Is Management Obsolete?

This article is a 15-20 minute read

 

“The key to management is to get rid of the managers,” advised Ricardo Semler, whose TED Talk went viral, introducing terms such as “industrial democracy” and “corporate re-engineering”. It’s important to point out that Mr. Semler isn’t an academic or an expert in management theory, he is the CEO of a successful industrial company. His views are unlikely to represent mainstream thinking on organizational design. But perhaps it is time we redefine the term “manager”, and question whether the idea of “management” as it was inherited from the industrial era, has outlived its usefulness.

Our recent economic problems going back to at least 2008 and some would argue, much further than that, have often been attributed to external events such as the market place, globalization or the rise of other economies. Few have suggested it may be the problem of competent management and even that management, as we have known it, may be obsolete.

Steve Denning, author of A Leader’s Guide To Radical Management, writing in Forbes, points out that “something has gone terribly wrong with the U.S. private sector—the supposed engine of economic growth…when the best firms have rates of return on assets or invested capital of on average just over one per cent, we have a management catastrophe on our hands.”

A study by Deloitte’s Center for the Edge shows that the effectiveness of management in organizations has been steadily falling for the last 50 years. Denning cites data that shows the life expectancy of firms in the Fortune 500 is now less than 15 years and rapidly declining. He also cites data from the Kaufmann Foundation which indicates between 1980-2005, firms older than 5 years created net zero jobs in the U.S.

Denning argues that the economy and world of business today, with the advent of globalization, the Internet, and social media has changed everything, and the result on management-driven hierarchical bureaucracies is devastating. “Now the power in the marketplace has shifted from seller to buyer,” Denning contends, “And in this new ecosystem, big lumbering bureaucracies of the 20^th century are not agile enough to compete.”  And yet, management consultants, business schools and governments still don’t get it, Denning says, although a new generation of managers have realized a paradigm shift.

What is the paradigm shift? “It’s really a change in an ecosystem,” from a hierarchical bureaucracy that is internally focused on production outputs to an ecosystem that is agile, flexible and externally focused on clients, Denning argues. It’s also a change “from a world in which workers and customers are manipulated as things to a world in which workers and customers are interacted with as human beings.”  It’s a shift from a boss/manager centric world to a customer-centered world. Management guru Gary Hamel says, “Management is out of date, like the combustion engine, a technology that has stopped evolving.”

Jeffrey Pfeffer and Christina Fong, writing in the Academy of Management Learning and Education, argue that research shows business schools are not influential on management practices in organizations. Harold Leavitt, writing in the California Management Review, says cryptically of business schools that they produce “critters with lopsided brains, icy hearts and shrunken souls.” Rakesh Khurana, Nitin Nohria and Daniel Penrice, writing in the Harvard Business Review, point out that other professionals have criteria that define it as a profession, notably a common body of knowledge, a system for certifying individuals before they can practice, and a commitment to use knowledge for the public good, and a code of ethics. The field of management has none of these characteristics and therefore cannot justifiably be called a profession.

Thomas Hout, writing in the Harvard Business Review, argues that if management is so good at predicting outcomes through analytical and scientific methods why have so few public companies performed well? “Companies that are managed the traditional way—by executives developing analytically-driven strategy and shaping the organization to meet the needs of the business as they see them—are obsolete. Management as we have known it, is too cumbersome.” Hout cites the work of Howard Sherman and Ron Schultz at the Santa Fe Center for Emergent Studies, who contend that business today moves in a nonlinear fashion, with no continuity in the flow of events, and no way to predict which products or services will succeed. Sherman and Schultz argue, in their book, Open Boundaries, business structures should be self-organized to be successful, which means managers allow employees to organize as needed, based on customer needs. This conclusion places the role of the manager in a very different light.

Mitch MCrimmon, writing in the Ivey Business School Journal, argues “in many organizations, employees know more about their work than their managers. This reality should force organizations that still cling to the old top-down style of managing to recognize that many employees today are very capable of managing themselves.” He contends management should be seen as a process, one in which everyone can engage, rather than a role. McCrimmon contends a critical area of focus in today’s organization, employee engagement “cannot become a reality until we move beyond our industrial-age definition of a manager.”

So what, if anything, should we retain as the management function? McCrimmon suggests managers in modern organizations should act more like investors, customers, coaches and partners, and abandon the outmoded directing and controlling functions. This would require recruiting people as managers with very different skills, particularly soft skills.

Some futurists, such as Don Tapscott and Anthony Williams, authors of Wikinomics, go as far as to say that corporate hierarchies will disappear as individuals are empowered to work together in creating a new era of mass collaboration–in a new Renaissance.”

In an article in the Wall Street Journal, Alan Murray says that strategies for running large corporations, pioneered by men like Alfred Sloan of General Motors and popularized by scores of elite business schools, helped to fuel a century of unprecedented global prosperity. Murray suggests that management as an innovation won’t survive the 21st century.

An even bigger challenge that faces organizations is creating workplaces that motivate and inspire workers. Survey after survey show that most workers in complex and large organizations are not engaged in their work. The new kind of workplace, Murray argues, has to instill in workers the same kind of drive, creativity and innovation spirit seen in entrepreneurs, which may explain why an increasing number of Generation Y are becoming entrepreneurs.

So does that mean we need to abolish management structures and replace them with ad-hoc  teams of peers who come together to accomplish specific work and then disband? The concept of a learning organization and knowledge management may have to be re-examined as well. Traditional bureaucratic organizations focus on not sharing information, which is used as a source of power by managers. New mechanisms for sharing the “wisdom of crowds,” or as the Japanese call it, “ba,” may have to be part of rethinking management.

Robert Sutton, professor of management at Stanford University argues that defining the job of managers, as a profession, has no parallel to other professions. Most other professions are trained to put their client’s interests ahead of their own. In contrast, Sutton argues the most effective managers take as much money as they can for themselves from their clients. Sutton suggests that managers would be well served to embrace the Buddhist philosophy of “do no harm.”

 

It may be an ideal time to re-examine the purpose and structure of management for organizations, one that better suits the times and needs of modern organizations and their customers and employees.

There’s some pretty good evidence that Capitalism could be in deep trouble in today’s world. And stereotypical CEOs, business models, as well as workplacepractices are in equally deep trouble. One need only look at the increasing income gaps and disappearing middle class, increasing levels of employee disengagement and distrust of leaders, along with the control of almost all wealth in the hands of the few as evidence. We can point to some destructive myths about economic enterprise, leadershipand work as feeding those problems.

Tony Schwartz, writing in the Harvard Business Review identifies four such myths. Myth 1: Multitasking is critical in a world of infinite demand. This flies in the face of recent neuroscience research; Myth 2: Anxiety helps you perform better. This often shows up as bosses putting performance pressure on people which inversely affects motivationand performance. Myth 3: Creativity is a genetic trait and can’t be taught. But we know now that creative thinking can be taught and learned; Myth 4: The best way to get more work done is to work longer hours. This has led to workaholism and burnout and evidence of declining productivity.

Another myth is “management efficiency”—of course invented by managers. Tough economic times have produced a flood of management “experts” and many leaders of organizations whose only strategy for dealing with the downturn in the economy is cutting costs, layoffs and more efficiency-based strategies. The mantra for business for much of the last century has been operational efficiency. So leaders look for ways to cut costs and make the operations lean and mean. Yet much of the rationale for and evidence supporting efficiency as a key management strategy is questionable.

Management theory came to life in 1899 with a simple question: “How many tons of pig iron bars can a worker load onto a rail car in the course of a working day?” The man behind this question was Frederick Winslow Taylor, the author of The Principles of Scientific Managementand, by most accounts, the founding father of the whole management business. Taylor’s scientific management principles became the Bible upon which management practices have been used to dominate Western business for the past century. The problem is, that Taylor was a better salesman than a scientist.

Mathew Stewart, the author of The Management Myth: Why The Experts Keep Getting It Wrong,describes how Taylor manufactured his data, lied to his clients and inflated his results. He argues that since Taylor, business programs in universities continue to model much of their education, with emphasis on technical knowledge and the scientific management approach. Stewart, who was for many years a management consultant, argues that the studyof philosophyand ethics wouldserve society better as a basis for educating business leaders.

This theme is echoed by Tom Demarco in his book, Slack: Getting Past Burnout, Busywork And The Myth Of Total Efficiency, in which he details American business leaders’ obsession with planning and cost saving efficiency based on a mistaken belief that human beings are efficient in the same way that machines are.

In a similar vein, a ground-breaking book by Dan Coffey, titled The Myth of Japanese Efficiency, challenges the commonly held view based on an earlier MIT study that Japanese car manufacturers pioneered a “lean and flexible” production model, which helped to reinforce the cultish devotion to efficiency.

Aubrey C. Daniels, one of the world’s foremost authorities on management and human performance, outlines management practices that are destructive to organizations during boom or bust times, in his outstanding book, Oops! 13 Management Practices That Waste Time and Money (and what to do instead).

Daniels points out that few managers look for behavioral data to affect employee performance because most managers know very little about the science of behavior and recent brain science or neuroscience, and very few business programs in universities teach it. He says another reason why organizations are fundamentally flawed from a behavioral perspective is that they were designed by those people–those with financial expertise–who have only one purpose in mind, to make money. He says that “how employees are paid, appraised, rewarded, and recognized have financial implications,” but when designed without an understanding of human behavior, you can have get contrary results.  For example, there is a mountain of research to show that employees are not primarily motivated by financial rewards over the long term, yet we continue to use that as a management motivational strategy.

Daniels identifies 13 managerial strategies that not only don’t work, but are destructive to organizations and the people in them, what’s wrong with them and what to do about it. Among the most significantof these practices that perpetuate myths about a productive workplace and what leaders should do are:

1. Employee of the Month [and most other forms of recognition and reward]  What’s wrong with it: It focuses attention on one employee, but most work is a team What to do about it: Acknowledge achievement for everyone the moment it happens.
2. Stretch Goals. What’s wrong with it: Employees end up overwhelmed and frustrated if they fail to reach aggressive goals. What to do about it: Set achievable short term goals and chart employee progress month by month.
3. Performance Appraisal. What’s wrong with it: It’s hated by both managers and employees; it’s done once a year and then appraisal is ignored for the rest of the year; it’s not motivational. What to do about it: Give immediate management feedback to employees for success or failure.
4. Promoting People No One Likes. What’s wrong with it: employees perform out of fear ratherthan commitment and loyalty. What to do about it: Promote people who are liked and have superior interpersonal and emotional abilities.
5. What’s wrong with it: Many things including the stress placedon those employees that remain, and the costs of new hires after the recovery. What to do about it: Find more creative ways of costs savings, done by many companies.

Traditional management strategies in organizations are based more on animal training than on human psychology and neuroscience. Leaders promise bonuses and promotions (the carrot) for those who go along with the changes, and punish those (the stick) who don’t with less important jobs or even job loss. This kind of managerial behavior flies in the face of evidence that shows that people’s primary motivation in the workplace is neither money or advancement but rather a personal interest in their jobs, a good environment to work in and fulfilling relationships with their boss and colleagues.

Charles Jacobs, author of Management Rewired: Why Feedback Doesn’t Work and Other Supervisory Lessons from The Latest Brain Science,says the brain is wired to resist what is commonly termed constructive feedback, but is usually negative. When people encounter information that is in conflict with their self-image their tendency is to change the information, rather than change themselves.  So when mangers give critical feedback to employees, the employees’ brain defense mechanism is activated because that information conflicts with what the brain remembers and knows.

 

Brain science has huge implications for the way we manage organizations, and equally significant implications for HR practices. Compensation, benefits, rewards and other current methods of employee motivation are much the same as they were three generations ago, ignoring all the research evidence from psychology and brain science. So too is the evidence about how psychological states and their brain characteristics—for example, happiness–have a direct impact on employee engagement, creativity and productivity.

Why have the great corporations, both in North America and elsewhere, fallen into such disrepute, and failure? Some very well known and once invincible bastions of our capitalism system have either failed or are in trouble. Jim Collins, author of Good To Great, and How The Mighty Have Fallen, gives us a glimpse into the reasons for the fall. Collins outlines the five stages of corporate decline as: hubris born of success (arrogance) the undisciplined pursuit of more (greed), the denial of risk and peril; grasping for salvation (being a victim); and capitulation to irrelevance or death.

Collins poses a critical question: is the U.S. or even North America, on the brink of decline? Is it possible that the predominant paradigm of capitalism practiced so well in the U.S., may actually be the cause of our economic problems?

The kind of leadership we have in organizations is critical to the decline of the corporate world. Collins outlines the characteristics of teamwork that’s gone sideways in organizations as: Leaders asserting strong opinions without any evidence; team members passively accepting decisions but not actively trying to make the decisions work; team leaders asking few questions and avoiding critical input; team members seeking individual credit and self interest rather than the team’s interests; teams blaming someone when things go wrong; and teams failing to deliver results.

In contrast, Collins points to the kind of leadership that has helped companies remain successful even through the recession: the truth is told by everyone in the organization to leaders; evidence supports decisions; teamwork is marked by extensive questioning and feedback; team members make decisions work once they’re made; team members credit each other for success; failures are seen as learning experiences, and no one is scapegoated; each team member is accountable for results and delivers them without excuses.

Survey after survey of employees in a wide range of industries and countries reveal a basic lack of trust for political and business leaders. In the business world, at the same time, the gap between CEO compensation and that of the average worker-particularly in the U.S.-is increasing, regardless of the business results of the respective company. We continue to measure our well-being in terms of productivity, GDP and economic output, paying scant attention to other measures of well-being, particularly social measures and levels of happiness. There is more than adequate evidence now that the countries and societies-such as Denmark-that have the highest measures of social well-being, also have less of a problem with income disparity.

Over the last few decades, organizations have slowly transitioned from promoting employees based solely on technical ability to recognizing the critical importance of soft skills. No longer does the best accountant become the finance director; now it goes to a solid performer who can also manage stakeholders, develop employees, and communicate in an engaging manner. At the same time that this transition has occurred, companies have significantly increased investment in leadership development, recognizing that not only do new managers need help to thrive, but that the quality of leaders directly impacts the performance of the organization.

Companies have embraced soft skills and the value of leadership and have invested significantly to support this culture change. Things must be going swimmingly in organizations, right?

Not quite. According to recent Gallup surveys, only 38% of workers say their manager helps them set their priorities, and fewer than one in five workers under the age of 37 [which includes the prime years when new workers need development the most] say they receive any routine feedback from their boss. Were you expecting more from your managers? Maybe you shouldn’t: According to Gallup, only 35% of them are engaged themselves.

There’s a lot of truth to the old saying, “You don’t quit a job, you quit a boss.” In fact, Gallup says that 70% of the variance in employee engagement is directly attributable to the manager: Strong, engaged managers will naturally develop strong, engaged employees. Therefore, given the lack of engagement in the management ranks, is it any wonder that Gallup has found that only33% of U.S. employees are engaged? Or that slightly more than half of your workforce is actively looking for a new job or keeping an eye out for job openings?

It’s becoming pretty clear that our current approach to management-while substantially better than earlier models-just isn’t cutting it anymore.

Organizational Changes

Accommodating these changes may be good for the organization, but they will certainly make managers· jobs harder in the near term:

New executive roles. Taking a cue from the world’s most visionary companies, expect new executive roles to be created to promote people, culture, and a focus on the future. Not simply focusing on the warm and fuzzy elements of culture, these executives will enable companies to adapt faster and compete more successfully for critical talent. Forward-thinking managers recognize that organizational culture is the defining hallmark of a company’s brand and the embodiment of its core values. As a result, new roles will be created surrounding the creation and upholding of an uplifting company culture that helps drive competitive advantage

Role shaping and customization. We are growing used to everything being tailored to our own personal needs. From food to entertainment to everything in between, our world has become increasingly customized to who we are and what we want. It’s no surprise then that many experts see existing management and leadership roles evolving to become more individualized and suited to a person’s specific strengths. Although many titles may remain similar. role individualization will likely lead each leadership role and roles in general] away from rigid job descriptions and toward work that better aligns individual strengths with organizational needs.

The growing tension between data and soft skills. There is growing awareness across industries of the need for complementary skill sets among managers. Its clear that Big Data is truly taking over the working world, and without question the executives of the future must have a strong foundation of data analytics and tech savviness to keep up. Equally important is the need for softer skills and emotional intelligence in leaders who have exceptional hard skills. The executives of tomorrow will need to be masters of multiple capability sets to be successful.

The rise of the agile specialist. In many ways, adaptability is becoming more important than deep knowledge. Of course, this isn’t to say that expertise is on the outs, but in a world that moves faster with each passing year, having an expert without the ability to move quickly is having an anchor in your organization. Going forward, leaders must become agile specialists, colleagues who may not necessarily have the same level of expertise as their predecessors but are just as valuable for their ability to act quickly and provide effective solutions to keep up with the times. These agile specialists are equally as valuable as leaders with deep expertise. In partnership, they make a powerful team.

Egalitarianism infiltrates the C-suite. One of the most impactful trends shaping organizations is the shift toward the structural flattening of hierarchy in the workplace, a direct result of a cultural move toward egalitarianism and democracy in general. And so it is beginning to go with company leadership, with even the biggest companies dispersing influence by creating less rigid hierarchies and more channels for input among their employees. The C-suite is getting flatter organizationally, and the influence of each executive is decreasing, particularly in newer organizations. While this might look like a benevolent gift of egalitarianism, it may possibly indicate a growing lack of desire for responsibility or true accountability among an increasing percentage of the workforce. The real question: Will younger workers really want to be leaders?

Moving from bosses to caretakers. We used to fear our bosses. Then we started having beers with them. In the future, our bosses may not only be our friends but our caretakers as well. Because many companies fear losing their talent, and because they have increased survey-based management and frequent emotional temperature taking among employees, many experts felt that compassionate leadership was becoming of paramount importance. As a result, future-forward managers are making an effort to put their people first, making employees· wellness and happiness a priority to enable them to produce their best work. However, this well-intentioned philosophy could grow into a dysfunctional not to mention costly] burden to bear as executives take on an increasing amount of responsibility for employees· welfare, potentially leading to a lack of independence and resilience in the broader workforce. In a few years, we’ll see employers begin to take on an unprecedented level of responsibility for their employee’s welfare, investing perhaps too heavily in positions and resources to sustain employees· physical, psychological, emotional, and even spiritual well-being. Smart leaders. though, will find ways to support their employees while continuing to develop their independence and resilience.

 

Organizational Evolution

 

We are evolving toward an age of networked enterprises, in which the traditional hierarchies of the corporation will be supplanted by self-organizing systems collaborating on digital platforms.

It will be an era of entrepreneurship, distributed leadership, and the continual reorganization of people and resources. It will be a time of disintermediation both within and between organizations. Layers of management will fall; the need for centralized systems and trusted go-betweens will dissipate, if not disappear.

Or so many experts predict.

But that’s history speaking. When we look ahead to life in the digital matrix, there is reason to question culture’s role. Our relationships to institutions will become increasingly defined by the activity in which we are engaged at any given time. We will come to view ourselves as “affiliates” more than “employees” — at least as we think of that term today. We will encounter new partners and colleagues on a rolling basis. We will weave in and out of relationships, working interchangeably with who belong to the same organization and those who do not.

In this world, we will no longer prize alignment; we will prize realignment.

Such an environment benefits from clear and universal rules of engagement. It does not benefit from habits that are distinctive to one group of people — which is the essence of organizational culture.

In his 1966 book The Will to Manage, renowned management consultant Marvin Bower described a company’s philosophy as “the way we do things around here.” Those words helped to establish the role of corporate culture and solidify its purpose over the next 50 years. But we are embarking upon a time when the “way we do things” will be reinvented with each new collaboration. And in such waters, a tool meant to reinforce consistency of behavior over long periods of time transforms from a motor to an anchor.

In a world of VUCA (volatility, uncertainty, complexity and ambiguity), it is the tech unicorns that will be the early adopters of a post-hierarchical model. In fact,some have already embraced it. Today’s competitive landscape is defined by one word: disruption. The ideas of incremental progress, continuous improvement, and process optimizations just don’t cut the mustard anymore; those practices are necessary, but insufficient. It is now impossible to build enduring success without “intrapreneurship” – creating new ideas from within an organization.

The organizational dilemmas faced by ambitious disruptors are best exemplified by Netflix. Their human resources guru, Patty McCord, author of Powerful; Building a Culture of Freedom and Responsibilityand former CEO of Netflix and Reed Hastings identified a problem that appears obvious in retrospect: as businesses grow, so does their complexity. But that comes at a cost of shrinking talent density: the proportion of high-performers within an organization.

The slide deck she developed with the CEO of Netflix, Reed Hastings, went viral, and Sheryl Sandberg referred to it as possibly the most important document to come out of Silicon Valley. That said, Patty McCord did not earn her accolades by identifying problems. What captivated everyone’s imagination were the unorthodox solutions that she offered: “Over the years we learned that if we asked people to rely on logic and common sense instead of on formal policies, most of the time we would get better results, and at lower cost.”

The commentary on Netflix’s corporate culture often focuses on its concrete HR policies, such as self-allotted vacations, and the absence of travel expense reports. But these are just derivatives of a larger vision: high business complexity need not be managed with standard processes and ever-growing rulebook. Patty McCord advocated the exact opposite: limit the tyranny of procedures, bring on board high-performers, and let them self-manage in an environment of maximum flexibility.

Today, we define management as the process of dealing with or controlling things or people. And if this is not a red flag to a CEO running anything other than a widget factory, I don’t know what is. Controlling things no longer appears plausible, and controlling people is downright counterproductive. Steve Jobs hit the nail on the head when he said: “It doesn’t make sense to hire smart people and then tell them what to do; we hire smart people so they can tell us what to do.”

While the division of labor was the hallmark of the industrial era, it is becoming increasingly difficult today to parse out and allocate white-collar work in the form of specific tasks. Regardless of how we describe the present, be it the digital epoch, the Fourth Industrial Revolution era, or the “second machine age”, what it boils down to is that all work that requires supervision is being outsourced to robots and algorithms. Non-standard, creative, experimental work, on the other hand, doesn’t naturally lend itself to management.

The second fundamental shift we see now is that a strategy of making a plan and then executing it is no longer viable. What used to be known as “muddling through” is now seen as adapting to the fast-changing environment. Strategy, as we know it, is dead. Dealing with uncertaintyis the number one challenge and, as the cliché goes, it’s the number one opportunity too. If your company isn’t the disruptor, it’s a clear sign that it’s about to be disrupted.

The bottom line is that the hierarchical management mode is no longer suited for the challenges of the modern economy. The status quo is often protected by the vocabulary of business: directors direct, presidents preside, and managers manage. But all those activities are adding much less value than they used to be. They constrain innovation and stifle creativity in the pursuit of order.

Contextual awareness, peripheral vision, design thinking and a multi-disciplinary approach – these are all terms that are trending in modern office-speak. And deservedly so. A project-based and titles-free organization — where yesterday’s team member is today’s team lead — can deliver the flexibility and agility that businesses yearn for.

“Context Curator” is the term I’d like to introduce to the business dictionary. To lead a project is not to assign tasks and monitor performance, but to empower, to define the broader context, and to organically link the work of one team with the rest of the business. Following the example of Netflix and striving for higher talent density is only half the battle. Curating the context in which high performers can excel – rather than attempting to manage them – is the key to unleashing their full potential.

Matthew Steward, writing in Atlantic Magazine,says “at its best, management theory is part of the democratic promise of America. It aims to replace the despotism of the old bosses with the rule of scientific law. It offers economic power to all who have the talent and energy to attain it. The managerial revolution must be counted as part of the great widening of economic opportunity that has contributed so much to our prosperity. But, insofar as it pretends to a kind of esoteric certitude to which it is not entitled, management theory betrays the ideals on which it was founded.”Steward argues that each new fad calls attention to one virtue or another—first it’s efficiency, then quality, next it’s customer satisfaction, then supplier satisfaction, then self-satisfaction, and finally, at some point, it’s efficiency all over again. If it’s reminiscent of the kind of toothless wisdom offered in self-help literature, that’s because management theory is mostly a subgenre of self-help. Which isn’t to say it’s completely useless. But just as most people are able to lead fulfilling lives without consulting Deepak Chopra, most managers can probably spare themselves an education in management theory.

Between them, Frederick Taylor and Elton Mayo carved up the world of management theory Steward maintains. “According to my scientific sampling, you can save yourself from reading about 99 percent of all the management literature once you master this dialectic between rationalists and humanists. The Taylorite rationalist says: Be efficient! The Mayoist humanist replies: Hey, these are people we’re talking about! And the debate goes on. Ultimately, it’s just another installment in the ongoing saga of reason and passion, of the individual and the group.

The tragedy, for those who value their reading time, is that Rousseau and Shakespeare said it all much, much better. In the 5,200 years since the Sumerians first etched their pictograms on clay tablets, come to think of it, human beings have produced an astonishing wealth of creative expression on the topics of reason, passion, and living with other people. In books, poems, plays, music, works of art, and plain old graffiti, they have explored what it means to struggle against adversity, to apply their extraordinary faculty of reason to the world, and to confront the naked truth about what motivates their fellow human animals. These works are every bit as relevant to the dilemmas faced by managers in their quest to make the world a more productive place as any of the management literature.”

Thomas M. Hout, writing in Harvard Business Review, says that while good management may make a difference for a short time, a company’s fate is determined by forces outside management’s control. Managers cannot predict which business strategies or product platforms will survive. At best, they can try to innovate or scramble to adapt. All companies will die, just at different times. In other words, it’s the system, not management, that dominates. “Creative destruction” is the watchword for this school, and [joseph Schumpeter is its prophet. Many economists, venture capitalists, and Darwinian business thinkers belong to this school.

This is the view laid out by Howard Sherman and Ron Schultz in their book Open Boundaries. Both are fellows at the Santa Fe Center for Emergent Strategies in New Mexico. (This center collaborates with but is not formally a part of the Santa Fe Institute, which has done much to develop complexity theory in the sciences.) The book will make readers rethink their assumptions about how competition works and how much managers truly understand the flow of business. Readers may find it fairly abstract, but it does pro- vide an engaging way to think about management.

The authors argue that business today is not only faster hut also fundamentally different: it moves in a nonlinear fashion. There is no continuity in the flow of competitive events (except perhaps in retrospect), and there is no way to predict which products or companies will succeed. Competitive advantage is fleeting; technology and markets change so frequently and radically that yesterday’s assets become to- day’s dead weight. Look, for example, at what the CD-ROM did to Encyclopedia Britannica or how deregulation is transforming the electric utility business.

This shift to a nonlinear world has two major implications, according to the authors. First, business structures work best when they are self- organized. Rather than impose shape upon the organization, managers should simply allow the organization of people and effort to evolve in response to ongoing messages from customers. Markets, like other complex systems, reflect the intricacies of many low-level interactions. No intelligence from on high can match the quality of solutions to market problems that arise from players who

are constantly communicating with one another on the ground level. The invisible hand of the marketplace should displace the visible hand of the manager. The markets can deter- mine where one team or initiative or company ends and another begins. Managers interfere at their peril.

Second, strategy should be “emergent.” Companies can’t plan ahead- they must allow their strategies to emerge out of current conditions. If managers try to map out strategies beforehand, they’ll simply end up driving by their rearview mirror. Even scenario building has little value. Since everything in the economy is evolving simultaneously, affecting everything else in unpredictable ways, it’s dangerous to make any assumptions.

Sherman and Schultz are right about the direction business is going in. Managers are being cut adrift from many of their traditional moorings. The heightened pace of change is forcing them to rely more on instinct and intuition. And with organization and strategy increasingly set by people on the ground rather than at the top, managers’ roles are changing. But all three of these concepts- nonlinearity, self-organization, and emergent strategy-have important limitations that show the continued primacy of good management. Let’s consider each one in turn.

 

Competing in a Nonlinear World

 

Because companies now operate in a nonlinear world, the value of a business lies increasingly in its ability to capture information and generate new ideas, according to Sherman and Schultz. Analysts have traditionally valued businesses by calculating the net cash flow generated by their assets. But if new entrants can suddenly make a company’s assets obsolete, those assets are no longer useful even in describing how a business works, let alone in valuing a company. This is particularly true of material assets-good information about market demand, for example, can render most inventory unnecessary. But even such intangible assets as brands can lose their competitive strength.

 

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