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Three forces that will transform management

By Gary Hamel

26 February 2009

The technology of management—the tools and techniques we use to mobilize human effort—is likely to change dramatically over the next few years. Modern management was invented a century ago to solve one overriding problem: how to organize work at scale with ever-increasing productivity. This problem is still important, but organizations now confront a new set of challenges, which cannot be solved with Industrial Age management practices and structures.

Today, the overriding problem for every organization is how to change, deeply and continually, and at an accelerating pace. We live in a world where change is “shaken, not stirred.” Yet in most organizations, practices and structures reflexively favor the status quo over change and renewal. We see entire industries—for example, pharmaceuticals, music, advertising, and publishing—where the incumbents are struggling to invent their way out of slowly dying business models.

The barriers that once protected large companies from the winds of creative destruction are crumbling. The result: hypercompetition and relentless pressure on margins. In this environment, the returns on “incrementalism” are going down while the premium on innovation is rapidly increasing. In most organizations, innovation is still mostly an afterthought. It’s a project, an initiative, or a function, but it’s not an activity that involves everyone, every day.

The need to adapt and innovate will require organizations to better use their human capital. For organizations to succeed in today’s “creative economy,” they need employees who bring more than their diligence and expertise to work: employees must also bring their imagination and passion. Again, there’s much work to be done here. Global surveys show that fewer than 20 percent of employees—and in some countries as few as 2 or 3 percent—are highly engaged in their work. Most people are just not emotionally or intellectually committed to what they do on the job. Perhaps companies could afford that when most employees were just expected to follow the rules, but today this lack of engagement is competitively untenable.

Unless organizations in the developed world want to join the race to the bottom, they must find a management model that encourages people to bring the very best of themselves to work everyday. For all these reasons tomorrow’s business leaders must create companies that are more adaptable, innovative, and inspiring than the bureaucratic, top-down organizations that predominate today.

When you look back at the history of management, you find that it was the management pioneers that became the 20th century’s industrial giants: GE brought management discipline to science and helped to create the world’s first R&D labs. P&G developed methods for creating value around brands—assets that didn’t even appear on the balance sheet. In this new century, I’m confident that bold management innovators will be the winners.

In addition, I believe there’s a good chance that the technology of management will change as radically in the next few decades as it did in the early part of the last century. Three things will drive this new management revolution. First, as I described earlier, companies today face a set of new and inescapable challenges that lie outside the performance envelope of management as usual. The second driving force is the Internet, which has spawned a vast array of new tools for managing collaboration. In the past, nothing could be done at scale without a lot of bureaucratic structures. Now thousands of people can collaborate around the world online with little in the way of formal hierarchy or management structures. Suppose, for a moment, that ten years ago someone had surveyed the top 100 executives in each of the Fortune 500 companies—that’s 50,000 business leaders—and asked them if they could imagine a time when a disparate army of volunteers from across the world, with no formal control processes, no budgets, and no real funding, could create one of the most complex of all products: a computer operating system. I doubt that one executive out of a thousand would have said, “Sure, this will happen.” Yet the Linux operating system was developed in precisely this way. So we should be asking ourselves, what are the potential management breakthroughs that we can scarcely imagine?

These new Web-based tools will allow hierarchies to form around natural leaders rather than beneath the individuals who have been given formal, hierarchical appointments. They will democratize the workplace and give everyone the chance to help create strategy and offer advice on critical issues. This won’t happen overnight, but organizations will eventually figure out how to use these new tools, just as those early management pioneers learned how to use the telegraph and then the telephone to better manage large-scale organizations.

The values and attitudes of the Millennials now entering the work force make up the third challenge that will compel organizations to retool their legacy management models. If you spent your adolescence creating, collaborating, and learning on the Web, you’ve developed some sensibilities that will be very hard to change once you enter the work force. One of these is the belief that all ideas should compete on a level playing field. The twentysomethings who take this as a point of faith won’t want to work in organizations where a senior executive’s point of view gets an extra measure of credibility simply because he or she sits higher up in the hierarchy.

This new generation also believes that all information should be accessible. The ethos is to share information freely, not to dole it out on a need-to-know basis, as management often did in the past.

What’s more, this new generation believes that people should be measured on the basis of their contributions, not their credentials. When you post something on YouTube or write a blog, nobody asks, “Did you go to film school?” “Do you have a journalism degree?” People ask, “Was it funny?” “Was it incisive?” So any company that hopes to hire the best and the brightest will have to confront the need to dramatically change how they manage and how they organize, because the value system found in most organizations today is antithetical to the value systems that drive collaboration on the Web.

These three factors—inescapable challenges that defy conventional management wisdom, new social technologies that allow human beings to accomplish great things without the weight of bureaucracy, and a new generation of employees who come to work preloaded with antibureaucracy values—are going to force a fundamental rethink of how we lead, manage, and organize. Already you can see harbingers of the revolution to come: if your company isn’t on the reinvention curve, it’s going to be at a serious disadvantage. Just as organizations spent huge amounts of energy over the past decade reinventing their operating models—their logistics, supply chains, and customer support—they must now commit themselves to reengineering their management models.

Historically, the diffusion rate for new management ideas has been pretty slow. The principles of Total Quality Management, for instance, were first applied in a few Japanese companies after World War II, but it wasn’t until the 1980s that they finally went mainstream. I’d like to believe that we can change a bit faster this time. But there will be resistance. Executives have worked hard for the privileges they enjoy in the current system and won’t be eager to abandon them.

The new management pioneers may come from Brazil, China, India, and Mexico—and from other parts of the world where the Western management model is not yet thoroughly entrenched. Young companies are often filled with equally young employees who have little to unlearn. If I had to make a bet, I’d wager that tomorrow’s most progressive management innovators won’t come from the Fortune 500.

Comment [26]

Agree? Disagree? Let us know what you think. Please include your full name with your comment. Comments may be edited.

I, too, applaud Gary’s insights and predictions, but there’s nothing new here.

We’ve been reading about, hearing about, and planning for this new business model for 15 years. Remember all the buzz in 1995 after Gingrich re-introduced the Tofflers to the world? Tom Peters wrote Liberation Management in 1992.

Yet, just when economic meltdown gives us the perfect opportunity to change the world, governments step in to bolster 19th century management practices.

At 45, I’m becoming very pessimistic about this change in management. Most executives I deal with pride themselves on 15-hour work days and on thier total ignorance of “time wasters” like Twitter and facebook.

Until we let fail those things that are too big to fail, we’ll continue watching the old methods disappoint as the old managers collect their bonuses.

Posted 28 April 2009, 11:01 by Bill Hennessy
The Fortune 500 may have the most to gain. In some key sectors, such as telecommunications, technology, and financial services, there is the potential to eliminate 1/4 of their customer care costs. They can win big by reconnecting those who sell and deliver a customer experience, with those who attempt to salvage a poor customer experience … and put them on the same team.

Enabled by today’s technologies, the workforce can be reorganized in the form of small cross-functional business teams. Each team would holistically serve a very small segment of customers (somewhat like a franchise, and in many respects harkening back to the best aspects of yesterday’s mom & pop businesses).

Here is where the large companies can have a competitive edge over their small company competitors. The large company will have more small teams, and therefore the more opportunity for experiments and innovations.

To the Fortune 500 innovator: start small with an under-the-radar pilot project

Posted 7 April 2009, 22:25 by Kelvin Cross
Very relevant and evoking article. The key for an Organisation is to have the ability to engage all its stakeholders at a high level and sustain the same. The organisation I refer here, will mean clearly the leadership team including that of the board of directors. But, if levels below do not see that change happening, its for them to put pressure on the system to make that change happen. Ultimately its for the good future of the Organisation and all its stake holders

Posted 7 April 2009, 04:46 by Jaikrishna
It is not the internet which will engage the 80% of people in the workforce who largely do no more than fulil their obligations in order to draw a wage. It is a sense of being valued and adding value, a sense of meaning through work, which is built through interpersonal relationships and a sense of doing ‘good’. People will take risks and embrace change when they feel safe. Alternatively, the best and brightest might simply opt out of corporate life. I don’t see much that is actually innovative in Gary Hamel’s article.

Posted 1 April 2009, 20:11 by Sue Hanley
I found this article very interesting and intellectually stimulating. However, 30 years of corporate life has convinced me that the vast majority of senior managers in large corporations are politicians who are only interested in their own status and well-being, so it really doesn’t matter how you organize them.

Posted 19 March 2009, 09:27 by Dennis Blank
Gary Hamel presents an insightful article and if you aren’t witnessing changes in your organization as a result of Millennials, web-based tools and collaborative concepts, you need to be. I have helped my company adopt a collaborative business planning process that seeks input from all levels of the organization. It includes all forms of research related to trends inside the walls of the company as well as in the world around us. I think we will stay ahead of the competition by doing this. Even during a time of downturn, we are united and continuing to understand how changes can impact us for the good. The statement from the article having the most impact on me right now is as follows, “So we should be asking ourselves, what are the potential management breakthroughs that we can scarcely imagine?”

As a strategist for the company, I am moving on to create an environment to collaborate on and understand what is next. The cycle of change is much shorter and the “scarcely imagined” will be here before we know it.

Posted 17 March 2009, 14:07 by Michelle Harris
I would reword what I think is the central theme in Dr. Hamel’s article to be the following: Within the past few weeks we have been jolted from a Transistional World into a New World. To succeed in this New World it will be necessary for organizations to better use their human capital. All employees must be motivated to contribute their best innovative immagination and deligent passion to their work.

Dr. Hamel describes three forces that will transform management. I would describe these as external systemic forces influencing and sometimes driving changes in leadership practices which are outside the control of any particular leadership structure. There are also internal leadership practices which are within the control of any leadership structure. The most important of these is the development of TRUST and CONFIDENCE. If an organization does not learn how to provide the kind of ethical leadership that establishes TRUST and CONFIDENCE then that organization will never become the most effective at developing and deploying human capital and as a result they will never become the leader in whatever they have chosen to do. Any organization that currently possesses the leaderhip position for whatever they do, without systemic TRUST and CONFIDENCE, will loose it.

Posted 11 March 2009, 16:26 by Merlin J. Ricklefs
My comment is about this and the What Matters series in general.

Given that in 2002 and again in 2008 literally countless trillions of dollars of shareholder and individual wealth globally have been obliterated due to unethical corporate and individual behavior, what on Earth will it take for Ethical Behavior to rise to the level of “What Matters” so we can generate an effective dialogue, committments and progress in creating and sustaining values-driven and profitable ways of doing business?

Posted 11 March 2009, 14:09 by Jack Gilbert
Hello Readers,

Find it interesting that during these times not much is being said about the type of (western mindset)leadership and management that got US and the World into this crisis/mess. What say yea?

Where is the courage displayed to openly discuss this topic in order that the leadership and management patterns of yesterday can be appropriately shifted so that we will never again repeat this cycle of failure!

Peace …

Posted 5 March 2009, 11:05 by Charles Hicks
Interesting and topical points of view. I like the comment “These new Web-based tools will allow hierarchies to form around natural leaders rather than beneath the individuals who have been given formal, hierarchical appointments”.

Enterprise 2.0, however, seems to be on a very slow burning fuse … which shows the pesistence of the power base of formally appointed leaders – competent or not.

I think it will be very interesting to carry out the organisational autopsies on the collapsed financial institutions and their leaders from the pespectives outlined in Gary’s article. Are leaders and employees equally trapped by the hierarchy – in terms of their information sources and filters and the means at their disposal to effect action?

Perhaps it is a case of discarding these failed organisations and their leaders quickly and totally – rather than giving any more oxygen than is necessary to their vested interests. The quicker we can remove the stiffling effect of their defence of the indefensible the quicker we can all get on with really finding out what the new management models can do …

Posted 4 March 2009, 23:23 by Steve Hodgkinson

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