The Management Waterfall

By James Boyce

In the first week of my MBA, we were posed a question: What is the role of a manager? At the time, I wholeheartedly believed that the role of a manager was to maximise profits for shareholders. However, having completed my MBA, I now believe that the primary role of a manager should be to look after their employees.

Think of it like a waterfall…

This seemingly simple concept seems overlooked by management in many organisations. In the quest for good quarterly or annual earnings, they attempt to bypass the waterfall and can do so for extended periods. However, eventually, they’ll create disgruntled employees and unhappy customers and need to spend a long time and a lot of money trying to repair employee and customer relations. At that stage, these groups will need to be given priority over shareholders, or the company will fail.

So why bother getting yourself into that position? Take care of your employees today, and you’ll be taking care of your shareholders’ interests for years to come.

Expanding on the Concept: The Management Waterfall in Practice

Whilst the idea of the management waterfall may be a nice concept, its practical implementation can be challenging.

The Role of Managers: A Shift in Perspective

Ever since Milton Friedman’s New York Times article was published in 1970, managers around the world have claimed that "the Social Responsibility of Business is to Increase its Profits." While that may have been a common perspective at the time, with hindsight, it seems that this still pervasive viewpoint often leads to short-term decision-making focused on immediate financial gains. This approach can result in disillusioned customers, unhappy employees, and strategic drift as the organisation loses sight of its vision in a quest to inflate its earnings.

This shift in perspective recognises that employees are the backbone of any organisation. When employees feel valued and supported, they are more likely to be engaged, productive, and committed to their work. In his 1983 Harvard Business Review article "Who Strikes – and Why?", Woodruff Imberman claims that "workers vote for a strike only when their needs, wants, and ideas go unheard, unheeded, or unanswered."

Half-Time: A Management Time-Out

Let’s pause for a second. Think of your favourite sports team. Now imagine that the team’s management focuses solely on ticket sales and merchandise revenue, neglecting the players' training, health, and morale. Over time, the players' performance would likely decline, leading to fewer wins, dissatisfied fans, and ultimately, lower revenue. However, if the management invests in the players' well-being, providing top-notch training facilities, healthcare, and support, the players are more likely to perform at their best, leading to more wins, happier fans, and increased revenue.

Moreover, investing in employee well-being can reduce turnover rates, saving the organisation significant costs associated with recruiting and training new employees. High turnover can be a hidden cost that erodes profitability, as it disrupts operations and lowers overall productivity. By creating a supportive and positive work environment, businesses can retain their top talent and maintain a stable, high-performing workforce.

The Airline Industry: A Case Study

Take airline employees, for example. Check-in agents, baggage handlers, cabin crew, and pilots aren't managers, but they interact with customers every day. These employees want the airline to succeed just as much as the managers do. Due to the complexity of the industry, they have valuable ideas about what needs to be changed but often feel that airline managers don't listen to them. This sentiment can lead to frustration and disengagement among employees who feel unseen and unheard.

According to Nonaka's SECI model (Socialisation, Externalisation, Combination, Internalisation), these front-line employees possess a wealth of experiential knowledge but may lack the codified data to support their assertions. Their daily interactions with customers provide them with insights that are invaluable for improving service and operations.

By contrast, senior managers, often based at corporate headquarters and remote from the airport and aeroplanes, rely predominantly on codified knowledge and data to make decisions, as they lack the experiential learning that the employees possess in abundance. While codified information is crucial, it can sometimes miss the bigger experiential picture that front-line employees see. Managers also want the airline to be successful and make decisions with the best intentions. However, their separation from the day-to-day operations can lead to decisions that don't fully address the realities of customer interactions and operational challenges, failing to consider the nuances associated with the practical implementation of their strategies.

Word-of-Mouth Marketing: A Powerful Tool

One of the significant benefits of the management waterfall is the potential for word-of-mouth marketing. Satisfied customers are more likely to share their positive experiences with friends, family, and colleagues. This organic form of marketing can be incredibly powerful, as it builds trust and credibility.

Customers notice when employees are having a good time. Take Southwest Airlines, for example. Their cabin crew are empowered to create their own safety demonstrations, which are often shared on YouTube. These creative and entertaining demonstrations not only enhance the customer experience but also showcase the positive work environment at Southwest Airlines. When employees are happy and engaged, it reflects in their interactions with customers, leading to higher satisfaction and loyalty.

But it's not just customers who engage in word-of-mouth marketing. Employees do it too. How many times have you met up with friends who moan about their jobs? Wouldn't it be lovely if someone had a nice thing to share and made a positive impression on the brand? When employees are happy and feel valued, they are more likely to speak positively about their workplace, both in personal conversations and on social media. This positive word-of-mouth from employees can enhance the company's reputation and attract top talent.

Financial Health: A Long-Term Perspective

While the management waterfall may seem to prioritise employees and customers over shareholders, it ultimately benefits the financial health of the organisation. Happy employees lead to happy customers, which in turn leads to increased revenue and profitability. This positive cycle ensures that the organisation remains financially stable and can continue to grow.

Moreover, by avoiding the pitfalls of short-term decision-making, organisations can build a strong foundation for long-term success. Investing in employee well-being and customer satisfaction may require upfront costs, but the long-term benefits far outweigh these initial investments. By fostering a positive work environment and ensuring customer satisfaction, businesses can leverage word-of-mouth marketing to attract new customers and reduce acquisition costs.

Conclusion: A Sustainable Approach to Management

The management waterfall is a sustainable approach to management that prioritises employee well-being, which in turn should lead to customer satisfaction and long-term financial health. By taking care of employees, organisations can create a positive ripple effect that benefits customers and shareholders alike.

In conclusion, the role of a modern manager extends beyond maximising profits for shareholders. It involves creating a supportive and positive work environment where employees can thrive. By embracing the management waterfall approach, organisations can achieve sustainable success and build a strong foundation for the future.

January 2025