, in companies in the midst of transformations, in teams engaged in production innovation, and in visitor-supplier partnerships. (See the sidebar "Making Sense of Irrational Behavior at VW and Siemens-Nixdorf.") For companies seeking to harness the energy and creativity of committed managers and employees, the central thought that emerges from our off-white-process research is this: Individuals are most likely to trust and cooperate freely with systems—whether they themselves win or lose past those systems—when fair process is observed.
Fair process responds to a basic human need. All of us, any our role in a visitor, want to be valued every bit human beings and non as "personnel" or "human assets." Nosotros desire others to respect our intelligence. We want our ideas to be taken seriously. And we want to understand the rationale behind specific decisions. People are sensitive to the signals conveyed through a visitor's controlling processes. Such processes can reveal a company's willingness to trust people and seek their ideas—or they can signal the opposite.
The Three Principles.
In all the various direction contexts nosotros have studied, we have asked people to place the boulder elements of fair process. And whether nosotros were working with senior executives or shop flooring employees, the aforementioned three mutually reinforcing principles consistently emerged: date, explanation, and expectation clarity.
Engagement means involving individuals in the decisions that bear upon them by request for their input and assuasive them to refute the merits of 1 another's ideas and assumptions. Date communicates management'due south respect for individuals and their ideas. Encouraging refutation sharpens everyone'due south thinking and builds collective wisdom. Engagement results in better decisions by management and greater commitment from all involved in executing those decisions.
Explanation means that anybody involved and affected should understand why last decisions are made as they are. An explanation of the thinking that underlies decisions makes people confident that managers accept considered their opinions and take fabricated those decisions impartially in the overall interests of the company. An explanation allows employees to trust managers' intentions even if their own ideas accept been rejected. Information technology also serves as a powerful feedback loop that enhances learning.
Expectation clarity requires that once a decision is made, managers land clearly the new rules of the game. Although the expectations may be demanding, employees should know up front by what standards they will be judged and the penalties for failure. What are the new targets and milestones? Who is responsible for what? To achieve off-white procedure, it matters less what the new rules and policies are and more that they are clearly understood. When people conspicuously empathize what is expected of them, political jockeying and favoritism are minimized, and they can focus on the job at paw.
Detect that fair process is not conclusion by consensus. Fair procedure does non prepare out to achieve harmony or to win people'southward support through compromises that accommodate every private'south opinions, needs, or interests. While fair process gives every idea a chance, the merit of the ideas—and not consensus—is what drives the conclusion making.
Nor is fair procedure the aforementioned as democracy in the workplace. Achieving off-white process does non mean that managers forfeit their prerogative to make decisions and establish policies and procedures. Fair process pursues the all-time ideas whether they are put forth by one or many.
"We Really Screwed Upward."
Elco managers violated all 3 basic principles of fair process at the Chester establish. They failed to appoint employees in decisions that directly affected them. They didn't explicate why decisions were being made the way they were and what those decisions meant to employees' careers and work methods. And they neglected to make clear what would be expected of employees under cellular manufacturing. In the absence of fair process, the employees at Chester rejected the transformation.
A calendar week after the psychologist's survey was completed, management invited employees to meetings in groups of 20. Employees surmised that management was either going to pretend that the survey had never happened or accuse employees of disloyalty for having voiced their complaints. Just to their amazement, managers kicked off the coming together past presenting the undiluted survey results and declaring, " We were incorrect. We actually screwed up. In our haste and ignorance, nosotros did non get through the proper process." Employees couldn't believe their ears. In that location were whispers in the back of the room, "What the devil did they say?" At more than 20 meetings over the adjacent few weeks, managers repeated their confession. "No one was prepared to believe u.s.a. at first," one director said. "Nosotros had screwed upwardly too badly."
At subsequent meetings, management shared with employees the company'south dismal business forecast and the limited options available. Without cost reduction, Elco would have to raise its prices, and higher prices would further depress sales. That would mean cutting production even more than, mayhap fifty-fifty moving manufacturing offshore. Heads nodded. Employees saw the bind the visitor was in. The business organization problem was becoming theirs, non just management's.
Just still at that place were concerns: "If we aid to cut costs and learn to produce elevators that are twice as expert in half the time, will we piece of work ourselves out of a job?" In response, the managers described their strategy to increase sales outside the United States. They also announced a new policy called proaction fourth dimension: No i would exist laid off because of any improvements made by an employee. Instead, employees could use their newly costless time to attend cross-training programs designed to requite them the skills they would need to work in any area of operations. Or employees could act as consultants addressing quality problems. In addition, management agreed not to replace any departing employees with new hires until business weather condition improved. At the same time, however, management made it clear that it retained the right to let people get if business conditions grew worse.
Employees may not have liked what they heard, but they understood information technology. They began to see that they shared responsibility with management for Elco'south success. If they could better quality and productivity, Elco could bring more value to the market place and forestall farther sales erosion. To give employees confidence that they were not being misled, management pledged to regularly share information on sales, costs, and market place trends—a outset step toward rebuilding trust and delivery.
Elco's managers could not undo past mistakes, but they could involve employees in making future decisions. Managers asked employees why they thought the new manufacturing cells weren't working and how to fix them. Employees suggested making changes in the location of materials, in the placement of machines, and in the fashion tasks were performed. They began to share their cognition; every bit they did so, the cells were redesigned and performance steadily improved, frequently far exceeding the expectations originally prepare past the consultants. Every bit trust and commitment were restored, talk of bringing the union back died out.
High Park's Plough.
Meanwhile, management worried about introducing the new work methods at Elco's Loftier Park plant, which, unlike the Chester plant, had a history of resisting change. The matrimony was stiff at High Park, and some employees there had as much as 25 years' service. Moreover, the institute managing director, a immature engineer new to High Park, had never run a institute earlier. The odds seemed to be against him. If change had created animosity at Chester, one could only imagine how much worse the situation could become at Loftier Park.
But direction's fears went unrealized. When the consultants came to the establish, the young manager introduced them to all employees. At a series of plantwide meetings, corporate executives openly discussed business conditions and the company'south declining sales and profits. They explained that they had visited other companies' plants and had seen the productivity improvements that cellular manufacturing could bring. They announced the proaction-fourth dimension policy to calm employees' justifiable fears of layoffs. At the High Park institute, managers encouraged employees to help the consultants design the new manufacturing cells, and they encouraged agile debate. Then, equally the old performance measures were discarded, managers worked with employees to develop new ones and to plant the cell teams' new responsibilities.
Every day, the Loftier Park plant director waited for the predictable cook-down, but it never came. Of form, there were some gripes, but even when people didn't like the decisions, they felt they had been treated fairly and, then, willingly participated in the plant'due south eventual functioning turnaround.
Three years later, nosotros revisited a popular local eating place to talk with people from both plants. Employees from both Chester and High Park at present believe that the cellular approach is a better way to work. Loftier Park employees spoke about their plant director with admiration, and they commiserated with the difficulties Elco'south managers had in making the changeover to cellular manufacturing. They ended that information technology had been a necessary, worthwhile, and positive experience. Just Chester employees spoke with acrimony and indignation as they described their treatment by Elco'southward managers. (Come across the sidebar "The Cost of Unfairness.") For them, equally for the London adult female who had been unfairly ticketed, fair process was as important as—if not more important than—the outcome.
Fair Process in the Knowledge Economic system
Fair process may sound similar a soft upshot, but agreement its value is crucial for managers trying to adapt their companies to the demands of the knowledge-based economy. Dissimilar the traditional factors of production—land, labor, and capital—knowledge is a resource locked in the human mind. Creating and sharing knowledge are intangible activities that can neither be supervised nor forced out of people. They happen only when people cooperate voluntarily. As the Nobel laureate economist Friedrich Hayek has argued, "Practically every individual . . . possesses unique information" that can be put to use only with "his active cooperation." Getting that cooperation may well plow out to be i of the primal managerial problems of the next few decades. (Encounter the sidebar "Off-white Process Is Critical in Knowledge Piece of work.")
Voluntary cooperation was not what Frederick Winslow Taylor had in mind when at the turn of the century he began to develop an arsenal of tools to promote efficiency and consistency by controlling individuals' behavior and compelling employees to comply with management dictates. Traditional management science, which is rooted in Taylor's fourth dimension-and-motion studies, encouraged a managerial preoccupation with allocating resources, creating economic incentives and rewards, monitoring and measuring functioning, and manipulating organizational structures to set lines of authority. These conventional management levers nevertheless have their office to play, but they have little to practise with encouraging active cooperation. Instead, they operate in the realm of outcome fairness or what social scientists call distributive justice, where the psychology works like this: When people get the compensation (or the resources, or the place in the organizational hierarchy) they deserve, they feel satisfied with that result. They will reciprocate by fulfilling to the letter their obligation to the company. The psychology of fair procedure, or procedural justice, is quite different. Fair process builds trust and commitment, trust and commitment produce voluntary cooperation, and voluntary cooperation drives performance, leading people to get across the call of duty by sharing their knowledge and applying their creativity. In all the direction contexts we've studied, any the task, we have consistently observed this dynamic at piece of work. (See the exhibit "2 Complementary Paths to Performance.")
Two Complementary Paths to Performance
Consider the transformation of Bethlehem Steel Corporation'southward Sparrows Betoken, Maryland, division, a business unit responsible for marketing, sales, production, and financial operation. Until 1993, the 106-year-old division was managed in the classic control-and-command style. People were expected to do what they were told to do—no more and no less—and management and employees saw themselves as adversaries.
That yr, Bethlehem Steel introduced a management model so different at Sparrows Point that Taylor—who was, in fact, the company's consulting engineer about 100 years agone—wouldn't have recognized it. The new model was designed to invoke in employees an active sense of responsibility for sharing their knowledge and ideas with one some other and with management. It was too meant to encourage them to accept the initiative for getting things washed. In the words of Joe Rosel, the president of one of the division's five unions, "It's all about interest, justification for decisions, and a articulate gear up of expectations."
At Sparrows Bespeak, employees are involved in making and executing decisions at three levels. At the elevation is a articulation-leadership team, composed of senior managers and five employee representatives, that deals with companywide issues when they arise. At the section level are area teams, consisting of managers similar superintendents and of employees from the dissimilar areas of the plant, such every bit zone commission people. Those teams deal with day-to-day operational issues such as customer service, quality, and logistics. Advert hoc trouble-solving teams of employees address opportunities and obstacles as they arise on the shop floor. At each level, team-mates share and debate their ideas. Thus, employees are assured a off-white hearing for their points of view on decisions likely to affect them. With the exception of decisions involving major changes or resource commitments, the teams brand and execute the decisions themselves.
Sparrows Point uses numerous processes and devices to ensure that all employees can sympathize why decisions have been made and how such decisions need to be executed. There is, for example, a bulletin board where decisions are posted and explained, allowing employees who oasis't been straight involved in those decisions to sympathise what'south going on and why. In addition, in more than than 70 four-hour seminars, groups ranging in size from 50 to 250 employees have met to discuss changes occurring at the division, learn about new ideas under consideration, and find out how changes might affect employees' roles and responsibilities. A quarterly newsletter and a monthly "written report card" of the division'due south strategic, marketing, operational, and financial performance keeps each of the unit's 5,300 employees informed. And the teams study back to their colleagues about the changes they are making, seeking assist in making the ideas piece of work.
Fair process has produced significant changes in people's attitudes and behavior. Consider, for example, the tin mill unit at Sparrows Point. In 1992, the unit's performance was among the worst in the industry. Simply then, as one employee explains, "People started coming forrad and sharing their ideas. They started caring about doing dandy piece of work, non just getting by. Take the success we've had in calorie-free-gauge cablevision sheathing. We had permit this high value-added product slip because the long throughput time required for production held up the other mills in the unit. Only after we started getting everyone involved and explained why we needed to ameliorate throughput, ideas started to flow. At start, the company was hundred-to-one: If the product had created a bottleneck before, why should it be different now? But people came upward with the thought of using ii sequential mills instead of one to eliminate the bottleneck. Did people suddenly get smarter? No. I'd say they started to care."
The object in creating this new fashion of working at Sparrows Point was to improve the intellectual buy-in and emotional commitment of employees. Information technology has apparently been successful. Since 1993, Sparrows Point has turned a profit 3 years in a row, the start time that has happened since the belatedly 1970s. The division is condign a showcase demonstrating how a failing industry can be revitalized in today's knowledge economic system. In the words of one Sparrows Point employee, "Since we know at present everything that's going on in the visitor, we take more trust in management and are more committed to making things happen. People take started doing things beyond the normal call of duty."
Overcoming Mental Barriers
If fair process is such a simple thought and notwithstanding and so powerful, why do so few companies exercise it? Virtually people think of themselves equally fair, and managers are no exception. Only if you inquire them what it means to be a fair manager, most volition describe how they give people the authorization they deserve, or the resources they demand, or the rewards they take earned. In other words, they will confuse off-white process with fair outcomes. The few managers who focus on process might identify only one of the three off-white-process principles (the most widely understood is date), and they would finish there.
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Just there are two more than fundamental reason, beyond this unproblematic lack of agreement, that explain why off-white process is so rare. The first involves power. Some managers go on to believe that knowledge is power and that they retain ability only by keeping what they know to themselves. Their implicit strategy is to preserve their managerial discretion by deliberately leaving the rules for success and failure vague. Other managers maintain control by keeping employees at arm'south length, substituting memos and forms for directly, two-way communication, thus avoiding challenges to their ideas or authority. Such styles can reflect deeply ingrained patterns of behavior, and rarely are managers conscious of how they exercise ability. For them, off-white process would stand for a threat.
The second reason is also largely unconscious because it resides in an economic supposition that most of us accept grown up taking at confront value: the belief that people are concerned only with what'due south best for themselves. But, equally nosotros have seen, there is ample evidence to show that when the process is perceived to be fair, almost people will accept outcomes that are not wholly in their favor. People realize that compromises and sacrifices are necessary on the job. They accept the demand for short-term personal sacrifices in order to accelerate the long-term interests of the corporation. Acceptance is conditional, however, hinged equally it is on fair process.
Fair process reaches into a dimension of human being psychology that hasn't been fully explored in conventional management do. Yet every company can tap into the voluntary cooperation of its people past building trust through fair processes.
A version of this article appeared in the January 2003 issue of Harvard Business Review.
Source: https://hbr.org/2003/01/fair-process-managing-in-the-knowledge-economy
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