Intro to Blue Line Management

When I teach value creation to executives in the classroom, I often begin with the question “how many of you have knowingly destroyed value in order to hit a target or objective on an indicator or KPI?” When responding honestly (sometimes requires that a senior executive is not present), the normal frequency of respondents answering in the positive, with a show of hands, is over 80%. My next question is “how did you know it was value destroying”? The answers to the second question often come quite quickly – “ it was obvious,” “I could feel it,” “it was common sense,” and in many cases they provide specific information to demonstrate that it was indeed value destroying. Examples include: “we deliberately held off hiring the new, badly needed, sales person so that the signing bonus wouldn’t show up until next quarter,” or “we pushed more product into the distribution channel, angering our resellers and damaging that relationship in ways which will later hurt us, in order to book revenue to meet our profit target,” or “we spent an outrageous amount of money incentivizing our channel partners to sell our product rather than the competitors’ in order to achieve market share targets, even though there is no possibility that, even with the additional market share, we will ever recover the money spent to achieve the objective.”

What is Blue Line Management? It is an effort, conducted individually, as well as in small teams, an including all members of the organization, to only engage in activities consistent with supporting the long-term health and well–being of the organization. Following our definition of value creation – anything which uses the same amount of energy but delivers more happiness via the products and services delivered to the consumers, or delivers the same amount of happiness but does so using less energy, or a combination of these – which we summarize as “more happiness using less energy”, it follows that Blue Line Management is all about developing a culture within the organization consistent with, and focused entirely on, value creation as the corporate objective. The competing approaches to management, termed Red Line Management when the energy and resources are devoted to delivering on observable metrics in a way which is often, if not always, detrimental to the value, and therefore long-term health of the organization, and Blue Line Management, are displayed in the figure below.

Red line Blue line

Needless to say, describing what Blue Line Management is does not mean we have explained how to do it in real life. Our evidence on this point is quite discouraging – even for people who understand the importance of value creation for long-term health and survival of the organization, be the organization Google or the government of Greece, there is disturbing little evidence that people will actually engage in the behavior needed to deliver. Why do people who understand value creation, and the importance of it, nonetheless fail to do it in daily practice? The reasons are many. Some are quite easy to grasp and perhaps address with modified approaches to management. However other reasons why people who know better still don’t manage for value creation are quite subtle and/or complex and approaches for managing those reasons are difficult to achieve in practice.
In this blog, we intend to discuss both what it means to manage for value creation, as well as how to develop approaches to management to enable and ensure that your people engage in the appropriate behaviors to achieve value creation in real life.

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