Ten Reasons Why Big Firms Stick With Obsolete Management (Part 2)October 11, 2020
Table of Contents
Following the first five of Ten Reasons Why Big Firms Stick With 20th Century Management, here are five more reasons:
1. The Transition To 21st Century Management Is Hard Work
Stopping the momentum of the giant flywheel of 20th Century management and turning it into something more agile can involve a lot of work. Everything in 21st Century management is the opposite of 20th Century management.
The goal of the firm is now to create a continuous stream of value for customers and users. Making money is the result, not the goal. This goal requires a different structure of work to enable the full talents of those doing the work, often through small self-organizing teams working in short cycles, focused tightly on delivering value for customers. Instead of a steep vertical hierarchy of authority, there is a flat network or hierarchy of competence, in which ideas can come from anywhere.
These three principles in turn require radically different processes. Leadership has to be inspirational rather transactional, and, given the distributed nature of work, it is required throughout the organization. Strategy tends to include not only coping with competition but also creating new businesses that attract new customers. Innovation encompasses systematic efforts to find new needs and new ways of meeting them, including the creation of interactive ecosystems. Sales and marketing involve making a real difference in the lives of customers and users. Given the new role of talent, people management must attract and enable the talent required to deliver value to customers. Because the firm operates as a network of teams tightly focused on creating customer value, the budget typically reflects decisions already taken in strategy; there are often no organizational silos to fight over it.
Is it any wonder that executives find it easier to accept the extravagant compensation that is lavished on them for maintaining the status quo, rather than undertaking the difficult multi-year slog to transform the corporation from top to bottom, with a significant risk that they will be cast aside, somewhere along the way?
2. Small Change Experiments Don’t Last
The middle course is to maintain the status quo, while exploring alternatives on a small scale. Executives initially experimented doubling down on 20th Century management tools. Firms downsized, reorganized, delayered, and reengineered. They acquired new companies and shed struggling businesses. But these tended to be one-off experiments, not a coherent way to run the whole organization on a continuing basis. The assumptions of 20th Century management remained intact.
In some cases, they also explored 21st Century management approaches to solve particular problems, such as an increased customer orientation, deploying teams, greater delegation, inspirational leadership practices, bolder strategies, innovation initiatives, attracting better talent, improving diversity, and so on.
But they generally came back to the standard model of 20th Century management practices as the default norm, once the particular problem was solved. This after all was how most other big firm was being run, what business schools were teaching, and what major consulting firms were advising.
“The problem can persist even if a company is quick to adopt the latest managerial tools and techniques,” writes Professor Annika Steiber, “because usually these upgrades don’t go deep enough; they serve mainly as add-ons to an underlying system that is no longer right.”
3. No Objective Measure Of Truth
As Thomas Kuhn noted in The Structure Of Scientific Revolutions (1962), even in science, there isn’t really any objective basis for choosing between two competing scientific theories. There is usually no way to conduct a simple experiment to show that one theory is right and the other wrong, at which point all scientists abruptly drop the old theory and espouse the new. Instead, there is generally evidence both for supporting and questioning the competing theories. Scientists have to weigh up different kinds of evidence and then decide to put their careers behind one theory or the other. This doesn’t happen overnight. This is even more true in paradigm shifts in management.
Thus revolutions in intellectual matters happen slowly. “When an individual or group first produces a synthesis able to attract most of the next generation’s practitioners,” Kuhn writes, “the older schools gradually disappear. In part their disappearance is caused by their members’ conversion to the new paradigm. But there are always some men who cling to one or another of the older views.”
All of these phenomena are observable in the ongoing transition from the 20th Century management to the 21st Century paradigm of managing. Managing in the new way is in some ways like being in a new world compared to 20th Century management. Familiar words like “manager”, “leader” and “strategy” have different meanings. Decades-old ways of doing things are suddenly no longer appropriate. New ways have to be learned. Attitudes and behaviors have to change. To old hands, 21st Century management can come to be seen as very strange.
4. Lack Of Management Awareness of The 21st Century Management
The tendency in the financial press to dismiss Agile and Silicon Valley management as something to do with “big tech” “AI” and “network effects” encourages executives to continue to ignore these developments.
Managers practicing 20th Century management had never really “chosen” that way of managing in the first place. They had started studying at a business school and then began working in a firm, or series of firms, where everyone had the same basic assumptions, habits and attitudes towards principles and processes. Young managers had little choice but to accept those assumptions and attitudes if they wanted to go on working there and to advance. In many cases, working in that way had gone on for years or even decades.
These managers rarely had to consider the possibility that there might be an equally coherent way of running a large organization that could be a better fit with the current marketplace. In fact, this different way of running corporations had emerged in software development and small startups in and around Silicon Valley, as well as individual firms in Europe and China. It began appearing around 2000 and progress was initially piecemeal. But by 2020, a synthesis of the principles and processes was emerging of a system of management that was equally coherent and potentially providing providing more value to customers, better workplaces for employees, and more profit to the firm. Yet managers were often not aware of these developments.
5. A Different Way Of Thinking
Perhaps the most significant hurdle to be overcome in making the transition to 21st management is that it requires not only doing things differently but also thinking differently.
Thus the principles and processes of 20th Century management reflect the idea of the firm as a machine. It is something that can be controlled and measured and analyzed separately. Each individual part of the firm’s behavior can be predicted. Its outputs will be proportional to inputs. It can be understood quite separately from its context. Every problem has a root cause and every problem can be solved.
21st Century management requires a different way of thinking. The firm is viewed, not as a machine, but rather as a complex adaptive system, like a garden. This means that the firm can’t be mechanically programmed or fixed. It can’t be analyzed separately from its context. Its behavior can’t be fully predicted. It can only be understood through its interactions with its environment. There needs to be a recognition that the environment may well push back.
This new way of thinking is often difficult for those who have spent decades in the old set of assumptions. But for those who make the transition, the benefits can be extraordinary.
And read also:
What 21st Century Management Looks Like