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Friday, October 11, 2013

The Management Revolution That's Already Happening 10-12

The Management Revolution That's Already Happening

“The only way to do great work is to love what you do.”

Steve Jobs

What on earth is happening to management? Formerly self-evident truths are being cast aside. The sacred goal of maximizing shareholder value is now “the dumbest idea in the world”. The search for the holy grail of “sustainable competitive advantage” is now recognized as futile. The “essence of strategy” seen as “coping with competitors” is obsolete. The uni-directional value chain—the very core of 20th Century management thinking—is now a problem, not a solution. 

The short-term gains of large-scale off-shoring of manufacturing are recognized to have caused massive loss of competitive capacity. Supposed distinctions between leaders and managers have collapsed. To top it off, a slew of recent management books suggest that today’s organizations represent a failure so deep and pervasive that there are hardly words to describe it. A veritable revolution in management is under way.

Although these books have many antecedents, the stirrings of the revolution began in earnest in 2009 with Gary Hamel’s declaration in the landmark HBR article, Moon Shots For Management, following a colloquium with distinguished thought leaders:

“Tomorrow’s business imperatives lie outside the performance envelope of today’s bureaucracy-infused management practices… Equipping organizations to tackle the future would require a management revolution no less momentous than the one that spawned modern industry.”

In the 20th Century, firms had often been successful by following the precepts of hierarchical bureaucracy: “focus on making money”, “tell employees what to do”, “control performance through rules, roles, plans and reports” and “achieve efficiency through economies of scale”.

In the last quarter of the century, corollaries were added: “focus tightly on maximizing shareholder value”, “strategy is about coping with competition” and “lower costs by off-shoring”. These principles worked so long as oligopolies dominated the marketplace. Firms could succeed with limited innovation, often by copying what had already been pioneered by others.

Then globalization and the Internet changed everything. Customers suddenly had real choices, access to instant reliable information and the ability to communicate with each other. Power in the marketplace shifted from seller to buyer. Customers started insisting on “better, cheaper, quicker and smaller,” along with “more convenient, reliable and personalized.” Continuous, even transformational, innovation have become requirements for survival.

Hierarchical bureaucracy couldn’t cope. Attempts at achieving continuous innovation led to unmanageable internal complexity, while attempts at limiting innovation accelerated organizational death.

As Allen Murray noted in the Wall Street Journal, firms practicing traditional management “missed game-changing transformations in industry after industry—computers (mainframes to PCs), telephony (landline to mobile), photography (film to digital), stock markets (floor to online)—not because of ‘bad’ management, but because they followed the dictates of ‘good’ management.”

Initially mature products and firms were wiped out by upstarts that offered cheap substitutes to their products, first capturing low-end customers, and gradually moving upmarket to pick off higher-end customers.

Then change accelerated. Suddenly entire product lines—whole markets—could be destroyed almost overnight as customers defected in droves as a result of “big bang disruption”. Disrupters came out of nowhere and were everywhere at once. Disruption happened so quickly and on such a large scale that it was hard to predict or defend against.

Even as hierarchical bureaucracy was failing in the private sector, its practices were infecting government, non-profits, education and health. “Reforms” here usually involved stricter implementation of hierarchical bureaucracy rather than a shift towards more productive management practices. As a result, performance was pushed even further from the frontier of what is possible. Since the public is coming to expect responsiveness from these sectors similar to that of the private sector, satisfaction steadily declined.

New ways of leading and managing emerged
Yet in this more challenging context, some organizations forged ahead.

Apple met the diverse needs of hundreds of millions of individual iPhone users by launching its own ecosystem—a technology platform that enabled hundreds of thousands of developers to create Apps that could meet every conceivable human need and to offer them directly to customers. The result is an iPhone that is easily adapted to meet the needs, preferences and passing whims of every single user—a feat inconceivable with traditional management practices.

Salesforce achieved continuous innovation in a global computer system, with more than two million subscribers and 30 million lines of code, where even a single tiny error can cause the entire system to crash. Self-organizing teams achieve continuous innovation by working in short iterative cycles of test-driven development with direct customer feedback as the work proceeds.

The US military coped with asymmetric warfare against elusive terrorists through ”mission command”, an approach built on decentralization, spontaneity, informality, loose rein, self-discipline and initiative. It draws on ability from all echelons. Its communications are multi-directional interactions, not just top-down directives 

Apple, Salesforce and the US military are not alone. Amazon [AMZN], Salesforce [CRM], Whole Foods [WFM] Toyota [TM], Haier Group, Li & Fung [SEHK: 0494] and Zara [BMAD: ITX] are other prominent exemplars of fundamental change, along with thousands of lesser-known firms. The transition is happening not just in high tech, but also in manufacturing, books, music, household appliances, automobiles, groceries and clothing.

None of these organizations has arrived at any final state or equilibrium: in each case, management practices continue to evolve. Nor is any of these organizations perfect, as they have to cope with a context that is filled with contradictions. Their virtue lies in the creative energy with which they are pioneering new ways of adding value.

The principles of the Creative Economy

In effect, the management revolution foreshadowed by Gary Hamel has already begun. A new kind of organization is emerging, capable of achieving both continuous innovation and transformation along with disciplined execution, while also delighting those for whom the work is done and inspiring those doing the work. These organizations have moved the production frontier of what is possible. A new economy—the Creative Economy—has appeared.

The new way of operating co-exists in the economy along with the old, sometimes even in the same organization. For example, GE is a firm that is still largely practicing traditional management, although parts of it, such as GE Health Care, have begun to operate in a more agile fashion.

The shift is thus not one of “new firms” vs “old firms”. As Bill Fischer, the co-author of Reinventing Giants (2013), says, “Some ‘old economy’ firms are practicing ‘creative economy’ managerial approaches, yet receiving little or no recognition for it.”

What it takes to prosper in today’s different context is now discernable. A series of articles in Strategy & Leadership has sketched the radically different principles of leadership and management by which these organizations have achieved a higher level of performance 

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