So, you have tasks which should be done. Believe or not, you always have three different options – three different management mechanisms – to get the things done. This is important to understand for all of us, but especially for you in supply management or running business in networks.
Let’s take a simple example; you have a table which should be moved to the building next to you. How can you utilize the management mechanisms in this?
The hierarchic mechanism to fulfill this task, if you are the boss in your organization, could be you ordering someone to do it. If you have the power, they will respect your authority.
The use of the market mechanism for this would be you asking offers from several companies to do this job. Then you would not need to use your employees hands, you could just leave the task to “the invisible hand” of the market. Someone with the best price would carry the table for you.
Then the less traditional method, social mechanism. You could try to ask someone to fulfill the task without any orders or compensation to do it. Like your friend, relative, or your long time business partner who’s main responsibility is something else than moving your furniture. By asking to do this task, someone or some might do the task voluntarily. In this case the decision to do the task would probably be based on trust, continuous interaction, common goals or social capital in a way or another.
That’s it, these are the three management forces of the universe. And all these three would work very well with this simple task.
But, how about if the table is made of glass, it is extremely fragile, and it is worth of million dollars? Would you trust your clumsiest worker? Or would you sign the contract with the cheapest company you have never heard of? Or would you give this difficult task to someone just because he is your long-time business buddy? I guess not. With this more complicated task you need the right combination of three management mechanisms.
All these three mechanisms can be applied either inside your organization or they can be extended to manage your external partners. To be sure this demanding task gets done the right way, you could utilize the hierarchic mechanism outside your organizational borders for example by ranking the potential companies by their references and experiences, auditing their facilities, asking them to obey certain processes and policies you set for them and you could also refuse to take offers from the companies which do not have certified quality systems. You could even ask them to prove their workers are strong enough to carry your table by reporting their weightlifting records. All of these are the requirements you can set for them in order to get stronger hierarchic control. Contrary to your own personnel, the other companies are not in your direct chain of command, but as a customer, you can still use the hierarchic mechanism to manage them.
And though this task is extremely risky, you don’t have to exclude the market mechanism totally, you just should not lean on the market purely. You would probably like to use the market mechanism the way it also builds the cooperation for the future, not just trying to get the cheapest price only once. Then you could negotiate a larger deal including other tasks with the same service provider, or a deal with the compensation based on the results, or the deal for several years. And in this case, there is no point to utilize market mechanism without considering the hierarchic mechanism at the same time. That’s why you should only accept the offers from the companies, which meet the specifications of your hierarchic requirements. Accepting the cheapest deal without any other considerations would be expensive in the long run.
Because the table and its move is risky and important to you, you should definitely take the advantage of the social mechanism as well. In this case it would mean you should hire a company you have common history and familiar key people, and you could arrange meetings and discussions beforehand about this case as well as your future plans and your partners potential role in them. And you should not say to them how to do this task, you should ask their advice how to do it. By all this, you build the valuable social capital to the relationship which gives you the benefits of social management.
This was the simple case of moving the table, but in real life we face the same challenge when doing business in the networked economy. The tasks are easy to take care of if we just buy standard products in the perfect market. But when the tasks became complicated, market is limited, and the role of the network is critical, we really must get our management triangle balanced the right way. If we for example purchase product development, large turn-key project or specialized knowhow, we should not behave like buying nuts and bolts.
When considering the management mechanisms, it also has to be remembered that all the control costs something. Either time, money or energy. So in the easy and non-strategic cases the simple and weak control might be enough, but when facing the challenging tasks the control should be stronger and more versatile.
One lesson to remember is also the fact that these three mechanisms are often weakening each other. For example by using the hierarchic mechanism to the maximum (very strong requirements for the suppliers) you might end up to the situation where you have just one company to meet your standards to make you an offer. Pushing the market mechanism too hard and making the decisions purely based on price, the companies are not willing or capable to meet your quality standards. Or if you never bother your partners by the hierarchic requirements or ask the offers from others as well, you might end up in the situation where your business network is more like a social network.
The old world of management was pretty much market or hierarchies and make or buy. This works well if you are mainly looking for cheapest price and good quality. The new world of management is more about networks and cooperation, in order to reach innovations and learning. In this development the social mechanism of management is way more valuable than the other two.
If you still don’t believe this triangle covers everything, just tell me how you raise the kids? Exactly. Bribery, extortion and threats – just another example of management triangle in practice.
So, here is the tool to manage your business network and the rest of the universe as well – use it wisely!