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CHAPTER ONE
What is management and how did it get to where it is today?
Let’s talk about revolution, then let’s talk about power.
Revolutions and the start of management
R evolutions can be political, economic, cultural, religious, and intellectual. Either way, revolutions seek a fundamental change – usually to power and organization. Some revolutions result in relatively sudden change, and some take generations to take effect. Probably the first revolution was Agricultural, which took place 10,000 years ago with the shift from hunter-gatherer societies to a society based on stationary farming. Usually, revolutions affect more than the immediate subject of the revolution – the agricultural revolution transformed agriculture yes, but also changed society, health, the environment, religion, politics, and eventually numbers and accounting. Yet, there are still some hunter-gatherers after all these years.
The story of management starts with the industrial revolution. Before the industrial revolution, there were few organizations – the church, the military, and a few trading, agricultural, and construction organizations – but no recognizable “management.” Back then managers were called agents or factors.
The industrial revolution started in about 1760, with a transition from hand production methods to machines, and new chemical manufacturing and iron production processes. The era of mass production had arrived. It was a turning point in history, affecting income growth, population settlement, urbanization, society, work, culture, the environment, and even religion. Interestingly, it changed thinking from “stability is good” to “growth is good” – and as we’ll see, growth is not the panacea it’s made out to be.
With mass production, labor in workshops and factories needed to be supervised, and business owners appointed people to manage their factories for them. The management undertaking concerned itself with the execution of production at scale. Managers were tasked with planning the work and workflow, employing specialized people where needed, monitoring production (with some basic accounting thrown in), monitoring and controlling the quality of goods produced, and reporting to the owner on production outputs. They certainly weren’t concerned with the outcomes of their production which resulted in poor working conditions, overcrowding in cities, depopulation of rural areas, chemical pollution, cholera outbreaks, air and water pollution, and smog which caused lung disease. There were positive outcomes such as a decrease in prices, general availability of goods, and the eventual improvement in standards of living.
Management was a revolution within the industrial revolution. Managers supervised production lines but produced nothing themselves. This was seen as the efficient application of Adam Smith’s concept of the division of labor. Speaking of concepts, yet another revolution within the management revolution was taking place. As the industrial revolution proceeded, business “scholars” began to study how people and processes worked and could work more efficiently. They tested concepts and developed theories about efficiency, production quality and consistency, and predictability of production to optimize outputs. As the knowledge base grew and “scientific” business theories were postulated and tested, it became possible for these scholars to teach others, and in 1881, the first higher institutions of learning about management started with the Wharton School. Joseph Wharton was a wealthy industrialist, lobbyist, and scientist. He had apprenticed as an accountant, as an apprenticeship was the only way of gaining business knowledge at the time, and he conceived of a school that would teach business and economic principles and practices. He donated $100,000 for the establishment of the school at the University of Pennsylvania, and they introduced and extended his curriculum. Other universities soon followed. The profession and discipline of management was born. Apprenticeships were reserved for trade professions, and management became a social class.
Management activities and their focus evolved over time. Rita Gunther McGrath, a professor at Columbia Business School and one of the top management thinkers today, suggests that management has gone through three eras with each era emphasizing a different theme:1 execution, expertise, and empathy. The industrial revolution management era was focused on the performance of production. With the introduction of business schools and the professionalization of management, people were hired into management because of their expertise – in the management discipline. The execution era was concerned with creating scale and efficiency, while the expertise era is concerned with creating advanced services. Finally, McGrath suggests that we are entering a period where organizations need to create customer experiences. For this, managers need to empathize with customers and staff to create good experiences. That we have entered a new era of management is beyond doubt, but I believe it is more nuanced than clearly differentiated eras: Some managers will still focus on execution, scaling, and efficiency, and others will create new and advanced services. However, I believe senior executives will need to focus on very different things, and this is what the book is about.
However, before we rush into what executives should be doing, let’s look at two types of executive and power.
Power in organizations and management’s power
So far, I’ve used “management” as a universal term to describe those who direct organizations, and that’s probably true. However, there are two types of people who run organizations, those who choose the organization’s direction and goals, and those who direct activities to achieve those goals. The first are leaders and the second are managers. Together, let’s call them executives – people fulfill a role to achieve an end. There are distinct differences between managers and leaders: Managers design and control the organizational “machine,” while leaders deal with people, vision, and concepts. There are refinements to this generalization – most managers deal with people of course, but how they deal with them is different. Many leaders manage and many managers lead, but for clarity let’s keep the distinction separate. Both leaders and managers “make things happen,” but generally leaders work on what is to happen and managers work on how it is to happen. Management is mostly an engineering discipline, while leadership is a social discipline. Moreover, the power that managers and leaders use is mainly different. We need to look at power in organizations to understand this better.
Organizational power is the capability to accomplish things through other people. Power is many things, but this definition is useful for us. It ascribes neither positive or negative meaning to power – it’s the use of power by individuals that makes it positive or negative. There are many types of organizational power, but seven serve our purpose:
- Legitimate power is the power conferred by the organizational hierarchy. A CEO should have more power than most, but sometimes others have more power because they possess other forms of power. Legitimate power is also called titular power; the power ascribed to a title.
- Consequence power that comes from being able to engender consequences. These can be both positive and negative. The power to reward is a consequence of power usually enabled by the legitimate power of the individual. Similarly, the power to enforce adverse outcomes, for instance, to initiate disciplinary measures, is also a consequence power. Some consequence power can be subtle – making resources unavailable, or indeed yourself unavailable, is a form of negative power, while the authority to assign interesting projects or promote people is positive.
- Referent power is usually based on who you can refer issues to. Furthermore, their power is referred back to you. A CEO’s assistant has loads of referent power, because even though he doesn’t refer issues to the CEO, the fact that he can do so, confers power on the assistant.
- Connection power comes from who you know. You can get things done through other people. For example, a salesperson might know a friend of a CEO to whom she wants to pitch. She uses her connection to get an appointment with the CEO.
- Informational power comes from what you know. I once ran a strategy workshop for a division of a company. On the final day, the CEO was invited to review the strategy. The CEO listened politely then, bless him, said: “You don’t know this, but your entire division is being split up into other units. However, it’s still a nice strategy.” This is the worst use of informational power. Positive forms of informational power come to people who are up to date on the latest developments, regulations, and policies.
- Expert power comes from your expertise. Some engineers and contractors can hold the organization to ransom because of their expert power. A more positive form is when people know to approach you because your expertise is valuable and often resolves a tricky problem.
- Charismatic power is power conferred on you because people like you, or they are drawn to you. Sometimes this is also a form of moral power, where people are attracted to what you stand for.
Leaders and managers have both types of power but in different proportions. A leader can be a manager and vice versa, but because their roles are different, they should focus on their specialty. Furthermore, they need each other. An example of managers working with leaders is the unlikely pairing of Winston Churchill and Clement Attlee. Churchill was a profoundly conservative politician (he was against universal suffrage for instance), and Attlee was the leader of the Labor Party. In 1940, Churchill became Prime Minister to lead the British war effort, and in 1942, Attlee became Deputy Prime Minister. Churchill was an orator, visionary and strategist, while Attlee was an implementor and enabler. They needed each other. When asked what Churchill had done to help win the war, Attlee said: “He talked about it.”
Leaders have legitimate power conferred on them by the people who follow them. They always have charismatic power, and often have informational and expert power. Managers have legitimate and consequence power. One of the primary power sources that managers also have is informational power, but we will see that the digital revolution is undercutting this power. They may also use their referent power.
Unfortunately, managers are often promoted into leadership positions and find themselves unable to perform, because they do not have power conferred on them by their people, nor do they have the charismatic power to attract people to themselves.
The summary of the two types of executives can be neatly summed up as follows: Leaders are about effectiveness – knowing what to do and having people willingly to do it. Managers are about efficiency – ensuring that what is done is done well.
The implications of the evolution of management
Now let’s talk about the implications of the evolution of management: I’ve mentioned revolution, fundamental change, power and organization, effects beyond the immediate revolution, and touched on the fact that in spite of the revolution, some people still live in a pre-revolutionary world. I’ve talked about the evolution of management and the management class. Finally, I observed in passing that “growth” became the new ideal and objective for organizations and suggested that growth may not be all it’s made out to be.
Let’s look at each of these and the effects and implications that live below the surface.
Most revolutions are peaceful affairs, except regime change. However, there is one element common to all revolutions – those people that benefitted from the previous conditions resist the change. In political revolutions, this resistance is usually by force and repression. In corporations, the opposition is subtler but no less effective. John Hagel2 talks of an organization’s immune system and antibodies that act to destroy any threat to the status quo. There is a significant revolution in business today – we’re in the third industrial revolution (the digital revolution) heading into the fourth (essentially the fusing of the physical, digital, and biological worlds). And organizational antibodies are working overtime, much of it coming from the management class. Organizational antibodies will agree readily and vigorously with an advocate of change, then just as readily and vigorously undermine the advocate and sabotage the change. Another thing about revolutions – those resisting the change believe themselves to be right and righteous as will many managers who read this book and disagree with its message.
Revolutions are about fundamental change. The foundations of a system are rocked and even destroyed. In the third industrial revolution, the economy and commercial system are being shaken at its foundations. We have to rethink how organizations work, what they are for, who the organization is, who works in organizations, and how we manage performance and rewards. We need to look at the boundaries of our organizations and why organizations even exist. We need to examine the education system that feeds our organizations and consider if it is providing fit-for-purpose employees. We must urgently reconsider the beliefs that drive the actions of organizations and reexamine the functions within organizations. Finally, and importantly, we need to look at the roles and purpose of the people charged with leading and managing our organizations. If we are to cope with the changes brought about by the third industrial revolution, and ready ourselves for the fourth industrial revolution, every foundational belief, structure, system, and process is on the examination table.
Revolutions affect power and structure. We will see that most of the managerial class in our organizations is about power and structure. And the ego. They will defend their status vigorously. A little more management history: During the industrial revolution, managerial positions corresponded with the manufacturing or assembly route. The change to structured organizational hierarchies had its roots in the military. As organizations grew more substantial, the managerial positions became further removed from the organization’s core activities, and increasingly geared toward delivering commands from higher-ups and exerting control on others who occupied subordinate roles.3 As managers became more removed from operational activities, they came to rely on legitimate, consequence, and informational power to get their job done. In the third industrial revolution, digitization undercuts hierarchies, and freely available inf...
