May 30, 2012 (10:05 AM EDT)
Middle Managers Must Play Game Of Risk

Read the Original Article at InformationWeek

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In the first part of this series, we looked at the evolution of the managerial role, starting in the 1910s, and its apparent failure at the dawn of the Internet era. In the second part, we looked at how the idea of charismatic leadership rose in response to the apparent failure of managerial models to cope with new realities, but how that construct failed to actually fix things. It created instead a sort of leadership theater designed to manage Wall Street perceptions, rather than the company.

Failures in leadership were blamed on managerial incompetence. Middle managers, fighting fires out of sight, became convenient scapegoats.

Why? Because they were exposed to the downside of risks without being given the ability to manage those risks or participate significantly in the upside.

We wrapped up last time by noting that the leadership theater is no longer sustainable because of the deluge of information that must be processed to steer a company. Much of that information is starting to flow upward to the C-suite, since managers aren't empowered to handle it. The Management By Exception pipes are about to burst.

We're now ready to get to the new vision for managerial thinking: Management For Opportunity.

Risk And The Manager

Consider why managers ended up in firefighting roles by the late 1980s, fueling the rise of the false-Messiah leader.

In our three-layer model, in a chaotic environment the Management By Process layer gets destabilized, the Management by Objective layer turns into garbage, and all of the action moves to the Management by Exception layer, which was supposed to be an exception-handling layer.

Does this movement happen because managers are incompetent, risk averse, and bureaucratic? Charismatic leaders like to claim this is the case, but the real reason is much simpler: You can only fight uncertainty with uncertainty. To manage in uncertain markets and turn a profit with increasingly volatile cash flows, managers need risk-management capabilities.

Managerial roles started failing because they were exposed to increasing downside risks without being given upside opportunity management capabilities of equal power.

Leaders have monopolized risk taking for nearly three decades, and they have used that monopoly primarily to manage perception risks rather than real market risks. During this period, all capacity (read: liquid assets) for risk was absorbed by Big Bold Moves scripted by leaders during times of crisis.

There's now a chance to change this picture.

Why A Fourth Layer?

There's only one way to deal with the impending deluge of chaotic information converging on the C-suite: Devolve the traditional leadership function of opportunity selection downward through the managerial ranks.

The idea--of smaller bets, placed earlier, that mature as business models exactly when they are needed--is the idea of innovation. That rarely works in isolation, because too much is expected of small seedlings, too soon, during moments of crisis.

The only way to actually get to effective innovation is for the C-suite to give up its monopoly on serious risk taking. Instead of a billion-dollar move every five years, during a crisis we need a thousand smaller moves worth a million dollars each. That's enough to turn every middle manager in a large corporation into an angel investor.

We need a middle management equivalent of Google's famed 20% time. A way for companies to make the best use of seasoned corporate warriors with deep domain knowledge, a couple of business cycles worth of realism, and wisdom to offer younger employees.

Line managers must now be required, enabled, and trained to take on market risks (not just internal risks) on negotiated terms, just as they took on negotiated objectives in the Management By Objective era.

The culture that needs to emerge is a Management For Opportunity culture.