The Financial Times Misses the Management Revolution

Steve Denning, Contributor I write about radical management, leadership, innovation & narrative

Earlier this month, Andrew Hill, writing in the Financial Times, had a timely article exploring whether a management revolution is under way. The article entitled “The Management Revolution” is published in conjunction with an FT Special Report, “The fifty ideas that shaped business today”. Although the article reaches no definite conclusion, it is skeptical about a management revolution for a number of reasons:

·         The fundamental task of management hasn’t changed.

·         Management’s basic challenges haven’t shifted for decades

·         Technology is reinforcing, not changing, management work.

·         Management itself is steadily improving.

·         Management fads and fashions come and go

·         Previously admired firms have been tarnished with time

·         Every management problem is different

·         The big new ideas identified by FT’s judges don’t add up to a revolution

Let’s look at each of these propositions.

“The fundamental task of management hasn’t changed”

The FT writes: “As Drucker wrote in The New Realities (1989), management’s ‘fundamental task” is to ‘make people capable of joint performance through common goals, common values, the right structure, and the training and development they need to perform and to respond to change”. Management, he continued, explains why “for the first time in human history, we can employ large numbers of knowledgeable, skilled people in productive work’.”

This was, and remains, and will always be, the task of management. Ergo, the article implies, no management revolution.

However the idea that the “fundamental task” of management hasn’t changed is not incompatible with the idea of a management revolution. The revolution in astronomy that occurred with the shift from the geocentric view that the sun revolves around the earth to Copernicus’s view that the earth revolves around the sun, left the “fundamental task” of astronomy unchanged: i.e. the study of celestial objects (such as moons, planets, stars, nebulae, and galaxies). The revolution in astronomy concerned how the fundamental task of astronomy was to be conducted.

Similarly, the revolution in management, if there is one, is not a change in the fundamental task of management, but rather how that fundamental task is to be conducted.

The FT is certainly correct that many large organizations haven’t accepted that there is a management revolution under way, in the same way that it took a very long time for the powers-that-be to accept the Copernician revolution in astronomy. At first, the publication of Copernicus’s thesis in 1543 received little attention. As it gained momentum, the Roman Catholic Church issued a decree in in March 1616, banning Copernicus’s book until it could be “corrected” and forbidding any similar book from being published. In 1633 Galileo Galilei was convicted of heresy for supporting the position of Copernicus and was placed under house arrest for the rest of his life. It wasn’t until 1822 that the Church’s prohibition on discussion of the revolution was finally removed. Denial of the revolution for almost three centuries didn’t mean that the revolution wasn’t happening. It began in 1543, not 1822.

“Management challenges haven’t changed for decades”

The FT writes: “[Henry] Mintzberg, drawing on insights from observing how managers manage, claims the basic task and challenges of managers have not varied for decades.”

However a closer look at the current management scene suggests that significant changes to the “tasks and challenges of managers” are in fact under way. Once-sacred and self-evident truths are being cast aside with dizzying speed:

·         The balance of power in the marketplace has shifted from seller to buyer, dictating fundamental changes in the way firms have to be managed.

·         The 20^th Century goal of maximizing shareholder value was recognized in 2009 by its chief exponent, Jack Welch, to be “the dumbest idea in the world”, and is being replaced, according to Roger Martin, the Dean of the Rotman School of Management, with “customer capitalism.”

·         The search for the holy grail of strategy—sustainable competitive advantage—is recognized by Professor Rita McGrath of Columbia Business School as futile:competitive advantage is at best temporary.

·         The “essence of strategy” seen as “coping with competition”, as argued by legendary guru Professor Michael Porter, is now obsolete: the essence of strategy is about adding value to customers.

·         It turns out that the executives of a firm are not, as Nobel Prize winner Milton Friedman argued, “the agents of its shareholders” but rather the employees of the corporation.

·         It transpires that the raison d’être of a firm is not only, as Nobel Prize winner Ronald Coase argued, because it can reduce transaction costs, but also because it can add value for customers.

·         The uni-directional value chain—the very core of 20th Century management thinking developed by Professor Porter—is being replaced by the concept of multi-directional networks, in which interactions with customers play a key role.

·         The short-term gains of large-scale off-shoring of manufacturing are recognized to have caused massive loss of competitive capacity: new heuristics for outsourcing have emerged.

·         Supposed distinctions between leaders and managers, as argued by leadership guru Professor John Kotter, are dissolving: managers are leaders and leaders must be able and willing to get their hands dirty and manage.

·         As a result of a failure of many firms to recognize and respond to these changes, a study by Harvard Business School has concluded that the US has lost much of its capacity to compete.

·         Whereas the traditional management pursued an ethos of efficiency and control, a new paradigm is being pursued by many firms that thrives on the ethos ofimagination, exploration, experiment, discovery, collaboration and self-organization.

·         Whereas traditional management often treated both employees and customers as inanimate “things” to be manipulated, the new management paradigm respects employees and customers as independent, thinking, feeling human beings.

·         The new management embraces the increased complexity inherent in the shift asan opportunity to be exploited, rather than a problem to be avoided.

As a result of these changes in “tasks and challenges”, the performance envelope of what is managerially possible has shifted.

For instance, Apple [APPL] met the staggeringly diverse needs of hundreds of millions of individual iPhone or iPad users by launching its own complex ecosystem—a technology platform that enabled hundreds of thousands of developers to create Apps that could meet every conceivable human need and to offer them directly to customers. The result is that an iPhone or an iPad can be easily adapted to meet the needs, preferences and passing whims of hundreds of millions of individual users—a feat inconceivable with traditional management.

Salesforce [CRM] achieved continuous innovation in a global computer system, with several million clients and more than thirty million lines of code, where even a single tiny error might cause the entire system to crash, by drawing on the decade long-experience of the software development practices known asAgile, Scrum and XP. It used self-organizing teams proceeding in short iterative cycles of test-driven development with direct customer feedback as the work proceeds. The result is continuous innovation and strategic adaptation far beyond the performance capabilities of hierarchical bureaucracy.

Does all this add up to a management revolution? We do know that:

·         Managers steeped in the precepts of hierarchical bureaucracy tend to be disoriented by these changes unless and until they adopt a different way of understanding how the world works.

·         Workers who have experienced the thrill of a workplace implementing these shifts usually consider a return to the dispiriting environment of traditional bureaucracy unthinkable.

For those involved in the emerging paradigm of management, it certainly feelsvery different. Objectively viewed, the performance capability of organizations operating in the new mode has shifted. At a certain point, it may be necessary—even for traditionalists—to accept that something that looks startlingly like a management revolution is indeed under way.

“Technology is reinforcing, not changing, management”

The FT article continues: “‘Even the new information technologies… may actually be reinforcing longstanding characteristics of management work,’ Mintzberg writes in Managing (2009).” Moreover “plenty of management techniques have helped to improve the ability of managers to fulfil their fundamental task…”

While technology may be strengthening some aspects of management, phenomena such as Apple’s ecosystem of several hundred thousand App developers or Salesforce’s networks of self-organizing teams of software developers continuously innovating on a system of 30 million lines of code lie beyond the performance capabilities of traditional management of command-and-control. Radically different management techniques are involved.

The tone of the FT article is that traditional management is fundamentally ok. There is no need for any basic change. A similar view emerged from a recent survey of Harvard MBA Alumni: management is “strong” and “improving”.

However a very different perspective emerged from Gary Hamel’s landmark article in Harvard Business Review in January 2009, Moon Shots for Management, following a colloquium with distinguished thought leaders (that included Professor Mintzberg):

“Tomorrow’s business imperatives lie outside the performance envelope of today’s bureaucracy-infused management practices… Equipping organizations to tackle the future would require a management revolution no less momentous than the one that spawned modern industry.”

 This was a recognition that management as conducted in the 20^th Century wasn’t coping with the challenges of the 21^st Century marketplace. Even though some firms made money in the short-run, by 2011 the rate of return on assets and on invested capital of US firms was only one-quarter of what it had been in 1965, as shown by Deloitte’s Shift Index study of 20,000 US firms.

When analysts looked around the world in the light of Gary Hamel’s declaration, and of the findings of the Shift Index, they found that a new kind of organization was already emerging, capable of achieving both continuous innovation and transformation, along with disciplined execution, while also delighting those for whom the work is done and inspiring those doing the work. These organizations were moving the production frontier of what is possible.

A whole host of firms in addition to Apple and Salesforce, such as Whole Foods [WFM], Amazon [AMZN], Toyota [TM], Haier Group, Li & Fung and Zara, along with thousands of lesser-known firms,  are pursuing the change. The transition is happening not just in high tech, but also in manufacturing, books, journalism, music, household appliances, automobiles, groceries and clothing.

None of these organizations has arrived at any final state or equilibrium: in each case, management practices continue to evolve. Nor is any of these organizations perfect, as they have to cope with a context that is filled with contradictions. Their virtue lies in the creative energy with which they are pioneering revolutionary ways of adding value.

“Fads and fashions come and go”

The FT writes “the fads and fashions of management change with befuddling frequency,” with the implication that management writing is mostly noise to which we don’t need to pay much attention.

What is different today is that we are not dealing with one book or one fad or one fashion but a coherent constellation of principles and practices that are supported by many writers. A set of books have appeared that spell out the elements of this canon of a management revolution.

Different writers are now fleshing out the components and details of the new management canon. Despite differences in terminology, emphasis and coverage, the commonalities in these books are more significant than the differences. In fact, the differences between them are minor compared to the gulf between, on the one hand, the way most large organizations are actually led and managed today and, on the other, the way these books say they should be led and managed.

This is not some fad that was dreamed up last week and that will evaporate next Saturday. The individual components of the new management paradigm aren’t new: a whole body of knowledge exists about how they work and why. What is new is how the components are brought together in a coherent and consistent way.

“Previously admired firms have been tarnished with time”

The FT writes: “Even successful management theories, such as those espoused by Tom Peters and Robert Waterman in In Search of Excellence, or by Jim Collins and Jerry Porras in Built to Last, tarnish with time, as the companies studied fail to keep up with the latest business trends.”

As it happens, the only two books cited in favor of change are several decades old. They were written before the Internet and do not reflect the management paradigm that has emerged in the last few years. Moreover neither In Search of Excellence (1982) nor Built to Last (1994) even tried to present a coherent constellation to business principles that aspired to replace the existing management paradigm. They accepted the principles of the 20^th Century management paradigm. They were written at a time when the management paradigm that is replacing hierarchical bureaucracy had not yet emerged.

The principles of the revolution in management now under way form a coherent constellation of principles that is separate from the individuals and firms practicing them. For the most part, the more recent books describing the new management paradigm focus on principles, practices, values and attitudes, not hero worship. Instead of saying: “Do what Steve Jobs did” or “Do what Apple did”, they say: follow these principles, practices, values and attitudes, which were wholly or partially exemplified in the behavior of Steve Jobs and Apple.

Thus even if Apple’s current CEO Tim Cook were to pursue a different set of principles from his predecessor, with a resulting decline in Apple’s performance, this would not invalidate or “tarnish” the management principles pursued by Apple under Steve Jobs. The fact that Apple and Steve Jobs didn’t always follow the principles of the new paradigm doesn’t by itself discredit the principles. The validity of the management principles is conceptually separate from the firms and individuals pursuing them.

“Every management problem is different”

The FT writes: “As Charles Handy, the veteran management thinker, now in his 80s, told the FT in a recent interview: ‘The most that I can do is to cast [managers’] problems and opportunities in a different light so they see them more clearly. But what they do about it and what the answers are, no, I don’t have them. So I’m never going to have three rules for success, or this is the answer to leadership, or anything like that. I think that’s impertinent and bound to be wrong anyway most of the time because…. every problem is different.’”

The fact that each managerial problem is different in some way doesn’t mean that we can’t say anything useful about how to approach it. It is helpful for managers to learn that some widely-accepted management principles that used to work reasonably well most of the time no longer work very well or even at all. It could also be useful for managers to learn that other management principles are emerging that have been very successful in similar settings and hold out great promise for wider application.

It’s not very helpful to suggest tackling each problem from scratch. The task of management theory and education is to identify viable principles of action, discard obsolete principles, validate new ones and share them with those faced with practical challenges of getting things done in the real world. In Charles Handy’s words, such principles can help “cast managers’ problems and opportunities in a different light so they see them more clearly.”

“The ideas identified by FT’s judges don’t add up to a revolution”

The FT writes: “The FT jury chose leadership, ethics, strategic management and the spread of business educators and advisers… for the list of the 50 big business ideas.”

The FT is obviously correct in thinking that this particular set of “big management ideas” as chosen by its judges doesn’t add up to a management revolution. However the choice of these particular ideas as “the big business ideas” in management is oddly eclectic and superficial at a time when large transformational changes are already under way in a significant scale, as outlined above.

In fairness to the FT, the title of their study is “The fifty ideas that shaped business today”, not “The fifty ideas that will shape business tomorrow.” Perhaps the ideas chosen by the judges do reflect business as it is practiced in many large organizations today, which are still mostly operating on the 20^thCentury management paradigm. However as noted in the Shift Index, organizations in this mode are for the most part in decline and are going out of business faster and faster.

It may be time therefore to take a hard look at the way organizations are being run today. We might come to see that, for all the material gains of 20th Century management, a workplace in which only one in five workers or managers is fully engaged in his or her work is not an accomplishment to celebrate. We might recognize that our young people deserve better than a “jobless recovery”. We might go beyond clichés about the efficiency and improvements of management and face the shortcomings of our current organizations, bitter and disheartening as they are, with honesty and imagination.

We might come to see that the management revolution now under way is a better way of getting things done in the world—more satisfying for the people doing the work, more delightful for those for whom the work is being done, better for society as a whole and exponentially more profitable for the organizations themselves. And it works just as well in the public sector as the private. We might actually come to see that the management revolution is good news for almost everyone.

As a picture of yesterday’s firms, the FT study may be valid. But the future looks very different. The management shift now under way generates not only dramatic improvements in cost, size, speed and time of products and services, and enhancements in convenience, reliability and personalization. It also creates new ways of socializing, new ways of living these possibilities, new meaning in how time is spent and fresh understanding of what it means to be fully alive. A new kind of organization thus is emerging, along with a new kind of economy: the Creative Economy.

So let’s set aside the fifty ideas that shaped business today.  Instead, let’s look forward to a successor study from the Financial Times that will–hopefully in the near future–elaborate on “The fifty big ideas that will shape business tomorrow.”

Steve Denning’s most recent book is: The Leader’s Guide to Radical Management (Jossey-Bass, 2010). Follow Steve Denning on Twitter @stevedenning