Our dominant management methods and theories are now a century old – and are no longer suitable for what they have to do. That’s the overall argument of Gary Hamel‘s new book, The Future of Management, which he spells out in a recent ‘conversation’ with McKinsey Quarterly. But while he thinks that the new models are clear, it’s not clear how long they’ll take to emerge into practice.
Hamel’s view on the new model of management is this:
“The outlines of the 21st-century management model are already clear. Decision-making will be more peer based; the tools of creativity will be widely distributed in organizations. Ideas will compete on an equal footing. Strategies will be built from the bottom up. Power will be a function of competence rather than of position. In terms of the future of management, we’re at the beginning of what will be a fairly long journey. You can see some of the pieces starting to come together, but we’re not there yet.”
This is alright, as far as it goes. Hamel thinks it’s necessary because of the pace of change has been transformed by technology (the ‘it’s sped up and it’s going to keep getting faster’ argument). But I think this is a little prescriptive – and descriptive. It doesn’t help get to the ‘why’.
The conventional wisdom on why the modern firm exists in the form that it does derives from the economics of Ronald Coase, who won the Nobel Prize for his theory. In the 1930s, Coase argued – in effect – that by putting a boundary around a group of workers and defining them as ’employees’ firms reduced the transactions costs between those people; they didn’t need to make an individual agreement, for example, every time they wanted to share an idea.
Technology, the internet in particular, has reduced transaction costs significantly. And at the same time, the literature of open systems has increasingly embraced the organisation. Emery and Trist wrote their influential paper on The Causal Texture of Organisational Environments more than 40 years ago. Recent popularisers such as Margaret Wheatley and Richard Pascale have connected this to notions of complexity and organisations as complex adaptive systems.
In contrast, the existing models of management, which originally derived from the innovations of people like Frederick Taylor and his notions of “scientific management” are effectively about defining and constructing the organisation as a closed system in order to manage it efficiently.
So: the reason that management has to change is that transaction costs have fallen at the same time as the costs of hearing complex environments and adapting to them have risen. Which means that managers are doing something different.
In fact, Hamel has a more radical take on this elsewhere in the conversation with McKinsey:
“I think we’re on the verge of what I would call a postmanagerial society. The idea that you mobilize human labor through a hierarchy of overseers and bureaucrats and administrators is going to look extraordinarily antiquated a decade or two from now.”
Some of the emerging models of the firm are radical; they put the managers at the service of the other staff, and do so because the staff are closer to the customers, and are able to listen better to the external environment. Interestingly the best examples aren’t in the affluent North, but in places such as Brazil (Semco) and India (HCL Technologies).
In contrast to these genuinely radical examples, Lowell Bryan, a McKinsey consultant whose just written a book on mobilising talent to promote innovation, who took part in the conversation with Gary Hamel, still believes that you can deploy centralised models to achieve this goal. But maybe that’s still where the consultancy bucks are to be found:
I like the notion of designing a managing concept or master plan—a master architecture, if you will—for every company. Such a master plan should lay out the big foundational elements to get your organization to work differently, including, for example, what is your fundamental metric for performance? Should it be return on capital or profit per employee? Once you’ve designed your master plan, you can launch a series of initiatives aimed at achieving your goals.
One of the features that Hamel notes is that transformational change usually happens in companies only after a crisis. The academic in him would clearly like companies to manage their own transformations before they have to. But the reason that it takes a crisis is because the leaders are usually those most insulated from the external environment. In this respect, it is revealing that – in the quote I used at the start of this post – he uses the metaphor of “bottom up” to describe the future of the organisation. This is still a metaphor about organisation as machine. In the world of complex environments, strategies have to be built from the outside in.