Management: The next move?

You can't expect your business to be a 21st-century success story if you persist in using 19th-century techniques to run it. A fundamental re-think is needed. In the age of Web 2.0 and wikinomics, managers must modernise or die, argues Gary Hamel.

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Last Updated: 09 Oct 2013

Management is out of date. Like the combustion engine, it's a technology that has largely stopped evolving, and that's not good. Why? Because management - the capacity to marshal resources, lay out plans, programme work and spur effort - is central to the accomplishment of human purpose. What ultimately constrains the performance of your organisation is not its business model, nor its operational model but its management model.

My goal is to help you become a 21st-century management pioneer, to equip you to reinvent the principles, processes and practices of management for our post- modern age. I believe management innovation has a unique capacity to create a long-term advantage for your company, and I will outline the steps you must take to first imagine, and then invent, the future of management.

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 conformity to standard operating procedures, in figuring out how to measure costs and profits to the penny, in co-ordinating the efforts of tens of thousands of employees, and in managing 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 it squanders prodigious quantities of human imagination and initiative. It brings discipline to operations, but imperils adaptability. It helps to multiply the world's purchasing power, but it also enslaves millions in quasi-feudal, top-down organisations. And although the techniques of modern management have 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. Now it's time to renegotiate the bargain. We must figure out a way to co-ordinate the efforts of thousands of individuals without creating a burdensome hierarchy of overseers; to build companies that liberate human imagination while keeping a tight rein on costs; and to invent organisations 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.

Although the practice of management may not be evolving as fast as it once did, the competitive and market conditions faced by businesses large and small are more volatile than ever. The century may still be young, but it has already spawned a sizable brood of daunting management challenges that are very different from the ones that taxed our forebears.

As the pace of change accelerates, ever more companies are finding themselves on the wrong side of the change curve. Recent research by LG Thomas and Richard D'Aveni suggests that industry leadership is changing hands more frequently, and competitive advantages are eroding more rapidly, than ever before. Today, it's not just the odd company but entire industries that get caught out by the future - be it the traditional airline industry, old-line department stores, network television, the big drug companies, America's carmakers, or the newspaper and music industries.

The deregulation and the de-scaling effects of new technology are dramatically reducing the barriers to entry across a wide range of industries, from publishing and telecommunications to banking and 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 limited control. As a result, competitive outcomes are becoming less the product of market power and more the result of artful negotiation. De-verticalisation, disintermediation and outsourcing, along with the growth of co-development projects and industry consortia, are leaving firms with less and less control over their own destinies.

The digitisation of just about everything threatens any company that makes a living out of creating and selling intellectual property. Drugs companies, film studios, publishers and luxury-goods manufacturers are all struggling to adapt to a world in which information and ideas 'want to be free'.

The internet is rapidly shifting bargaining power from producers to consumers. In the past, customer 'loyalty' was often an artifact of high search costs and limited information, and companies often profited from customer ignorance. No more.

Today, customers are in control as never before - and in a world of near-perfect information, there is less and less room for mediocre products and services.

Strategy life-cycles are shrinking. Thanks to plentiful capital, the power of outsourcing, and the global reach of the web, it's possible to ramp up a new business faster than ever before. But the more rapidly a business grows, the sooner it fulfils the promise of its original strategy, peaks, and enters its dotage. More and more, the parabola of success looks like a spike.

Plummeting communication costs and globalisation are opening up many industries to a horde of new, ultra-low-cost competitors. These new entrants are eager to exploit the legacy costs of the old guard. While some veterans will join the 'race to bottom' and move their core activities to the world's lowest-cost locations, many others will find it difficult to rapidly reconfigure their global workforce. As Indian companies suck in service jobs and China steadily expands its share of global manufacturing, companies everywhere else will struggle to maintain their margins.

To cope with these new realities, companies will need to build new organisational and managerial capabilities. To thrive in an increasingly disruptive world, big companies will need to become as strategically adaptable as they are operationally efficient. To safeguard their margins, they will need to become gushers of rule-breaking innovation. And if they're going to out-invent and out-think a growing mob of upstarts, they will need to be capable of inspiring their employees to give the very best of themselves every day. Therein lies the challenge for 21st-century management innovators.

You can't build a management advantage unless you have the guts to tackle problems that others are too timid, or too short-sighted, to take on. When, in 2006, GE's chairman, Jeff Immelt, challenged his colleagues to double the company's organic growth rate to roughly 8% per year, he also had to tell them that no company of GE's size had ever managed such a feat - there was no 'how to' guide to which they could refer. Undeterred, Immelt challenged GE's leaders to write their own textbook.

The cornerstone of a capacity for relentless management innovation rests on a single, simple question: what would we like to achieve that no other similarly situated company has ever achieved before? Throughout its history, GE has repeatedly asked itself this question. It has regularly set itself new puzzles to solve: How can we bring management discipline to science? How can we grow outstanding leaders? How can we, at the centre, add value to a disparate set of businesses? How can we build a boundaryless organisation? How can we grow a behemoth? And every time GE has come up with an answer, it has pulled farther ahead of its competitors. Yet no one divine authority appointed GE to be the world's management bellwether. And there's no law that says your company has to be a management follower. You don't have to be big, or experienced or revered, to be a management pioneer. And you don't have to be reckless, but you must be resolute.

There are many ways to get the management innovation conversation started. In one company, a few enterprising activists built a 'hospital' in the corporate executive education facility. In each of 10 or so beds, they placed an effigy of a once-healthy competitor who was currently struggling for survival. From the end of each gurney hung a 'medical' chart outlining the patient's declining financial health and the strategic missteps that had landed it in the intensive care unit. In a nearby 'morgue' lay the artfully arranged remains of several industry stalwarts that had succumbed to the forces of change and shut their doors forever.

The purpose of this elaborate staging was, first, to warn colleagues about the dangerous pathogens of success - such as arrogance and denial - that so often cripple even the stoutest of companies; and, second, to spur the sort of management innovation that would protect their own company from these toxins. Over the course of several months, more than 3,000 employees toured the ward, as did the board of directors. This ingenious bit of stagecraft helped drive home an essential, if often ignored, truth: there is little in the management systems of most companies that prompts proactive strategic renewal.

In this new century, as in the one before, the most consistently successful companies will be the management pioneers - the companies that write the new rules of management for a new age. To take the lead, your company will need a vision of management's future.

I bet your CEO has a point of view about your company's strategic direction - or enough of one to placate the board and the analysts. But does he or she have a point of view about your company's management direction? Is there a consensus in your company on the ways in which the technology of management will need to be reinvented in the years to come? A broad vision is important for several reasons. It helps to legitimise grass-roots innovation. It gives that innovation a focal point. And it serves notice on those who would selfishly defend the status quo.

Given that, there are two questions that every business leader in your company should be able to answer. First, what will be the new and distinguishing characteristics of our management system five years hence? And second, how will the way we manage give us a competitive advantage? Don't expect the answers to these questions to emerge from a two-day executive offsite, or from some corporate-level study group. Instead, the vision should take shape organically as the conversation about the future of management unfolds within your company.

I believe you can glimpse the future of management in the social revolution that is now gathering pace on the web. In the 1990s, 'Web 1.0' was little more than a giant compendium of static web pages. In the 21st century, 'Web 2.0' is being built around new 'architectures of participation', such as social networking sites, wikis and 'folksonomies' (collaborative communities rather than search engines classifying web content). Where old social structures were configured like trees or wheels, with most connections running vertically or to a central hub, the social anatomy of the internet is an all-channel, end-to-end network where everyone is (potentially) connected to everyone else. Here, horizontal processes for control and co-ordination largely substitute for vertical processes.

For thousands of years, markets and hierarchies were the only alternatives when it came to aggregating human effort. Now there's a third option: real-time, distributed networks. It is telling that the internet was not created by a hierarchy, nor is it managed by one. Neither will you find many hierarchies among the thousands of novel organisational life forms that have proliferated online.

The web is a near-ideal medium in which to cultivate new strains of social organisation. From Craigslist to MySpace to FaceBook to Second Life to eHarmony, from instant messaging to podcasting, blogging, video chat and virtual worlds, the internet is radically changing the ways in which people find romance, manage friendships, share insights, build communities, absorb knowledge, and more. For the moment, though, most of this joyous and frenzied experimentation is taking place outside the plush-carpeted hall-ways of the corporate old guard.

I find this ironic. Although no company would put up with a 1940s-era phone system, or forgo the efficiency- enhancing benefits of modern IT, that's exactly what companies are doing when they fail to exploit the web's potential to transform the way human beings work and collaborate. Most managers still see the internet as a productivity tool, or as a way of delivering 24x7 customer service. Some understand its power to upend old business models, but few have faced up to the fact that, sooner or later, it's going to turn our smokestack management model on its head.

For the first time since the dawning of the industrial age, the only way to build a company fit for the future is to build one that's fit for human beings as well. This is your opportunity - to build a management system that truly honours and cherishes human initiative, creativity and passion, essential ingredients for success in the new millennium.

Excerpt from The Future Of Management, copyright (c) 2007 Gary Hamel. Reprinted by permission of Harvard Business School Press. All rights reserved.

Special offer The Future of Management will be published on 9 October 2007. MT readers can order the book (RRP £15.99) at the discounted price of £10.99 (plus £2 p&p). To order, telephone McGraw-Hill on 01628 502700 with your credit card details and quote special offer code FM07. Offer ends 30 November 2007.

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