Towards a new management paradigm – slowly

Dismantling the old paradigm is as important as building the new

‘Management is in crisis’, summed up a senior Silicon Valley engineer at the end of the 12th Global Peter Drucker Forum in Vienna at the end of November. His starting point was Drucker’s famous dictum that the purpose of business is to create and keep a customer, that its major functions – the only ones that yield results – are marketing and innovation, and that everything else is cost.

He left unsaid Drucker’s wider assertions: that the economy is a ‘social ecology’ and business ‘an organ of society’, and that society ‘endows businesses with wealth-producing resources (e.g. capital and talent) in order to serve customers.’ Managers in turn are the ‘central resource’ of society, whose very survival depends on managers’ ‘competence, earnestness and values’. ‘What managers are doing is therefore of public concern.’

On all those counts, Drucker might have agreed with the ‘crisis’ verdict. In one forum session, chair and innovation specialist Curt Carlson, former head of SRI International, underlined that innovation, the wellspring of productivity, prosperity, jobs, wellbeing and greater resources for common and societal ends, had lost its way.

Although much effort was devoted to mapping and creating innovation clusters and ‘superclusters’ – another session estimated there were no less than 7,000 worldwide – overall innovation productivity today was dismal. Incubators have little effect and most venture capital firms lose money, with 95 per cent of gains accruing to 5 per cent of firms. Corporate innovation projects had little value. The need for a systematic approach to innovation is as urgent as ever.

In other words, too much of management creates cost rather than value – bullshit work, in fact. It is thus failing in its first duty, competent economic performance providing cost-effective solutions to society’s problems, together with jobs and pay. This transforms it from Drucker’s ‘constitutive organ’ assuring the healthy functioning of society to its constitutive problem, its failures in its central task of capital allocation largely responsible for today’s inequality, a generation of wage stagnation, a decade of crisis and austerity, the ever-intensifying climate emergency, and the social unrest spreading through large parts of the world.

Today’s exhibit #1 in this regard might be Boeing, a once proudly engineering-led firm whose management is facing serious allegations of at best negligence and at worst concealment of design short-cuts on its currently grounded 737 MAX 8 aircraft, at a time when it was paying out more than its entire profits to shareholders in dividends and stock buybacks, to the particular benefit of its own executives.

The theme of the Forum was ‘The power of business ecosystems’. Does this hold out the promise of a ‘new management paradigm…finally?’, as the closing session asked. Well, yes … and no. Several speakers deplored the bandying about of the word ‘ecosystem’ for its connotation of cool and up-t0-date, warning that it could easily become another concept trivialised and voided of meaning by overuse, and that is indeed a danger.

Yet while in the final session LBS’ Julian Birkinshaw urged listeners to get past the idea that some huge new idea is going to come along and change everything, he conceded that on the ground the practice of management was changing. ‘We are seeing a lot of experiments with new ways of working. It’s not only the Ali Babas, the Amazons and the Googles, but also a lot of traditional companies that are experimenting. It’s not just a story of digital innovation. It’s a story of new business imperatives, causing companies to do different things.’

Take the surge of management energy emanating from giant Chinese companies such as Haier and Ten-Cent, both represented at the Forum (with 90 attendees China also provided a significant portion of the audience, another new development).

Haier CEO Zhang Ruimin, an avid student of Peter Drucker, spoke impressively of using the group as a platform to empower thousands of micro-entrepreneurs not just economically but (quoting Kant) with dignity as ends in themselves rather than instruments of the company. In the belief that large companies had to become ecosystems to survive, it was busy creating an ‘internet of food’ and an ‘internet of clothes’ comprising many interconnected devices that would make customers a living part of the ecosystem rather than a party to a one-off transaction, as in the past. A sale was no longer a zero-sum game with a winner and loser, said Zhang; it signalled the start of a relationship with the customer, not the end. Haier was not aiming for a walled garden: ‘We want a rain-forest, with some deaths, but giving perpetual life.’

As Birkinshaw pointed out, the ‘Darwinian’ Chinese model, using internal markets to sort the good ideas from the bad, with no protection for infant enterprises expected or given from the top, contrasted strongly with companies such as Pixar and Tupperware that sought to foster the same ends of innovation and creativity through more traditional means such as nurturing, collaboration and the deliberate mitigation of power.

But although Birkinshaw didn’t mention it, to many, including me, the most inspiring and hopeful management model on show was that of Netherlands health organisation Buurtzorg, represented by founder Jos de Blok.

Buurtzorg is by now rightly well known – a nursing and care organisation that from a 4-member start has mushroomed into an organisation of 15,000 professionals covering much of the Netherlands, and has now spread to 25 other countries, including Scotland (introduced by one of this column’s subscribers) and Wales. It is patient-centred, based on self-managing teams, and delivers better care at 65 per cent of the cost of the conventional industrialised version. Blok calls its model ‘integrated simplicity’, and it is as interesting for what it doesn’t do as what it does.

Things Buurtzorg doesn’t do, explained Blok, include ‘management meetings, policy notes, strategic documents, year plans, HR strategies, and other useless things.’ It doesn’t budget, and there is no finance controller or HR department. Head office consists of 50 administrators, 20 coaches and two directors. There are no management ranks. On the other hand, Buurtzorg built its own IT system (which it sells to others) to support carers and on which they input their 10-minutes-a-day admin. Blok would like Buurtzorg to be ecosystem infrastructure for all Netherlands healthcare, and it has set up a health insurer to apply the same simple principles to the payer side. This surely is management as it should be: invisible, part of the work, helping people to do their job rather than the reverse, and demystified.

Interestingly, in his summing up, Birkinshaw acknowledged that behind the hype ecosystems were beginning to, ahem, disrupt academic as well as practical management work. Both communities had to face up to the idea that the value of a firm now resides as much in its in its network of relationships as in existing physical assets and resources. As Michael Jacobides, also of LBS, has explored, it’s hard for alpha male CEOs to accept that they now live in ‘eco- not ego-systems’, while academics have to get over their sunk investment in the assumption that the standalone firm is the unique unit of analysis. Bluntly, ecosystems put the theory of the firm up for grabs.

Finally, and ironically, ecosystems help explain just why the long-awaited new management paradigm won’t impose itself overnight. While many now accept that shareholder value maximisation was flawed in theory and disastrous in practice, it is held in place by a closely-knit ecosystem of vested interest – business schools that teach it, consultancies that preach and implement it, fund managers whose pay depends on it, private-equity, hedge-fund and activist outfits that ruthlessly practice it to make their billions, lobbyists and politicians in hock to it, and CEOs such as Jack Welch who are happy to denounce it as the ‘dumbest idea in the world’ – but only once their extravagant share options have vested and they are safely in retirement.

Next year’s Drucker Forum has the theme of ‘leadership everywhere’. Yes – and among its tasks working to dismantle the Berlin Wall of the old management paradigm will be as urgent as building the new.

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