The biggest difference between 20th and 21st Century Management

Management in the 20^th Century was about achieving a finite goal: delivering goods and services, to make money.

Management in the 21^st Century is about the infinite goal of delighting customers; the firm makes money, yes, but as a consequence of the delight that it creates for customers, not as the goal.

The finite goal of delivering goods and services, in order to make money, was utterly boring and dispiriting, as noted in Gary Hamel’s wonderful blog post here. Because that goal dispirits those doing the work and often frustrates those for whom the work is done, it is inherently unsustainable.

The infinite goal of delighting customers is inherently inspiring: helping other people is the essence of moral thinking. It is inherently uplifting for those doing the work, and invigorating to those for whom the work is done. Hence the goal is inherently sustainable.

The 20^th Century goal of delivering goods and services so as to make money is a linear goal. It can be accomplished in its entirety. Through economies of scale, “the system” enables it to be done progressively more cheaply. Through outsourcing and downsizing, the economies can be continued, albeit with declining returns. Rules can be put in place. Processes can be established. Structures can be built. Mistakes can be eliminated. If mistakes do occur, people can be blamed and punished. A predictable and reassuringly linear environment can be built. “The system” operates as a closed universe. The customer is a thing to be manipulated (rather than a person with whom the firm has a relationship) to buy the products and services generated by “the system”. Similarly, the employees are treated as "human resources" to be mined and exploited and discarded as necessary. The entire scheme is antipathetic to innovation, because any significant innovation risks de-stabilizing the simple, linear, finite world that has been created.  “The system” has become an end in itself. For much of the 20th Century, this worked well enough.

Only problem? The world changed. In a stable world like that of the 1950s and 1960s, with strong demand, established firms in control of the marketplace could get away with manipulating customers. Today, that world is gone. Today, as a result of a variety of factors, the customer is in charge. There has been a fundamental shift in the balance of power between sellers and buyers. Now, unless a firm is delighting the customer, and providing a continuous stream of new value added, and ensuring enhanced customer outcomes, the customer can—and will-go elsewhere.

Tah-dah!

New ballgame!

What is the nature of the new ballgame? First of all, let's grasp the magnitude of the change. It’s not a minor shift at the periphery. It’s not a new process or structure. It’s not a new management gadget. This is a phase change. One is tempted to say “paradigm shift”, if Kuhn’s term hadn’t been so misused.

The new goal of delighting customers is a radical shift in the difficulty of what a firm is undertaking. The goal of a firm is no longer simple and linear and finite. Now the goal of the firm is difficult and complex and infinite. Now continuous innovation becomes a requirement, rather than a distraction and a de-stabilizer. Now we are in a world of continuous experimentation, to find out what works and what doesn’t, in terms of adding new value for clients. Now mistakes, instead of being elements that can be eliminated, are an essential element of the learning process. Now mistakes become crucial and welcome elements of the learning process. Instead of mistakes being punished, now mistakes are welcomed as essential opportunities for learning. Now everyone in the firm is focused on what can be done to add additional value to customers and clients.

Now outsourcing and downsizing are seen in their true light as destroying the medium term capacity of the firm to compete. Now economies of scale are recognized as hiding the true costs of delivering value to customers in a more timely fashion. Now structures and rules and processes are formulated so as to enable and reinforce the creativity and energies of the people doing the work, rather than undermining them.

Now the customer and employees are no longer treated as things to be manipulated, or quasi-children to be ordered around, but rather as adults with whom the firm has an adult-to-adult relationship, engaging in real conversations. Instead of the entire way of operating being antipathetic to innovation, now everyone in the organization is responsible for finding new ways to add value to customers and delight clients. The firm is no longer an end in itself. The firm is now “other directed”: it is focused on meeting the needs of the clients and stakeholders whom it is purporting to serve.

The 21st Century firm has structures and processes, but they are structures and processes that create a space to liberate the talents and energies of those doing the work, rather than crush those talents and energies. The structures and processes are designed to delight customers rather than frustrate them. As a result, the 21st Century firm is very good at getting things done.

None of this is particularly difficult to understand. All of it is obvious if we think about things seriously for even a few minutes.

Why isn’t 21^st Century management—aka radical management—happening already? Sadly, organizations have gotten into some very bad habits. The ways in which they made money in the past are being continued, even though they are destroying the very capacity of those organizations to compete in today’s business context.  Business schools keep teaching the old ways. Management textbooks reinforce that. Entrenched interests find it easier to continue status quo, rather than explore the new.

But in the end, the economics will be inexorable. The rate of return on assets of US firms is already one quarter of what it was in 1965. Astonishing! The life expectancy of a firm in the Fortune 500 has declined from around half a century to 15 years, and is heading toward 5 years, if nothing changes. Mind-boggling! These dynamics will force the transition to radical management, whether entrenched interests want it or not. The only question is whether it will happen elegantly and intelligently and quickly, or slowly and painfully and stupidly.

The choice is there.

To learn more about radical management, go here.

http://www.stevedenning.com/Books/radical-management.aspx

For more on the difference between finite and infinite activities, read James Carse's wonderful book, Finite and Infinite Games: A Vision of Life as Play and Possibility.  

 

 

Comments

[Stan Yanakiev]

Steve,

You wrote: "Now outsourcing and downsizing are seen in their true light as destroying the medium term capacity of the firm to compete." Do you think outsourcing is inherently wrong and incompatible with Radical Management and if so, why? For instance if a company like Coca-Cola and Wal Mart decides to outsource their non-core IT functions to an IT equipment and service supplier like HP or IBM can't that be seen as a step towards delighting their clients better?

[Steve Denning]

Stan,

I agree that this sentnce, viewed alone, might be a slight over-statement, i.e. to say that outsourcing is always a bad thing. I have written elsewhere about a truly 21st Century firm -- Li & Fung -- which has outsourced all its manufacturing. It focuses its expertise on how to bring all the pieces together, so as to generate long-term value for everyone: http://bit.ly/9rxmuQ. But when outsourcing is a short-term gadget to appear to save costs, which is the way it is usually used, then it is indeed a short-term "win", but a medium term disaster.

Steve

[Martijn Linssen]

Magnificent Steve.

We all gave in and commoditised ourselves and people in general with the start of the Industrial Revolution. Now, over half a century after the Second World War ended, we can look back and make up the balance - and an ugly one it is from a human standpoint

Still, in Asia that history continues, and Africa can't even afford to neglect it

Outsourcing is what I call an out-of-sight-out-of-heart solution: in stead of outsourcing the labout-intensive, repetitive boring work, we outsource the mistaken gems: customer and employee service. Both customer as employee of course form the very fundamentals we build a business on, yet our management is so focused on itself and its surroundings that is has taken enough distance to do so

You're introducing the concept of finite versus infinite, a very powerfull one. Have you read John Hagel and John Seely Brown's Push / Pull books? If not, I'm positive that you'll enjoy them

Thanks. Change will occur and is occurring already, and it will take time - but I love the horizon I'm seeing

[Steve Denning]

Martijn,

Thanks.

I agree. The Power of Pull is terrific. My review of it is here: http://stevedenning.typepad.com/steve_denning/2010/06/from-push-to-pull-a-new-book-by-john-hagel-john-seely-brown.html

The finite vs infinite issue is discussed in more depth in James Carse's book, Finite and Infinite Games--a truly wonderful book, from which I learned so much.

Steve

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http://johntropea.tumblr.com/post/1089147726/in-the-famous-cover-letter-in-googles

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