Managers come in all shapes and sizes. Is there a management strategy that yields the best results?
Should managers define rules and practices, expecting collaborators to follow standardized guidelines? Or should they allow autonomy, entrusting workers to flexibly make creative decisions outside of due process?
Rodrigo Canales, an associate professor at the Yale School of Management, measures the strengths and weaknesses of standardized and flexible strategies. Recently recognized in the top 40 under 40 of business school professors, Canales uses microfinance as a setting to gauge which management strategy produces the best organizational outcomes.
To collect this data, Canales spent more than five months in Mexico interviewing and observing various microfinance managers, loan officers and clients. He specifically tracked the decision making process of loan officers, asking them to explain their reasoning for interactions or decisions.
A Fork in the Road
High performance teams are often exposed to opposing management strategies.
Though not without turbulence, microfinance institutions (MFIs) provide a unique opportunity for low-income individuals to receive valuable, and potentially life altering, financial services.
MFI loan officers typically embrace one of two strategies. Some take the standardized route: they strive towards accountability and responsibility by following a prescribed set of rules and practices; they leave no room for bias. Others take a more flexible route. These officers advocate discretion; their strategy is to create unique relational ties with their SME clients – reacting and responding to individual environments.
Canales finds that picking one strategy over the other may, in fact, not be the best option. High performance teams are often exposed to opposing management strategies. Canales explores the pros and cons of the standardized and flexible strategies employed by loan officers, but reminds us that this hybrid approach is tough to master.
The Letter of the Law
Loan officers who stick to the rules when working with clients help safeguard organizational knowledge. Sticking to guidelines can promote efficiency, ensure standardization and reduce complexity. This kind of stability and order can help MFIs that struggle to thrive in the turbulent microfinance world.
But all rules entail assumptions. Canales highlights that these assumptions can fail to accurately grasp the nuances of a situation – especially something as delicate as a client’s financial background. In such cases, following the rules exactly can be counterproductive, unfair and potentially unethical.
The Spirit of the Law
Loan officers who take time to establish personal ties with clients can create a deeper sense of trust between the organization and the community, enabling joint problem solving and increasing mutual commitment.
Merging two strategies within an individual manager – or any employee – doesn’t necessarily improve results.
They may go out of their way to flexibly apply policies to help clients. But they are not being altruistic or compassionate; they are simply operating within an interpretive frame to produce positive results.
Yet, it is also important to ensure MFIs follow a standard of service. A key characteristic that differentiates MFIs from government payouts and other lenders is that clients shouldn’t feel exploited or pitied. Ideally, every branch of a microfinance organization could offer the same professional service.
Canales found that microfinance branches with a high concentration of agents who employ one strategy over the other experience a decrease in organizational performance due to the limitations listed above.
So how do opposing strategies promote teamwork and collaboration to produce the best organizational results?
It is tempting to suggest a combined approach, encouraging individuals to use a hybrid style of following firm guidelines while occasionally bending the rules for special cases.
Yet after analyzing an array of ethnographic data, Canales saw that attempting to merge the two strategies within individual managers – or any employee for that matter – doesn’t necessarily yield the best results.
Research showed that loan officers who used the hybrid approach ultimately appeared inconsistent and contradictory; they failed to reap the benefits of either strategy. It was also more difficult for senior managers to guide a team who behaved unpredictably.
The Triumph of the Team
Rather than loan agents consciously attempting to blend the two styles, the best performing branches were ones that had a balanced distribution of agents with opposing styles – a mix between officers who were strongly pragmatic and ones who rejected standardization.
In microfinance, loan officers must present proposals to his or her peers to justify the laid out financial plan. When such committees contain discretionary diversity, it creates a healthy push and pull. Loan officers end up challenging each other to consider what’s best for the client, the branch and the organization’s goals.
These conclusions are not exclusive to microfinance or to loan officers. Multiple management strategies need not be polarizing. Diverse teams in any organization can create overarching coherency and productivity.
Standardization and flexibility may be contradictory in practice, but the dialogue these strategies trigger in decision-making can produce more robust results. In the end, it isn’t individuals who make the difference – it’s the team.
Canales, R. 2014. “Weaving Straw into Gold: Managing Organizational Tensions Between Standardization and Flexibility in Microfinance.” Organization Science. 25.1:1-28. http://dx.doi.org/10.1287/orsc.2013.0831