Fast Company published an article in November 2012 about today’s chaotic and paradoxical business environment, and the kind of leaders who best thrive there. It said:
Twenty years ago, a management professor by the name of Margaret Wheatley published a book called Leadership and the New Science. It was prescient then; it is even more eye-opening now. Her premise: Organizations and society have been structured to match our understanding of the natural world, which goes back to the 17th-century ideas of Sir Isaac Newton. Newton famously posited theories of cause and effect, and referred to our world as a machine – a closed system (set in place by the Great Watchmaker). In Newtonian physics, there is no greater goal than stability. That scientific conclusion helped us to embrace hierarchy and one-size-fits-all models. And our businesses have indeed been constructed for efficiency. Following the example of Henry Ford, we have extended our manufacturing prowess into shipping and logistics. We have used technology to enhance effectiveness, to track data and mine it for new refinements. (1)
Even though the focus areas of management have evolved during the past century from Taylor’s Scientific Management to Drucker’s refinement of the word ‘management’ itself, to the rise of business strategy, and to leadership development, we are still essentially operating under the same Newtonian worldview described in Wheatley’s book. Organizations strive to achieve stability. The cause-and-effect worldview implies that there are logical relationships between things that happen, relationships that can be studied, and as we understand them better, also predicted.
The famous Hawthorne studies and Henry Ford’s production line are great examples of Scientific Management in practice: Change working conditions, one small thing at a time, and measure changes in productivity. If productivity rises or falls, it can be assumed to do so because of the change that was done. Therefore, after many enough experiments it is theoretically possible to find what the optimal working conditions are. This reasoning makes logical sense, but only if we hold on to the Newtonian worldview of clear cause-and-effect relationships. And as it turned out also in the Hawthorne studies, when systems involving human actors are being investigated the arrows of causality tend to get complex and much less obvious than initially assumed: productivity increases did not happen because of dimmer or brighter lighting, but due to other less-obvious factors. (2)
It could be argued that the role of management – in a broad sense – is to optimize predictable factors affecting the company’s performance. Consequently, the most spectacular failures of management can be found wherever these predictions have failed. Examples include the domino effect that started from the US housing bubble and lead to the 2008 global financial crisis, and Nokia’s decline from the position of the world’s #1 mobile phone maker. (3)
Despite these occasional hurdles, the 20th century has seen management triumph. As organizations have optimized their production, logistics, billing etc., productivity and consequently GDP per capita has increased globally across the board. What has not increased, however, is people’s subjective well-being. We are more productive, more affluent, live longer lives and have more opportunities than ever before in history. Yet all of this has had little impact on how happy we are with our lives. (4)
The failure of management to increase the quality of subjective well-being is one thing, but the real reason I am predicting that the current paradigm of management practice has reached its end is this: unlimited optimization is not possible. This follows logically from the Newtonian worldview. You can only increase the speed of a production line so much. Sooner or later the limits of physics will create an insurmountable barrier. You can count the fastest route to transport goods from a factory to a store, but there are limits to the speed in which you can travel that distance.
The problem – or the opportunity – is that we have become very good at measuring things. Most large businesses with their armies of MBAs are perfectly capable of smart handling of all the essential functions of a business. They are following best practices, which devalues the best practice thinking itself. It’s difficult to claim to be “best” when every competitor is doing exactly what you are. Organizations are becoming more and more similar: they run the same enterprise resource planning systems, such as Oracle, SAP, or i2, use the same consultancies for advise, and outsource their non-core activities to the same service providers. Earlier it was relatively easy to compete by having e.g. superior logistics, marketing, production, and whatnot, but where does one find sustainable competitive advantage now that more or less all major companies are very good at all of these things?
So far technology has been the salvation for management. Faster computers, more sophisticated algorithms, new production methods and materials are making it possible to gain incremental benefits. Unfortunately the competition is always quick to catch up with these new developments. Being the first one to adopt a new technology is expensive and comes with certain risks. It might provide a fleeting competitive advantage, but is likely to evaporate when the technology comes more robust and affordable and gets adopted by other companies. When I was studying in Yonsei University, South Korea, the locals jokingly called Samsung’s strategy as “exploiting the second-mover advantage”. Let someone else carry the first-mover risks but be fast to follow.
The real challenge facing the management practice is to step away from the drag of pursuing never-ending incremental improvements. You might disagree with me about how this should be done, but I believe that the next logical place where significant competitive advantage can be found is within the individual employees of the organization. What this means in practice is getting people in the kind of positions where they can take full advantage of their strengths, talents, skills and interests. Organizations need to:
- help employees know themselves better; what their strengths and interests are;
- assist employees in crafting their jobs so as to take advantage of these strengths and interests, and;
- focus on finding an answer to one particular question for each employee: “What is needed for work to be a fulfilling part of your life?”
Companies such as Valve, Netflix and SAS (the software company, not the airline) are great examples of this kind of thinking in practice, and the results speak for themselves. For example, the 13 000 employee SAS has had 37 consecutive years of record earnings. When the company stopped receiving orders as the 2008 financial crisis hit, its CEO announced that none of its employees was in risk of being laid off. People stopped worrying, got back to doing their jobs, and the company had record earnings again in 2009. How many companies you know that have done the same when things get tough? (5)
This, however, is only the starting point. The current management practice has its roots in getting uneducated people to work efficiently on a production-line driven organization. It was built on top of assumptions due to which it is inherently incapable of accounting for individual differences that we as people have. Same can be said about the way organizations are structured. What I call for is an organization model and management practice that is built with a focus on the individual at its heart. This does not make measures and traditional management approaches obsolete, but it will lead to the next growth spurt. Something the current management practice is unlikely to achieve. An individual-centric view provides fertile ground for creation of significant and sustainable competitive advantage.
There is of course also the human aspect of it. Simply put, helping people to know themselves better and take advantage of their individuality is the right thing to do… If we want to improve the human condition on this planet; not just material wealth but also subjective well-being. (6)
Besides anecdotal examples, research is starting to pile up showing that the companies adopting these approaches are leapfrogging ahead of their competitors. For example, in a study of 308 798 employees across 51 companies, work units scoring above the median on the statement “At work, I have the opportunity to do what I do best every day” have 44% higher probability of success on customer loyalty and employee retention, and 38% higher probability of success on productivity measures. In the UK it was found that each pound invested in employee well-being and motivation received a nine-fold return. This is in stark contrast with what seems to be considered normal today: over half of the Americans hating their jobs. (5, 7, 8)
What do you think?
(1) Safian, Robert (2012). Secrets of the Flux Leader. Fast Company, November 2012, iPad Edition.
(2) Kiechel, Walter III (2012). The Management Century. Harvard Business Review, November 2012, 63-75.
(3) Silver, Nate (2012). The Signal and the Noise: Why So Many Predictions Fail – but Some Don’t [Audio book]. Penguin Audio.
(4) Rosling, Hans (2007). New insights on poverty. Ted2007 . Available at: http://www.ted.com/talks/hans_rosling_reveals_new_insights_on_poverty.html [Accessed 13 February 2013].
(5) Crowley, Mark C. (2013). How SAS Became The World’s Best Place To Work. Fast Company. Available at: http://www.fastcompany.com/3004953/how-sas-became-worlds-best-place-work [Accessed 13 February 2013].
(6) Hodges, T. D., & Clifton, D. O. (2004). Strengths-Based Development in Practice. In: Linley, P. A., Joseph, S., & Seligman, M. E. P., ed. (2004). Positive Psychology in Practice. Wiley, 1 edition. Ch. 16.
(7) Harter, J. K., Schmidt, E L., & Hayes, T. L. (2002). Business-unit-level relationship between employee satisfaction, employee engagement, and business outcomes: A meta-analysis. Journal of Applied Psychology, Vol. 87, No. 2, 268-279.
(8) Knapp, M., McDaid, D., & Parsonage, M. (Eds.). (2011). Mental Health Promotion and Mental Illness Prevention: The Economic Case. London: Department of Health.