The Death—and Reinvention—of Management - Stephen Denning

I am currently working on an article that synthesizes the thinking in a whole host of recent management books that propose the reinvention of management, including: Reinventing Management by Julian Birkinshaw, Reorganize for Resilience by Ranjay Gulati, The Power of Pull by John Hagel, John Seely Brown and Lang Davison, Delivering Happiness by Tony Hsieh, Peak by Chip Conley, Employees First, Customers Second by Vineet Nayar,  Drive by Dan Pink, The Design of Business by Roger Martin, The Dragonfly Effect by Jennifer Aaker and Andy Smith, Empowered by Josh Bernoff and Ted Schadler, Open Leadership by Charlene Li, Enterprise 2.0 by Andrew McAfee, Succeeding with Agile by Mike Cohn, Buy-In and A Sense of Urgency by John Kotter, as well as my own book, The Leader’s Guide to Radical Management.

While doing full justice to none of the books individually, I have taken a shot in the article at drawing out the common themes in all of the books so as to make this stream of thinking more accessible to a broader audience. It's a draft: please comment!

 

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THE DEATH—AND REINVENTION—OF MANAGEMENT

Among human inventions, management has been one of the most successful. Over the twentieth century, it contributed to a fifty-fold increase in the productivity of workers and a massive enhancement in the material standard of living in the developed countries. In many ways, the modern corporation is a stunning economic accomplishment.

What then are we to make of a rash of recent books suggesting that management as we know it today is seriously problematic? According to Matthew Stewart, management is “a myth”. Professor Julian Birkinshaw of the London Business School tells us that management has “failed”. According to Alan Murray of the Wall Street Journal, we are looking at “the end of management”, while CEO Jo Owen has written about “the death of management”. Gary Hamel tells us that “[e]quipping organizations to tackle the future would require a management revolution no less momentous than the one that spawned modern industry.”

Five Fundamental Shifts in Management Practice

Overall, we have strong evidence that current management practices represent a set of economic, social and political problems of the first order,[i] which are unlikely to be resolved by a single fix, such as getting more employee buy-in, or instilling a sense of urgency,  or introducing new technology platforms.

This is why business leaders and writers are increasingly exploring a fundamental rethinking of the basic tenets of management. Among the most important changes proposed are five basic shifts, in terms of the firm’s goal (a shift from inside-out to outside-in), the role of managers (a shift from control to enablement), the mode of coordination (from bureaucracy to dynamic linking),  the values being practiced (a shift from value to values) and communications (a shift from command to conversation).

Individually, none of these shifts is new. Each shift has been pursued individually in some organizations for some years. However what we have learned is that when one of these shifts is pursued on its own, without the others, it tends to be unsustainable because it runs into conflicts with the attitudes and practices of traditional management.

When the five shifts are undertaken simultaneously, the result is sustainable change that is radically more productive for the organization, more congenial to innovation, and more satisfying both for those doing the work and those for whom the work is done.

Shift #1: New goal: From inside-out to outside in

Traditional management has encountered problems, not because managers have forgotten how to manage, but rather because the world has changed and management practice hasn’t. Among the most important changes in the marketplace is the shift in the balance of power from seller to buyer. Fifty years ago, large corporations were essentially in control of the marketplace. No longer. The advent of global competition, customers’ access to reliable information and their ability to communicate with each other has meant that the customer is now in command.

To succeed in this marketplace, Reorganize for Resilience makes the case that firms must shift from an inside-out perspective (“We make it and you take it”) to an outside-in perspective , “We seek to understand your problems and will surprise you by solving them.”  The shift goes beyond the firm paying more attention to customer service: it means orienting everyone and everything in the firm on providing more value to customers sooner.

The shift was foreshadowed in 1973, by Peter Drucker when he wrote: “There is only one valid definition of business purpose: to create a customer. . . . It is the customer who determines what a business is. It is the customer alone whose willingness to pay for a good or for a service converts economic resources into wealth, things into goods. . . . The customer is the foundation of a business and keeps it in existence.”

In 1973, it was enough for an organization to have a customer—someone who is willing to pay for the good or service. In today’s more intensively competitive world, merely having a customer who is willing to pay for the good or service is a precarious existence for any firm. The key to an enduring future is to have a customer who is willing to buy goods and services both today and tomorrow. It’s not about a transaction; it’s about forging a relationship. For this to happen, the customer must be more than passively satisfied.

Different writers have described the shift in different terms but still related to this outside-in perspective. In one version, the firm must delight the customer (The Leader’s Guide To Radical Management).  In another, the firm must deliver happiness (Delivering Happiness) or even joy (Peak).  In essence, what all these writers are saying is that the organization must do more than meet customer expectations: the firm must generate a continuous stream of new value to its clients that generates surprise by meeting needs that the customers may not even know that they had.Time assumes a new importance: if value can be delivered sooner, it is more likely to generate delight. As reformulated, the goal of the firm accurately mirrors the fundamental transformation in the power structure of the marketplace—or as Roger Martin has called it, a transition from shareholder capitalism to customer capitalism.

In this perspective, the purpose of the firm shifts from making money for shareholders to client primacy. The firm makes money, but this is the result of delighting the customer, not the goal. As Martin has pointed out, when the firm aims single-mindedly at making money for its shareholders, then it is drawn towards doing the very things that will lose money for the shareholders in the medium term. As Reinventing Management notes, the principle of obliquity applies: an indirect goal (delighting clients) is more apt to make money than a direct focus on money-making.

Continuously generating more value for customers is not just the goal for the CEO or the marketing department: it becomes the operational goal of everyone in the organization.

For most people, the most familiar example of the shift will be Apple, which over the last ten years has with a stream of products—iPod, iMac and iPad—has delighted its customers and increased its market capitalization more than tenfold.

An exemplar on a smaller scale is Zappos.

Zappos is a web-based shoe store that became a billion dollar company in ten years by focusing on delighting the customer. Its CEO, Tony Hsieh, explains how this works: Zappos runs its warehouse 24/7 which isn’t the most efficient way to run a warehouse but it is the way in which Zappos can delight its customers. When a customer orders by midnight EST, and asks for (free) two-day shipping, they are pleasantly surprised when the order shows up on their doorstep eight hours later. Everything that happens in Zappos is aimed at creating a “Wow!” experience for their customers.

In the business-to-business world, Reorganize for Resilience cites Lafarge North America as an exemplar. (Lafarge is a French industrial company specializing in cement, construction aggregates, concrete and gypsum wallboard. It currently is the world's largest cement manufacturer by mass.)

Lafarge North America went from an inside-out attitude (You buy the cement we sell) to an outside-in perspective of solving customer problems.  As they learned more about their customers’ needs, they discovered a mix of products and services that would help solve customers’ problems, as well as opportunities to create new offerings. Some offerings were customized for particular customers, while others were scalable platforms for large groups of customers.

Some writers assume that if management gets out of the way then empowered workers will automatically direct their energies towards adding new value for clients. However a more sustainable approach recognizes the reality that human beings are a varied bunch. Several books, including The Leader’s Guide to Radical Management and The Ultimate Question insist that the firm should trust but also verify, by making the goal of adding new value for clients explicit and systematically measuring whether it being met.

Shift #2: New role for managers: From controller to enabler

Focusing on continuously adding new value for clients requires a change in the way work is carried out, because a traditional bureaucracy was not designed for innovation or delighting clients. It was designed to produce consistent performance from largely non-skilled workers. This is one reason why efforts by traditional management to enhance customer focus have tended to flounder. The other is that as work increasingly became knowledge work, bureaucratic practices undermined a key ingredient of productivity: worker morale.

To reach the new level of performance, the organization has to empower those doing the work, so as to facilitate collaboration, rapid learning and innovation. The result is a dramatic shift in the role of the manager from controller to enabler. Instead of the workers reporting to the managers, the managers are accountable to those doing the work and for removing any impediments that are hindering the work. This reversal of polarity recognizes that the engine of productivity, innovation and creativity resides in the energy and ideas of the people doing the work, working together across boundaries, drawing on new technology, to become more productive and innovative. Enabling talent unlocks passion and energy. This means that managers must inspire, motivate, encourage collaboration and make the workplace meaningful.

20th Century thinking drew a distinction between leaders (who articulated goals and inspired change) and managers (who got things done). In the new role for managers, the distinction dissolves:  managers have to be leaders. They must articulate goals, inspire change and remove impediments. It is the workers--those doing the work--who get things done.

An exemplar of the approach is Vineet Nayar, the CEO of HCL, a software services company headequartered in India. Nayar saw that the people doing the work were the ones who created value for the customers. Taken together they created the value zone within the organization. Without them, the firm was nothing but a shell, layers and layers of management and aggregators who had nothing to offer to the customers. The management didn’t live in the value zone or anywhere near it. Often, management got in the way of creating value. Management had to stop wasting the employees’ time by requiring them to make endless presentations about irrelevant things and write reports about what they had or had not done and start supporting them and enabling them to create more value for customers. In this way, the value zone becomes the center of the organization.To implement his thinking, Nayar introduced a number of changes, including allowing all staff in the organization to make inputs into the evaluation of managers at all levels.

Another example is Li & Fung:

Li & Fung is a $15 billion company, headquartered in China and orchestrating 14,000 factories in China and around the world. Li & Fung owns practically nothing. Its role is to figure out a way to orchestrate factories, so that by coming together, they can achieve performance that they could never achieve individually. All are working on extreme specialization. For example, to manufacture a particular garment, Li & Fung might source the yarn from Korea, dye it in Thailand, weave in Taiwan, cut it in Bangladesh, assemble it in Mexico, and bringing zippers from Japan and come up with something that is better than anyone else in the world can do. 

The language used to articulate the new role of managers is varied and includes: "scalable learning and collaboration through open pull platforms in which people are encouraged to get access, attract resources and create" (The Power of Pull); “networks of self-organizing teams” (The Leader’s Guide to Radical Management); “putting employees first” (Employees First, Customers Second); “autonomy” and “intrinsic motivation” (Drive); "design thinking" (The Design of Business) “distributed, democratic, self-managing” (Open Leadership); “empowerment” (Empowered). Despite the differences in terminology, the common theme of all these books is the idea of mobilizing the energies and talents of those doing the work so that they become more productive, more creative, more collaborative, and more able to learn and innovate quickly.

The raison d’être for the very existence of the firm shifts from the reduction of transaction costs behind walls and tight control to scalable collaboration, learning and innovation.

Shift #3: New coordination: From Bureaucracy to Dynamic Linkage

One of the great achievements of the modern firm was disciplined execution with scalability. Very large numbers of people could work together and achieve consistent results. Through the use of detailed plans, rules and processes, management specified both the goal and the methods for achieving that goal was to be achieved; progress was systematically tracked by reports to managers, so that any deviations could be identified and if necessary punished.

In today's workplace, this leads to several major problems. First, bureaucracy is inherently demotivating, and in knowledge work, motivation is the key to productivity. Secondly, this way of working is not good for innovating in a world in which innovation is critical. Third, bureaucracy isn’t agile enough to delight clients, cope with social media or adjust to the quicksilver changes in today’s marketplace. As a result, efforts by firms to become more customer-focused or to establish autonomous teams tend to come undone when they encounter the bureaucratic methods of coordination used by traditional management.

To mesh the efforts of autonomous teams and client focus while also achieving disciplined execution requires a set of measures that might be called “dynamic linking”. The method began in automotive design in Japan and has been developed most fully in software development with approaches known as “Agile” or “Scrum”. 

“Dynamic linking” means that (a) the work is done in short cycles; (b) the management sets the goals of work in the cycle, based on what is known about what might delight the client; (c) decisions about how the work should be carried out to achieve those goals are largely the responsibility of those doing the work; (d) progress is measured (to the extent possible) by direct client feedback. The most complete articulation of the practices of dynamic linkage in software development are set out in Succeeding with Agile, and as applied to general management in The Leader’s Guide to Radical Management.

As The Power of Pull points out, one proceeds “by setting things up in short, consecutive waves of effort, iterations that foster deep, trust-based relationships among the participants… Knowledge begins to flow and team begins to learn, innovate and perform better and faster.… Rather than trying to specify the activities in the processes in great detail.., specify what they want to come out of the process, providing more space for individual participants to experiment, improvise and innovate.”

Shift #4: From Value to Values

Given its goal of making money for shareholders, the traditional organization was preoccupied with value, rather than values. Douglas Smith, in On Value and Values notes that “[v]alue connotes a pointed estimation of current or anticipated worth never too distant from monetary equivalence. There is no value that is not a dollar value….The plural, ‘values’, is very different from the singular, ‘value’. Values are estimations not of worth but of worthwhileness. Unlike value, talk of values ignores money; it opines on timeless appraisals instead of transient ones. There is a deep backward- and forward-looking quality to values. If value is what makes us wealthy, values, we assume and regularly assert, are what make us human.”

In the traditional organization, a preoccupation with value encouraged firms to cut costs and eliminate the very things that are needed to generate the future and instead to pursue “bad profits”, i.e. profits made at the expense of customers. Such tactics are dangerous in today’s world: when customers know everything about a company, the increased transparency has effectively changed the rules of business forever.

When the firm's goal shifts from making money for shareholders to providing more value to customers, there is a necessary shift from a preoccupation with value to a preoccupation with the values that will grow the business by generating innovation and customer delight.

The Power of Pull, Open Leadership, The Dragonfly Effect, and The Leader’s Guide to Radical Management thus point to the need for consistent adherence to values that are aligned both with delighting the client and motivating autonomous teams—radical transparency and continuous improvement, trust, honesty, caring for the environment and openness to outside ideas.

Shift #5: Communications: From command to conversation

In his classic study of 1992, anthropologist Alan Fiske pointed out that three elementary social relationships dominate human relationships in all cultures: social norms, authority ranking, and market pricing.[ii]

The challenge for managers today is that in trying to elicit the energies, imagination, and creativity of their workers, they need to communicate predominantly through the langauge of social norms, against a history in organizations of relationships dominated by hiearchy and to a lesser extent by market pricing.

The tensions among these three domains are significant. The hard, sharp edges of money-based discussions or the sneer of cold command can slice through the warm, convivial world of social norms like a knife and kill it on the spot.

To be operative, social norms have to be front and center at all times in the relationship. That’s because social norms are allergic to communications that smell of hierarchy or market pricing . Studies show that the mere mention of money or pulling rank is enough to kill the warmth and conviviality of a social relationship. Even thinking about money is enough to make people less willing to help others.

Consequently management in the 21st Century requires a shift in the mode of communication from command to conversation, with adult-to-adult interactions, human being to human being, using stories, metaphors and open-ended questions. Authentic leadership storytelling has an important role to play, particularly in dealing with social media.The type of communication is discussed in Open Leadership, The Dragonfly Effect, and The Leader’s Guide to Radical Management.

Bottom line: Alignment

None of these five shifts is new in itself. As The Leader’s Guide to Radical Management shows, what is new is putting all five shifts into operation at once.

If a firm tries to achieve customer delight through a bureaucracy, it doesn’t work. If the firm tries to harness the creativity of autonomous teams without an explicit focus on customer delight, the risk of misdirected effort is high.

If a firm embraces customer delight and autonomous teams, without dynamic linkage, it runs the risk that bureaucratic procedures will undermine all its efforts.

Even if a firm embraces the goal of customer delight, autonomous teams, and dynamic linkage, it will still face problems unless it also has the appropriate focus on values rather than value and communicates those values and goals through conversations rather than commands.

The agenda of five simultaneous shifts is strenuous but it offers significant benefits. When well executed, it generates simultaneously high productivity and continuous innovation and disciplined execution and deep job satisfaction and client delight.

In the end, the gains are accomplished by a transition from a focus on things to a focus on people—a people-centered goal, a people-centered role for managers, a people-centered coordination mechanism, people-centered values and people-centered communication.

Should we be surprised that the 21st Century is not about things, but about people?

Books discussed or mentioned:

Aaker, J, and Smith, A. The Dragonfly Effect: Quick, Effective, and Powerful Ways To Use Social Media to Drive Social Change (San Francisco: Jossey-Bass, 2010)

Bernoff, J. et al: Empowered: Unleash Your Employees, Energize Your Customers, and Transform Your Business (Boston MA: Harvard Business Press, 2010)

Birkinshaw, J. Reinventing Management: Reinventing Management: Smarter Choices for Getting Work Done (Wiley, 2010)

Christensen, C. The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (Boston MA: Harvard Business Press, 1997)

Cohn, M. Succeeding with Agile: Software Development Using Scrum (Addison-Wesley, 2009)

Conley, C. Peak: How Great Companies Get Their Mojo from Maslow. San Francisco: Jossey-Bass, 2007

Denning, S. The Leader’s Guide to Radical Management: Reinventing the Workplace for the 21^st Century (San Francisco Jossey-Bass, 1010)

Drucker, P. Management: Tasks, Responsibilities, Practices. New York: HarperCollins, 1973

Drucker, P. Post-Capitalist Society. New York: HarperBusiness, 1993

Gulati, R. Reorganize for Resilience: Putting Customers at the Center of Your Business (Boston MA: Harvard Business Press, 2010)

Hagel, J. Brown, J.S., Davison, L. The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion (Hardcover - Apr 13, 2010)

Hsieh, T.: Delivering Happiness: A Path to Profits, Passion, and Purpose (Business Plus, 2010)

Johnson, S. Where Good Ideas Come From: The Natural History of Innovation (Riverhead, 2010)
Kotter, Buy-In: Saving Your Good Idea from Getting Shot Down (Boston MA: Harvard Business Press, 2010).

Kotter, J. A Sense of Urgency (Boston MA: Harvard Business Press, 2010)

Li, C. Open Leadership: How Social Technology Can Transform the Way You Lead (San Francisco: Jossey-Bass, 2010)

Martin, R. The Design of Business: Why Design Thinking is the Next Competitive Advantage (Boston MA: Harvard Business Press, 2009)

McAfee, A. Enterprise 2.0, New Collaborative Tools for Your Organization's Toughest Challenges (Boston MA: Harvard Business Press, 2009).

Murray, A. The Wall Street Journal Essential Guide to Management: Lasting Lessons from the Best Leadership Minds of Our Time (NY: Harper, 2010)

Nayar, V. Employees First, Customers Second: Turning Conventional Management Upside Down (Boston MA: Harvard Business Press, 2010)

Owen, J. The Death of Modern Management: How to Lead in the New World Disorder (Wiley, 2010)

Pink, D. Drive: The Surprising Truth About What Motivates Us (Riverhead, 2009)

Reichheld, F. The Ultimate Question: Driving Good Profits and True Growth. (Boston: Harvard Business School Press, 2006)

Ries, A. and Ries, L. War in the Boardroom: Why Left-Brain Management and Right-Brain Marketing Don't See Eye-to-Eye--and What to Do About (New York, HarperBusiness, 2009)

Smith, A. On Value and Values: Thinking Differently About We in an Age of Me, (FT Press, 2004)

Stewart, M. The Management Myth: Debunking Modern Business Philosophy (New York: W.W.Norton & Co: 2009)

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[i] The Shift Index 2010: http://www.deloitte.com/view/en_US/us/Industries/technology/center-for-edge-tech/shift-index-tech/7f7d13c8d767b210VgnVCM2000001b56f00aRCRD.htm: ROA on assets is 25% of what it was in 1965; life expectancy of firms in the Fortune 500 is down to 15 years, only one in five workers are passionate about their work. Moreover established firms are not creating new jobs: Friedman, T. “Start-Ups, Not Bailouts” New York Times, April 3, 2010 http://www.nytimes.com/2010/04/04/opinion/04friedman.html?hp.

[ii] Fiske. “The Four Elementary Forms of Sociality: Framework for a Unified Theory of Social Relations’’. Psychological Review, 1992, 99, 689–723.