In November 2018, the world’s leading management conference—the Global Peter Drucker Forum—will debate a profound question: “management—the human dimension.” A cast of eminent thinkers and executives will consider nothing less than the possibility of “a business reformation”— something analogous to Martin Luther’s call of 1517 for the Roman Catholic Church to abandon the sale of indulgences.

The Drucker Forum invites us “to rethink how organizations, businesses, are actually run, why they are run, and what their purpose and role are in society.”

The Three Responsibilities of Management

In responding to this call, a good starting point is Peter Drucker’s 1954 classic book, Management, which formulated three responsibilities of management:

• assuring the performance of the institution for which managers work,
• making work productive and the worker achieving, and
• managing social impacts and social responsibilities.

“Management,” wrote Drucker, “is what tradition used to call a liberal art… Managers draw on all the knowledge and insights of the humanities and the social sciences… But they have to focus this knowledge on effectiveness and results.”

1.    The Organization’s Performance

The most important of management’s responsibilities, said Drucker, is assuring the performance of the institution for which managers work. This is where the human aspect of management has been most seriously sacrificed to the financial.

Drucker repeatedly insisted that “there is only one valid purpose of a corporation, to create a customer.” In Management (1954), Management: Tasks, Responsibilities, Practices (1973) and Innovation and Entrepreneurship (1985) Drucker set aside any flabby platitudes about satisfying all stakeholders or pursuing some preachy purpose with a capital “P”.

Yet beginning in the late 20th Century, many public corporations espoused the opposite goal—maximizing shareholder value as reflected in the stock price, a notion that even Jack Welch has called “the dumbest idea in the world.” In pursuing profit ahead of people, public corporations succeeded in massively destroying long-term profit and shareholder value.

Today, the fast-changing marketplace has underlined the validity of Drucker’s dictum. As a result, some firms have reinstated human beings—customers—as the central focus of the firm. Paradoxically—and happily—this shift in focus from money to people has also ended up in making a great deal more money for the company and its shareholders. The five largest firms on the planet (by market capitalization)—Amazon, Apple, Facebook, Google Microsoft— have succeeded precisely because they have created more customers than any other firms.

2.    Making Work Productive

“The second task of management,” Drucker said, “is to make work productive and the worker achieving.” In the 20th Century, people doing work were treated as “human resources” i.e. things to be mined. Towards the end of the century, work and workers were often no more than collateral damage in the rush to maximize shareholder value. Gains in productivity were skimmed off the top for shareholders, including the firms’ executives.

As firms became steadily less productive in real terms, as documented by Deloitte’s Center for the Edge, only a resort to financial engineering, share buybacks, acquisitions offshoring, kept up a pretense of Potemkin prosperity. Meanwhile the rich got richer while median salaries stagnated.

This dynamic is now also changing dramatically. As firms find that their future increasingly depends on a capability to meet customer demands through continuous innovation, this means winning the battle for scarce top talent.

Acquiring, nurturing, rewarding and retaining top talent becomes necessary for success. Generating stimulating, meaningful workplaces becomes a central management preoccupation. Here again, the human dimension is already emerging triumphant in top firms in the private sector, even as the overall education system, including business schools, lag woefully behind in generating the competencies required.

3.    Managing Social Impacts And Social Responsibilities

“The third task of management,” Drucker taught us, “is managing the “two different types of social impact…

• Those negative ones that an organization creates and
• Social ills that may be converted to business opportunities.”

This is an area to which the new digital giants urgently need to pay more attention. For instance, the alleged misuse of Facebook’s private data, Google’s alleged use of its market power to suppress competition, and Uber’s breaches of local regulations, are serious issues. If the firms themselves don’t rectify any transgressions that have occurred, regulators must step in.

Maintaining Balance

Yet balance is also key. In managing negative social impact, regulators—and the Drucker Forum—must avoid throwing out the baby with the bathwater. They need to recognize that the new digital giants have gotten so large so fast because they have met real social and economic needs that vast numbers of people see as important. The challenge is to manage any negative social impacts while recognizing the real value that these firms are creating for real human beings.

Steve Denning’s latest book is The Age of Agile (2018).

This article first appeared in Forbes.com at https://www.forbes.com/sites/stevedenning/2018/04/01/can-the-drucker-forum-establish-the-human-dimension-of-management/ and is reproduced here in a condensed form with permission, all rights reserved.

This article is one in a series related to the 10th Global Peter Drucker Forum, with the theme management. the human dimension, taking place on November 29 & 30, 2018 in Vienna, Austria #GPDF18

This article was also published on Linkedin.

Photo by: Mihai/fotolia.com

Unleashing Innovation-Driven Growth Globally

In Part 1 of this article, I looked at the issue of short-termism. The Drucker Forum 2017 will also be considering what it would take to “unleash innovation-driven growth globally.”

Here again, the Forum will obviously draw on Peter Drucker’s brilliant 1985 book, Innovation and Entrepreneurship. Drucker foresaw that in future work would transition from bureaucratic practices; management would focus on innovation and new opportunities, generating an entrepreneurial spirit throughout entire organizations; the whole of society itself would become entrepreneurial. It was a brilliant vision, and yet, some 32 years later, it hasn’t generally happened. Bureaucracy is still alive and well and thriving in big organizations everywhere. Why?

No doubt as in last year’s Drucker Forum, speakers will lament the fact that many, if not most, workers continue to plod on as wage slaves, their talents locked in bureaucratic silos or eking out a precarious existence in the emerging gig economy, while big organizations downplay innovation and increasingly focus on exploiting existing business models, often enhanced through financial engineering, rather than exploring new opportunities through innovation.

Yet it is to be hoped that speakers at the Drucker Forum 2017 will also recognize that this is not the full picture. If, like Peter Drucker, we “look out the window, and see what’s visible—but not yet seen,” we should be able to recognize that some large organizations are already operating in a way that is close to what Drucker foresaw.

My own perspective is influenced by a continuous interaction with firms that have over the past several years joined the SD Learning Consortium (SDLC)—a non-profit corporation registered in the state of Virginia, USA and with members dedicated to learning from each other about better ways to manage. The firms now represent a cross-section of organizations in different sectors and countries. The current members are Barclays, Cerner, CHRobinson, Ericsson, Fidelity Investments, Microsoft, Riot Games, and Vistaprint. With the potential incoming members in 2018, the publicly-owned SDLC members will have combined market capitalization that exceeds $1 trillion and will employ more than half a million people. So they represent a significant slice of the corporate world. All of them are on a journey to implement management focused on delivering continuous innovation for customers and sharing their findings with each other and the world.

How are these firms are being run? The firms are on record in their annual report for 2016 as affirming that their espoused way of managing is closely akin to themes that Peter Drucker enunciated long ago and includes principally:

• A recognition that the purpose of a firm is to create a customer, not to maximize shareholder value, as Peter Drucker suggested in 1954. These firms have an obsession with continuously adding value for customers and users, as well as a recognition of the current need to generate instant, intimate, frictionless value at scale, anywhere, anytime, on any device. As a result of globalization, deregulation, knowledge work and new technology, power in the marketplace has shifted from seller to buyer: the customer has now become the boss. This is more than an increased attention to customers: it is a fundamental shift in the goal of the organization—a veritable Copernican revolution in management.

Image by Steve Denning

The Copernican revolution in management

• A recognition, as Peter Drucker stressed, that management must actively draw on the full talents of those doing the work. This means descaling work. Big difficult problems are dis-aggregated into small batches and performed by small cross-functional autonomous teams, working iteratively in short cycles in a state of flow, with fast feedback from customers and end-users. By fighting complexity with simplicity, an organization is able to keep a sharp focus on what is adding value to customers, eliminating what isn’t, and inspiring staff to contribute their very best talents.
• A recognition that the whole organization must be in a state of continuous innovation and entrepreneurship, as Peter Drucker wrote in 1985. There needs to be an enterprise-wide commitment to operating in this way.
• A recognition of the need to systematically nurture an innovation-oriented culture. As Drucker himself pointed out, “Culture eats strategy for breakfast.”

In one sense, a critic might say that there is nothing new here: Peter Drucker articulated similar ideas many years ago.

But what is new is that these firms are on a journey towards systematically implementing these principles in their day-to-day work. When they do that as part of an integrated system, it becomes a radically different way of managing a firm. These firms believe that implementing these principles is central to their own future success.

These firms see the key management challenge today as less a matter of discovering new ideas and more about digesting and learning how to implement ideas that Peter Drucker articulated long ago.

Disclosure: The author is an unpaid member of the program steering committee of the Drucker Forum 2017 and an unpaid pro bono adviser and director of the SD Learning Consortium.

Steve Denning’s new book, The Age of Agile, will be published by Amacom in February 2018.

https://www.amazon.com/dp/B072J5XPTP/

Note: This article was first published on Forbes.com and is reprinted here, with permission, all rights reserved.

“The future is already here. It’s just very unevenly distributed.”

—William Gibson

The world’s leading management conference—the Global Peter Drucker Forum—will gather in Vienna next month (November 16-17, 2017) for its annual get-together. Once again, a star-studded cast of eminent speakers will discuss a set of big issues, including: what will it take to achieve global broad-based prosperity in a volatile, uncertain, complex and ambiguous world? Although an array of bold new ideas will, as in previous years, be canvassed, perhaps the most important suggestion for the Forum to consider is something simpler: why not get on with the implementation of the ideas already laid out by Peter Drucker many years ago?

Peter Drucker has been called “the most perceptive observer of the American scene since Alexis de Tocqueville,” and also “one of the youngest-thinking people in America, and certainly one of the clearest-thinking.” Drucker himself denied having any clairvoyance about the future: “I never predict. I just look out the window and see what’s visible—but not yet seen.” Is it possible that some of the solutions to the huge problems to be discussed at the Drucker Forum 2017 are also “visible, but not yet seen”?

A Better Balance Of Short- And Long-Term Focus

For instance, at a time when public corporations world-wide are increasingly focusing on the short-term, the Drucker Forum will be considering the possibility of “establishing a new balance between short-term and long-term focus to support investment and entrepreneurial innovation in large organizations.”

Early indications from the program are that speakers at the Forum will put forward a variety of solutions to this dire set of problems, including sophisticated new ways to measure corporate performance, the preparation of accounts with multiple bottom-lines, the development of new ways of calibrating social, intellectual and spiritual progress, and steps towards putting a human face on management.

Yet could it be that, way back in 1954, Peter Drucker himself put his finger on the key to getting the right balance between short- and long-term focus when he declared, “There is only one valid purpose of a corporation, to create a customer”?

Thus, when a firm delights its customers through continuously adding value to them, the firm and other stakeholders such as shareholders and employees also tend to prosper in both the short- and long-term. As the firm invests in creating value for customers, the employees have interesting work to do and the firm prospers—and shareholders benefit—as customers respond positively to the increased value being delivered.

The reverse proposition doesn’t work: when firms focus tightly on shareholder value, the result is inevitably a short-term preoccupation with cost-cutting and the share-price. The focus on quarterly returns ends up crimping innovation and harming all stakeholders—shareholders as well as employees and society at large.

Yet starting in the 1970s and 1980s, that’s what public companies began doing: focusing on shareholder value, rather than “the only valid purpose of a corporation, i.e. to create a customer.” As a result, in recent years, much of the corporate world has been paying no more than lip service to Peter Drucker’s fundamental insight. Indeed, The Economist declared last year that the goal of maximizing shareholder value, i.e. making money for shareholders, is “the biggest idea in business.” Today “shareholder value rules business.”

The hegemony of shareholder value has not gone unchallenged. In May 2017, two distinguished Harvard Business School professors–Joseph L. Bower and Lynn S. Paine—declared in Harvard Business Review that maximizing shareholder value is “the error at the heart of corporate leadership.” It is “flawed in its assumptions, confused as a matter of law, and damaging in practice.” Even Jack Welch, the supposed hero of the shareholder approach during his tenure as CEO of GE from 1981 to 2001, in 2009 called maximizing shareholder value “the dumbest idea in the world.” A number of leading CEOs have also spoken out against it.

So, is it possible that the basic issue in getting the right balance of short- and long-term focus isn’t centrally a question of finding new measures of corporate performance? When the top managements of major firms are focused on extracting value from their organizations for shareholders, rather than creating value for customers through continuous innovation, it hardly matters what measures are to be applied. When firms are heading in the wrong direction, measuring the precise extent of the error is less important than getting a change in course.

Thus, the top priority in solving the problem of an excessive short-term focus may be a matter of managers recognizing what is the true purpose of the firm and giving priority to that.

Happily, firms that focus on continuously innovating to deliver value to customers, like Amazon, Google, and Apple, are also highly profitable. In fact, those three firms are now the largest firms in the world (by market capitalization). Paradoxically, firms that deploy top-down bureaucracy to maximize shareholder value not only lose shareholder value over time: they find it steadily harder to compete in a fast-changing, complex and volatile environment.

Managers often defend a short-term focus by saying that “the stock market makes us do it.” Yet firms like Amazon and Unilever have prospered mightily while ignoring those short-term pressures. By presenting a coherent strategy of how they are going to grow the firm, they have been rewarded by Wall Street, not punished. This leads on to the suspicion that corporate protests of impotence to look beyond the short-term are more a pretext, and are connected to the executive bonuses that are directly or indirectly linked to the current stock price than to any inability to give priority to innovation for customers.

And this is not just a micro-economic issue for the management of individual firms. When many large firms are extracting value from their organizations for shareholders, ahead of creating value for customers through continuous innovation, we have an economy that continues to sputter, despite extraordinary quantities of cheap money supplied by central banks.

The banking sector is an egregious example of the problem. “In the 1970s,” as Rana Foroohar recently pointed out in the New York Times, “most of their financial flows, which of course come directly from our savings, would have been funneled into new business investment. Today, only about 15% of the money coming out of the largest financial institutions goes to that purpose. The rest exists in a closed loop of trading; institutions facilitate and engage in the buying and selling of stocks, bonds, real estate and other assets that mainly enriches the 20% of the population that owns 80% of that asset base. This doesn’t help growth, but it does fuel the wealth gap.”

New technocratic measures of corporate performance are of course interesting and may eventually be useful. But they are unlikely to have much impact unless and until corporate managements embrace the validity of Peter Drucker’s insight that the only valid purpose of a firm is to create a customer, not just to make money for the shareholders and the executives. In effect, we need to go beyond talking about Peter Drucker’s insight. We need to implement it.

Disclosure: The author is an unpaid member of the program steering committee of the Drucker Forum 2017 and an unpaid pro bono adviser and director of the SD Learning Consortium.

Steve Denning’s new book, The Age of Agile, will be published by Amacom in February 2018.

https://www.amazon.com/dp/B072J5XPTP/

Note: This article was first published on Forbes.com and is reprinted here, with permission, all rights reserved.

In 2011, Ericsson (a 140-year old Swedish firm with around 100,000 employees) embraced Agile for its business in managing networks for the world’s telecommunications companies. Before 2011, Ericsson would build its systems on a five-year cycle, with a unit housing several thousand employees. When the system was finally built, it would be shipped to the telecoms and there would be an extended period of adjustment as the system was adapted to fit their needs. Now with Agile management, Ericsson has over 100 small teams working with its customers’ needs in three-week cycles. The result is faster development that is more relevant to the specific needs of the customers. The client gets value sooner. Ericsson has less work in progress. And Ericsson is deploying one to two years earlier than it otherwise would, so that its revenue comes in one to two years earlier.

In 2015, a small team at Spotify (a rapidly growing, 8-year old music streaming company with more than 2,500 staff and more than 100 million active users globally) had an idea to solve a long-standing problem: how could users find the music they would really love in a library of millions of songs? What if, they asked, we could completely remove the friction for users by algorithmically matching users’ tastes with the several billion playlists created by other users and deliver a fresh playlist to each user weekly? When Discover Weekly was deployed just a few months later, it was a wild success—becoming not just a new feature but a global brand, resulting in an influx of millions of new users. The Discover Weekly team is just one of more than 100 small teams at Spotify, which has deployed Agile approaches to all work since its inception in 2008.

Barclays is a 326-year-old transatlantic bank with around 130,000 employees). In 2015, Barclays announced that embracing Agile was a key strategic initiative and encouraged hundreds of teams to become champions of an Agile transformation. There are now more than 800 teams that are part of an organization-wide Agile transformation that is aimed at enabling Barclays to deliver instant, frictionless, intimate value at scale.

These three examples were identified in the 2016 site visits of the SD Learning Consortium (SDLC)—a group of eight firms in the US and Europe that are sharing their experiences in operating entrepreneurially at scale. The examples are not isolated experiments in those firms. In each case, they are part of large-scale implementations of an entrepreneurial approach to running the organization with continuous innovation.

The SDLC members range in age from 8 years to 326 years. The firms operate globally and have been on their various journeys for periods ranging from 15 months to 15 years. Some of the firms were “born Agile” while others are engaged in transformation from top-down bureaucracy. The 2016 visits of SDLC in 2016 included Barclays (London), Cerner (Kansas City), CH Robinson (Chicago), Ericsson (Stockholm), Microsoft (Seattle), Riot Games (Los Angeles) and Spotify (New York).

Each of the site visits included more than ten people learning what each company has done and then exploring in greater depth issues that were uncovered. After the visits, the member firms got together for several days to review what had been learned and identify common themes. Each firm is sharing what is learned within its own organization in order to spur enhanced implementation of entrepreneurial goals, principles and practices on a continuous journey of discovery

The Agile movement took off in software development in 2001, and is now being embraced by all parts, and all kinds, of organizations, as noted in the Harvard Business Review article in April 2016, “Embracing Agile.”

“Now agile methodologies—which involve new values, principles, practices, and benefits and are a radical alternative to command-and-control-style management—are spreading across a broad range of industries and functions and even into the C-suite.”

There are now hundreds of thousands of Agile practitioners around the world and tens of thousands of organizations implementing Agile. The movement is driven both by the passion of those who love working this way and by managers who recognize that survival in an unpredictable and rapidly shifting marketplace requires a capacity to adapt equally rapidly.

THE FOUR MAIN THEMES OF AGILE

Although the SDLC site visits revealed many variations in managerial practices, and different labels applied to what was being done (including Agile, Scrum, Lean, DevOps and Kanban), there was a striking convergence around four themes:

• Delighting customers: An obsession with continuously adding value for customers and users, as well as a recognition of the current marketplace need to generate instant, intimate, frictionless value at scale, anywhere, anytime, on any device. This is more than an increased attention to customers: it is a shift in the goal of the organization—a veritable Copernican revolution in management.

• Descaling work: A presumption that in a volatile, complex, uncertain and ambiguous world, big difficult problems need to be disaggregated into small batches and performed by small cross-functional autonomous teams, working iteratively in short cycles in a state of flow, with fast feedback from customers and end-users.
• Enterprise-wide Agility: A recognition that, to be fully entrepreneurial, the whole organization needs to embrace the entrepreneurial mindset so that the entire firm functions increasingly as an interactive network. Agile is not just for IT: it is a change in the way that the whole organization thinks, is led and managed.
• Nurturing culture: A never-ending commitment to actively nurture, and systematically strengthen, entrepreneurial mindsets and behavior throughout the organization.

Pursuit of all four themes is key to sustaining the embrace of Agile. Individually, none of the observed management practices are new. What is new and different is the way that Agile management goals, practices and values constitute a coherent and integrated approach to continuous innovation, driven by and lubricated with a pervasive entrepreneurial mindset.

The SDLC’s full report will be available here  in November 2016.

About the author:

Steve Denning’s latest book is The Leader’s Guide to Radical Management. He is also the author of The Leader’s Guide to Storytelling, The Secret Language of Leadership, and a regular blog on Forbes.com.

Entrepreneurial management, Drucker wrote, requires very different managerial practices including (1) focusing managerial vision on opportunity; (2) generating an entrepreneurial spirit throughout its entire management group and (3) systematic listening to and interactions with the staff.[2]

“Today’s businesses, especially the large ones,” Drucker wrote in 1985, “simply will not survive in this period of rapid change and innovation unless they acquire entrepreneurial competence….Existing businesses will need to change, and change greatly in any event…And that they can only do if they learn to be successful entrepreneurs.”[3]

Drucker also foresaw a time when entrepreneurship and innovation would be “normal, steady, and continuous… innovation and entrepreneurship have to become an integral life-sustaining activity in our organizations, our economy, our society. This requires of executives in all institutions that they make innovation and entrepreneurship a normal, ongoing, everyday activity, a practice in their own work and in that of their organization.”[4]

Yet thirty years later, in many publicly-owned organizations, the pervasive shift to innovation and entrepreneurship that Drucker had foreseen hasn’t happened. As Larry Fink, CEO of BlackRock, the world’s largest investor, wrote in a letter to all the CEOs of Fortune 500 companies in February 2016: “Many companies continue to engage in practices that may undermine their ability to invest for the future… We continue to urge companies to adopt balanced capital plans, appropriate for their respective industries that support strategies for long-term growth.”[5]

Why are firms failing to be entrepreneurial and invest in long-term growth? The answer isn’t hard to find. Once a firm embraces maximizing shareholder value and the current stock price as its goal, and lavishly compensates top management to that end, management naturally focuses on exploiting the existing business and bolstering the stock price by increasing dividends and share buybacks, at the expense of innovation and investing in the future.[6]

Sadly, the trend is increasing. “Dividends paid out by S&P 500 companies in 2015,” Fink wrote, “amounted to the highest proportion of their earnings since 2009. As of the end of the third quarter of 2015, buybacks were up 27% over 12 months. We certainly support returning excess cash to shareholders, but not at the expense of value-creating investment.”

Even worse, shareholder value theory has joined forces with hierarchical bureaucracy. Once a firm embraces shareholder value theory, the C-suite has little choice but to deploy command-and-control management. That’s because making money for shareholders and the C-suite is inherently uninspiring to employees. The C-suite must compel employees to obey. With only one in five employees fully engaged in his or her work, and even fewer passionate, innovation and entrepreneurship are even less likely.[7]

Yet some firms have taken a different path. They have committed themselves to the kind of entrepreneurship and innovation that Drucker envisaged back in 1985. They have recognized that power in the marketplace has shifted from seller to buyer. These firms have seen that “better, cheaper, faster, smaller, more convenient, and more personalized” is the new norm, and the ability to innovate with committed employees is critical. These firms aim to generate an entrepreneurial spirit not only in the management group but throughout the entire organization.[8]

Even better news: firms that embrace entrepreneurship and innovation are handsomely rewarded by their customers and the stock market for doing so. The combined market capitalization of four firms alone—Apple, Amazon, Facebook and Google—now amounts to around $1.3 trillion.

Every aspect of business is changing. “Smartphones and tablets,” writes economist Geoffrey Moore, “are reengineering whole swaths of the consumer economy, from information access (Google) to communication (Facebook and Twitter) to media and entertainment (YouTube) to transportation (Uber) to hospitality (Airbnb) to dining (OpenTable and Yelp), and beyond.”[9]

And it’s not just firms in the digital economy. Whole Foods, Starbucks, Costco and Zara are using the same management practices in the non-digital world. Even big old firms, like Haier, Microsoft and Ericsson are also making the transition.[10]

“Traditional, MBA-style thinking,” as Eric Schmidt and Jonathan Rosenberg write in their book, How Google Works, “dictates that you build up a sustainable competitive advantage over rivals and then close the fortress and defend it with boiling oil and flaming arrows.” That doesn’t work anymore, because competitive advantages are less and less sustainable. The firm has to go on innovating, in order to be continuously successful.

Conclusion: Business is splitting two distinct groups: firms that are exploiting their existing business and firms that are continuously innovating. It is only the latter group that will survive: Peter Drucker’s message becomes even more urgent: innovate or die!

About the author:

Stephen Denning is the author of The Leader’s Guide to Radical Management (Jossey-Bass, 2010), which describes management principles and practices for reinventing management to promote continuous innovation and adaptation. Over 600 of his essays on these themes are available at: http://blogs.forbes.com/stevedenning/.

[1] Drucker, P. Innovation and Entrepreneurship, (1985) HarperCollins, pages 1, 14. Drucker also saw management as “about to make America into an entrepreneurial society,” with “social innovation in education, health care, government, and politics.”

[2] Ibid, pages 155- 157.

[3] Ibid. page 144. Drucker saw the needed entrepreneurship coming mainly from existing businesses, because they have the financial, human and managerial competence for effective entrepreneurial management.

[4] Ibid. Conclusion.

[5] Turner, M. “Here is the letter the world’s largest investor, BlackRock CEO Larry Fink, just sent to CEOs everywhere.” February 2, 2016. http://www.businessinsider.com/blackrock-ceo-larry-fink-letter-to-sp-500-ceos-2016-2

[6] Denning, S. “Maximizing Shareholder Value: The Dumbest Idea In the World,” Forbes.com, November 28, 2011. http://www.forbes.com/sites/stevedenning/2011/11/28/maximizing-shareholder-value-the-dumbest-idea-in-the-world/

[7] Hagel, J. Brown, J.S., Ranjan, A. & Byler, D. “Passion at Work.” October 7, 2014. http://dupress.com/articles/worker-passion-employee-behavior/

[8] Drucker, op. cit. page 157. In 1985, Drucker saw the entrepreneurial side of the organization being kept separate from operations: “the entrepreneurial, the new, has to be organized separately from the old and existing. Whenever we have tried to make an existing unit the carrier of the entrepreneurial project, we have failed.” Today, firms like Apple, Amazon, Google and Facebook make innovation and entrepreneurship an integral part of every part of the organization.

[9] Moore, G. “The Nature of the Firm—75 Years Later,” (2014); https://www.bbvaopenmind.com/en/article/the-nature-of-the-firm-75-years-later/?fullscreen=true

[10] Denning, S. “A Learning Consortium for the Creative Economy,” Forbes.com, November 20, 2015. http://www.forbes.com/sites/stevedenning/2014/11/20/exploring-innovations-in-management-through-a-learning-consortium/; Denning, S. “Surprise! Microsoft Is Agile.” Forbes.com, October 27, 2015. http://www.forbes.com/sites/stevedenning/2015/10/27/surprise-microsoft-is-agile/; Denning, S. “Microsoft: 16 Keys to Being Agile At Scale,” Forbes.com, October 29, 2015. http://www.forbes.com/sites/stevedenning/2015/10/29/microsofts-sixteen-keys-to-becoming-agile-at-scale/ Denning, S. “Can Industrial Giatts Reinvent Themselves?” May 13, 2013, http://www.forbes.com/sites/stevedenning/2013/05/13/the-creative-economy-can-industrial-giants-reinvent-themselves/; “Large Scale Agile At Ericsson” January 20, 2016, https://www.scrumalliance.org/why-scrum/learning-consortium/learning-consortium-webinars/large-scale-agile-at-ericsson

What then are the management practices of “the frictionless corporation” that enable “labor, information, and money move easily, cheaply, and almost instantly”?

Over the last year, a group of companies interested in finding out joined together to form a Learning Consortium for the Creative Economy, sponsored by Scrum Alliance, a membership association of more than 400,000 members with the mission of transforming the world of work.

Following nine site visits conducted during the summer and a retrospective review by the members, the group’s findings and recommendations are now available here and will be presented on November 6 at the Drucker Forum 2015. The session will be live-streamed (free registration here)

The most important finding of the Learning Consortium is that “changes in mindset are more important than changes in hardware or software.”

“Where the management practices and methodologies were implemented without the requisite mindset,” the Learning Consortium reports, “no benefits were observed.” When technology is deployed with traditional mindsets, the organization is not agile enough to exploit it. To succeed, management must draw on the full talents and capabilities of those doing the work.

The key message of the Learning Consortium, writes Andrew Hill of the Financial Times, is to “set staff free without plunging them into chaos.”

Enlightened managers, “in some traditional-looking companies are already shaking up their approach without drama… Basic changes include the switch from rigid five-year plans to adaptable rolling strategies; or the use of a military-style mission-command approach, where chiefs set a goal and allow frontline troops to work out how to reach it rather than dictating every step.”

The Learning Consortium, writes Hill, has “come up with several useful snapshots, after visiting each other’s operations to observe these new practices. They found, for instance, that self-managed teams were not just tiny curiosities. They could scale up to handle complex cross-border work. Ericsson — hardly a fresh-faced start-up at nearly 140 years old — has given autonomy to 2,300 engineers in 110 teams, co-ordinated from Athlone, Ireland, to produce enterprise software for huge telecoms operators.”

“Microsoft, latterly a byword for how bureaucracy can bury innovation, has made similar strides. At its development division in Seattle, 4,300 staff make applications for software developers, working in a way that would put Google to shame. Open workspaces are in and individual offices are out; so are top-down programmes that shackled everyone to a sluggish two-year release timetable.”

A detailed account of the Learning Consortium’s site visit to Microsoft is available in two articles here and here.

The site visits changed the members’ image of Microsoft, which was less like the giant battleship they had expected and more like “a flotilla of speedboats operating and maneuvering in an orchestrated fashion.”

“Although there were many variations observed during the site visits,” the report says, “the Learning Consortium observed a striking convergence towards a set of management goals, principles and values that are markedly different from the management practices of hierarchical bureaucracy that is still pervasive in large organizations today. Although there was no ‘one size fits all’, the site visits revealed a family resemblance among the goals, principles and values of the companies visited.”

The mindset includes:

• Goals, attitudes and values that focus on added value and innovation for customers and users, rather than a preoccupation with short-term profits.
• Managers seeing themselves, and acting, as enablers, rather than controllers, so as to draw on the full talents and capacities of knowledge workers.
• The use of autonomous teams and networks of teams, in some cases operating at large scale with complex and mission-critical tasks.
• The coordination of work through structured, iterative, customer-focused practices, rather than bureaucracy.
• Embodying on a daily basis the values of transparency and continuous improvement of products, services and work methods.
• Communications that are open and conversational, rather than top-down and hierarchical.

“Individually, none of the observed management practices are new,” the report says. “What is new is the way that the new management goals, practices and values constitute a coherent and integrated system, driven by and lubricated with a common leadership mindset.”

“The leadership principles that were observed in these site visits are not a random collection of fixes. They fit together as a mutually reinforcing set of management patterns. Once an organization or unit embraces the leadership mindset, and pursues it consistently over a period of time, it affects everything in the organization—the way it plans, the way it manages, the way people work. Everything is different. It changes the game fundamentally.”

“Another universal feature of the site visits to organizations where the goals, principles and values are being successfully pursued is strong leadership. This was not only true in organizations that were in transformation from an entrenched legacy culture of hierarchical bureaucracy, where courageous championing of the different goals, principles and values is a sine qua non of progress in overcoming an adherence to the status quo. It was also true in newer organizations that were founded from the outset with the goals, principles and values of the Creative Economy, where continuous championing and vigilance are seen as necessary to preserve the organizational culture, and to prevent reversion to hierarchical bureaucracy, especially as the organization grows.”

Members of the Learning Consortium will be on hand at the Drucker Forum session to share and discuss the Consortium’s findings including: Richard Sheridan, Chief Execuive Officer of Menlo Innovations, Ahmed Sidky: Director. Development Management at Riot Games, Paul Madden, Head of Product Development, in Ericsson Athlone, Ireland, Chad Lindblom, Chief Information Officer, CH Robinson International and Thomas Juli, Senior Manager HR Organizational Development of Magna International.

About the author:

Steve Denning’s latest book is The Leader’s Guide to Radical Management. He is also the author of The Leader’s Guide to Storytelling, The Secret Language of Leadership, and a regular blog on Forbes.com.

Yet despite almost a century of fine management writing and many successful initiatives, the ugly truth is that the lasting impact on general management practice has been limited. Even humanist change initiatives that were dramatically successful by objectively measured standards have often been discarded by the firms that introduced them. Sooner or later, firms revert to stultifying bureaucratic practices, as if on some zombie-like automatic pilot.

Many large publicly-owned corporations continue to implement hierarchical bureaucracy and, since the 1980s, pursue the goal of maximizing shareholder value as reflected in the stock price, despite steadily declining returns on assets and on invested capital. The problem is not so much excessive focus on quantitative metrics or technocratic logic, but rather failure to respond to obvious quantitative truths staring managers in the face.

Achieving humanistic management has thus turned out to be a much more intractable problem than most thought leaders expected it to be. Instead of management comprising linear mechanisms that could be improved one-by-one through implementing proven remedial measures, it has acted more like an ingeniously morphing virus that steadily adapts itself to, and ultimately defeats, intended fixes and returns to its original state, sometimes more virulent than before.

Why is change so difficult? One reason is that an unholy alliance links shareholder value theory and hierarchical bureaucracy. Once a firm embraces maximizing shareholder value and the current stock price as its goal, and lavishly compensates top management to that end, the C-suite has little choice but to deploy command-and-control management. That’s because making money for shareholders and the C-suite is inherently uninspiring to employees. The C-suite must compel employees to obey. The result is that only one in five employees is fully engaged in his or her work, and even fewer are passionate. The very foundations of humanist management—collaboration and trust—are missing.

The good news is that the Internet is now forcing change, by:

• Shifting power in the marketplace from seller to buyer. Customers, who have access to reliable information about the available choices and a capacity to interact with other customers, are now collectively in charge.
• Raising customers’ expectations. As “better, cheaper, faster, smaller, more convenient, and more personalized” became the new norm, the ability to innovate with committed employees became critical.
• Requiring firms to draw on the passion and full talents of those doing the work to find ways to delight customers.
• Shredding vertical supply chains, as customers can buy a wider array of stuff online cheaper, and often quicker, than in a physical store.
• Spawning vast new horizontal value chains, in which millions of people began creating their own virtual meeting places and marketplaces with their own lateral economies of scale.
• Enabling firms to create huge ecosystems of contractors and customers that can achieve scale without the sclerosis of hierarchical bureaucracy.

These shifts require not just increased attention to customers by strengthening the marketing department or introducing rah-rah employee engagement programs. They require rethinking the fundamentals of management.

The foundation is Peter Drucker’s insight of 1973: the only valid purpose of a firm is to create a customer. It’s through providing value to customers that firms justify their existence. Profits and share price increases are the result, not the goal of a firm’s activities.[1]

The locus of competitive advantage is now determined by interactions with the customer, built on the work of engaged and passionate workers. The central strategic questions of the industrial model, “How much more can we sell?” and “How much money can we make?” are replaced by “Why should customers buy from us,” and “What else do customers need?”

As Ranjay Gulati notes in Reorganize for Resilience (2010), it means orienting everyone to the goal of delivering more value to customers sooner, and aligning all decision-making with this goal. It is a shift in mindset from “You take what we make,” to “We seek to understand your problems and will surprise you by solving them.”

While armies of dispirited bureaucrats, driven by command-and-control, simply can’t get this job done, the enabling management practices and metrics of humanistic management are well suited to it. When the goal is the inherently inspiring goal of delighting customers, managers don’t need to make employees do their job. With managers and workers sharing the same goal—delighting customers—the humanistic management practices of trust and collaboration become not only possible but necessary.

To be sure, other changes wrought by the Internet bring new challenges that must also be dealt with. Increasing income inequality must be addressed with more progressive tax policy. Excessive financialization of the economy must be resolved by reining in the financial sector. Abuses of burgeoning monopolies must be met with stronger anti-trust action. Threats to privacy must be averted by appropriate regulation. The rights of vast numbers of part-time workers and “permatemps” must be protected through appropriate legislation. Education systems must support greater entrepreneurial skills and life-long learning to prepare people for the new world of work. Greater support must be provided for individuals to start their own businesses.

But the most important battle in the war for humanistic management—compelling firms to respect customers and employees as human beings—has already been won. The choice for organizations today is: change or die.

About the author:

Stephen Denning is the author of The Leader’s Guide to Radical Management (Jossey-Bass, 2010), which describes management principles and practices for reinventing management to promote continuous innovation and adaptation. Over 600 of his essays on these themes are available at: http://blogs.forbes.com/stevedenning/.

[1] Drucker, P. Management: Tasks, Responsibilities and Practices, Heinemann, 1973.

Complexity is not a new condition. While it’s true that many aspects of life have become more densely connected and unpredictable, the fact is that our world is inherently complex. Most of the environments we move in and tasks we perform require us to deal with interdependent and dynamic phenomena.

Consider (as economists Andrew Haldane and Vasileios Madouros recently did) the seemingly simple task of catching a Frisbee. It requires the resolution in real-time of two infinitely variable factors: the Frisbee’s trajectory and the catcher’s own movement. So how do people – and even dogs – routinely manage it? Not by gathering waves of data and solving successive equations. Instead, people (and dogs) learn to rely on a simple method that works most of the time: they run in such a way that their angle of gaze to the Frisbee remains roughly constant.

What allows a Frisbee player to dash forth with confidence is, in other words, a heuristic. And heuristics, or rules of thumb, are also what allow people in all kinds of situations – including fast-changing business environments – to forge ahead rather than being paralyzed by complexity. Managers under pressure to make many decisions can’t subject every one of them to thorough and dispassionate analysis. They rely to a large extent on what has worked in the past.

The full blog post can be found at: http://blogs.hbr.org/cs/2013/06/making_management_as_simple_as.html