How to have your cake and eat it

Charles Handy has raised the bakery for his latest theory on management. Here, the celebrated management thinker explains how an irresistible piece of confectionery holds the key to creative management in the workplace.

Creativity is too good a thing to be rationed. Putting it in a box on the organisation chart, even if you call the box a skunkworks*, ignores all the latent creativity that is hiding in the everyday workplace. Instead of bottling it up, he urges organisations to treat insiders like outsiders and to follow the “doughnut” principle.

Organisations realised some time ago that they no longer needed to have all the people in the same place at the same time in order to get things dome. A simple and obvious fact, perhaps, but it contained the seeds of an organisational revolution.

It will now be in the interests of the provider as well as the purchaser to investigate improvements both in the design of the product or service and in the way the work is done, as long as the benefits are shared. Sadly, in spite of some good intentions, it does not often work that way for ordinary employees.

The reason is simple – although anyone can have ideas, doing something with them involves both time and trouble. Employees do not always realise that they have given away any rights to the fruits of their ideas when they accepted their employment contract. Few people are prepared to stick their necks out to test or develop a new idea unless there is something in it for them.

On the face of it, then, organisations should strive to arrange as much as possible of their work on an outplacement basis, with managers becoming, in effect, purchasing officers. Perhaps they already have. In Britain two-thirds of registered businesses have only one employee, the owner and 80 per cent have fewer than five employees. Most of them sell not to the general public but to other organisations. They are the new outsiders.

Add together these independent businesses and the self-employed, the part-timers who make up 25% of the workforce, plus the temporary workers, those in training and the unemployed, and the truth is that less than half of the British labour force is in a proper full-time job while at least one quarter of any organisation’s true workforce is outside.

Some now think that outsourcing has gone too far, that we are in danger of creating hollow organisations in which the only people left inside are a few contract managers and accountants. Such organisations, it is claimed, can lose their soul and their reason for existence as well as the continued commitment of the subcontractors, who, in the end, are only accountable to themselves.

There is a good deal of truth in this. But in pulling some operations back inside we don’t need to discard all the benefits of their independence. We could treat many insiders as outsiders, managing their outcomes rather than their processes. This is the doughnut principle of management.

In the doughnut management theory the solid core in the middle represents the essential requirement of the job, the things that have to be done no matter what. But the responsibilities don’t end there. The white space is the opportunity for initiative and creativity, for going beyond the manual, for adding extra value, for getting more out of less. There is however, a boundary, an official limit to discretion – the line beyond which one should not go.

In old-fashioned organisations there was little room for discretion in most jobs. The core filled most of the doughnut. In one job in an international oil company he had an imposing job title – Regional Co-ordinator Marketing, Mediterranean Region excluding France. The job description ran to three foolscap pages, long list of things he was required to do, mostly to do with passing information back and forth. At the bottom there was an item headed Authorities. It read ‘authority to initiate expenditure on own account up to a maximum of ten pounds’. That was the white space of his doughnut. It was not much of an invitation to creativity.

That, however, was how most organisations used to work in the past. Everything, as far as possible, was tightly prescribed and controlled.

Organisations were designed like railway timetables, with all activities neatly dovetailed together. Then, in an ideal world, you pressed a button and it all worked like clockwork. In such an organisation you did not want the train driver to us his imagination or to try out quicker route.

The doughnut principle substitutes effectiveness for efficiency. Efficiency seeks to minimise costs given a particular outcome; effectiveness is more concerned with improving the outcome and so will accept higher costs for higher outputs.

The doughnut idea requires managers to treat insiders as outsiders, to negotiate with groups, specifying minimum delivery requirements, the central core of the doughnut, and the general aims of the project, paying for any increase over the specified minimum outcome. They would be treated as far as possible as independent contractors, as outsiders, but would still be insiders, full members of the organisation with all that it meant for security of employment, career development and the sense of belonging to something bigger than themselves.

The group would, however, have every incentive to improve productivity and be creative and would have the space to experiment within their areas of discretion. Incentive and opportunity are the two necessary preconditions of creativity in organisations. Does it work, treating insiders like outsiders? Ricardo Semler finds that it does. His radical organisation, Semco, in Brazil, encourages every group to think for themselves as a small business. If they come up with a new business idea and the Board gives it the go-ahead, they are required to organise it and they get to keep a proportion, sometimes up to half, of the resulting profits.

As a result Semco has grown from a small factory producing marine pumps and industrial mixers into a federation of some sixteen companies including ten internet ventures, all financed from their own earnings. The workers are free to appoint their own leaders, to agree their own pay, within defined limits, and their own hours of work. Semler called his latest book ‘The Seven-Day Weekend’ to make the point that his workers are free to work as and where they like provided they deliver the goods. Semler says: “Once employees feel challenged, invigorated and productive, their efforts will naturally translate into profit and growth for the organisation.”

In the end, doughnuts are built on trust. The occupants of the doughnuts have to be left alone to get on with it. Trust is more easily given to those whom one knows well over time. It should, therefore, be easier to trust insiders rather than outsiders, yet, perversely; we give a freer rein to outside contractors than we do our own workforce. That has to be bizarre. Designing doughnuts should be the new organisational priority, finding ways to treat insiders as outsiders and outsiders as insiders and sharing the results. If the organisation charts look untidy, don’t worry.

Management thinker Charles Handy is a contributor to the space for ideas campaign run by the East of England Development Agency. His essay Turning Doughnuts Inside Out, along with other essays on creativity in business can be found

*Skunkworks – a fast moving group working at the edge of the organisation structure with aim of accelerating the innovation process. The term Skunkworks was popularised by Tom Peters and Bob Waterman in ‘A Passion for Excellence’ (1984)

Source: Professional Manager
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