Managing in the knowledge economy… The fair process perspective

SETH TERKPERTheoretically, economists assume that people maximize utility, driven principally by rational calculations of their own self-interest. That is, economists assume people focus solely on outcomes.

This assumption has found its way into much of management theory and practice. It has, for instance become embedded in the tools managers traditionally use to control and motivate employees’ behavior – from incentive systems to organizational structures.

But it is an assumption managers should reexamine because in real life it doesn’t always hold true. People do care about outcomes, but they also care about the processes that produce those outcomes.

They want to know that they had their say – that their point of view was considered even if it was rejected. Outcomes matter, but no more than the fairness of the process that produced them.

Never has the idea of fair process been more important for managers than it is today. Fair process turns out to be a powerful management tool for companies struggling to make the transition from a production-based to a knowledge-based economy, in which value creation depends increasingly on ideas and innovation.

Fair process profoundly influences attitudes and behaviors critical to high performance. It builds trust and unlocks ideas. With it, managers can achieve even the most painful and difficult goals while gaining the voluntary cooperation of the employees affected. Without fair process, even outcomes that employees might favor can be difficult to achieve.

Fair process responds to basic human need. All of us, whatever our role in a company want to be valued as human beings and not as “personnel” or “human assets.” We want to be treated with respect for our intelligence.

We want our ideas to be taken seriously. And we want to understand the rationale behind specific decisions. People are sensitive to signals conveyed through a company’s decision-making process. Such processes can reveal a company’s willingness to test people and to seek their ideas – or they can signal the opposite.


In the entire diverse management context Chan Kim and Renee Mauborgne have studied, people identified three mutually reinforcing principles as the bedrock elements of fair process. These principles are: engagement, explanation, and expectation clarity.


Engagement means involving individuals in the decisions that affect them by asking for their input and allowing them to refute the merits of one another’s ideas and assumptions. Engagement communicates management’s respect for individuals and their ideas. Encouraging refutation sharpens everyone’s thinking and builds better collective wisdom. Engagement results in better decisions by management and greater commitment from all involved to executing those decisions.


Explanation means that everyone involved and affected should understand why final decisions are made as they are. An explanation of the thinking that underlies decisions makes people confident that managers have considered their opinions and have made those decisions impartially in the overall interest of the company. An explanation allows employees to trust managers’ intentions even if their own ideas have been rejected. It also serves as a powerful feedback loop that enhances learning.

Expectation Clarity

Expectation clarity requires that once a decision is made managers state clearly the new rules of the game. Although expectations may be demanding, employees should know up front by what standards they will be judged and the penalties for failure. What are the new targets and milestones? Who is responsible for what? To achieve fair process, it matters less what the new rules and policies are and more that they are clearly understood. When people clearly understand what is expected of them, political jockeying and favoritism are minimized, and they can focus on the job at hand.

Notice that fair process is not decision by consensus. Fair process does not set out to achieve harmony or to win people’s support through compromises that accommodate every individual’s opinions, need, or interests. While fair process gives every idea a chance, it is the merit of the ideas – and not consensus – that drives the decision-making.

Nor is fair process the same as democracy in the workplace. Achieving fair process does not mean that managers forfeit their prerogative to make decisions that establish policies and procedures. Fair process pursues the best ideas whether they are put forth by one or many.

It is easy to see fair process at work at the union level where its violation can produce such highly visible manifestations as strikes, slowdowns, and high defect rates. But fair process can have an even greater impact on the quality of professional and managerial work. That is because innovation is the key challenge of knowledge-based economy, and innovation requires the exchange of ideas, which in turn depends on trust. Executive and professional rarely wear the red armband and go on “aluta”, but when their trust has not been won, they frequently withhold their full cooperation – and their ideas. In knowledge work, then, ignoring fair process creates high opportunity costs in the form of ideas that never see daylight and initiatives that are never seized.

The psychology of fair process, or procedure justice, is quite different from distributive justice. The psychology of distributive justice works like this: when people get the compensation they deserve, they feel satisfied with the outcome. Subsequently, they will reciprocate by fulfilling totally their obligation to the company. Fair process, on the other hand, builds trust and commitment, trust and commitment produce voluntary cooperation, and voluntary cooperation drives performance, leading people to go beyond the call of duty by sharing their knowledge and applying their creativity.


Historically, according to Kim and Mauborgne, policies designed to establish fair process in organizations arise mainly in reaction to employees’ complaints and uprisings. But then it is too late. When individuals have been so angered by the violation of fair process that they have been driven to organized protest, their demands often stretch well beyond the reasonable to a desire for what theorists call retributive justice: not only do they want fair process restored, they also seek to visit punishment and vengeance upon those who have violated it in compensation for the disrespect the unfair process signals.

Lacking trust in management, employees push for policies that are laboriously detailed, inflexible, and often administratively constricting.

They want to ensure that managers will never have the discretion to act unjustly again. In their indignation, they may try to reverse decisions imposed unfairly even when the decision themselves were good ones – even when they were crucial to the company’s competitiveness or beneficial to the workers themselves. Such is the emotional power that unfair process can provoke.

Managers who view fair process as a nuisance or as a limit on their freedom to manage must understand that it is the violation of fair process that will bring about the most serious damage on corporate performance. Retribution can be very expensive.

By Captain Sam Addaih (Rtd)

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