Revolutionary changes in the basic tenets of management are under way. Roger Martin has described the overall transition from shareholder value (making money) to customer capitalism (delighting the customer). For firms to navigate the transition to the new ecosystem of “Management 2.0”, they must master five fundamental shifts:
1. The management mindset
2. The role of managers
3. The way work is coordinated
4. The values practiced and
5. The way people communicate.
Five fundamental shifts in management practice
Shift #1: Management mindset: From inside-out to outside in
To accomplish the transition to customer capitalism, reflecting the shift in the balance of power in the marketplace from seller to buyer, firms must change from an inside-out mindset (“We make it and you take it”) to an outside-in mindset (“We seek to understand your problems and will surprise you by solving them”). As Ranjay Gulati notes in Reorganize for Resilience (2010), the shift goes way beyond strengthening customer service: it means orienting everyone and everything in the firm to the goal of delivering more value to customers sooner, and aligning all decision-making with this goal.
The shift was foreshadowed in 1973, by Peter Drucker: “There is only one valid definition of business purpose: to create a customer.” To create a customer today, an organization must do more than satisfy the customer: it must continue to innovate and meet needs that the customers may not even know that they have. Time assumes a new importance: if value can be delivered sooner, it is more likely to generate delight. Examples: Apple, Amazon, Zappos.
Shift #2: The role for managers: From controller to enabler
Focusing on continuously adding new value for clients requires a change in the way work is carried out, Hierarchical bureaucracy is not well adapted to innovation, as work is increasingly knowledge work and tight control stifles the key ingredients of today’s productivity: worker passion and creativity.
To reach the new level of performance, the organization has to empower those doing the work, so as to facilitate collaboration, rapid learning and innovation. The result is a dramatic shift in the role of the manager from controller of individuals to an enabler of self-organizing teams. Instead of the workers reporting to managers, the managers are in effect accountable to those doing the work, both for setting direction and for removing any impediments that are hindering the work. This reversal of the polarity recognizes that the engines of productivity, innovation and creativity resides in the energy and ideas of the people doing the work, working together across boundaries, drawing on new technology, to become more productive and innovative. Examples: Morning Star, W.L. Gore & Associates.
Shift #3: Coordinating work: From bureaucracy to dynamic linking
Hierarchical bureaucracy coordinates work through the use of detailed plans, rules and reports. Management specifies both the goal and the methods for achieving that goal; progress is systematically tracked by reports to managers. The approach achieves disciplined execution with scalability but is insufficiently agile for today’s rapidly shifting marketplace.
Meshing the efforts of autonomous teams with client delight while also achieving disciplined execution requires a set of measures that might be called “dynamic linking,” The method began in Japan, was outlined in a 1986 HBR article by Professors Nonaka and Takeuchi entitled “The New New Product Development Game”, and has since been most fully developed in software development with methods known as “Agile”, “Scrum,” and “Kanban”.
“Dynamic linking” means that (a) the work is done in short cycles; (b) the management sets the goals of work in the cycle, based on what is known about what might delight the client; (c) decisions about how the work is to be carried out to achieve those goals are largely the responsibility of those doing the work; (d) progress is measured (to the extent possible) by direct client feedback at the end of each cycle. Example: Salesforce.
Shift #4: What really matters: From economic valueto values
Given its goal of making money for shareholders, hierarchical bureaucracy was preoccupied with economic value and efficiency, rather than values. A preoccupation with shareholder value encouraged firms to cut costs and eliminate what was key to generating the future. Management 2.0 rests on values that are aligned both with delighting the customer and inspiring autonomous teams to contribute their best. They include radical transparency, continuous improvement and sustainability. Example: Whole Foods.
Shift #5: Communications: From command to conversation
Management 2.0 requires that managers elicit the energies, imagination, and creativity of those doing the work. This means communicating predominantly in the language of peer-to-peer, competence-based, adult-to-adult, horizontal conversations. This contrasts with hierarchical bureaucracy where communications are typically impersonal, top-down, authority-based and adult-to-child. In Management 2.0, communications tend to be in the form of stories, metaphors and open-ended exchanges of views. Example: Intuit, Bridgewater Associates.
Bottom line: alignment
None of these five shifts is new in itself. What is new is putting all five shifts into operation at once. The agenda is challenging but it offers significant benefits. When well executed, it generates simultaneously high productivity, continuous innovation, disciplined execution, greater job satisfaction and client delight.
The shift entails more than a change in management practices: it amounts to a revolutionary shift from an ecosystem in which workers and customers are manipulated as things to an ecosystem in which workers and customers are interacted with as human beings.
Steve Denning’s latest book is The Leader’s Guide to Radical Management (Jossey-Bass, 2010). It describes management principles and practices required to reinvent management to promote innovation and adaptation. He is also the author of The Leader’s Guide to Storytelling (2011) and The Secret Language of Leadership (2007). His website is www.stevedenning.com and his Forbes column on radical management is at http://blogs.forbes.com/stevedenning/. This post draws on Steve’s article, “Reinventing Management: the practices that enable continuous innovation,” in Strategy & Leadership, 2011, Volume 39, Number 3, 2011.