Friday, November 24, 2017

Managing organisations - the importance of trust and delegation

I have a simple hypothesis about managing organisations. There are several complex dynamics at play, but there is one non-negotiable attribute - trust and delegation. A good leader is one who has the instinct to trust the right people, the confidence to delegate, and the restraint to step in only when required. 

Consider the example of a District Collector in an Indian district. He is responsible for the administration of all development and regulatory activities in the jurisdiction. Take the example of  sanctioning and stage-wise approval of the release of payments for engineering works - school/hospital buildings, roads, irrigation structures and so on. In all these cases, the Collector has to exercise some judgement to make decisions. 

How does he know that all the 125 school buildings or 12 roads or 245 irrigation structures to be sanctioned this calendar year are the most appropriate ones? How can he be sure that the first instalment for the school building is being released only after the foundation stone has been completed? How can he be assured that the building or the road has been completed with good quality before sanctioning the release of the final payment? 

For sure, there is administrative guidance by way of formal delegation of powers, which though can be changed by following the due process, that define the sanctioning and payment release powers of officials at each level. But most often than not, even these are a very narrow and conservative delegation, more appropriate for a time when government was limited - there were limited number of such schools to be sanctioned and limited scope and sectors of administration. The modern administration and its scope demands further delegation. 

How do different Collectors respond? Some go by the official playbook. This leaves them with the dilemma of approving something which they have not physically seen, but based on what is on record. And given that what is on record can be aggregates, incomplete, irrelevant, misleading, or even plain incorrect, as is most often the case, the Collector has to exercise judgement calls. And the numbers of such files are huge in most districts. 

Faced with this dilemma, some, known as query masters, raise questions and insist on clarifications, which in turn cascades into more questions and so on. Some others, inspection masters, demand personal inspections, which can never be completed for even one round of approvals given the sheer volume of work. And even when they inspect, they are unlikely to be satisfied, since the contractors are likely smarter and the Collector likely does not have the professional competence to make conclusive assessments of malafide and fraud. The approval gets delayed and the work drags on. Cost escalates and contractors abscond, forcing re-tenders which come with multiples of the original cost. 

Then there are the corrupt, who approve everything as it comes, since the transaction has already materialised as planned before the file reaches their table. And they rationalise, and rightly so, with the argument that they are only sanctioning some thing as per the formal delegation of authority and they cannot be held accountable if the facts are contrary. 

There are also a few who decide to revisit the delegation of powers and either directly or indirectly delegate their own approval powers. The extent of delegation varies from context to context, and is made on the person's best judgement of what is the most appropriate level - a trade-off of perfection and efficiency. They manage to get the right people in some of the more important places, trust them, and delegate authority. They struggle hard initially to put in place appropriate safeguards to mitigate the associated risks. They create monitoring mechanisms that rely on credible and easily collectible direct or proxy indicators and open alternative channels of feedback that helps them keep abreast of the field situation. They also put in place independent quality assurance mechanisms. 

The very significant amount of time saved by way of delegation helps them focus on maintaining the fidelity and rigour of these feedback and monitoring channels. It gives them more personal time. By ensuring that 100 of the 125 buildings are completed on time, even at the risk of poor quality in 25 schools, the fiscal gains too are very large. 

The benefits go way beyond such personal or financial gains. Such delegation, and the attendant signal of trust, empowers the next line of command. Those being trusted are now likely to feel morally inclined to not let down their leader. They assume greater responsibility. Within a reasonable period of time, a spirit of collective ownership can infuse the entire organisation. 

For sure, the last category of Collectors run the risk of the occasional blow-ups - the road that develops pot-holes a month after its inauguration, the sunk flooring of the new building, the irrigation canal gate that develops leaks in the first week, and so on. And such risks materialise in a few cases. It does not help that the vested interests gang up to show-up and amplify the smallest omissions. The challenge is not to eliminate such risks. No matter what anyone does, the corrupt and mischievous will always find their way to retain some rent-seeking channels. The challenge is to minimise such eventualities by deterring them through very good feedback systems, practical but credible monitoring systems, and by making deviance very costly. 

This framework of analysis is equally applicable to every organisation - big and small, general and specialised, public and private - and all levels of decision-making. 

We all like to be in control of things. We prefer full information and logical neatness when taking decisions. We hate ambiguity and prefer certainty while making decisions. This is the human in all of us. 

I will argue that this ability to trust and delegate has little to do with being logical or smart. It is almost completely a behavioural attribute, though one which can be inculcated through conscious but painstaking practice. Giving up anything, much less power, is not something we are likely to be comfortable with. All of us start this way. But the realisation of this very insight and training ourselves to internalise it can be the epiphany for those few who manage to break away. It also helps to be confident of your own abilities. Confidence helps trust people and the trust, in turn, enables delegation. 

Slice and dice, analyse and dissect any organisation which ever way you want, there are decisions to be made. Such decisions involve judgement calls that demand a trade-off between exactitude, with all its attendant delays and other perils, and efficiency, with all its potential for blow-ups. 

Deregulation in governments is the most classic example of these dynamics at play. It ranges from the Collector's proclivity to demand more information and inspections before approving payment releases to the Goods and Services Tax (GST) Council's insistence for voucher reconciliation before tax credits are reimbursed to the reluctance of the University Grants Commission (UGC) or the Medical Council of India (MCI) to adopt more light-touch regulations. In some ways, it is also lazy administration or management, since it avoids the need to be wiser and to work hard to manage complex environments. 

Daniel Kahneman talks about decision making involving System I or System II. The former is instinctive and the latter is reflective. 

Over a life-time as we gather experience, we need to train the System I to drive the vast majority of decision-making. For sure, we can train our instincts using heuristics like what some District  Collectors do. We can make the System I internalise the insights of System II, but leave the decision making with System I. A good tennis player's ground strokes are System I at work. 

There are always some of the complex decisions, those with stakes which are higher, where System II may have to dominate. The same good tennis player uses System II to strategise a Plan B when faced with being two sets behind or when the opponent is blazing all guns and hitting the lines consistently. 

We need to make judgement calls over what demands the attention of System I and what System II. 

The Collector, or any other decision-maker, should train him(her)self that all bar critical administrative decisions respond to System I impulses. This requires trusting and delegation. This is, most often, the difference between getting stuff done and not. But it is, at a deep enough level, our choice to use the System I or System II as our default decision-making strategy.

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