Why management innovation is hiding in plain sight

In November 2010, management guru Gary Hamel boldly said in an interview with the Financial Times: “I am ready to put my reputation on the line as we will see more drastic changes in the way management is organized over the years. Next 10 years than we have seen in the last few years. 60 or 70.

Almost exactly ten years later, on November 14, 2021, Financial Times management columnist Andrew Hill published his finding that the prediction had failed. No “radical change in the organization of management” had materialized. According to Hill, “a manager from 2011, or 1991, or even, frankly, 1961” would still feel right at home in the office in 2021.

This conclusion is absurd. Whether we realize it or not, we are already living in a new economic era, only the third in history, with radically different management practices driving the growth of the economy. The ‘digital age’ is a name for the era, although there are others such as’ the information age ‘,’ the age of platforms and ecosystems’, ‘l era of digital giants: and “the era of disruption”.

The digital age has different economic dynamics, different management principles, different social consequences and different political implications, compared to the industrial age. The economy of the industrial age is not gone, but it is relatively less valuable and important.

The new radical management innovation

The new management innovations are very different. Instead of an industrial age focused on efficiency and internal results, the main concern of the new era is external: an obsession with creating value and results for customers and users. Instead of starting with what the business can produce that could be sold to customers, digital businesses work backwards from customer needs and then figure out how that could be delivered in a sustainable manner. Instead of limiting itself to what the business itself can provide, the business often engages other businesses to help meet user needs. Instead of leadership located only at the top of the organization, leadership and initiative that creates new value is nurtured throughout the organization. Instead of tight control over individuals reporting to bosses, self-organizing teams across the company create value by working in short cycles and drawing on their own talents and imaginations. Instead of the steep hierarchies of authority of industrial-age companies, digital companies tend to be organized into horizontal networks of skills. In this way, most of the central management principles of the industrial age were overturned.

Far from feeling at home, the “managers of 2011” spend frantic days and sleepless nights in 2021 trying to understand the confusing, volatile, uncertain, complex and ambiguous (VUCA) new world of 2021, in which they find themselves. find. They are grappling with a world in which disruption can come from non-competitors and put established businesses out of business almost overnight, a world where businesses without physical assets can crush businesses with massive physical assets. Even the less observant “managers of 2011” are aware that their companies are heading for a meeting with the Grim Reaper if they continue as they are and are desperately fighting “digital transformations” that most fail.

The point is that Hamel’s “radical changes in management” are obvious to us. They are evident not only in the five largest companies with a combined market capitalization of some $ 10 trillion, or nearly half of U.S. GDP, but also in the smallest rapidly growing digital winners, notably AirBnB, AMD, DoorDash, Etsy, John Deere, NVIDIA, Shopify, Spotify, and Zoom.

It is not only technology that is responsible for these changes: it is the combination of exponential technology and new models of management innovation.

These different business models can quickly reach global reach within a few years. In the industrial age, such growth and scale had typically taken decades. Now the global scale – and the company being the best in the world at what it does – becomes mandatory. In the new era, radically different business models are becoming possible and even necessary: ​​from markets to platforms and ecosystems; from property to access, from workers to co-creators of value, from sellers and buyers to suppliers and users.

That management changes are real and on a large scale is clear from their impact on our lives. For most people, they are like magic. Very quickly, the digital economy has transformed the way we work, communicate, travel, shop, play and watch games, provide health care and educate, raise our children. , to entertain us. , how we read, how we listen to music, how we watch theater and movies, how we worship; in short, how we live. The transition was accelerated by the 2020-2021 pandemic.

It is true that many large old companies fail in the new era and suffer dire financial consequences of failure, only mitigated by financial engineering gimmicks like share buybacks, mergers and acquisitions, favorable regulations. , etc.

Curiously, economists and journalists still mostly look for managerial innovation in the wrong place – in icons of yesteryear, such as Nucor, Vinci, Svenska Handelsbanken, Michelin, 3M, IBM – companies that pursue modest changes at the margins. but are still largely stuck in the industrial age mindset. As a result, their performance is worse than the average for S & P500 companies.

These economists and journalists still look at the world through industrial-age glasses and largely ignore the digital economy, even though it now accounts for almost half of the global economy and is growing much faster than those older companies. These companies are now treated by the stock market like cash cows to help fund companies that are on real growth paths.

It is true that when economists and journalists focus on these old industrial companies, making partial changes at the margin, it may seem like not much has happened because the new world does not fit. to their equations and models based on a product physics market. Sadly, they too are doomed to be upset just as surely as the companies still living in the industrial age they are studying.

Given the managerial innovation underway, Gary Hamel’s prediction has been proven and his reputation remains strong. It’s just that the Financial Times is looking for it in the wrong place.

And read also:

Why companies must learn to discuss the indisputable

Why we live in a golden age of innovation

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