The current issue of HBR (July-August 2010) is supposedly about “the effective organization”. Unfortunately it’s about “the effective organization of 1965.”To start with, you will never discover, for instance, as The Power of Pull[i] by John Hagel, John Seely Brown and Lang Davison shows, that the rate of return on assets of US firms has fallen by 75 percent since 1965. You will never guess that the life expectancy of firms in the Fortune 500 has declined to around 15 years, and is heading fast towards 5 years, unless something changes. You will never get a hint that executive turnover is accelerating. You would be hard-pressed to realize that with global competition and the shift in power from sellers to buyers, most of the productivity gains have been captured by consumers and creative talent. You would have to go elsewhere to discover that the “winners” in today’s economy are barely maintaining their previous ROA levels, while the losers are experiencing bigger and bigger losses. You would never imagine that the companies that out-perform their peers do so for ever-shorter periods of time: the “topple rate” is accelerating. You would never realize that net job creation over the last 25 years by firms older than 5 years is close to zero.[ii]
Instead, you would learn that the way most established organizations are managed is pretty much okay. Sure, we need a tweak here, a patch over there, a little bit more effort in some areas, but there is nothing basically wrong with the way most firms are managed. You would never know that management is not just broken: it is badly broken.
Take the headlined article of the current issue: Stop the Innovation Wars by Vijay Govindarajan and Chris Trimble (page 83). Like Roger Martin’s book, The Design of Business[iii] (2010), it urges a better partnership between the firm’s “performance engine” (producing consistent, predictable outcomes) and the “innovation team” (creating new value for customers). It argues that today’s organization should achieve a better partnership between the supply chain that operates in a rigidly predictable fashion and the part that operates with the creativity of a design shop, with more emphasis on the latter.
The article notes that these partnerships result usually in “war in the boardroom,” as Al and Laura Ries show in their book of the same name, War in the Boardroom[iv]. The article argues that if the partnerships are managed more nimbly, things will work out. Unfortunately, the entrenched left-brain thinking of the supply chain, supported by traditional management theory, business school teaching and Wall Street assumptions, tends to crush the creativity of right-brain thinking about new ways to add value.
It’s not enough for the “innovation team” to be in touch with ideas that can excite the newly elusive customer, and to be dragging a rigid and unresponsive supply chain behind it. Today, the entire organization has to become involved in the effort to generate customer delight and be able to deliver on the fly. This means not just adding a new fix to management, but re-thinking management from top to bottom.
In the end, the article is about innovation “initiatives”, i.e. time-limited efforts to solve specific problems patched on to the bureaucracy. Once the innovation "initiative" is over, the organization can heave a sigh of relief and go back to its non-innovative business-as-usual mode of operating. It embodies the fundamental assumption of the 20th Century management that the default mode of managing is scalable bureaucracy. It’s not about the 21st Century organization which involves changing the DNA of the organization so that the whole organization embraces innovation.
The article fails to grasp that traditional management is so badly broken that creating an institutional capability to generate continuous innovation and organizational learning takes more than adding something on to the existing management system or creating new “partnerships” with the bureaucracy. Rather it involves a radical re-think of the very fundamentals of how an organization is organized and managed. We need radically different management.
The silliest of the articles in the current issue is Stop Trying to Delight Your Customers by
Matthew Dixon, Karen Freeman and Nicholas Toman (pages 116-122). The authors claim to
have done a study showing that trying to delight your customer is
counter-productive. What the study actually shows is that if you have a bunch
of traditionally-managed bureaucratic command-and-control firms and "tell" the
customer reps to “delight the customer,” you get rather poor results. It sheds
no light at all on what happens when the whole organization devotes all its
energies from the top to the bottom of the organization to delighting its
clients and inspires its staff to embrace the goal and communicates with them,
not by telling them what to do, but by conducting conversations and practicing
The article is talking about a quick fix to a traditional command-and-control culture. Guess what? It doesn’t work. The idea that a command-and-control bureaucratic culture is fundamentally incompatible with an organization dedicated to delighting its clients never occurs to the article’s authors. The possibility of an organization in which delighting customers is part of the DNA of the entire firm is not even dreamed of.
And on it goes. Article after article starts from the assumption that things are pretty much okay if we go on managing as we did in the 20th Century. A minor tweak here or a patch there will fix the few minor irritants on our dashboard. The tragedy is that organizations that follow its advice will sink into the mud and they will never know why.
To learn how to manage in a way that fits the 21st Century, go here:
[i] The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion by John Hagel III, John Seely Brown, and Lang Davison (Perseus, 2010). See also Deloitte Center for the Edge. Measuring the Forces of Long-Term Change: The 2009 Shift Index. 2009. http://www.edgeperspectives.com/shiftindex.pdf .
T. “Start-Ups, Not Bailouts” New York Times, April 3, 2010
[iii] The Design of Business: Why Design Thinking is the Next Competitive Advantage by Roger L. Martin (HBSP, 2009)
[iv] War in the Boardroom: Why Left-Brain Management and Right-Brain Marketing Don't See Eye-to-Eye--and What to Do About It, by Al and Laura Ries (HarperBusiness 2009)