The Future of Management

Gary Hamel, Bill Breen

• Publisher: Harvard Business Review Press
• Year: 2007
• ISBN:
  9781422148006
• Topic: Business
• Subtopic: Management
• Index: Business

What fuels long-term business success? Not operational excellence, technology breakthroughs, or new business models, but management innovation—new ways of mobilizing talent, allocating resources, and formulating strategies. Through history, management innovation has enabled companies to cross new performance thresholds and build enduring advantages.In The Future of Management, Gary Hamel argues that organizations need management innovation now more than ever. Why? The management paradigm of the last century—centered on control and efficiency—no longer suffices in a world where adaptability and creativity drive business success. To thrive in the future, companies must reinvent management.Hamel explains how to turn your company into a serial management innovator, revealing:The make-or-break challenges that will determine competitive success in an age of relentless, head-snapping change.
The toxic effects of traditional management beliefs.
The unconventional management practices generating breakthrough results in "modern management pioneers.”
The radical principles that will need to become part of every company’s "management DNA.”
The steps your company can take now to build your "management advantage.”Practical and profound, The Future of Management features examples from Google, W.L. Gore, Whole Foods, IBM, Samsung, Best Buy, and other blue-ribbon management innovators.

WHY
MANAGEMENT
INNOVATION
MATTERS

PART ONE

One

The End of
Management?

WHAT DOES THE FUTURE OF MANAGEMENT LOOK LIKE to you? Cast your mind forward a decade or two and ask yourself: How will tomorrow’s most successful companies be organized and managed? What new and unorthodox management practices will distinguish the vanguard from the old guard? What will managers in bellwether organizations be doing, or not doing, that would surprise today’s business leaders? What will be different about the way companies manage talent, allocate resources, develop strategy, and measure performance?

In other words, can you imagine dramatic changes in the way human effort is mobilized and organized in the years to come? Can you envision radical and far-reaching changes in the way managers manage? Don’t be dismayed if the answer is “no.” Given how little the practice of management has changed over the past several decades, it’s hardly surprising that most people have a hard time imagining how management might be reinvented in the decades to come.

Management—
A Maturing Technology

When compared with the momentous changes we’ve witnessed over the past half century in technology, lifestyles, and geopolitics, the practice of management seems to have evolved at a snail’s pace. While a suddenly resurrected 1960s-era CEO would undoubtedly be amazed by the flexibility of today’s real-time supply chains, and the ability to provide 24/7 customer service, he or she would find a great many of today’s management rituals little changed from those that governed corporate life a generation or two ago. Hierarchies may have gotten flatter, but they haven’t disappeared. Frontline employees may be smarter and better trained, but they’re still expected to line up obediently behind executive decisions. Lower-level managers are still appointed by more senior managers. Strategy still gets set at the top. And the big calls are still made by people with big titles and even bigger salaries. There may be fewer middle managers on the payroll, but those that remain are doing what managers have always done—setting budgets, assigning tasks, reviewing performance, and cajoling their subordinates to do better.

Why does management seem stuck in a time warp? Perhaps it’s because we’ve reached the end of management—in the sense that Francis Fukuyama argues we’ve reached the end of history. If liberal democracy is the final answer to humankind’s long quest for political self-determination, maybe modern management, as it has evolved over the last century, is the final answer to the age-old question of how to most effectively aggregate human effort. Perhaps we have more or less mastered the science of organizing human beings, allocating resources, defining objectives, laying out plans, and minimizing deviations from best practice. Maybe most of the really tough management problems have already been solved.

Or maybe not. What if modern management hasn’t reached the apogee of effectiveness and, given the challenges that lie ahead, isn’t even climbing the right hill? Stuart Kauffman, the gifted biologist and Santa Fe Institute alumnus, uses the notion of a “fitness landscape” to describe the limits of evolutionary progress. ¹ In Kauffman’s allegorical mountain range, higher peaks represent higher levels of evolutionary accomplishment. As a species adapts and changes, it climbs ever higher in the fitness landscape. In the beginning, starting from a deep valley, every trail leads upward. But as a species evolves, the percentage of terrain that lies above it steadily dwindles. Over time, there are fewer and fewer routes that lead upward, and ever more that lead downward. As a result, the pace of evolution slows. In an expansive fitness landscape, that is, one with many possible pathways, it is unlikely that a particular species will ever scale the evolutionary equivalent of K2 or Kangchenjunga. Instead, its meandering journey will probably end on the summit of a local peak—a crag that is, by comparison, a mere shadow of the mountains that loom over the horizon.

I believe this may well be the plight of modern-day management. Having evolved rapidly in the first half of the 20th century, the “technology” of management has now reached a local peak. Rather than being perched atop some Everest of accomplishment, it is reclining contentedly on a modest mound in the Appalachians—Mount Love, let’s say. While it’s possible to see higher peaks from Mt. Love’s near-2,000-meter summit, none of them are the 8,000-meter monsters of the Himalayas.

This is not to sell the achievements of management short. If you have two cars in the garage, a television in every room, and a digital device in every pocket, it is thanks to the inventors of modern management. For while institutional innovations such as the joint stock company and patent law paved the way for modern economic progress, and while technology breakthroughs—from the telephone to the microprocessor—provided much of the fuel, it was the invention of industrial management at the dawn of the 20th century that turned enlightened policy and scientific discovery into global prosperity.

Indeed, one could argue that the machinery of modern management—which encompasses variance analysis, capital budgeting, project management, pay-for-performance, strategic planning, and the like— amounts to one of humanity’s greatest inventions—right up there with fire, written language, and democracy. Consider the vacation-bound college student who spends less on an airline ticket to Fort Lauderdale than he’ll spend on booze over spring break; the twitchy-thumbed gamer who shells out a few hundred bucks for a PC and expects to get a machine that will outperform yesterday’s supercomputers; the dedicated foodie who is unimpressed by the fact that her upscale supermarket offers more than twenty varieties of Balsamic vinegar; or the Chinese factory worker who will soon be able to afford his first motorbike—all these souls, and a couple billion more, should prostrate themselves in front of shrines to Daniel McCallum, Frederick Winslow Taylor, Max Weber, Chester Barnard, W. Edwards Deming, Peter Drucker, and all the other apostles and prophets of modern management.

Yet over time, every great invention, management included, travels a road that leads from birth to maturity, and occasionally to senescence. This is the familiar S-curve, and its dynamics mirror those of Kauffman’s evolutionary hike. New inventions, like Gottlieb Daimler’s gaspowered buggy, which debuted in 1886, typically get off to a slow start. At the beginning, there are dozens of technical challenges that bedevil inventors and curtail progress. As these initial hurdles are surmounted, the pace of improvement accelerates. Knowledge compounds, and soon whole clusters of innovation are redefining what’s possible. Inevitably, though, the law of diminishing returns kicks in and at some point the ratio of progress to effort starts to sag. As physical limits are reached, major advances become harder to achieve.

Alas, management’s boisterous, inventive adolescence lies nearly a century behind us. In fact, most of the essential tools and techniques of modern management were invented by individuals born in the 19th century, not long after the end of the American Civil War. Those intrepid pioneers developed standardized job descriptions and work methods. They invented protocols for production planning and scheduling. They mastered the intricacies of cost accounting and profit analysis. They instituted exception-based reporting and developed detailed financial controls. They devised incentive-based compensation schemes and set up personnel departments. They created sophisticated tools for capital budgeting and, by 1930, had also designed the basic architecture of the multidivisional organization and enumerated the principles of brand management.

Now think back over the last 20 or 30 years of management history. Can you identify a dozen innovations on the scale of those that laid the foundations of modern management? I can’t. Like the gasoline engine, our industrial-age management model is languishing out at the far end of the S-curve, and may be reaching the limits of its improvability.

Of course, this begs the question of whether we actually need a new management model, and if so, whether there’s one out there waiting to be found. Perhaps we should be celebrating the end of management. Maybe after decades of striving, there are no more towering peaks to climb and no new S-curves to be discovered.

Yet before we break out the champagne, we should ask ourselves whether we’re truly satisfied with the status quo. Are our workaday lives so fulfilling, and our organizations so boundlessly capable, that it’s now pointless to long for something better? I don’t think so. Again, consider democracy. Although it may be, as Winston Churchill famously put it, the worst form of government except for all the others, it contains within its essence contradictions that have yet to be satisfactorily resolved. First among these is the challenge of protecting the rights of minorities while honoring the will of the majority. From America’s shameful treatment of its native tribes to current debates over the rights of undocumented workers; from Europe’s recurring bouts of anti-Semitism to its recent struggles to integrate a fast-growing Muslim minority; the challenge of protecting the politically disenfranchised is a problem that has long tormented democratic societies around the world. And there are new challenges. How, for example, can democratic societies protect themselves from the threat of terrorism without trampling upon civil liberties? How can they loosen the chains of specialinterest gridlock in order to head off the risks of global climate change? Given these and other similarly vexing challenges, we must dare to hope that the practice of democracy will continue to evolve.

If democracy still has mountains to climb, some two-and-a-half thousand years after its birth in ancient Greece, it would be arrogant to assume that after a mere century of progress, modern management has exhausted its own evolutionary potential—just as it would be foolish to assume that a technology that served us so admirably during the 20th century will turn out to be equally well-suited to the demands of the 21st. The fact is, that despite its indisputable accomplishments to date, modern management has bequeathed to us a set of perplexing conundrums, troubling trade-offs that cry out for bold thinking and fresh approaches. And when we look forward, we are confronted by a slew of new problems—predicaments and dilemmas that lay bare the limits of our well-worn management systems and processes.

Transcending Old Trade-offs

Over the course of its development, modern management has wrestled a lot of burly problems to the ground—it has succeeded in breaking complex tasks into small, repeatable steps, in enforcing adherence to standard operating procedures, in measuring costs and profits to the penny, in coordinating the efforts of tens of thousands of employees, and in synchronizing operations on a global scale. Yet these successes have come at a heavy price. The machinery of modern management gets fractious, opinionated, and free-spirited human beings to conform to standards and rules, but in so doing it squanders prodigious quantities of human imagination and initiative. It brings discipline to operations, but imperils organizational adaptability. It multiplies the purchasing power of consumers the world over, but also enslaves millions in quasi-feudal, top-down organizations. And while modern management has helped to make businesses dramatically more efficient, there’s little evidence that it has made them more ethical.

Modern management has given much, but it has taken much in return, and it continues to take. Perhaps it’s time to renegotiate the bargain. We must learn how to coordinate the efforts of thousands of individuals without creating a burdensome hierarchy of overseers; to keep a tight rein on costs without strangling human imagination; and to build organizations where discipline and freedom aren’t mutually exclusive. In this new century, we must strive to transcend the seemingly unavoidable trade-offs that have been the unhappy legacy of modern management.

Surmounting New Challenges

While the practice of management may not be evolving as fast as it once did, the environment that faces 21st-century businesses is more volatile than ever. This new century may still be young, but it has already spawned a sizable brood of daunting management challenges that are markedly different from the ones that taxed our forebears:

• As the pace of change accelerates, more and more companies are finding themselves on the wrong side of the change curve. Recent research by L. G. Thomas and Richard D’Aveni ² suggests that industry leadership is changing hands more frequently, and competitive advantage is eroding more rapidly, than ever before. Today, it’s not just the occasional company that gets caught out by the future, but entire industries—be it traditional airlines, old-line department stores, network television broadcasters, the big drug companies, America’s carmakers, or the newspaper and music industries.
• Deregulation, along with the de-scaling effects of new technology, are dramatically reducing the barriers to entry across a wide range of industries, from publishing to telecommunications to banking to airlines. As a result, long-standing oligopolies are fracturing and competitive “anarchy” is on the rise.
• Increasingly, companies are finding themselves enmeshed in “value webs” and “ecosystems” over which they have only partial control. As a result, competitive outcomes are becoming less the product of market power, and more the product of artful negotiation. De-verticalization, disintermediation, and outsourcing, along with the growth of codevelopment projects and industry consortia, are leaving firms with less and less control over their own destinies.
• The digitization of anything not nailed down threatens companies that make their living out of creating and selling intellectual property. Drug companies, film studios, publishers, and fashion designers are all struggling to adapt to a world where information and ideas “want to be free.”
• The Internet is rapidly shifting bargaining power from producers to consumers....