Category Archives: Governance

The governance of project management and organisations

Effective Stakeholder Engagement is Multifaceted

An organisation’s success, reputation and long term sustainability depends on its stakeholders and how they perceive the organisation.  The way the organisation interacts (or is perceived to interact) with its stakeholders builds its reputation and its customer base.  But customers belong to communities and it’s the broader community that grants the ‘social licence’ needed for the organisation to operate long-term. And, because no one and nothing is ever perfect, things will go wrong from time to time requiring action to protect the organisation’s reputation and its social licence.

The objective of this post is to:

  • Put all (or most) of the different mechanisms used by organisations to engage with stakeholders into perspective; and
  • Emphasise the message that authentic and effective stakeholder/community engagement needs an organisation-wide coordinated approach that is governed from the very top levels of management.

The Stakeholder Engagement Spectrum

The Organisational Core

The characteristics of the organisation are always at the centre of every stakeholder relationship[1]. The way your organisation is structured, its ethics, characteristics, systems, and services, underpin how its stakeholder community will ultimately perceive the business. The key to successful stakeholder engagement is in part the way the organisation is structured and operated, and in part being authentic and realistic in the way various aspects of stakeholder communication and engagement are used. If your business is a low-cost, low service, bulk supplier don’t pretend to be an upmarket high service organisation. Many people are more than happy to shop at retail outlets such as Walmart and Aldi, attracted by price and simplicity; others prefer the higher levels of service and higher prices from more upmarket department stores. The art of stakeholder engagement is to maximise the appeal and perceptions of the organisation as it is – not to mask reality with a pretence of being something else.

However, poorly governed unethical organisations will always ultimately fail regardless of their stakeholder engagement effort; you can’t build an effective long-term relationship on unsound foundations.

Similarly, any organisation can implement these eight practices and still ignore their stakeholder community – engagement is a two-way communication process that includes listening to and understanding stakeholder’s wants, needs, issues and concerns (particularly related to the perceived or actual impact of organisational activities) allow the development of effective stakeholder relationships. Effective engagement is only possible if the organisation’s overall culture and ethical-frame is a stakeholder-centric one. This is one of the reason’s why creating the ethics and culture feature prominently in my ‘Six functions of governance‘ model.

 

The 8 Aspects of the Stakeholder Engagement Spectrum

The eight aspects of stakeholder engagement highlighted above are all well defined in various publications; the way they are used in this post is briefly set out below:

PR: Public Relations – The actions taken by an organisation to develop and maintain a favourable public image. PR is a strategic communication process that builds mutually beneficial relationships between the organisation and its stakeholders. The core element of PR is push communication; it is a proactive process controlled by the organisation, broadcasting information to a wide community to influence attitudes.

Advertising – The activity production and placing of advertisements for products or services. The purpose of each advertisement is to announce or praise a product (goods, service, concept, etc.) in some public medium of communication in order to induce people to buy, use it, or take some other action desired by the advertiser. The difference between PR and Advertising is that PR largely focuses on creating or influencing attitudes and perceptions whereas advertising focuses on some form of ‘call to action’.

CRM: Customer Relationship Management – Refers to the practices, strategies and technologies that organisations use to manage and analyse customer interactions and customer data throughout the customer lifecycle. The goal of CSR is to improve the organisation’s relationship with each customer, assisting in customer retention, and driving sales growth. Good CRM systems make it easy for people to do business with you.

Issues Management[2] – The process of identifying and resolving issues. Effective issues management needs a pre-planned process for dealing with unexpected occurrences that will negatively impact the organisation if they are not resolved. The scope of this concept ranges from ‘crisis management’ where the magnitude of the issue could destroy the organisation (and the most senior management take an active role) through to empowering staff to deal with relatively minor customer complaints. The key to effective issue management is resolving the issue to the satisfaction of the affected stakeholders. This requires effective systems and preplanning – you don’t know what the next issue will be, but you can be sure there will be one.

Stakeholder Management Initiatives[3] – this is the area where most of my work is focused; managing the expectations of, and relationships with, the stakeholder community surrounding an organisational activity, initiative, or project. Most business initiatives and projects have a high potential to affect a range of stakeholders both positively and negatively (and frequently both at different times). How these relationships are managed affects not only the ability of the organisation to deliver its initiative or project successfully but also the overall perception of the organisation in the minds of the wider stakeholder community.

Business Intelligence & Environment Scanning – BI and other forms of environmental scanning looking at attitudes, trends, behaviours, and other factors in the wider stakeholder community. They are a key emerging element in the overall approach to stakeholder engagement used by proactive organisations. This is very much the space of ‘big data’ and data mining. Much of the collection of data can be automated and ‘hidden’ from view. The challenge is making sure the information collected is legal (privacy legislation is an important consideration), accurate, relevant, and complete; then asking the ‘right questions’ using various data mining tools. As with any intelligence gathering process, obtaining the data is the easy part of the equation; the real skill lies in developing, validating and interpreting the data to create information that can be used to produce valuable insights.

Social Networks – The ubiquitous, widespread, and diverse nature of social networks ranging from Facebook to personal interaction down the pub can easily outweigh all of the organisation’s efforts to create a positive image using PR, advertising and the other ‘controlled’ functions discussed above.  The organisation’s staff and its immediate stakeholders literally have millions of connections and interconnections to other stakeholders. Most of these connections are unseen, and the environment cannot be controlled. The best any organisation can hope to achieve in this relatively new communication environment is to plant seeds and seek to have some influence. Seeding ideas and concepts into the ‘Twittersphere’ may result in a concept being taken up and ‘going viral’, more commonly the seed simply fails to germinate. Conversely identifying negative trends and issues early, particularly if they are false, is critically important and where possible these negative influences should be countered but given the nature of the environment this is a very difficult feat to achieve.  Smart organisations recognise that their staff, customers, contractors, and suppliers all engage in this space and through other effective communication channels can influence how these people respond to opportunities and issues affecting the organisation.

CSR: Corporate Social Responsibility[4] – CSR completes the circle and brings it back towards the concept of PR.  CSR contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders. ISO 26000  Guidance Standard on Social Responsibility, defines social responsibility (ie, CSR) as follows:

Social responsibility is the responsibility of an organisation for the impacts of its decisions and activities on society and the environment, through transparent and ethical behaviour that:
–  Contributes to sustainable development, including the health and the welfare of society
–  Takes into account the expectations of stakeholders
–  Is in compliance with applicable law and consistent with international norms of behaviour, and
–  Is integrated throughout the organization and practised in its relationships.

The key difference between CSR and PR is that CSR actually involves doing things both within the organisation and within the wider community, whereas PR focuses on telling people things.

 

Applying the Stakeholder Engagement Spectrum

The various aspects of stakeholder engagement spectrum combined together to create the organisation’s reputation, engage communities, build customers, and when necessary protect the organisation’s reputation. The key combinations are set out below:

Reputation Creation: The key components needed to create and maintain a desirable reputation start with CSR and work clockwise through the spectrum to CRM.

Community Engagement: The key components needed to effectively engage the wider community are focused on CSR but includes the elements moving anti-clockwise from CSR through to Issues Management.

Building Customers: The elements needed to build and retain customers start with PR and work clockwise through the spectrum to Issues Management.

Protecting Your Reputation: Finally, when something goes wrong, protecting or restoring the organisation’s reputation is focused around Issues Management, but includes elements of CRM and continues clockwise through to Environment Scanning. In addition, many of the ‘push’ elements in the spectrum may be used as tools to help manage issues and protect the reputation of the organisation including PR and advertising.

 

Conclusion

The ‘stakeholder engagement spectrum’ above is deliberately drawn in a circle surrounding the organisational core, because all of the different aspects interrelate, many overlap, and they all build on each other.  The governance challenge facing many organisations is breaking down the traditional barriers between functional areas such as advertising, PR and CRM/sales, so that the entire organisation’s approach to its stakeholders is coordinated, authentic and effective.

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[1] See more on Ed Freeman’ stakeholder theory at: https://mosaicprojects.wordpress.com/2014/07/11/understanding-stakeholder-theory/

[2] For more on issues management see: https://mosaicprojects.com.au/WhitePapers/WP1089_Issues_Management.pdf

[3] For more on stakeholder management see: https://mosaicprojects.com.au/Stakeholder_Circle.html

[4] For more on CSR see: https://mosaicprojects.wordpress.com/tag/corporate-social-responsibility/

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Defining project success – moving beyond benefits realisation!

What you measure is what you are likely to get – so do the so-called measures of project success used by The Standish Group[1] and other really help?  Certainly, the CHAOS definition has been updated from the ‘traditional’ assessment of on-time, on-budget, and on-target (scope) to the ‘modern’ definition of on-time, on-budget, and a satisfactory result[2]; but does this really change anything?

Challenged projects failed to achieve one or more of the measures, failed projects were cancelled before completion or the deliverables were not used.  The problem is do these measures really matter?  The Panama canal expansion was planned to finish in 2014, it was actually finished in 2016; its costs were estimated at US$5.25 billion, it actually cost will be in the range of $6 to $8 billion (depending on the outcome of disputes).  But, the expanded canal is operating close to capacity and has had to restrict bookings since January 2017 to minimise delays and the latest estimates project that fiscal transfers from the Canal to the central government are expected to increase 60% to a total USD 1.6 billion in the current fiscal year.

Given the canal is 100 years old and the new works can be expected to have a similar lifespan what is the real measures of success? In the last 11 years of Panamanian administration, canal revenues grew at a compound rate of five percent annual of the fiscal year 2006 to 2016. Given the core mission of the Panama Canal is to generate income and support the growth of the Panamanian economy is this really a ‘challenged project’?

We have been suggesting for many years real success is a much more complex issue that requires far more sophisticated measures and management than simply focusing on time, cost and scope:

All of these papers lead towards the same conclusion, project success is founded in the creation of deliverables that facilitate the realisation of benefits. But real success needs something more; the benefits have to be seen as valuable by a large proportion of the key stakeholders – success is very much in the ‘eye-of-the-stakeholders’ and if they declare the project a success it is, if they don’t see the outcomes as valuable it is not!

The simple measures used by The Standish Group are only relevant if they advantage or impact the value perceived by the project’s stakeholders.  A number of projects in Queensland leading towards the 2018 Commonwealth Games undoubtedly have time as a key component in providing recognisable value to stakeholders. In many other projects time may be almost irrelevant. Cost may affect profitability (and therefore value in the ‘eyes’ of some stakeholders) but is probably far less important than delivering an output that delights the end users.  Quality and scope should be similarly balanced against the value perceived by stakeholders.

The problem with the proposition that success is based on outcomes of a project being perceived as successful by its stakeholders are many:

  • Different stakeholders will have different views of what is important and ‘valuable’ – these differences may be irreconcilable.
  • Stakeholder’s perceptions change over time – the Sydney Opera House went for a ‘white elephant’ that suffered massive time and cost overruns to a UNESCO World Heritage landmark in record time.
  • It is impossible to know how people will react to the eventual project outcome in advance –success, or failure, emerges after the project has delivered and everyone involved has ‘gone home’.

I don’t have an easy answer to this conundrum – but I do believe two major shifts in project governance and the overall ‘management of project management’ are needed:

  1. The concept of project success is built over time; it starts during the earliest stages of a project when the concepts are being formulated – no one benefits from delivering the wrong project on time and on budget.
  2. Everyone involved in the management of the project including sponsors and portfolio managers through to the project manager need to have in-depth discussions with their stakeholders about what success looks like and what is really important to the client and end users of the deliverable. This discussion needs to be framed by the constraints of cost and time (to the extent they matter) but not limited to predetermined artificial values, to create a prioritised list of success criteria that directly relate to the needs of the stakeholders (which may include time and/or cost, but equally may not); see: Defining Project Success using Project Success Criteria.

Finally, the ‘what’s really valuable’ discussion needs revisiting on a regular basis to keep the work of the project aligned with the evolving needs and perceptions of the stakeholders.  You can call this ‘agility’ if you like (or simply effective stakeholder engagement) but by now we all should recognise that producing ‘failed’ projects helps no one and driving to achieve arbitrary and/or unnecessary time and cost targets is a good way to destroy real value.

Making these shifts presents some real challenges:

  • The challenge the project controls community needs to start looking at is how do we start measuring success? Most organisations can’t even measure benefits!
  • The challenge for people involved in the overall management of projects is primarily answering the question which stakeholders are important in this conversation and how do we engage them?
  • The portfolio management challenge is focused on developing ways to quantify and assess these intangible metrics to select the most valuable projects.
  • The governance challenge is putting rigour around the whole framework to encourage innovation, satisfy stakeholders and maintain overall accountability.

My feeling is that project success is a complex, emergent, characteristic of a project that manifests after the work of the project has been completed.

Your thoughts are welcome.

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[1] See: http://www.standishgroup.com/outline

[2] Presumably this change is to accommodate agile project where the scope is defined through the course of the work.

Good Governance, Good Outcomes!

Good governance is focused on setting the ‘right’ rules and objectives for an organisation, management is about working within those rules to achieve the objectives. Prudent governors also require assurance that the rules are being followed and the objectives achieved (for more see the six functions of governance)

Within this governance framework, getting the ethics and culture of an organisation right comes before anything else – it has far more to do with people, and culture than it does with process and policing! But crafting or changing culture and the resultant behaviours is far from easy and requires a carefully crafted long term strategy supported from the very top of the organisation. The journey is difficult, but achievable, and can pay major dividends to the organisation concerned. One interesting example of this approach in practice is the implementation of effective major project management by the UK government.

The problems with megaprojects[1]

The challenges and issues associated with megaprojects are well known, we recently posted on one aspect of this in the reference case for management reserves. The source materials used in this post clearly show that UK government has been acutely aware of the issues for many years as does any review of the UK National Audit Office’s reports into failed government projects.  At the 2016 PGCS symposium in Canberra, Geraldine Barker, from the UK NAO offered an independent and authoritative overview of the UK perspective and experience from her review of the Major Projects Authority, on the approaches, challenges, and lessons to be learned in improving the performance of major projects at individual and portfolio levels. While there were still major issues, there had also been a number of welcome developments to address the issues including:

  • Improvements to accountability with greater clarity about the roles of senior responsible owners;
  • Investment by the Authority and departments to improve the capability of staff to deliver major projects, with departments reporting to us that they are seeing benefits from these initiatives;
  • Increased assurance and recognition of the role that assurance plays in improving project delivery; and
  • Initiatives to prevent departments from getting locked into solutions too early.

Amyas Morse, head of the National Audit Office, said in a report to the UK Parliament on 6 January 2016, “I acknowledge that a number of positive steps have been taken by the Authority and client departments. At the same time, I am concerned that a third of projects monitored by the Authority are red or amber-red and the overall picture of progress on project performance is opaque. More effort is needed if the success rate of project delivery is to improve[2].

The major challenges identified in that report were to:

  • Prevent departments making firm commitments on cost and timescales for delivery before their plans have been properly tested;
  • Develop an effective mechanism whereby all major projects are prioritised according to strategic importance and capability is deployed to priority areas; and
  • Put in place the systems and data which allow proper performance measurement.

The latest report from the Infrastructure and Projects Authority – IPA (formally the Major Projects Authority) has allowed the UK government to claim an improvement in its delivery of major projects, with the number of those at risk reducing from 44 to 38 in the past year.

The report says that there are 143 major projects on the Government Major Projects Portfolio (GMPP), worth £455.5bn and spread across 17 government departments.

The data shows a steady improvement in the way that government is delivering major projects:

  • More than 60% of projects by whole-life cost are likely to be successfully delivered;
  • Since last year’s report, the number of at risk projects has reduced from 44 to 38, which continues to be an improvement from 48 the previous year;

The data shows signs of steady improvement in the way government is delivering major projects. The question is how was this achieved?

The answer is ‘slowly’ looking from the outside there seem to be three parallel processes working together to change the culture of the UK civil service:

  • The first is making project management ‘attractive’ to senior executives. Since 2000 the government has been working to develop the internal skills needed to allow the deployment of capable ‘Senior Responsible Owners’ (SRO) on all of its major projects including establishing a well-respected course for SROs. The Major Projects Leadership Academy was developed in 2012 (first graduates 2013) and is run in partnership with the Saïd Oxford Business School and Deloitte. The academy builds the skills of senior project leaders across government, making it easier to carry out complex projects effectively. In the future, no one will be able to lead a major government project without completing the academy programme.
  • The second has been making the performance of its major projects public. This includes an on-going challenge to acquire realistic and meaningful data on performance (still a challenge) and is most obvious in the annual report from the Major Projects Authority. Their fifth report is now available for downloading.
  • Finally skills development and robust challenges are put to departments to ensure adequate front end planning is completed before government funds are committed to a project.

This process is not quick and given the risky nature of major projects will never deliver a 100% success rate, but the steady change in attitudes and performance in the UK clearly show that ‘good governance’ backed by a sound multi-faceted strategy focused on the stakeholders engaged in the work will pay dividends. Proponents advocating for this type of improvement have many challenges to deal with, not the least of which is the fact that as data quality improves, the number of problems that will be visible increase – add the glare of publicity and this can be politically embarrassing!  However, as the UK reports show, persistence pays off.

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[1] For a definition of megaprojects see: https://mosaicprojects.wordpress.com/2017/06/09/differentiating-normal-complex-and-megaprojects/

[2] See: https://www.nao.org.uk/report/delivering-major-projects-in-government-a-briefing-for-the-committee-of-public-accounts/

 

Phronesis – A key attribute for project managers

Phronesis (Ancient Greek: φρόνησις, phronēsis) is a type of wisdom described by Aristotle in his classic book Nicomachean Ethics. Phronesis or practical wisdom[1] is focused on working out the right way to do the right thing in a particular circumstance. Aristotle understood ethics as being less about establishing moral rules and following them and more about performing a social practice well; being a good friend, a good manager or a good statesman. This requires the ability to discern how or why to act virtuously and the encouragement of practical virtue and excellence of character in others.  But in a post-truth world, the ability to use ‘practical wisdom’ to discern what is real and what is ‘spin’ in rapidly becoming a key social and business skill. So prevalent is this trend, the Oxford English Dictionary named ‘post-truth’ its 2016 word of the year.

This problem pre-dates Donald Trump and ‘Brexit’, but seems to be getting worse. How can a project manager work out the right way to do the right thing in the particular circumstance of her project when much of the information being received is likely to be ‘spun’ for a particular effect.  There may be a solution in the writings of Bent Flyvbjerg.

Professor Bent Flyvbjerg, Chair of Major Programme Management at the Saïd Business School, Oxford University, has a strong interest in both megaproject management and phronesis. A consistent theme in his work has been the lack of truthfulness associated with the promotion of mega projects of all types, worldwide and the consequences of this deception. To help with the challenge of cutting through ‘spin’, and based on his research, he has published the following eight propositions:

1. Truth is context dependent.
2. The context of truth is power.
3. Power blurs the dividing line between truth and lies.
4. Lies and spin presented as truth is a principal strategy of those in power.
5. The greater the power, the less the truth.
6. Power has deeper historical roots than truth, which weakens truth.
7. Today, no power can avoid the issue of ‘speaking the truth’, unless it imposes silence and servitude. Herein lies the power of truth.
8. Truth will not be silenced.

There is, of course, a book, Rationality and Power: Democracy in Practice[2] that goes into more detail but just thinking through the propositions can help you apply the practical ethics that underpin phronesis.  Being virtuous is never easy, but regardless of the power brought to bear, sooner or later the truth will be heard.

The problem is which ‘truth’, understanding and perception will influence what people see, hear and believe to be the truth. Nietzsche, a German counter-Enlightenment thinker of the late 19th century, suggests that objective truth does not really exist; that objective absolute truth is an impossibility. The challenge we all face is the practical one of understanding enough about ourselves and others (we are all biased[3]) to achieve a reasonable level of understanding and then do our best to make the right decisions (see more on decision making), and to do the right thing in the right way.

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[1] From Practical Wisdom, the right way to do the right things by Barry Schwartz and Kenneth Sharp.  Riverhead Books, New York 2010.

[2] See: https://www.amazon.com/Rationality-Power-Democracy-Practice-Morality/dp/0226254518/

[3] See,  The innate effect of Biashttp://www.mosaicprojects.com.au/WhitePapers/WP1069_Bias.pdf

Two ‘Not-to-be missed’ Conferences in May

The PGCS program for 2017 is now complete and offers two overseas speakers as well as Professor Peter Shergold – author of the landmark project management report to government “Learning From Failure”. To see what’s on at PGCS in Canberra between the 1st and 4th May go to:  http://www.pgcs.org.au/program/

In the USA you can attend the Annual Project Management College of Scheduling Conference in Atlanta from May 7th to 10th.  They have a terrific program, with speakers and panel discussions, prepared to give everyone a chance to participate.  In addition, we’re planning something special every evening.  Sunday night is the vendor reception, Monday night is our Gala Dinner and Tuesday night is a night to explore Atlanta.  For more details see: http://www.pmcos.org/

The Profession of Project Management?

Project management has taken another significant step towards becoming a profession.  After several years of debate and decisions in the UK High Court (see: Project Management is a Profession), the Privy Council considered the application by the Association of Project Management (APM) at its meeting on 12 October 2016 and has now issued an Order of Grant, which has triggered a process which will see the association awarded a Charter.

apmcharter-3523This process combines a modern assessment of the ‘worth’ of an organisation and the members it represents, their value to society, with the traditions of the UK Crown going back centuries. In keeping with history, the Charter will be printed on vellum and have the Royal seal attached.  In keeping with the modern age the APM will then need to reconfigure its structure, and how it qualifies project managers.

Once the Charter has been sealed APM will implement the procedural, legal and accounting transition to re-constitute itself as a Chartered body during 2017 including transferring the assets and liabilities of the existing charity to a new Chartered Body Corporate. The new body will then conduct a public consultation on the criteria for admission to its planned register of Chartered project professionals, placing project managers on the same professional level as other professions in the UK.

Achieving Chartered status on behalf of the project management profession is expected to:

  • raise standards through a robustly assessed register of project professionals who are committed to professional development and a code of conduct;
  • enhance the status and recognition of project management as a means of delivering effective change that improves our economy and society;
  • facilitate continued collaboration and research with other professions to develop the practice and theory of delivering successful change across sectors and industries.

Whilst this process is very UK centric, and based on the traditions of the Royal Courts, it has much wider implications. When the transition is complete in 2017, project managers, or at least the newly designated Chartered Project Managers will be on the same professional standing as Architects, Engineers and Surveyors.

Whilst there will still be on-going debate of the nature of ‘professionalism’ in the 21st century in at least one major jurisdiction the concept of placing project management in the same frame as other ‘modern professions’ is close to becoming an accepted fact.  The challenge will be to drive the change in behaviours needed to allow project managers to live up to the code of behaviour and ethical standards expected of a professional – as many of my other posts on ethics show, this will not be easy.

Governmentality – the cultural underpinning of governance

Governmentality1Two major governance failures in recent times highlight the importance of organisational culture in delivering a well-governed entity.  Professor Ralf Müller has adapted the term ‘governmentality’ to describe the systems of governance and the willingness of the people within an organisation to support the governance objectives of the organisation’s governing body. When the willingness to be governed breaks down, as these two examples demonstrate, governance failures follow.

Toyota

The Lexus ‘unintended acceleration problem’ from 2009 has cost  car manufacturer Toyota a staggering $1.2 billion fine to avoid prosecution for covering up severe safety problems and continuing to make cars with parts the FBI said Toyota “knew were deadly.”  In addition to numerous civil actions and costs of reputational damage.  The saga was described as a classic case of corporate culture that favoured the seemingly easy way out instead of paying the cost and doing the right thing.  But, the actions of the people who magnified the problem by attempting to cover up the issues fundamentally contradicts the ‘Toyota Way’ that has guided Toyota since 2001. The Toyota Way has two core principles, respect for people and continuous improvement (kaizen).

Respect for people puts ‘people before profits’, and this is not an idle slogan.  Following an Australian Government decision in 2014, all motor vehicle manufacturing in Australia will cease by 2018 (this affects General Motors Holden, Ford and Toyota). In February 2014 Toyota president Akio Toyoda personally came to Australia to tell his workers of the closure and Toyota’s commitment to its staff through training and other activities has maintained staff commitment at our local Altona plant with everyone working to make the “last car the best global car!”.

The difference between the “people first equals customer first” attitude demonstrated in the approach to closing the Altona plant where people are still being released for paid training to up skill for new roles and the ‘customer last’ approach that dominated the Lexus saga is staggering.  The reaffirmation of the ‘Toyota Way’ may have been driven in part by the Lexus disaster but this does not explain why quality and customer service was allowed to fail so badly in the company that practically invented modern quality.

Volkswagen

A similar dichotomy is apparent in the Volkswagen diesel engine emissions scandal.  A company renowned for engineering excellence, from a country renowned for engineering excellence allowed engineering standards to slip to a point where the cars being sold were illegal.  The actual emissions were only part of the problem, Volkswagen engineers had developed a software program dubbed the ‘diesel dupe’ that could detect when the cars were being tested and change the engine performance to improve results. When the cars were operating under controlled laboratory conditions – which typically involve putting them on a stationary test rig – the device appears to have put the vehicle into a sort of safety mode in which the engine ran below normal power and performance thereby reducing emissions. Once on the road, the engines switched out of this test mode.

Governance issues

Neither of these issues involved ‘a few bad apples’ – the excuse used by most institutions to explain banking and financial scandals. They both required extensive management involvement and cover-ups or acquiescence. A substantial subset of both organisation’s management felt that doing the wrong thing was in the best interests of either themselves or the organisation (or both, at least in the short term). But the governing bodies of both organisations would seem to have maintained a commitment to their overall philosophy, the ‘Toyota Way’ and ‘Engineering excellence’.  So what caused the governance failure?

Governmentality

One element that seems central to both of these failures was a breakdown in the willingness of managers to comply with the overall governance philosophy of the organisation which in turn caused the governance processes to fail; this is the domain of governmentality. Governance cannot be successfully imposed on a population that does not want to be governed!

Governmentality2Governmentality is a term coined by philosopher Michel Foucault around 1980 and refers to the way in which the state (or another governing body) exercises control over, or governs, the body of its populace. The concept involves a complex series of two-way transactions involving:

  • the way governing bodies try to produce the people best suited to fulfil those governments’ policies;
  • the organised practices (mentalities, rationalities, and techniques) through which people are governed, and
  • the techniques and strategies by which a society is rendered governable.

In the same way as governments rely on most people complying with legislation most of the time, organisational governance mechanisms such as ‘project management offices’ and ‘portfolio management’ cannot function effectively without the cooperation of the people being governed. When governmentality breaks down and people no longer support the governance processes they cease to be effective.

The challenge facing every governing body, in every organisation, is in three parts

  1. Creating an authentic vision and mission for the organisation.
  2. Creating an effective governance system that supports the achievement of the vision.
  3. Creating and maintaining an ethical culture that embraces and supports governmentality.

Effective governance systems can weed out the bad apples and correct errors, but they cannot oversee the actions of every manager all of the time if the majority of people do not wish to follow the governance dictates, or actively work to subvert them.

Developing the ‘right culture’ by employing the right people (and importantly offloading the wrong people) starts at the top.  The governing body needs to ‘walk the talk’, their CEO and senior executives need to model the desired behaviours and ‘doing the right thing’ needs to be encouraged throughout the organisation.

Achieving this requires authenticity and a holistic approach to the way the organisation functions; all of the elements need to work together cohesively. Achieving this is the primary responsibility and challenge for the ‘governing body’, in most organisations, the Board of Directors!

If you get the vision, mission and culture right, even major lapses such as the ‘Lexus unintended acceleration problem’ can be overcome.  Despite the damage this caused, Toyota is now the world’s largest automotive manufacturer with a market capitalisation that is nearly double that of Ford and GM combined.  This is also the reason why Objectives, ethics and culture are the top three elements in my model for the ‘Functions of Governance’.