Reinventing Management

pharmafile | June 17, 2010 | Feature | Research and Development, Sales and Marketing |  management 

The investment banking industry officially ceased to exist on September 21, 2008. That was the day the last two remaining investment banks, Goldman Sachs and Morgan Stanley, converted themselves into deposit-taking commercial banks.

With Lehman Brothers filing for bankruptcy a week earlier, Merrill Lynch sold to the Bank of America the same week, and Bear Stearns sold to JP Morgan back in March 2008 – the independent broker-dealer investment bank was no more.

Many books and articles have now been written to explain the causes of the credit crisis of 2007–2008 and the broader upheaval in the financial services industry that followed. We know there was a failure of regulation, a failure of macro-economic policy, perhaps even a failure in the way our entire market system worked. And all institutions involved in the financial services sector-ratings agencies, regulators, central bankers, as well as law firms, accountants, and business schools have taken their share of the blame. But what has attracted far less attention so far is that the demise of traditional investment banking was also a spectacular failure of management.

Of course, it goes without saying that when a company fails, the CEO takes responsibility for that failure. But this ‘failure of management’ in investment banking is far more than the story of a few CEOs losing control of their organisations, it is the story of a deeply flawed model of management that encouraged bankers to pursue opportunities without regard for their long-term consequences; and to put their own interests ahead of those of their employers and their shareholders. And it’s a story we see played out in similar ways in companies around the world that are all suffering from a failure of management.

Disenchantment with management

Management as we know it today is struggling to do the job it was intended to do. But we can also see evidence of a creeping disenchantment with management as a discipline. Here are some examples:

Management as a profession is not well respected. In a 2008 Gallup poll on honesty and ethics among workers in 21 different professions, a mere 12% of respondents felt business executives had high/very high integrity – an all-time low. With a 37% low/very low rating, the executives came in behind lawyers, union leaders, real estate agents, building contractors, and bankers.

In a 2009 survey by Management Today, 31% of respondents stated that they had low or no trust in their management team.

Employees are unhappy with their managers. The most compelling evidence for this comes from economist Richard Layard’s studies of happiness. With whom are people most happy interacting? Friends and family are at the top; the boss comes last. In fact, people would prefer to be alone, Layard showed, than spend time interacting with their boss. This is a damning indictment of the management profession.

There are no positive role models. We all know why (US comic strip based) Dilbert is the best-selling business book series of all time, and why The Office sitcom was a big hit on both sides of the Atlantic – it’s because they ring true. The pointy-haired boss in Dilbert is a self-centered halfwit; David Brent (or Michael Scott, if you watched the US version) is entirely lacking in self-awareness, and is frequently outfoxed by his subordinates.

If these are the figures that come into people’s minds when the word ‘manager’ is used, then we have a serious problem on our hands. Interestingly, the phrase ‘leader’ has much more attractive connotations, and some positive role models.

The harsh reality is that today’s large business organisations are – with notable exceptions -miserable places to spend our working lives. Fear and distrust are endemic. Aggressive and unpleasant behaviour is condoned. Creativity and passion are suppressed.

The good news is that the opportunity for improvement here is vast and if we do improve the practice of management, the payoffs – for pioneering companies, for all their employees, and for society as a whole – are substantial.

Let’s be clear upfront that there are no simple solutions to this problem. Many thinkers and business pioneers have tackled the same set of issues, and made limited progress. But we should at least recognise that this is a problem worth working on.

Management has failed at the big-picture level, as the employees and shareholders of Lehman and GM will attest. Management has also failed at the personal level, as every one of us has observed. We need to rethink management. We need to help executives figure out the best way to manage, and we need to help employees take some responsibility – to get the managers they deserve.

The corruption of management

Where did management go wrong? We cannot put it down to a few rogue executives or bad decisions, and we cannot single out specific companies or industries. The problem is systemic, and it goes way back in time.

Big company executives may be the ones in the hot seats, but many other parties are complicit in the problems of management, including policymakers, regulators, academics, and consultants.

Before discussing where things went wrong, we need a clear definition of management. I am going to keep things simple and use the Wikipedia definition:

Management is the act of getting people together to accomplish desired goals and objectives.

Please think about these words for a few moments. There is a lot missing from this definition – no mention of planning, organisation, staffing, controlling, or any of the dozen other activities that are usually associated with management. There is also no mention of companies or corporations, and absolutely nothing about hierarchy or bureaucracy. And that is precisely the point – management is a social endeavour, which simply involves getting people to come together to achieve goals that they could not achieve on their own.

A football coach is a manager, as is an orchestra conductor and a cub scout leader. At some point we need to qualify this definition to make it relevant to a business context, but for now let’s use the word in its generic form. I believe that management – as a social activity and as a philosophy – has gradually become corrupted over the last 100 years. When I say corrupted, I don’t mean in the sense of doing immoral or dishonest things (though clearly there have been quite a few cases of corrupt managers in recent years). Rather, I mean that the word has become infected or tainted. Its colloquial usage has metamorphosed into something narrower, and more pejorative, than Wikipedia or Webster’s Dictionary might suggest.

In talking to people about the term, and in reading the literature, I have noticed that managers are typically seen as low-level bureaucrats who are “internally focused, absorbed in operational details, controlling and co-ordinating the work of their subordinates, and dealing with office politics”. Whether accurate or not, this is a sentiment everyone can recognise. But it is a very restrictive view of the nature of management. And such sentiments also feed back into the workplace, further shaping the practice of management in a negative way. This is why I argue that the word has been corrupted.

Why has this corruption taken place?

There are two major reasons. Large industrial firms became dominant, and their style of management became dominant as well. A careful reading of business history indicates that large companies, of the type most of us work in today, first came into existence about 150 years ago.

Back in 1850 nine out of 10 white male citizens in the US worked for themselves as farmers, merchants, or craftsmen. The biggest company in the UK at the time had only 300 employees. But the industrial revolution sparked a wholesale change in the nature of work and organisation, with mills, railroads, steel manufacturers, and electricity companies all emerging in the latter part of the nineteenth century.

Helped along by management pioneers like Frederick Taylor, Frank and Lilian Gilbreth, and Henri Fayol, these companies put in place formal structures and processes and hierarchical systems of control that we would still recognise today, and which were all geared toward efficient, low-cost production of standardised products.

Of course this industrial management model was a spectacular success, and became one of the key drivers of economic progress in the twentieth century. But it had an insidious effect on the concept of management, because the term came to be associated exclusively with the hierarchical, bureaucratic form of work practiced in large industrial firms.

For many people, even today, the word management conjures up images of hierarchy, control, and formal procedures, for reasons that have nothing to do with the underlying meaning of the term. ‘Management’ and ‘large industrial firm’ became intertwined in the 1920s, and they are still tightly linked today.

Such a narrow model of management gets us into trouble for a couple of reasons. First, it blinds us to the range of alternative management models that exist. Sports teams, social communities, aid organisations, even families, operate with very different principles than large industrial companies, and these alternative principles are potentially very useful today.

The other reason that a narrow view of management gets us into trouble is that it leads us to assume, incorrectly, that large industrial companies are inherently superior to other forms of organisation. Of course there are certain industrial processes that are best suited to economies of scale and scope, but we would be misunderstanding history if we assumed that mass production was the only feasible model of industrial organisation.

Management is the act of getting people together to accomplish desired goals.

Or to put it really simply, we all need to be leaders and managers. We need to be able to influence others through our ideas, words, and actions. We also need to be able to get work done through others on a day-to-day basis.

How did Barack Obama win the presidency? He ran a well-managed and innovative campaign, but I think it was his leadership qualities – his vision, his charisma that made the difference. Perhaps we can attribute one-quarter of his success to good management, three-quarters to good leadership. But now that he is in office the relative emphasis switches, as he seeks to deliver on his election promises, resolve competing agendas, and prioritise the issues that land on his desk.

I believe his job is now three-quarters management and one-quarter leadership, and that the success (or not) of his administration will rest primarily on his qualities as a manager. So the concept of management has been gradually corrupted over the years, partly because of the success of large industrial companies and their particular model of management, partly because of the popularity of leadership, which has grown at management’s expense.

To make progress, we need first to reverse out of the cul-de-sac that management has been driven into. We need to rediscover the original meaning of the word, and we need to remind ourselves that leadership and management are simply two horses pulling the same cart.

Management in a changing world

I have painted a somewhat gloomy picture so far, and the picture gets gloomier still, at least for the moment. The failure of management might not be such a concern if the business world were as predictable and stable as it had been in the post-war years. But a great deal has changed since then. The major shifts in the business environment are well documented. We have undergone a period of economic and political transformation, the result of which is a more tightly integrated world economy, with new markets opening up in previously closed regions – and new competitors emerging, often with very different operating norms to those we are used to.

We have also lived through the information and communication technology revolution, leading to the emergence of the ‘Worldwide Computer’ that provides access to information on an unprecedented scale. We have experienced many social changes as well – people are living and working longer, but with far more loyalty to their own professional identity than to the organisation they work for. And they are seeking engagement in their work, not just a payslip.

These trends have led to a fundamental change in the economic logic of the firm. In the traditional model, capital was the scarce resource, and the strategic imperative of the firm was to transform inputs into outputs as efficiently as possible. Today, the scarce resource is knowledge, and firms succeed not just on the basis of efficiency, but also creativity and innovation.  These trends have also led to changes in the nature of management. The onset of global competition has made it necessary to adapt the traditional Anglo-American model we are most familiar with to the cultural norms of the countries in which we are working. The rise of ‘knowledge workers’, individuals who own their own means of production, has changed the relationship between boss and employee. The invention of the Internet has made it possible to access information and work together in a dispersed manner that was never possible before.

Of course, depending on your worldview, these trends are either threats or opportunities. They are threats insofar as they make it even harder than before to retreat back into our traditional models of management. And they are opportunities because new ways of working are opening up before our eyes. Management was in need of reinvention anyway. But with these technological, economic, and social changes afoot, the urgency of the task has become that much greater.

Reinventing management

So what is the future of management? In the face of all these challenges, can management be reinvented to make it more effective as an agent of economic progress and more responsive to the needs of employees?

One school of thought says management cannot be reinvented. The argument here can be summarised as follows: management is fundamentally about how individuals work together, and the basic laws of social interaction have not changed for centuries – if ever. While the business context will evolve, the underlying principles of management – how we set objectives, co-ordinate effort, monitor performance – are never going to change.

Most of the recent innovations – Six Sigma, the balanced scorecard, re-engineering, for example – have been little more than incremental improvements on existing ideas, rather than entirely new ideas in their own right. If we extend this train of thinking, we could conclude that the evolution of management has more or less run its course and that, to use Francis Fukayama’s famous expression, we’ve reached ‘the end of history’ with regard to management progress.

But we haven’t. Of course there is some validity in arguing that the basic laws of human behaviour are not going to change. But the practice of management is enormously context dependent, and as the nature of business organisations evolve, so too will management. Yes, there will always be the need for some sort of hierarchical structure in a large organisation, but the nature of that hierarchy can potentially change dramatically.

The other reason I disagree with the argument that ‘management cannot be reinvented’ is that there must be a better way of running large companies. We don’t need to throw up our hands and say management has gone as far as it can, because that would accept the failures of management as something we must just live with. And we don’t need to create a whole new model of management – we have plenty of ideas from the world of theory and insights from the world of practice to guide us.

We need to develop a more comprehensive understanding of what management is really about to make better choices.

By going back to a basic definition of management – the act of getting people together to accomplish desired goals – we can frame our discussion of the activities and principles of management much more explicitly. And armed with this new understanding, we can help managers make better choices within the universe of known possibilities, rather than suggest they invent something that has never been thought of before.

We should seek to bring management back into focus. Companies should invest as much time thinking about improving their management practices as they think about developing new products and services. This need is driven both by the flaws in our current models of management and by the new opportunities that Web 2.0 technologies offer us.

There are two views of management out there at the moment. One view suggests that management as a discipline is essentially the same as it has ever been; the other view suggests that we need to radically rethink our basic principles of management.

My book suggests a third way – that managers become more conscious of the choices they have subconsciously made about how they get work done, and it shows how they can make better choices in the future that build upon the opportunities for improvement, whilst also being aware of the risks.

This is an edited extract from Julian Birkinshaw’s Reinventing Management, published by Wiley. For more information visit www.wiley.com.