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The Management Revolution That's Already Happening

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“The only way to do great work is to love what you do.”

Steve Jobs

What on earth is happening to management? Formerly self-evident truths are being cast aside. The sacred goal of maximizing shareholder value is now “the dumbest idea in the world”. The search for the holy grail of “sustainable competitive advantage” is now recognized as futile. The "essence of strategy" seen as "coping with competitors" is obsolete. The uni-directional value chainthe very core of 20th Century management thinkingis now a problem, not a solution. The short-term gains of large-scale off-shoring of manufacturing are recognized to have caused massive loss of competitive capacity. Supposed distinctions between leaders and managers have collapsed. To top it off, a slew of recent management books suggest that today’s organizations represent a failure so deep and pervasive that there are hardly words to describe it. A veritable revolution in management is under way.

Although these books have many antecedents, the stirrings of the revolution began in earnest in 2009 with Gary Hamel’s declaration in the landmark HBR article, Moon Shots For Management, following a colloquium with distinguished thought leaders:

“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.”

In the 20th Century, firms had often been successful by following the precepts of hierarchical bureaucracy: “focus on making money”, “tell employees what to do”, “control performance through rules, roles, plans and reports” and “achieve efficiency through economies of scale”.

In the last quarter of the century, corollaries were added: “focus tightly on maximizing shareholder value”, “strategy is about coping with competition” and “lower costs by off-shoring”. These principles worked so long as oligopolies dominated the marketplace. Firms could succeed with limited innovation, often by copying what had already been pioneered by others.

Then globalization and the Internet changed everything. Customers suddenly had real choices, access to instant reliable information and the ability to communicate with each other. Power in the marketplace shifted from seller to buyer. Customers started insisting on “better, cheaper, quicker and smaller,” along with “more convenient, reliable and personalized.” Continuous, even transformational, innovation have become requirements for survival.

Hierarchical bureaucracy couldn’t cope. Attempts at achieving continuous innovation led to unmanageable internal complexity, while attempts at limiting innovation accelerated organizational death.

As Allen Murray noted in the Wall Street Journal, firms practicing traditional management “missed game-changing transformations in industry after industry—computers (mainframes to PCs), telephony (landline to mobile), photography (film to digital), stock markets (floor to online)—not because of ‘bad’ management, but because they followed the dictates of ‘good’ management.”

Initially mature products and firms were wiped out by upstarts that offered cheap substitutes to their products, first capturing low-end customers, and gradually moving upmarket to pick off higher-end customers.

Then change accelerated. Suddenly entire product lines—whole markets—could be destroyed almost overnight as customers defected in droves as a result of “big bang disruption”. Disrupters came out of nowhere and were everywhere at once. Disruption happened so quickly and on such a large scale that it was hard to predict or defend against.

Even as hierarchical bureaucracy was failing in the private sector, its practices were infecting government, non-profits, education and health. “Reforms” here usually involved stricter implementation of hierarchical bureaucracy rather than a shift towards more productive management practices. As a result, performance was pushed even further from the frontier of what is possible. Since the public is coming to expect responsiveness from these sectors similar to that of the private sector, satisfaction steadily declined.

New ways of leading and managing emerged

Yet in this more challenging context, some organizations forged ahead.

  • Apple met the diverse needs of hundreds of millions of individual iPhone users by launching its own 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 an iPhone that is easily adapted to meet the needs, preferences and passing whims of every single user—a feat inconceivable with traditional management practices.
  • Salesforce achieved continuous innovation in a global computer system, with more than two million subscribers and 30 million lines of code, where even a single tiny error can cause the entire system to crash. Self-organizing teams achieve continuous innovation by working in short iterative cycles of test-driven development with direct customer feedback as the work proceeds.
  • The US military coped with asymmetric warfare against elusive terrorists through ”mission command”, an approach built on decentralization, spontaneity, informality, loose rein, self-discipline and initiative. It draws on ability from all echelons. Its communications are multi-directional interactions, not just top-down directives (see chart).

Apple, Salesforce and the US military are not alone. Amazon [AMZN], Salesforce [CRM], Whole Foods [WFM] Toyota [TM], Haier Group, Li & Fung [SEHK: 0494] and Zara [BMAD: ITX] are other prominent exemplars of fundamental change, along with thousands of lesser-known firms. The transition is happening not just in high tech, but also in manufacturing, books, 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 new ways of adding value.

The principles of the Creative Economy

In effect, the management revolution foreshadowed by Gary Hamel has already begun. A new kind of organization is 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 have moved the production frontier of what is possible. A new economy—the Creative Economy—has appeared.

The new way of operating co-exists in the economy along with the old, sometimes even in the same organization. For example, GE is a firm that is still largely practicing traditional management, although parts of it, such as GE Health Care, have begun to operate in a more agile fashion.

The shift is thus not one of “new firms” vs “old firms”. As Bill Fischer, the co-author of Reinventing Giants (2013), says, “Some ‘old economy’ firms are practicing ‘creative economy’ managerial approaches, yet receiving little or no recognition for it.”

What it takes to prosper in today’s different context is now discernable. A series of articles in Strategy & Leadership has sketched the radically different principles of leadership and management by which these organizations have achieved a higher level of performance (see below).

A set of books has similarly been delineating the principles and practices. Once-sacred and supposedly timeless truths of management and leadership are being discarded. New movements are spearheading and disseminating the change (see list below). Business schools are recognizing that they face “a crisis of irrelevance” and are beginning to reflect the shift.

A coherent constellation of fundamentally different principles in leadership and management has emerged. The principles involve not merely the application of new technology or fixes or tweaks to hierarchical bureaucracy. They represent a paradigm shift in the strict sense laid down by Thomas Kuhn: a different mental model of how the world works, leading to a different way of thinking, speaking and acting in the world.

None of the principles or practices is individually new. What is new is implementing them together in a disciplined way to get work done.

The new management canon

The books and articles describing the new paradigm constitute a canon of radically different management. It is appropriate that different writers are fleshing out the canon. The new management paradigm is a large idea and different takes on it can help us get our minds around it.

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 ought to be led and managed.

The books and articles contain insights that are unmistakably relevant to the 21st Century workplace. While drawing on the wisdom of history, these books are not thin copies of what has been said many times before. They come to terms with the truth of our times. Their passion helps us recover a sense of wonder in the workplace, enabling us to look at the world afresh and see how truly inspiring creative work and delighted customers can be.

Leaders need to see that the books and articles:

  • recognize a paradigm shift in leadership and management
  • recognize a coherent constellation of business principles, not a bundle of individual fixes
  • distinguish the principles of the new paradigm from the individuals and firms practicing them
  • separate core principles from a multitude of related practices
  • distinguish drivers from results
  • reflect an historical awareness of a transition of one type of leadership and management to another
  • depict the shape a new kind of economy—the Creative Economy
  • are passionate in their calls for a different future.

Twelve of the books have been discussed in earlier articles: including Fixing the Game (Roger Martin), What Matters Now (Gary Hamel), Reorganize for Resilience (Ranjay Gulati), The Power of Pull (John Hagel, John Seely Brown, Lang Davison), The Innovator’s Prescription (Clayton Christensen et al), The Leader’s Guide To Radical Management (Stephen Denning), The Leader’s Dilemma (Franz Röösli et al), Conscious Capitalism (John Mackey and Raj Sikodia), Peak (Chip Conley), The Lean Startup (Eric Ries), The Ultimate Question 2.0 (Fred Reichheld et al) and Leadership in a Wiki World (Rod Collins).

Six recent additions to the canon draw attention to complementary aspects of the new paradigm: The Elastic Enterprise (2012) by Nicholas Vitalari and Haydn Shaughnessy; The End of Competitive Advantage (2013) by Rita McGrath; Flat Army (2013) by Dan Pontefract: The Connected Organization (2013) by Dave Gray; Enterprise Software Delivery (2013) by Alan Brown and Reinventing Giants (2013) Bill Fischer et al. Each of the new books contributes to institutionalizing the paradigm shift in different ways. (see Featured Readings below).

What the canon contributes

Leaders should recognize that these eighteen books represent, not eighteen unrelated sets of ideas, but rather one core set of ideas explained in eighteen different ways.

The common threads include:

1)   The books recognize a paradigm shift in leadership and management

The paradigm shift involves not merely the application of new technology or a simple set of fixes or adjustments to hierarchical bureaucracy. It means basic change in the way people think, talk and act in the workplace. The books recognize the paradigm shift, and address the deep changes in attitudes, values, habits and beliefs involved in the change.

Whereas the traditional management pursued an ethos of efficiency and control, often treating both employees and customers as things to be manipulated, the new paradigm thrives on the ethos of imagination, exploration, experiment, discovery and collaboration. It deals with employees and customers as independent, thinking, feeling human beings. It embraces complexity as an opportunity, rather than a hurdle to be overcome.

Among the books with the clearest articulation of the paradigm shift are Fixing The Game, The Elastic Enterprise and Conscious Capitalism.

2)      The books describe a coherent constellation of principles

The new paradigm is a coherent constellation of principles, practices, attitudes, values and beliefs, not just a unconnected bundle of management gadgets, processes or technologies. The books recognize that breakthroughs occur not from individual process or technology changes but rather when the goals, principles, practices, values and attitudes join together to form a interacting and consistent set of organizational possibilities.

Many of the principles, processes, practices and technologies of the paradigm shift have existed for some time, including customer focus, teams, empowerment, Agile, values, horizontal communications and so on. But in traditional management, those elements have been playing a minor or temporary role as options, or complements, to the basic way of doing things. Now these elements have moved to centre stage and represent the necessary components of the “new normal”.

Among the books with the clearest articulation of the shift in management paradigm are Reorganize For Resilience and Leadership In A Wiki World.

3)      The books distinguish principles from individuals and firms practicing them

Writers are often dazzled by the success of leaders like Steve Jobs at Apple, Jeff Bezos at Amazon, Marc Benioff at Salesforce and are tempted to view their idiosyncrasies through rose-colored glasses.

For the most part, books in the new management canon avoid this pitfall. They focus on principles, practices, values and attitudes, not hero worship. Instead of saying or implying: “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.

Flat Army is particularly good at putting Steve Jobs in perspective. Flat Army acknowledges that

“Apple was the most valuable company in history,” and “Jobs was innovative, relentless, futuristic, charismatic and successful.

Yet Jobs is far from a perfect model:

“Coupled with his brilliance that was acknowledged by the mainstream, however, was a dark side—a leader extremely closed to mistakes and failures, who would fly into (documented) fits of rage, have tyrannical outbursts, and berate Apple staff in public. He even expressed an arrogant contempt for other people’s ideas or celebrated them as his own…

“Apple might be even greater than it is today if Jobs had employed a more collaborative leadership model not only with those within his inner circle—which he did exquisitely—but also with his entire Apple employee community.”

4)      The books separate principles from a multitude of related practices

Many things need to be done for an organization to be successful in today’s marketplace. My book on radical management in 2010 noted more than seventy practices. Yet no one can remember, digest, and replicate seventy separate practices. Nor does one need to. There is a shorter list of core principles from which detailed practices flow. Here’s my current list:

  • a shift from a goal of making money to the goal of delighting customers profitably. Innovation and transformation are no longer options: they have become imperatives.
  • a shift from controlling individuals to inspiring collaboration among self-organizing teams, networks and ecosystems.
  • a shift from coordinating work by hierarchical bureaucracy with its rules, roles, plans and reports to dynamic linking, with iterative approaches to development with direct customer feedback and interaction with teams and networks.
  • a shift from a preoccupation with economic value and efficiency to an embrace of values that will grow the firm and the accompanying ecosystems, particularly radical transparency, continuous improvement and sustainability.
  • a shift from top-down directives to multi-directional conversations. Instead of telling people what to do, leaders inspire people across organizational boundaries to work together on common goals.

This list of core principles isn’t necessarily final. The principles listed here have evolved since I published my book on radical management in 2010. There is a continuous process of learning. Better formulations will surely emerge. Got a suggestion? Love to hear from you.

Among the books that clearly articulate a coherent core of principles, without getting lost in a myriad practices, are Reorganize For Resilience, and Flat Army.

5)      The books distinguish drivers from results

Organizations are complex phenomena with many interacting parts. There are few simple cause-and-effect relationships. In a world in which inspiring the creativity of employees and partners has become central and in which interconnected customers have become dominant, the linear thinking of traditional management which treated employees as “resources” to be controlled and customers as “demand” to be manipulated doesn’t work.

Since efforts to impose linear thinking on complex situations usually lead to the opposite of what is intended, the principle of obliquity becomes relevant, as discussed in John Kay's book, Obliquity: Why Our Goals Are Best Achieved Indirectly (Penguin, 2012). Where explicit articulation of a goal will result in the complex environment pushing back in the opposite direction, oblique goals will often be more effective.

To take one example:  the goal of delighting customers may make more money than an explicit goal of making money.

Another example: the kind of mass personalization that one sees in an iPhone is the result of certain leadership and managerial practices. The accomplishment of mass personalization lies outside the performance envelope of hierarchical bureaucracy. Asking a hierarchical bureaucracy to achieve it is like asking a pig to fly. Instead, the organization needs to adopt certain leadership and managerial practices, which then enable mass personalization.  Mass personalization is a result, not a driver.

Among the books that do best in distinguishing drivers from results are the Innovator’s Prescription, Leadership in A Wiki World and Lean Startup.

6)      The books acknowledge the history of leadership and management

Three behaviors underlie the general failure of management thinking to advance as a discipline. One is theAmnesia/Eureka!” Syndrome: a tendency to forget the past, and then rediscover it with shrieks of “Eureka!” A second is the Old Wine in New Bottles” syndrome: minor tweaks are hyped as major changes. A third is the Virgin Birth” syndrome: writers and journals systematically eliminate traces of earlier thinking about the subject at hand and present previously documented ideas as having “a virgin birth” without any legitimate parentage.

By contrast, most of the books in the canon are careful to give credit to predecessors, signal alternative viewpoints and demonstrate sensitivity to the evolution of the subject as a discipline. Among the books that do this best are The Power Of Pull and Flat Army.

7)      The books break free from obsolete management ideas

As the paradigm shift takes hold, once-sacred and self-evident truths are being cast aside. The goal of maximizing shareholder value is recognized to be “the dumbest idea in the world” and replaced with "delighting customers profitably." The search for the holy grail of “sustainable competitive advantage” is recognized as futile: competitive advantage is at best temporary. The "essence of strategy" seen as coping with competitors is declared to be obsolete: strategy is about adding value to customers.

The uni-directional value chainthe very core of 20th Century management thinkingis replaced by multidirectional networks, in which 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 and new heuristics for outsourcing have emerged. Supposed distinctions between leaders and managers are dissolving: managers are leaders and leaders also need to manage.

Although some of the books in the canon have not been totally cleansed from this obsolete thinking, as ideas like "maximizing shareholder value" and "strategy seen as coping with competition" have been around so long that they are difficult to shake off, all the books contribute in different ways to expunging these exploded notions from our thinking.

Among the books in the canon that are the most fully emancipated from obsolete management ideas are The Connected Organization and Conscious Capitalism.

8 )     The books point to a new kind of economy:

To varying degrees, the books point to the emergence of different economies operating at different speeds.

The Traditional Economy is the economy that we inherited from the 20th Century governed by traditional management practices. It’s a real economy producing goods and services. Many of the firms in it are strong and powerful and still have plentiful resources, both tangible and intangible. Now these firms have difficulty delivering what today’s more demanding, interconnected customers desire.

As The Elastic Enterprise notes, the practices of traditional management “create profound dis-economies. Scale has come to equate with sclerosis because the costs associated with organizing more and more people scale more quickly than the additional wealth those people create.”

For the moment, the Traditional Economy is getting by on cheap government money while waiting for an improvement in the business cycle. But its problems are not cyclical. It is an economy in steep decline with a grim future.

The dark cousin of the Traditional Economy is Financial Capitalism. It is epitomized by the big banks which are enjoying record profits, and is also supported by cheap government money. Its fundamentals remain shaky. It is a world of financial instruments focused on making money out of money, often disconnected from the real economy. It remains to be seen whether the big banks can shift their energies to reconnecting the financial sector to the real economy and assisting in the transition to the Creative Economy, or whether an even worse financial crash will be necessary to achieve the necessary transition.

Meanwhile the Creative Economy, built on the paradigm shift in leadership and management, is booming. This is a real economy that generates products and services for real customers. It is booming despite the Great Stagnation since 2008.

As The Elastic Enterprise points out, “the techniques that the best performers have invented will spur a new era of economic growth and that their lessons are applicable to companies of all sizes… While other companies were laying staff off, these were hiring and creating opportunity for vast ecosystems of creative people... these companies were not just good for employment opportunities; they were creating new markets as well. We are talking here about real change, along many dimensions, baked into one coherent model for how business should be done…These are the new scale economics— growth without a crippling increase in complexity management.”

Given the stark differences in trajectories and performance of the three economies, aggregate national economic statistics tend to conceal what is going on. In both Europe and US, the Traditional Economy is still dominant: As a result, the US economy appears to be growing anaemically since the meltdown of 2008 (the Great Stagnation) while most of Europe is still in recession. Both the Traditional Economy and Financial Capitalism act as drags on enduring, widespread economic prosperity.

Among the books in the canon that depict the broader economic scene most clearly are The Elastic Enterprise, The Power Of Pull and Conscious Capitalism.

9). The books share a passionate view of management’s future

Passion is not an attribute usually associated with 20th Century management. But books in the radical management canon are imbued with it. These books aspire to enhance life both for those doing the work in it and for those for whom the work is done. They follow the dictum of Steve Jobs: “The only way to be truly satisfied is to do what you believe is really great work. And the only way to do great work is to love what you do.” Traditional workplaces provided few such opportunities. The new management aspires to provide them most of the time.

All of these books share a vision of how things must be, and in some cases already are, different. While the books don’t provide answers to all the problems and difficulties that modern society presents, they reveal an enhanced array of possible responses to life in the workplace. The books all seek in different ways to show the significant patterns and possibilities that lie behind current mediocre appearances. They help us learn from those who have aspired to do better.

The books are inspired by the idea that management must embody truth, both in what is said and how it is said. Clichés about the manipulation of systems and efficiency and incremental fixes will not do. The truth of our organizations, bitter and disheartening as it is, must be faced with honesty and imagination. These books do so with a force and a clarity that have not often been heard in management before.

They show leaders how the paradigm shift in leadership and management generates not only dramatic improvements in cost, size, and time of products and services, and enhancements in convenience, reliability and personalization, but also 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.

Recent additions to the canon of radical management

The End of Competitive Advantage (2013) by Rita McGrath registers the death of one of the sacred principles of traditional management: the essence of strategy is the identification of sustainable competitive advantage. ““Strategy is stuck,” Professor McGrath tells us. “Virtually all strategy frameworks and tools in use today are based on a single dominant idea: that the purpose of strategy is to achieve a sustainable competitive advantage. This idea is strategy’s most fundamental concept. It’s every company’s holy grail. And it’s no longer relevant for more and more companies.”

The Elastic Enterprise (2012) by Nicholas Vitalari and Haydn Shaughnessy explains how firms mobilize whole ecosystems. “Highly competitive companies have prospered through the tough years by transforming their basic operational processes, by becoming elastic. The elastic enterprise can scale its operations without a parallel increase in overhead. These are the new scale economics— growth without a crippling increase in complexity management.”

Flat Army (2013) by Dan Pontefract explores the evolution of the idea that an organization is a collection of connected human beings, not a system of things to be manipulated. It also recognizes the flawed nature of even the best of the exemplars of the new management paradigm.

The Connected Organization (2013) by Dave Gray explores the detailed management practices of the Creative Economy. It discusses how these teams, networks and ecosystems operate and the roles of individuals in them. It has a particularly rich discussion of the shift from a uni-directional supply chain to a multi-directional "podular" network, that can be reconfigured on the fly and supported by a strong platform that serves as a backbone for the "pods".

Enterprise Software Delivery (2013) by Alan Brown explains why the management of software development is generally more advanced in implementing the new management paradigm: in part, this is because software developers had no other choice. In other sectors, firms could pursue losing strategies for years. In software development, failure tends to be immediate and total: after spending more than a billion dollars, one can be staring a blue screen with no idea on how to fix it. Software developers evolved practices known as Agile, Scrum and XP, that are now spreading to other sectors.

Reinventing Giants (2013) by Bill Fischer et al shows how even big old firms in mature sectors can reinvent themselves within the new paradigm. It’s not another story about how this happened in a sexy high-tech sector. It happened in one of the most boring of all domains: refrigerators. The star of the story is a Chinese firm: the Haier Group.

Books in the canon describing the paradigm shift in management

And read also:

Leadership in the three-speed economy

The dumbest idea in the world: maximizing shareholder value

How America lost the capacity to compete

The Phase Change to the Creative Economy

Don’t Diss the Paradigm Shift: It’s Happening

The five surprises of radical management

_________

Journal articles by the author

The following articles on the paradigm shift in management for the journal, Strategy & Leadership, by the author include:

  • A leader’s guide to radical management of continuous innovation” (S&L 2010; Vol. 38, No. 4)
  • “Rethinking the organization: leadership for game-changing innovation” (S&L 1010; Vol. 38 No 5);
  • Masterclass: The reinvention of management Part 1” (S&L 2011, Vol. 39 No. 2),
  • The Reinvention of Management: Part 2: Practices” (S&L 2011, Vol. 39, No. 3);
  • “Masterclass: The essential metric of customer capitalism is customer outcomes”
    (S&L 2011; Vol. 39 No. 4)
  • “Successfully implementing radical management at Salesforce.com” Vol. 39. No 6)
  • From maximizing shareholder value to delighting the customer (S&L, 2012, Vol 40, No 3)
  • “The battle to counter disruptive competition: Continuous innovation vs “Good” management” (S&L 2012, Vol. 40, No. 4);
  • “Gary Hamel: leadership for continuous innovation” (S&L 2012, Vol. 40, No. 5);
  • “Roger Martin: How stock-based compensation poisons leadership (S&L 2013, Vol. 41, No. 1);
  • “How Agile techniques can make manufacturing magic” (S&L 2012, Vol. 40 No. 6);
  • “Is Agile the next best idea for US manufacturing?” (S&L Vol 41 No 2).
  • “Boeing’s offshoring woes: seven lessons lessons every CEO must learn” ((S&L 2013: Vol. 41, No. 3).
  • “Case: What went wrong at Boeing” (S&L 2013: Vol. 41, No. 3)

 Radical management movements

Movements that are spearheading and disseminating the paradigm shift in leadership and management include:

________________________

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

Follow Steve Denning on Twitter @stevedenning