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This week I am off to Austria for two conferences. I am a keynote speaker at the Innovation Congress in Villach on November 13, where I will be talking about “The Ecology of Innovation” and I will then travel to Vienna to take part in the 6th Global Drucker Forum, where I am chairing a panel. I will be reporting on both meetings in future blogs.
In the meantime the buildup to the Drucker Forum continues, with HBR blogs from several of the management gurus who are going to be present. Gary Hamel is one of those blogging; he published “The Core Incompetencies of the Organization” on October 31 and followed it up with the dramatically titled “Bureaucracy Must Die!” on November 4.
I replied to the first blog as follows:
“Your blog is descriptive of large organizations but does not explain how they got that way. All today’s large organizations started off small and earlier in their lives many of them were seen as pioneers of management practice. Standard Oil (ExxonMobil), US Steel, General Motors, Sears, Roebuck, Kodak, Xerox and Nokia (among others) were all held up as exemplary at one time or another. The “hero to zero” phenomenon is so pervasive in the corporate world that the explanations for it must go well beyond “hubris”, management “myopia” and “clueless” leadership. No doubt such conditions exist but, like oppressive bureaucracies, they may be symptoms rather than causes: unintended consequences of strategies pursued in contexts we don’t even acknowledge, let alone understand. The true causes must be complex mixes of the ecological and the evolutionary – a combination of the developmental dynamics whereby supple saplings become rigid trees and the evolutionary processes that allowed small mammals to replace large reptiles as the planet’s dominant species.
The virtual absence of these ecological and evolutionary concepts from the current management canon and the widespread use of structural and engineering analogies makes us insensitive to the roles of emergence and constraint in the lives of organizations. It leads to notions of managers as detached, rational strategists, scanning “the” environment, looking at their organizations objectively, implementing practices and applying “principles” by issuing crisp, actionable instructions. The firm itself is seen as a passive, command-and-control machine, waiting for orders to execute and strategies to implement. Thus mechanical analogies leave linear notions of cause-and-effect intact and they blame unintended consequences on inept managers, poor analysis and faulty implementation. It’s a self-sealing system, a hall of mirrors.
You are right that we need to go much deeper; much, much deeper. We need to assimilate the emerging evidence that humans are rational but in an ecological, rather than in a logical way. And that’s O.K. Our minds are embodied, not just “embrained”. “Thinking” is not just the conscious manipulation of abstract symbols: we can “think” about the world in just as many ways as we experience it. Immerse a collection of those kinds of minds in an ecological and evolutionary context, where causality is nonlinear, emergence matters and constraints are ubiquitous. Only then can one start to appreciate the complexity of the issues that we are dealing with, as well as the combinations of judgement and reason – wisdom – required to navigate them. It leaves one in something close to a state of awe for those practitioners who can.”
Bureaucracy Was a Discovery, Not an “Invention”
In his second blog, “Bureaucracy Must Die!” Hamel describes bureaucracy as an “invention”. If this is the case, he argues, all that is needed is for us to invent a benign substitute for it; “We must find a way to reap the blessings of bureaucracy – precision, consistency, and predictability – while at the same time killing it. Bureaucracy, both architecturally and ideologically, is incompatible with the demands of the 21st century.”
There is one problem: bureaucracy is not an invention; it is a discovery. It was made about ten thousand years ago when humankind started working with concentrated resources that required scale and specialization to exploit them. Prior to that they had lived in small, nomadic, hunter-gatherer bands that were ideally suited to exploring for and exploiting resources that were mobile and ephemeral. These bands of up to 150 people, divided in small, egalitarian groups, were in a constant state of motion. They were coordinated via a shared narrative, personal relationships, generalist skills and self-discipline. Their actions were determined by their shared understanding of the situation they faced. But when humans encountered concentrated resources like the flood-fed lands of the Nile Delta and the salmon-dependent ecosystems of the American North-West they had to cope with much larger numbers of people and the need for specialization. Store-houses needed to be built, with scribes to keep the count of what was in them and a security force to protect the resources from being stolen. Time became important as one had to be ready for the annual flood or the salmon run. Even very primitive technologies led to the emergence of functional silos and very different appreciations of situations that were difficult to share. Bureaucracy and hierarchy were needed to control these larger-scale organizations because they could no longer rely on face-to-face coordination in the way the hunter-gatherers had.
The Ecological/Systems Perspective
From an ecological/systems perspective, enabling bureaucracies and the hierarchies that accompanied them were (and still are) a solution to the problems of scale and specialization. They become oppressive and coercive when they were combined with an unhealthy lust for power over others on the part of those who rise to the top of organizations. When this happens, people in organizations change from being ends-in-themselves to becoming means to the purposes of others; they become tools and instruments. (Canadians will be very familiar with the recent case of the star radio-host Jian Ghomeshi, who seems to have had problems along these lines). As I explained in The New Ecology of Leadership:
“Large-scale organizations attract people with a need for power and success. Such individuals can deliver tremendous organizational performance because of their ability to articulate a vision, rally followers around them, and challenge the rules about how things are done. Unfortunately, large organizations sometimes appeal to high-functioning but unhealthy, narcissistic individuals with excessive needs for attention and recognition.When success confirms and reinforces these behaviors, they can become overblown.
In their extreme manifestations such behaviors can take the pathological form of the so-called dramatic, emotional, and erratic personality disorders.A vision coupled with success can lead to grandiosity and illusions of invincibility. Poor listening skills and a fundamental lack of empathy can result in a thin-skinned, hypersensitivity to criticism and the encouragement of followers to become submissive yes-people. A history of rule breaking without negative sanctions can create beliefs that such restrictions do not apply to them. The very real sacrifices that such managers make as they climb the career ladder and pursue power can lead to a powerful sense of entitlement once they achieve it.
This means that over time the productive hierarchy essential to running the repetitive operations of a large-scale, commercial organization can start to take on the trappings of a dominance hierarchy, whose priority is not to create wealth but to distribute it—among its own members.”
In short, the pathologies of bureaucracy have to be understood as the product of an interaction between humans, with their ecologically rational, embodied minds and an organizational form that has been around for only 10,000 years or so, which is not very long in evolutionary terms. We cannot discard bureaucracy; we have to understand its dynamics and its limitations and how to use it in combination with “hunting dynamics” of the hunter-gatherers. Only then can we get more of its benefits and less of its liabilities. That will be the subject of a future blog.
The sixth annual Drucker Forum takes place in Vienna from November 13 to 14. The theme is the “The Great Transformation: Managing Our Way to Prosperity” and the forum features a pantheon of the ABCs (academics, business people, and consultants) of management. It showcases some of the leading management thinkers from around the world including Harvard’s Clayton Christensen and gurus Gary Hamel, Rita McGrath and Roger Martin. Top journalists are going to be there in the form of Andrew Hill and Martin Wolf of the Financial Times, Adrian Wooldridge of the Economist and Adi Ignatius, editor of the Harvard Business Review. For me the most exciting thing about the meeting is that it attracts people with a very wide range of ideas, interests and experiences. Almost everyone is there for the duration and you get to interact with them all in numerous informal sessions and breaks.
One of the most interesting background aspects of this meeting, with its provocative theme, is that 2014 is the 70th anniversary of the publication of two key books by Austrian writers that have greatly influenced management and political thinking. The first is Friedrich Hayek’s Road to Serfdom and the second is Karl Polanyi’s The Great Transformation. Hayek’s book warned of the tyrannical perils of central planning. In his adopted country of Britain it was aimed at the many left-wing British academics, who saw fascism as a capitalist reaction against socialism. Hayek argued that fascism and communism were both totalitarian philosophies with their roots in central planning and state control. Hayek saw important roles for the state, however, and was opposed to laissez-faire capitalism. In the United States, on the other hand, Road to Serfdom, was picked up by the right wing, and championed by prominent economists like Milton Friedman. In the Cold War atmosphere it was often interpreted as a paean to free markets and a condemnation of government intervention. In short, it was (and often still is) an “either/or” interpretation – markets “ennoble” society – they turn private vice into public virtue, everywhere and always.
The theme of the Drucker Forum to be held in Vienna November 13-14 this year is “The Great Transformation: Managing Our Way to Prosperity”. In the run-up to it Simon Caulkin wrote a mainly excellent article in the Financial Times entitled “Era of management-led growth held hostage by old ideas that refuse to die”. In it he outlined the challenge of changing the assumption that the purpose of the corporation is to maximize returns to shareholders. He cited Lynn Stout’s work, among others, to assert that “shareholders own shares, not companies, which are separate legal persons, and directors’ only fiduciary responsibility is to the company. Shareholders are not principals and managers are not their agents.” Caulkin described the whole shareholder-primacy theory as a zombie idea.
Then he went off the rails a little by mixing his monster metaphors: “So, yes, an era if management-led growth is both feasible and urgently needed. But the renaissance will not flourish unless a stake is driven through the heart of the shareholder-primacy zombie first.”
Every monster hunter knows that you can kill only vampires by driving stakes through their hearts; to kill a zombie you have to disintegrate their brains. The shareholder-value model may suck out the lifeblood of corporations but it doesn’t have a heart. Its brain is in thrall to neoclassical economics with its belief in the sanctity of free markets and its scientistic assumption that if humans aren’t completely rational then they ought to be. Unfortunately the shareholder-value model is held in place by a powerful systems dynamic that works like an addiction. The short-term rewards for those who benefit – corporate executives, hedge funds, and buyout artists – are significant, while the long-term damage is only now becoming visible. Even then, the complexity of cause-and-effect in complex systems allows many to deny that any such relationship exists. As Upton Sinclair’s quip reminds us: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
So how to disintegrate this zombie idea’s brain? I have suggested a change in metaphor might help, from that of monsters to systemic addiction. Most addictions end only when the addict “hits the wall” and makes a radical attempt to change his or her lifestyle and avoid the contexts that trigger the habit. Often this takes a shattering event – either a personal crisis or an encounter with a charismatic individual, or perhaps both. I suspect that it will require similar events in the case of shareholder-primacy model – a crisis plus the emergence of charismatic enterprises that show a consistent ability to outperform their conventional counterparts in sustainability and service to their communities, while operating at a scale comparable to their conventional counterparts. Oh, and it couldn’t hurt to attack the idea intellectually, as Lynn Stout has done, and try to disintegrate its brain…
Robert Reich, former Secretary of Labor under Bill Clinton had a recent blog in the Harvard Business Review entitled “How Business Schools Can Help Reduce Inequality”
Here is my response:
“What is needed is an ecological framework of “both…and” to embrace and contain the “either/or” of economics. Only then will we be able to see effective management practice as the integration of the “hard” and the “soft”, the sciences and the humanities. The most encouraging indicator of this at HBS has been the appointment of Nitin Nohria as dean, with his academic interest in the power of context and contextual intelligence. An article on this topic by Tarun Khanna appeared in a recent issue of HBR.
An ecological perspective is the quintessential contextual view. From this vantage point we can see that enterprises are conceived in passion, born in communities of trust, grow through the application of reason and mature in power, where they tend to get stuck. This sets them up for crisis and destruction but with the possibility of renewal. At business schools an ecological perspective can be used to address complex existential questions like these:
- What kind of person am I (people are we)?
- What kind of situation is this?
- What does a person like me (a people like us) do in a situation like this?
- What are my/our options? How do I/we generate options?
- What are my/our decision criteria? how do I/we make decisions/choices?
- What are the consequences of my/our decisions/choices?”
In a subsequent posting Judith Samuelson refers to a helpful document from the Aspen Institute on the subject of corporate purpose and business education
This week my blog consists of the review I wrote for Strategy+Business of Lawrence Freedman’s Strategy – a History:
Lawrence Freedman defines strategy as the central political art. “It is about getting more out of a situation than the starting balance of power would suggest,” he writes. “It is the art of creating power.” This definition allows strategists to assess outcomes, but Freedman, professor of war studies at King’s College London, knows that it does not offer them much guidance in enhancing outcomes. For that, practitioners have to appreciate the evolution of our understanding of cause and effect in complex social situations, and the role that power plays in those situations. Freedman’s new book, Strategy—an erudite, encyclopedic study that will surely become a standard reference in the discipline—offers just such an appreciation.