March 21, 2009

Three forces that will transform management


By Gary Hamel
26 February 2009

The technology of management—the tools and techniques we use to mobilize human effort—is likely to change dramatically over the next few years. Modern management was invented a century ago to solve one overriding problem: how to organize work at scale with ever-increasing productivity. This problem is still important, but organizations now confront a new set of challenges, which cannot be solved with Industrial Age management practices and structures.

Today, the overriding problem for every organization is how to change, deeply and continually, and at an accelerating pace. We live in a world where change is “shaken, not stirred.” Yet in most organizations, practices and structures reflexively favor the status quo over change and renewal. We see entire industries—for example, pharmaceuticals, music, advertising, and publishing—where the incumbents are struggling to invent their way out of slowly dying business models.

The barriers that once protected large companies from the winds of creative destruction are crumbling. The result: hypercompetition and relentless pressure on margins. In this environment, the returns on “incrementalism” are going down while the premium on innovation is rapidly increasing. In most organizations, innovation is still mostly an afterthought. It’s a project, an initiative, or a function, but it’s not an activity that involves everyone, every day.

The need to adapt and innovate will require organizations to better use their human capital. For organizations to succeed in today’s “creative economy,” they need employees who bring more than their diligence and expertise to work: employees must also bring their imagination and passion. Again, there’s much work to be done here. Global surveys show that fewer than 20 percent of employees—and in some countries as few as 2 or 3 percent—are highly engaged in their work. Most people are just not emotionally or intellectually committed to what they do on the job. Perhaps companies could afford that when most employees were just expected to follow the rules, but today this lack of engagement is competitively untenable.

Unless organizations in the developed world want to join the race to the bottom, they must find a management model that encourages people to bring the very best of themselves to work everyday. For all these reasons tomorrow’s business leaders must create companies that are more adaptable, innovative, and inspiring than the bureaucratic, top-down organizations that predominate today.

When you look back at the history of management, you find that it was the management pioneers that became the 20th century’s industrial giants: GE brought management discipline to science and helped to create the world’s first R&D labs. P&G developed methods for creating value around brands—assets that didn’t even appear on the balance sheet. In this new century, I’m confident that bold management innovators will be the winners.

In addition, I believe there’s a good chance that the technology of management will change as radically in the next few decades as it did in the early part of the last century. Three things will drive this new management revolution. First, as I described earlier, companies today face a set of new and inescapable challenges that lie outside the performance envelope of management as usual. The second driving force is the Internet, which has spawned a vast array of new tools for managing collaboration. In the past, nothing could be done at scale without a lot of bureaucratic structures. Now thousands of people can collaborate around the world online with little in the way of formal hierarchy or management structures. Suppose, for a moment, that ten years ago someone had surveyed the top 100 executives in each of the Fortune 500 companies—that’s 50,000 business leaders—and asked them if they could imagine a time when a disparate army of volunteers from across the world, with no formal control processes, no budgets, and no real funding, could create one of the most complex of all products: a computer operating system. I doubt that one executive out of a thousand would have said, “Sure, this will happen.” Yet the Linux operating system was developed in precisely this way. So we should be asking ourselves, what are the potential management breakthroughs that we can scarcely imagine?

These new Web-based tools will allow hierarchies to form around natural leaders rather than beneath the individuals who have been given formal, hierarchical appointments. They will democratize the workplace and give everyone the chance to help create strategy and offer advice on critical issues. This won’t happen overnight, but organizations will eventually figure out how to use these new tools, just as those early management pioneers learned how to use the telegraph and then the telephone to better manage large-scale organizations.

The values and attitudes of the Millennials now entering the work force make up the third challenge that will compel organizations to retool their legacy management models. If you spent your adolescence creating, collaborating, and learning on the Web, you’ve developed some sensibilities that will be very hard to change once you enter the work force. One of these is the belief that all ideas should compete on a level playing field. The twentysomethings who take this as a point of faith won’t want to work in organizations where a senior executive’s point of view gets an extra measure of credibility simply because he or she sits higher up in the hierarchy.

This new generation also believes that all information should be accessible. The ethos is to share information freely, not to dole it out on a need-to-know basis, as management often did in the past.

What’s more, this new generation believes that people should be measured on the basis of their contributions, not their credentials. When you post something on YouTube or write a blog, nobody asks, “Did you go to film school?” “Do you have a journalism degree?” People ask, “Was it funny?” “Was it incisive?” So any company that hopes to hire the best and the brightest will have to confront the need to dramatically change how they manage and how they organize, because the value system found in most organizations today is antithetical to the value systems that drive collaboration on the Web.

These three factors—inescapable challenges that defy conventional management wisdom, new social technologies that allow human beings to accomplish great things without the weight of bureaucracy, and a new generation of employees who come to work preloaded with antibureaucracy values—are going to force a fundamental rethink of how we lead, manage, and organize. Already you can see harbingers of the revolution to come: if your company isn’t on the reinvention curve, it’s going to be at a serious disadvantage. Just as organizations spent huge amounts of energy over the past decade reinventing their operating models—their logistics, supply chains, and customer support—they must now commit themselves to reengineering their management models.

Historically, the diffusion rate for new management ideas has been pretty slow. The principles of Total Quality Management, for instance, were first applied in a few Japanese companies after World War II, but it wasn’t until the 1980s that they finally went mainstream. I’d like to believe that we can change a bit faster this time. But there will be resistance. Executives have worked hard for the privileges they enjoy in the current system and won’t be eager to abandon them.

The new management pioneers may come from Brazil, China, India, and Mexico—and from other parts of the world where the Western management model is not yet thoroughly entrenched. Young companies are often filled with equally young employees who have little to unlearn. If I had to make a bet, I’d wager that tomorrow’s most progressive management innovators won’t come from the Fortune 500.

1 comment:

AxelS said...

Glad I found it the link to the McKinsey blog is no longer working.
I referenced you here: And am now update the post with what happened with our "New Enterprise"