Management in Norway and in most of Scandinavia is different from the rest of the world. While workers in many countries look to the manager for instructions or to report results to, the managers in Scandinavia often seek out employees and tap them on the shoulder to hear what they are up to.

Make no mistake. This is not a euphemism for a lack of hard work, discipline or initiative. Quite the opposite. The special Scandinavian management structure creates more engaged, idea-rich and responsible employees than many other countries’ management regimes – and it releases the creativity which is absolutely fundamental for success in the innovation-driven economy of the future.
    “There is no doubt – a Scandinavian management model exists which differentiates itself from the rest of the world, and which is more in tune with the demands of the future than other management models,” says professor Henrik Holt Larsen at Copenhagen Business School (CBS), who researches management.

Many business leaders have come to the same conclusion. According to Waldemar Schmidt, former CEO of the Danish service firm ISS, the Scandinavian management model is built on a positive view of people and the belief that individuals can make a difference. It ensures “interestingly enough, superior bottom line figures, when you compare Scandinavian companies with their American and European counterparts,” he says.

The question is, however, whether the Scandinavian management style is being pressured by an increasingly globalised world, in which American management techniques often set the agenda, and where the global financial crisis is forcing businesses to get heavy handed with solutions. Or can Scandinavian management contribute to the growth and wealth of which the world is in such acute need? Monday Morning analyses the opportunities and challenges faced by the Scandinavian management model.

Scandinavian management recipe

The Scandinavian management model is characterised by flat hierarchies, greater participation and delegation of responsibility – and is quite the opposite to the hierarchical, authoritarian, command and control-based management style which dominates the way work is organized in many other parts of the world.

Schmidt, who currently sits on a number of company boards and is adjunct professor of strategy and management at CBS, illustrates the difference between McDonald’s and the global service company ISS.
    “McDonald’s has 2,200 people in their head office, while ISS has 80. The difference is that, if you work at ISS, you delegate. At the Swedish service company Securitas, they say that they have 2,000 CEOs. Every subdivision has a manager who has around 100 co-workers under them, and has responsibility for customer care, employees and economy. There are of course controls in the system, but there is no layer between managers who sit in the head office and draw up detailed questions. The power lies with the activities of the individual. Imagine how many manuals they have to write for people at McDonald’s, and how much reporting they must have,” says Schmidt.

The examples are not chosen randomly. Schmidt has conducted a research project at the Swiss management school IMD, in partnership with the consulting firm McKinsey & Co. and headhunting company Egon Zehnder. The project seeks to explain how service industry companies such as Securitas and Group 4 Falck – both suppliers of security with many low educated and professional employees – have achieved international expansion, growth and products to match global success machines such as Walmart and General Electric. Not to mention that they have achieved top rankings on share analyst Stern Stewart’s list of the companies that are best at generating shareholder value. According to Schmidt the explanation is simple:
    “The best service industry companies have a very Scandinavian-based management model. They have small headquarters, few manuals, respect for individual employees and other stakeholders, and they delegate, together with placing great emphasis on training,” he says.

Schmidt is not alone in reaching this conclusions. Many international analysts, including leading management experts such as Harvard’s Sumantra Ghoshal, believe that the best way to create a modern, dynamic and innovative organisation is precisely by establishing flat, unbureaucratic organisations, delegating responsibility, establishing autonomous project groups and to manage with the help of goals and values free from control and command – the “traditional” form of organisation.

Rambøll Management, the Danish management consulting firm, has conducted research among 1,000 Danish companies to analyse the connection between organisational form and the bottom line. The result shows that the “modern” companies have a return on investment of 6.4 per cent, while the “traditional” ones have a return on investment of 2.45 per cent. And while 29 per cent of the traditionally managed companies lost money, this only happened with 16 per cent of the modern ones.

The research also showed that over 30 per cent of these Danish companies could be characterised as “modern”.

That’s no coincidence, as the Scandinavian managers want independent workers. According to the Global Competitiveness Report, the Nordic countries dominate the top of the ranking list of countries in which managers are willing to delegate authority.

Scandinavian cultural power

The Scandinavian management style is deeply anchored in Scandinavian culture, which differs from the rest of the world in a number of key areas. For example, the Scandinavians have a low trust in authorities, and this has a great impact on how Scandinavian leadership manifests itself.
    “Scandinavian belief in equality is close to an equality ideology. We insist on being our own authority,” says Jette Schramm-Nielsen, former management researcher at CBS – now a self-employed management consultant specialising in Scandinavia and the Middle East.

In practice, an equality approach means that employees require and expect to have a great deal of influence and independence in the work place, and that wish has been met. That is a major strength, Schramm-Nielsen points out, because it gives employees the opportunity to use their skills to the full.

Of course, the model has consequences for management responsibility. When command and control is out of the question, motivation and values are fundamental management instruments.

As Göran Carstedt, former CEO of the furniture chain IKEA, puts it: “The challenge is to create an organisation that is worthy of the employees’ unreserved engagement.”

Another thing that is special about the Scandinavians is that they are reluctant to accept control in the forms widely accepted in the rest of the world.
    “If you go to Germany, people expect to be controlled, and, of course, the further south and east you go, the more they expect control. In a country like the USA, employees have to document what they are doing and the results they have achieved all the time. In Scandinavia people are almost offended if someone looks over their shoulder – it is taken as an expression of mistrust,” says Schramm-Nielsen.

When this direct control and steering is ruled out, the decision making process becomes very collective and inclusive, and the organisation becomes flat. When few managers control the employees, the distance between the bottom and the top is short.

Stakeholder capitalism

The Scandinavian ideal of equality has its roots in Protestant ethics. According to the Scandinavian interpretation of Christianity, individuals have a direct connection to God. You don’t need to go via a priest, the bishop or the Pope in order to talk to God, as God is everyone’s. These ideals have had a great influence on the organisation of society – not least in the job market.

The Scandinavian unions and employers negotiate towards consensus-based solutions from a position of mutual respect and dialogue. In most cases this creates greater calm in the job market and major, ill-timed redundancies are relatively rare.

A focus on education helps the cooperation model function, built upon a collective understanding that education and skills are the individual’s key to a good future and, therefore, must be freely available to all. The condition for widespread self-determination and autonomy is that employees are highly educated and that the level of enlightenment is ready to let them make the right decisions by themselves.
    “Without good cooperation with the Nordic trade unions – not least regarding education – the ISS and many other Scandinavian companies would never have become the global concerns they are today,” says Schmidt.

According to Schramm-Nielsen, the Scandinavian companies’ union representatives play a particularly important role in the Nordic model. Thanks to increased training, they have gained a deeper understanding of the businesses and their condition – they read the accounts and understand the challenges – which creates an awareness of everyone being in the same boat. What is good for the company is good for the employees.
    “Even where redundancies are concerned, shop stewards are involved. That is unique. In Germany, France and Spain people are still tied up in old class wars, them against us, management against employees. Neither understands that they have a shared fate and are dependent on each other,” says Schramm-Nielsen.

Waldemar Schmidt describes the Scandinavian acknowledgement of a shared fate as “stakeholder capitalism” – as opposed to the American shareholder capitalism, in which individual interests are favoured at the cost of others. Both world pictures take their starting point in the market which frames wealth creation, but they have different priorities.

The Scandinavian manager will typically prioritise employees first, based on the logic that satisfied employees are productive, which benefits the owners because it creates better products, which the customers demand. The American manager will typically prioritise the customers first, because satisfied customers make the owners happy, which means they can pay the employees and contribute to society.

In this way the order of factors is not meaningless. These two models create very different relationships and different world views. “The Americans aren’t so keen on unions; they would rather make savings than cooperate,” says Schmidt. While the model brings savings in the short term, he suggests that it can have repercussions over the long term. The companies simply lose out on those opportunities to improve their employees’ skills, which cooperation with unions has traditionally given Danish companies.

Innovation in Scandinavia

One of the greatest strengths of the Scandinavian model is knowledge sharing which delivers clear advantages in an innovation-driven economy.
    “We don’t keep knowledge to ourselves – knowledge is power. In many other countries it is used as a resource. If you’ve discovered something, you keep it to yourself. We jump up on the table and tell it to everyone, because we trust each other – trust is the basis for sharing with others,” says Jette Schramm-Nielsen.

This kind of cooperation is a fundamental element of innovation. According to research carried out among the largest international businesses by the Economist Intelligence Unit, the primary source of innovation is a team which cooperates on a task which the management has prioritised. And according to the Global Competitiveness Report, the Scandinavian countries have exactly a number of these innovation promoting process strengths. When it comes to competences such as cooperation, processes, creativity,  or relations, the Scandinavian countries top the world rankings.

According to Holt Larsen, the Scandinavian management style means that it is easier to mobilise employees’ ideas and creativity in the development of new solutions.
    “It is easier to create employee-driven innovation, partly because of the low distance to power,and partly because we can live better with situations which are characterised by experiments, uncertainty and spontaneity,” he says.

Schmidt agrees that the Scandinavian management structure liberates the power of innovation.
    “The model means that contact between managers and employees occurs easily and quickly, which in turn means that you can react quickly to new situations – threats as well as opportunities. That is a clear advantage,” he says (see also article on page 41).

No killer instinct

There is also a downside to Scandinavian management. Experts and researchers together point to one of the greatest problems as being a lack of killer instinct. This can make it difficult for companies to conduct themselves in a global reality where competitiveness requires frontal attacks on their competitors.

Scandinavian values are about equality and consensus, because that is what makes the basis for cooperation and coherency. A killer instinct is build on values such as individualism and displays of raw power – two values which all the rabbit-killing courses in the world have had trouble teaching the Scandinavians. The Danes, the Swedes and the Norwegians would rather talk things through, and in the meantime they run the risk of being overtaken by more aggressive competitors. Therefore, in Norway they have begun to offer courses in how you behave as an authoritative manager abroad.

According to Jette Schramm-Nielsen the many disappointing Scandinavian attempts to conduct themselves internationally, in particular in the American market, are an indication of their lack of killer instinct.
    “The things which are our strengths at home can become weaknesses abroad. You can’t perform globally with that Scandinavian approach – you must fit in with the conditions and controls, otherwise you don’t get any respect. We are far too soft and naive. The Scandinavian model is probably the ideal model for the running of businesses in the future, but we have got to perform in a reality which is not ideal, and which demands that we take care of ourselves out in the world.”

In the long term, Schramm-Nielsen does not really see any alternative to the Scandinavian model, even though many – including the Scandinavian managers themselves – regard it as difficult.
    “Of course, it would be easier if you could just say that I want it like this and like that, and then it happens without further discussion. But what you lose is, of course, all the initiative from the employees, those good ideas and that people play a role,” says Schramm-Nielsen.

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Mikael Lindholm (redaksjon@mandagmorgen.no)