Rational Rain

F. Grant Schutte’s Integrated Management Systems, published in 1981, presents a remarkably enduring framework for understanding how organisations should distribute management effort.

At the heart of the model is a distinction that remains highly relevant:

Effective management is concerned with doing the right things. Efficient management is concerned with doing things right.

An organisation requires both.

The difficulty is that managers frequently become absorbed in operational problems at the expense of the planning and control activities appropriate to their position. Senior managers become involved in matters that should have been delegated, operational information flows unnecessarily upwards through the organisation, and long-term planning is displaced by immediate problems.

Schutte describes the desired state as the Normative Management Structure and contrasts it with the frequently observed Empirical Management Structure.

The difference between the two provides a useful way of examining how organisations are actually managed.

Three Levels of Planning and Control

The management system can be divided into three broad activities:

1. Strategic Planning
2. Management Planning and Control
3. Operational Control

These activities are related, but their objectives, time horizons, information requirements and appropriate management levels are fundamentally different.

Strategic Planning

Strategic planning establishes where the organisation is going.

It is concerned with:

• defining the mission of the organisation;
• determining the businesses, products or markets in which it intends to participate;
• establishing organisational objectives and changes to those objectives;
• allocating resources; and
• establishing strategic guidelines and policies that provide direction to subsequent management planning.

Strategic planning therefore addresses questions such as:

What business are we in?

What should the organisation be trying to achieve?

Where should resources be committed?

What strategic principles should guide management decisions?

This activity belongs primarily to top management.

Its time horizon tends to be long, the problems are frequently unstructured, and the information available is often uncertain and forward-looking. Strategic decisions consequently require substantial analytical and creative judgement.

An effective organisation must also anticipate change rather than merely react to it. Strategic management should therefore develop competitive strategies before they are required, determine appropriate products and markets, consider sources of raw materials and resources, apply innovation to organisational processes, and develop the human capabilities required for future productivity.

This is what Schutte characterises as doing the right things.

Management Planning and Control

Management planning and control occupies the middle ground between strategy and day-to-day operations.

Its purpose is to ensure that resources are obtained and used effectively in achieving the organisation’s objectives.

This includes:

• developing plans for acquiring resources;
• developing programmes for using those resources;
• allocating resources between competing organisational requirements;
• monitoring performance against plans; and
• replanning when circumstances or performance require it.

The emphasis here is particularly important.

Management control should not simply consist of reporting historical performance.

Its purpose is to trigger replanning.

A useful management control system therefore identifies meaningful departures from plan and causes management to reconsider actions, resources or assumptions.

In this sense, management control is dynamic rather than passive.

It is principally the responsibility of line and middle management, although top management remains significantly involved.

Operational Control

Operational control concerns the efficient execution of individual tasks and transactions.

It requires:

• clearly specifying the task;
• establishing procedures for performing it;
• defining acceptable standards;
• measuring actual performance;
• identifying deviations from those standards; and
• initiating corrective action.

Operational control therefore asks:

Was the task performed correctly?

The focus is comparatively short term and highly structured. Information is normally accurate, detailed and historical. Procedures, rules and standards play a much greater role than they do in strategic decision-making.

Examples include production output, equipment performance, quality, cost, maintenance execution, process compliance and other measurable operating activities.

This is the domain of doing things right.

Effectiveness and Efficiency Are Different Management Problems

A well-managed organisation needs both effectiveness and efficiency.

Effectiveness arises predominantly from:

Strategic Planning → Management Planning and Control

Efficiency arises predominantly from:

Operational Control

This distinction matters.

An organisation can be extremely efficient while pursuing the wrong objectives. It may manufacture an unwanted product exceptionally well, reduce the cost of an obsolete process, or optimise operations within a fundamentally poor business strategy.

Conversely, an organisation can choose an excellent strategy but fail because its operational execution is poor.

Successful management therefore requires the integration of both.

The Normative Management Structure

Schutte’s normative model considers how management attention should ideally be distributed through an organisation.

Top Management

Top management should be heavily involved in:

• strategic planning; and
• management planning and control.

Top management should become directly involved in operational control only in exceptional circumstances.

Middle Management

Middle management should be heavily involved in:

• management planning and control; and
• operational control.

It should also contribute to strategic planning, although to a lesser degree than senior management.

Operational Management

Operational or supervisory management should concentrate primarily on:

• operational control.

It should participate to a smaller extent in management planning and control and generally should not be responsible for strategic planning.

Importantly, these proportions concern the management time devoted to planning and control activities, rather than the manager’s total working time.

The model therefore establishes a logical division of managerial attention.

The higher the managerial position, the greater the emphasis should become on effectiveness and the future.

The lower the position, the greater the emphasis should become on efficient execution of present operations.

What Happens in Practice?

Real organisations frequently depart significantly from this model.

Schutte describes this condition as the Empirical Management Structure.

Managers at progressively higher levels become drawn into operational control.

Instead of concentrating on planning, resource allocation and management control, senior managers become occupied with detailed operating problems.

The result is familiar in many organisations:

• excessive management attention is directed towards immediate problems;
• insufficient innovative or strategic planning occurs;
• senior people solve problems that should have been resolved lower in the organisation;
• operational information is reported to managers who do not need it;
• decision-making becomes unnecessarily centralised; and
• management becomes reactive rather than anticipatory.

The organisation may appear extremely busy while still being poorly managed.

Why Managers Become Trapped in Operational Control

Several causes contribute to the empirical structure.

A manager may be uncertain about the real purpose of their position.

Large quantities of operational information may flow upward, creating pressure to become involved simply because the information is available.

Formal management control and replanning systems may be inadequate, making it difficult to manage by exception.

A technical specialist promoted into general management may continue behaving primarily as a specialist.

Managers may also simply fail to delegate.

One particularly recognisable phenomenon occurs when a manager is promoted but effectively takes the previous job with them.

Instead of allowing the subordinate manager to assume responsibility, the promoted manager continues performing significant parts of the old role.

The hierarchy then becomes compressed: several management levels become involved in essentially the same operational decisions while higher-level management responsibilities receive insufficient attention.

Delegation Is More Than Assigning Work

The ability to establish the normative management structure depends heavily on proper delegation.

Delegation requires three things.

First, the subordinate must be told clearly what is expected. Objectives, standards and procedures must be sufficiently defined to guide action and permit subsequent evaluation.

Second, the subordinate must have the knowledge and capability to perform the responsibility. Training and development may therefore be necessary.

Third, the subordinate must receive the resources and authority required to perform effectively and efficiently.

Delegating responsibility without delegating sufficient authority is not genuine delegation.

Neither is assigning work without establishing the expected result.

Specificity and Accountability

Schutte identifies two particularly important principles underlying delegation.

The Principle of Specificity

It must be clear exactly what has been delegated.

Everyone should know:

Who is responsible for what?

Without clearly defined responsibilities, performance cannot be meaningfully controlled or evaluated.

Ambiguous responsibility also creates one of the classic organisational problems: several people appear responsible when things go well, while nobody is responsible when things go wrong.

The Principle of Accountability

Delegating an activity does not eliminate the delegating manager’s accountability.

A manager remains accountable for the responsibilities delegated to subordinates and must therefore exercise appropriate management control over them.

This does not mean continually taking the work back.

Instead, the manager participates at the appropriate level in analysing problems, evaluating opportunities and making decisions associated with the responsibilities that have been delegated.

This leads to an important distinction:

Delegation transfers responsibility for performing the work, but it does not eliminate managerial accountability for its management.

Key Performance Areas

The mechanism used to define managerial responsibility within the system is the Key Performance Area, or KPA.

A KPA is a managerial result that is particularly important to the performance of the organisation.

The concept applies Pareto’s principle to management: a relatively small number of results typically make a disproportionately large contribution to organisational performance.

Consequently, a manager’s most important responsibilities are not necessarily the activities that consume most of their time.

A managerial position would normally have only a small number of meaningful KPAs — typically three to five.

This forces attention onto what actually matters.

What Makes a Good KPA?

A properly constructed KPA has several important characteristics.

It should be:

• unique to the particular position within that organisational branch;
• expressed as an end result, rather than an activity;
• measurable, preferably objectively;
• aligned with the KPAs of other positions;
• relevant to organisational performance; and
• consistent with management’s strategy for operating the organisation.

A KPA should therefore not simply say:

“Prepare production reports.”

That describes an activity.

A result-based KPA might instead concern:

Production performance against agreed quantity, quality and cost targets.

The distinction changes the management focus from performing activities to achieving results.

The Common KPA of Every Manager

Although individual positions have unique KPAs, managers also share an important common responsibility:

Managing the KPAs of their subordinates.

This follows directly from the principle of accountability.

A manager who delegates work must establish an appropriate mechanism for determining whether the delegated results are being achieved.

However, this does not require every manager in the hierarchy to receive the same detailed information.

Quite the opposite.

Management Information Should Become More Summarised as It Moves Upward

One of the useful consequences of a KPA-based management system is that information can be designed around management need.

Operational management may need detailed daily information.

Higher levels may require only summaries or information about significant exceptions.

For example, production management at operating level might require detailed daily information concerning:

• quantity;
• quality; and
• cost.

A superintendent may require similar information but increasingly in summarised form.

Senior management may need only periodic summaries indicating whether the KPA is under control and whether intervention or replanning is required.

The objective is therefore not to maximise information.

It is to provide the right information, at the right level, at the right frequency, for the appropriate management decision.

Eliminating redundant control information is consequently an important element in moving from empirical to normative management.

Developing KPAs Through Participation

Schutte proposes a participatory process for identifying KPAs.

The first step is to identify the managerial structure and select an analysis group.

This would normally include:

• the manager whose position is being analysed;
• managers above that position through the relevant chain of command; and
• peers with whom the manager interacts.

The analysis then examines the activities currently performed by the manager.

Existing job descriptions and practical experience can be used to develop an agreed list.

The critical next step is to translate those activities into outputs or end results.

Pareto analysis can then be applied to identify which outputs genuinely represent Key Performance Areas.

Useful questions include:

Does this result materially contribute to organisational performance?

and:

If the manager performed poorly in this area, could that person still reasonably be regarded as performing the managerial role successfully?

For every KPA, the organisation should then determine:

• the performance yardstick;
• the information required to measure it;
• how each management level intends to exercise control; and
• how frequently information should be reported.

The result is not merely an improved job description.

It is the foundation of a management control system.

From Empirical Management to Normative Management

The ultimate objective is to move the organisation away from unnecessary senior-management involvement in operational control.

The transition requires:

Clear organisational responsibilities

↓

Well-defined KPAs

↓

Effective delegation

↓

Appropriate performance measures

↓

Purpose-designed management information

↓

Management by exception

↓

Dynamic replanning

↓

Greater managerial attention to effectiveness

When management information is structured around KPAs, managers no longer need to continuously inspect large volumes of operational detail.

Performance outside agreed limits becomes the trigger for management attention.

Management control therefore becomes a mechanism for deciding when replanning or intervention is necessary, rather than a mechanism for encouraging continual interference in subordinate activities.

A Management Principle That Remains Relevant

Although Integrated Management Systems was published in 1981, the underlying management problem has hardly disappeared.

Modern organisations possess vastly more operational information than the organisations of that period.

Dashboards, ERP systems, live production data, maintenance systems, financial reporting platforms and automated notifications can place extraordinary quantities of information in front of managers.

That capability does not necessarily improve management.

Without clearly defined responsibilities and KPAs, better information systems can simply make it easier for senior managers to become involved in matters that should be controlled elsewhere.

The critical question is therefore not:

“What information can we give this manager?”

It is:

“What decisions is this manager accountable for making, and what information is necessary to make those decisions?”

That distinction lies at the heart of an integrated management system.

An effective management structure allows operational managers to control operations, middle managers to manage resources and performance, and senior managers to concentrate on direction, strategy and the future.

The objective is not to remove control.

It is to place control at the correct level.

And perhaps the most useful test of any management structure is therefore a simple one:

Are our managers spending their time managing the responsibilities appropriate to their position — or are they still doing the work of the people below them?