“Those who only gradually improve their performance in exponential times fall back exponentially.”Curt Carlson, former CEO Stanford Research Institute
Management, as taught at business schools, is on the way to 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 with a delay of decades, but now they are 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, the limitations and weaknesses of these “best practices” 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 and adapting to new challenges. They pitch scarce and valuable human assets into senseless and petty battles of domination. They frustrate workers, discourage entrepreneurial creativity and risk-taking, and impede cooperation across domains or companies.
They seem to have have lost much of their business value. But why? First, let’s take a look at why they worked so well for such a long time.
In the dawn of the 20th century F. Taylor established the discipline of scientific management. His approaches created immediate monetary benefits for the companies by increasing their productivity, 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 Taylors 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 worked so well, that specialization and deterministic planning and control were regarded as general principles to efficiently organize all kinds of work. Thus, Taylor’s practices were applied to many more domains in companies, like strategic planning, accounting, people management and product innovation. And it all worked quite well, because markets at that time kept growing in a predictable manner, with sufficient unconquered space still available for competitors. However, this status would not last forever.
Globalization and the Internet disrupted this setting. Globally distributed value chains and on-time delivery increased the complexity of the markets. The Internet democratized communication and opened up markets on a global scale by lowering the entry barriers of many industries. Competition became tougher than ever before. There were many more competitors, customers suddenly had much more choice, prices fell and margins disappeared in the blink of an eye. Flexibility, speed and adaptability suddenly were in high demand. The “best practices” for achieving maximum efficiency largely lost their power and thus their usefulness. But they had become firmly established in the minds of managers as the gold standard of corporate management. Thus, they keep clinging to what they once learned, despite the fact that it doesn’t work anymore.
Todays market environments are complex and hyper-dynamic. Companies need to adapt to this new environment. They need to do it fast. The late „best-practices“ of management have proven that they are not fit for that purpose. The conditions for success have changed fundamentally. Companies need to find better practices in order to thrive in the new environment.
It can be done by overcoming the self-imposed limitations of current management. Why always plan in fixed yearly periods, when customers easily turn away from your products at any time? Why always wait for the next budget cycle before approving funds for a new market opportunity? Why always report and control tasks and resources along predetermined hierarchies, when relevant business activities mostly require fast ad-hoc communication and coordination across networks of knowledge workers?
Todays market environments call for management practices that can cope with complexity and dynamic, with increasing customization of products and generally digital processes. In short: With customer-directed innovation at speed. New management principles are emerging from innovative top-players like Amazon, Haier, Handelsbanken, Nucor, or Morning Star: Breaking up the silos and decision-making bottlenecks, focussing on customer needs and establishing entrepreneurial skills and incentives throughout the organization. Those companies and many more demonstrate that these 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 along one of the biggest management innovations of all time. Tayloristic practices have now reached their limits of being useful. 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.
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