“Those who only gradually improve their performance in exponential times fall back exponentially.” Curt Carlson, former CEO Stanford Research Institute
Following the business news in the weeks after this year’s Drucker Forum, it became clear that management, as taught at business schools, is headed for irrelevance. Today it no longer solves problems. It creates them. So-called “best practices” of management have caused a multitude of problems that only became apparent after a delay of decades, but are now making themselves felt with force. Every newly graduated MBA contributed in good faith to the spread of these practices. Now that they are being applied in all companies worldwide, their limitations and weaknesses are becoming increasingly obvious.
They fall short in dynamic market environments. They stifle innovation with bureaucracy and rigid processes. They overextend the decision-making capabilities of companies in increasingly complex and uncertain environments. They are way too slow in learning from and adapting to new challenges. They pitch scarce and valuable human assets into senseless battles of domination. They frustrate workers, discourage entrepreneurial creativity and risk-taking, and impede cooperation across domains or companies.
Drucker Forum 2020
In short, our “best practices” have lost much of their business value. But why? First, let’s take a look at why they worked so well for so long.
At the dawn of the 20th century F. W. Taylor established the discipline of scientific management. His approaches created immediate benefits for companies by increasing productivity and quality, and reducing personnel costs. It was, in fact, one of the basic innovations of the second industrial revolution. Business schools emerging at this time adopted Taylor’s theories, weaving them into the DNA of management education.
Strict functional separation of the organization, combined with central control, and a shift of knowledge from skilled workers to management, boosted industrial productivity. This was such an advance that specialization, planning and control came to be regarded as general principles for efficient organization of all kinds of work. Taylorian practices were extended to strategic planning, accounting, people management and product innovation. And it all worked quite well, at a time of predictable market growth, with sufficient unconquered space still available for competitors.
Enter globalization and the internet
Yet this situation would not last forever. Enter the disruptive forces of globalization and the internet. Globally distributed value chains and just-in-time delivery increased the complexity of product markets. The internet democratized communication and opened up markets on a global scale by lowering entry barriers to many industries. Competition became ever tougher. Competitors multiplied, as did customer choice, prices fell and margins disappeared in the blink of an eye. Flexibility, speed and adaptability suddenly were in high demand. “Best practices” aimed at achieving maximum efficiency largely lost their power and thus their usefulness. But they had become firmly embedded as the gold standard of corporate management in the mind of managers who cling on to what they once learned, despite the fact that it doesn’t work any more.
Peter Drucker once wrote that the greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.
Today’s market environments are complex and hyper-dynamic. The conditions for success have changed fundamentally. The old “best practices” are no longer even good. Companies need to find better ones if they are to thrive.
New practices for new times
We can do this by overcoming the self-imposed limitations of current management. Why plan in fixed yearly periods, when customers easily turn away from your products at any time? Why wait for the next budget cycle before approving funds for a new market opportunity? Why report and control tasks and resources along predetermined hierarchies, when relevant business activities require fast ad-hoc communication and coordination across networks of knowledge workers?
Today’s market environments call for management practices that can cope with complexity and change, with increasing customization of products and digital processes. In short: With customer-directed innovation at speed. New management principles are emerging from innovative leaders such as Amazon, Haier, Handelsbanken, Nucor, and Morning Star, which have broken up silos and decision-making bottlenecks to focus on customer needs and establishing entrepreneurial skills and incentives throughout the organization. Haier, Handelsbanken and Nucor impressively showcased these new principles at the GPDF20. As these and many more companies around the world demonstrate, such practices are not a privilege of start-ups or digital disruptors. They successfully work for companies of all sizes and industries. But beware: this time it won’t be done with the application of a few new methods at the operational level. The change is more fundamental. It will affect all levels of management.
Frederick Taylor brought one of the biggest management innovations of all time. But his practices have now reached their limits of their usefulness. Today, we need something else. Something better. Something that helps navigating the uncertainties of the digital age. Something that gives purpose again to management.
Change is here. Time to adapt.
About the Authors:
Janka Krings-Klebe and Jörg Schreiner are founders and managing partners of co-shift GmbH, helping companies to transform into business ecosystems, and authors of “Future Legends – Business in Hyper-Dynamic Markets“ (Tredition 2017)
This article is one in the “shape the debate” series relating to the fully digital 12th Global Peter Drucker Forum, under the theme “Leadership Everywhere” on October 28, 29 & 30, 2020.