Future Proof
Über
guru Gary Hamel on why old models of management need a major overhaul in the 21st
century
Not many people would be familiar
with Morning Star, a tomato processing company near Sacramento, California.
Management guru and author Gary Hamel, though, can’t stop talking about it.
What’s got him so excited is the company’s unique style of self-management,
which is flat in the truest sense of the word. There are no managers and no
formal hierarchies and employees sign a ‘Colleague Letter of Understanding’
with each other outlining what they will do for each other. Someone who unloads
a truck could sign an understanding with the person who sorts the produce
defining basic parameters like how many tomatoes he’d unload in an hour. If
somebody needs new equipment, he’ll scout for the best vendor, put in the order
and ensure that he’s there to collect the delivery, without getting any
approvals from his seniors — because there aren’t any. At the end of the year,
a peer review committee evaluates performance based on the parameters in their
contracts. Of course, this also requires the company to invest in upping the
skill levels of its employees to enable them to function in this manner.
“Virtually every economist or management scholar would say that it’s impossible to have a company that is perfectly synchronised and decentralised, but the fact of the matter is that you don’t need a formal hierarchy to build an organisation that is efficient, focused and aligned,” says Hamel. It is these kind of emerging management structures that take up his time these days, apart from teaching, working with companies across the world and MIX (management innovation exchange), the largest open innovation exchange in the world.
Ask anyone to draw a diagram of how their organisation is structured, and you are likely to end up with a pyramid model. The problem with these is that while they are useful in getting things done, they are also a death knell for innovation. “The traditional pyramid is the most sustainable social structure in humanity which is easily scalable; it is also the exoskeleton of bureaucracy,” says Hamel.
Pyramids don’t denote a community or a network, but a formal hierarchy and in a world where change is the new normal, these structures are becoming competitively untenable as they pre-emptively empower a few at the top and disempower the rest. There are layers of managers managing other managers, prolonging decision cycles and reducing diversity since people tend to promote those similar to themselves. Energy is also misdirected in competing for positional power and positions rather than competing to add value.
The other fall out of this structure is that innovation suffers. The company is held ransom to the personal willingness and adaptability to change of those in power. Hamel points out that in most organisations, a change in direction happens only by changing the CEO. So the change process tends to be infrequent, convulsive and belated. This is also why most change initiatives in companies tend to be catch up programmes, driven from the top and often coming in too late. “Bureaucracy has to die. The challenge is imagining what will replace it and building those alternative models,” he says.
Hamel is exploring whether it is possible to identify emerging threats to a business model or culture and respond to these by reengineering strategy or management processes such that every employee feels he has a voice without turning the system upside down. “What I am trying to understand is whether we can dramatically accelerate the pace at which organisations can change while reducing the cost at the top. The new social technologies will allow hundreds of people be involved in reengineering core management processes in a way that will make it more adaptable and innovative,” he says.
Modern management as we know it originated at the start of the last century with the dawn of the industrial age. While that model has sufficed so far, Hamel points out that the 21st Century will need its own model of management. “It is not the organisations that are innovating around product and strategies, but those who are innovating around management that will be the leaders in this century. We will see a revolution in management as profound as what we saw earlier, and in the same manner, it is a bit difficult for us to imagine right now what the future will look like,” he says.
The biggest problem with trying to dramatically change how you manage is that it’s a bit like gene replacement therapy. “The companies that have a radical management model started with a clean sheet of paper and the company was built on these principles. For traditional organisations, it will be a long migration,” says Hamel. Companies need to combine some of their existing principles with a new and complementary set of principles around openness, transparency and meritocracy. It’s not about blowing up the old model but to experiment. If you don’t, someone else will. The trick lies in understanding the principles of Management 2.0 (See Box) and gradually implementing them in your organisation without turning it inside out.
“Companies have spent billions of dollars on reengineering their operating models and now they need to do the same thing for the management model to increase empowerment, innovation and adaptability, with a lower level of investment but greater participation from employees,” says Hamel.
Changing the fundamental nature of the organisation isn’t straightforward, and will require individual and institutional change. “It’s funny how we trust people to run their personal lives and finances efficiently, but once they come into the office, they don’t have the power to even buy a $100 office chair,” he says. There is a learned helplessness among people with they find it almost comforting not to be accountable. “We need organisations where people come in expecting to be leaders and to have responsibility. So you need to hire people who want to grow and lead, have a holistic understanding of the business, how the organisation works and be financially literate,” he says.
The second challenge at the institutional level is distributing the work of managing and leading, out to the edges of the organisation. People often assume that if employees are given autonomy, they’ll be less disciplined. “The secret to reinventing the way we run our organisations and transcending the trade off between discipline and freedom is to distinguish between the ‘what’ and the ‘how’. In management, discipline is a very critical ‘what’. As for the ‘how’, we’ve traditionally had clear job descriptions and people did exactly what they were told to, with constant supervision. This creates discipline but it destroys innovation and creativity. Hamel cites the example of a Brazilian company where there is no fixed system for managing travel. This would give most CFOs a heart attack, he laughs. However, once employees are back from their business trip, they are required to post their expense statements online where everyone in the department can view it. “Now if you’ve gone and won a $5 million contract, no one is going to grudge you if you’ve stayed in a five-star hotel and ordered champagne. If you’ve spent money and aren’t showing results, then people will start to question you,” says Hamel.
Accountability will automatically force you to be disciplined. But people tend to believe that if you give people autonomy, discipline goes to hell, and at the core of it is a loss of trust. The challenge in being a leader at any level in an organisation is balancing the trade offs — between the long and short term, efficiency and innovation. The other problem is that these decisions tend to be made by people at the top, rather than those closer to the front with a better idea of what’s going on. As a result, a company’s innovation effort tends to swing like a pendulum. It’s not unheard of for companies to realise that costs are up and decide to focus all their efforts on improving efficiencies only to realise three years down that all their innovation initiatives have gone out of the window.
It is still early days to guess what management 2.0 will look like. What is clear that it will be a huge source of competitive advantage. What makes things exciting is the endless possibilities. “Management 1.0 was invented in Germany, Britain and the US, but Management 2.0 could come from anywhere. The race is wide open,” says Hamel.
MANAGEMENT 2.0
1 Look at management as an arena for fundamental innovation. We have to innovate as radically around leadership and management as we have around product or strategy or operating models.
“Virtually every economist or management scholar would say that it’s impossible to have a company that is perfectly synchronised and decentralised, but the fact of the matter is that you don’t need a formal hierarchy to build an organisation that is efficient, focused and aligned,” says Hamel. It is these kind of emerging management structures that take up his time these days, apart from teaching, working with companies across the world and MIX (management innovation exchange), the largest open innovation exchange in the world.
Ask anyone to draw a diagram of how their organisation is structured, and you are likely to end up with a pyramid model. The problem with these is that while they are useful in getting things done, they are also a death knell for innovation. “The traditional pyramid is the most sustainable social structure in humanity which is easily scalable; it is also the exoskeleton of bureaucracy,” says Hamel.
Pyramids don’t denote a community or a network, but a formal hierarchy and in a world where change is the new normal, these structures are becoming competitively untenable as they pre-emptively empower a few at the top and disempower the rest. There are layers of managers managing other managers, prolonging decision cycles and reducing diversity since people tend to promote those similar to themselves. Energy is also misdirected in competing for positional power and positions rather than competing to add value.
The other fall out of this structure is that innovation suffers. The company is held ransom to the personal willingness and adaptability to change of those in power. Hamel points out that in most organisations, a change in direction happens only by changing the CEO. So the change process tends to be infrequent, convulsive and belated. This is also why most change initiatives in companies tend to be catch up programmes, driven from the top and often coming in too late. “Bureaucracy has to die. The challenge is imagining what will replace it and building those alternative models,” he says.
Hamel is exploring whether it is possible to identify emerging threats to a business model or culture and respond to these by reengineering strategy or management processes such that every employee feels he has a voice without turning the system upside down. “What I am trying to understand is whether we can dramatically accelerate the pace at which organisations can change while reducing the cost at the top. The new social technologies will allow hundreds of people be involved in reengineering core management processes in a way that will make it more adaptable and innovative,” he says.
Modern management as we know it originated at the start of the last century with the dawn of the industrial age. While that model has sufficed so far, Hamel points out that the 21st Century will need its own model of management. “It is not the organisations that are innovating around product and strategies, but those who are innovating around management that will be the leaders in this century. We will see a revolution in management as profound as what we saw earlier, and in the same manner, it is a bit difficult for us to imagine right now what the future will look like,” he says.
The biggest problem with trying to dramatically change how you manage is that it’s a bit like gene replacement therapy. “The companies that have a radical management model started with a clean sheet of paper and the company was built on these principles. For traditional organisations, it will be a long migration,” says Hamel. Companies need to combine some of their existing principles with a new and complementary set of principles around openness, transparency and meritocracy. It’s not about blowing up the old model but to experiment. If you don’t, someone else will. The trick lies in understanding the principles of Management 2.0 (See Box) and gradually implementing them in your organisation without turning it inside out.
“Companies have spent billions of dollars on reengineering their operating models and now they need to do the same thing for the management model to increase empowerment, innovation and adaptability, with a lower level of investment but greater participation from employees,” says Hamel.
Changing the fundamental nature of the organisation isn’t straightforward, and will require individual and institutional change. “It’s funny how we trust people to run their personal lives and finances efficiently, but once they come into the office, they don’t have the power to even buy a $100 office chair,” he says. There is a learned helplessness among people with they find it almost comforting not to be accountable. “We need organisations where people come in expecting to be leaders and to have responsibility. So you need to hire people who want to grow and lead, have a holistic understanding of the business, how the organisation works and be financially literate,” he says.
The second challenge at the institutional level is distributing the work of managing and leading, out to the edges of the organisation. People often assume that if employees are given autonomy, they’ll be less disciplined. “The secret to reinventing the way we run our organisations and transcending the trade off between discipline and freedom is to distinguish between the ‘what’ and the ‘how’. In management, discipline is a very critical ‘what’. As for the ‘how’, we’ve traditionally had clear job descriptions and people did exactly what they were told to, with constant supervision. This creates discipline but it destroys innovation and creativity. Hamel cites the example of a Brazilian company where there is no fixed system for managing travel. This would give most CFOs a heart attack, he laughs. However, once employees are back from their business trip, they are required to post their expense statements online where everyone in the department can view it. “Now if you’ve gone and won a $5 million contract, no one is going to grudge you if you’ve stayed in a five-star hotel and ordered champagne. If you’ve spent money and aren’t showing results, then people will start to question you,” says Hamel.
Accountability will automatically force you to be disciplined. But people tend to believe that if you give people autonomy, discipline goes to hell, and at the core of it is a loss of trust. The challenge in being a leader at any level in an organisation is balancing the trade offs — between the long and short term, efficiency and innovation. The other problem is that these decisions tend to be made by people at the top, rather than those closer to the front with a better idea of what’s going on. As a result, a company’s innovation effort tends to swing like a pendulum. It’s not unheard of for companies to realise that costs are up and decide to focus all their efforts on improving efficiencies only to realise three years down that all their innovation initiatives have gone out of the window.
It is still early days to guess what management 2.0 will look like. What is clear that it will be a huge source of competitive advantage. What makes things exciting is the endless possibilities. “Management 1.0 was invented in Germany, Britain and the US, but Management 2.0 could come from anywhere. The race is wide open,” says Hamel.
MANAGEMENT 2.0
1 Look at management as an arena for fundamental innovation. We have to innovate as radically around leadership and management as we have around product or strategy or operating models.
2 Embed
the right principles and apply these to all core processes. These principles
are: meritocracy around ideas, transparency and openness, disaggregation of
larger units into smaller more adaptable teams and organisations built around
communities of passion.
3 Have revolutionary goals and take evolutionary steps to get there. You don’t have to blow up existing processes but be experimental with management wherever you can, just the way you would with a new product and imagine radical alternatives to the status quo.
3 Have revolutionary goals and take evolutionary steps to get there. You don’t have to blow up existing processes but be experimental with management wherever you can, just the way you would with a new product and imagine radical alternatives to the status quo.
Priyanka
Sangani CDET130614
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