Democracy and Enterprise Are Transforming Organizations
William Halal (Author)
Publication date: 08/01/1998
Introduction: From Capitalism to Democratic Enterprise
Chapter 1: Management in Transition: Bridging That Divide Between the Old and the New
PART ONE: Redefining the Foundation of Management
Chapter 2: From Hierarchy to Enterprise: Internal Markets Are the New Form of Organization Structure
Chapter 3: From Profit to Democracy: Corporate Community Is the New Form of Organization Governance
Chapter 4: The New Management Synthesis: Uniting Internal Markets and Corporate Community
PART TWO: Building an Entrepreneurial Community
Chapter 5: The Serving Enterprise: Relinquishing Our Grip on Self-Interest
Chapter 6: Knowledge Entrepreneurs: A Working Contract of Rights and Responsibilities
Chapter 7: Intelligent Growth: Balancing Ecological Health and Economic Progress
PART THREE: Leading in the New Economic Order
Chapter 8: Continuous Change: Rooting the Organization into Its Environment
Chapter 9: Inner Leadership: How to Handle the Coming Power Shift
Chapter 10: Managing a Unified World: Global Order out of Local Institutions
Drawing on the Power of Heritage
A B C
The Organization Exercise
The Stakeholder Meeting
Corporations in Transition Study
Bridging That Divide Between
the Old and the New
Civilization today is poised at the brink of a great divide between an old way of life that is dying and a new way of life that is still being born. Behind lies an Industrial Age that lavished wealth on a world that was poor—but which also left a polluted planet, quarrelsome societies, and empty lives. Ahead lies the much heralded promise of the Information Age—but its growing contours continue to surprise and shock us. Who would have thought that a global economy would appear almost overnight? That the Soviet Union would just disintegrate? That the United States would slip into decline?1
There are many ways to examine such complex issues, but basically these are problems of managing social institutions. As a knowledge economy spreads around the world, the largest professional group today is the rising managerial class that guides a growing infrastructure of complex organizations.2 Most of the worries that dominate the news emanate from the interaction of corporations, governments, schools and universities, hospitals, news media, armies, and other institutions that support modern life. Peter Drucker described it this way: “Because a knowledge society is one of organizations, its central organ is management. Management alone makes effective all of today’s knowledge.”3
And as events accelerate to produce ever more complex technologies, intense competition, and turbulent, constant change, the aging foundation of this entire institutional system is failing everywhere. Witness antigovernment sentiment in the United States, the crisis in health care, and demands to reform education. IBM, once regarded as the best-managed corporation in the world, recorded the biggest business loss in history recently, which was soon exceeded by General Motors (GM). Confidence in institutions has fallen from 52 percent in 1966 to 22 percent in 1994, and no recovery is in sight.4
Out of all this confusion, a workable new social order must be constructed to manage a radically different world. This book describes the organizing principles that are emerging to master this challenge—The New Management—and it offers guides on how managers can lead their old institutions into this new era.
Most people have an intuitive grasp of management because we are raised in a world of organizations, so at an early age we absorb the basic concepts of working life. That’s why management education is often dismissed as “common sense.”
But it is exactly this commonly understood sense, or “paradigm,” that is the problem. Prevailing management concepts were conceived for an industrial past, so they are not useful for a vastly different economy based on knowledge. The founding fathers of management would be baffled to hear modern managers talk of “networks,” “telecommuting,” and “virtual organizations.”
The Evolution of Management
The classic theories of Henri Fayol, Max Weber, and Frederick Taylor defined the traditional view of “mechanistic” organizations to manage the simple conditions of the Industrial Age. What could be more reasonable in an “age of machines” than to construct institutions as “social machines”? Today, however, a more complex world described by the “supertrends” in Box 1.1 has made this model obsolete.5
The force driving this transformation is the inexorable increase in computer power by a factor of ten every few years. Forty percent of American homes now have personal computers (PCs), and the number is growing 30 percent per year. The average household uses computers twice as much as it uses TV, and computers are also connecting people together through the Internet and information services like America Online, CompuServe, The Microsoft Network, and Prodigy. In 1994, the first three-dimensional virtual meeting was held across the Pacific between teams of Japanese and Americans whose images “met” in a virtual conference room. One participant described the experience this way: “We’ve been dreaming of cyberspace for a long time. Here it is, the way people really interact.” Bill Gates claims all these capabilities will be in common use by the year 2000.6
By the end of this decade, then, average people should be able to work, vote, learn, shop, play, and conduct almost all other aspects of their lives electronically, using multimedia PCs that combine the intelligence of a supercomputer, the communications of a portable telephone, and the vivid images of high-definition TV. These trends foretell a transformation of the entire social order, and the battle to define a new social order will be waged in the way we design and manage institutions.
Managers have begun to restructure their organizations in recent years as Total Quality Management (TQM), alliances, reengineering, self-directed teams, empowerment, community, and other innovations suddenly burst on the scene. A recent issue of Fortune even announced “The End of the Job,”7 and Kunhee Lee, chairman of Samsung Corporation, the largest Korean conglomerate, told his managers, “Change everything except your wife and kids.”8 Figure 1.1 outlines this rich body of emerging thought, showing how the introduction of major new concepts has progressively moved the practice of management toward an “organic” focus. The entries are not exhaustive, but they offer a general guide to the rapid evolution of management today.
The neat concepts of classical management were challenged in the 1950s when Abraham Maslow, Elton Mayo, and Douglas McGregor showed that the field was expanding to include human and social factors. Later, in the sixties and seventies, bolder insights burst the boundaries of the old management altogether. Chester Barnard, an executive at American Telephone and Telegraph (AT&T), described management in terms of social systems. Paul Lawrence and Jay Lorsch discovered that effective organizations consist of diverse parts united into a coherent whole. Warren Bennis foresaw the need to replace authoritarian control with democracy. And Henry Mintzberg found that managers are engaged in an action-oriented flow of people and information rather than sterile problem solving.9
Although these were radical ideas at the time, they can now be understood more clearly as the first wave in a flood of organic concepts that swept through the 1980s and 1990s. W. Edwards Demming and J. M. Juran pioneered the quality revolution. William Ouchi, Tom Peters and Robert Waterman, and Peter Vaill helped us see that excellent managers instilled purpose and meaning. Ray Miles and Charles Snow showed that modern organizations consisted of networks. Gifford Pinchot and Russell Ackoff brought free enterprise inside the firm. Peter Senge outlined the principles of organizational learning. Terrence Deal, Allen Kennedy, Peter Frost and his colleagues, Lee Bolman, and Michael Ray revealed how institutions form their own cultures and spiritual beliefs. And my book The New Capitalism showed that all this change flows from traditional Western ideals of enterprise and democracy.10
The Old Versus the New Management
While it is clear that a new stream of management has appeared, there is great confusion over what this New Management will consist of when it matures. A quick scan of the business media shows a bewildering blur of new management ideas extolling everything from “greed is good” to “business ethics,” and an authoritative survey recently concluded that there is little agreement on today’s management paradigm.11
This confusion is particularly severe because it often rages across a great divide separating the past from the future. The economic history of our time will likely be told as a tugging and pulling between the old versus the new: power versus participation, hierarchical control versus market freedom, profit versus society, growth versus the environment, and so on.
On the “new” side of this divide, many proponents of progressive change are caught up in a revolutionary zeal that proclaims the virtues of “empowered people,” working in “fluid structures,” to serve “human needs” and “protect the environment,” all energized by “spirituality.” These are exciting ideas, but they often appear naive to managers who are struggling to survive a hard world. Managers who responded to the CIT survey offered the following reactions: “Just because an idea is old does not mean it is bad,” and “There will never be a substitute for the discipline and accountability of the old system.” One executive put it this way, “The implication that we’ve come to a crossroads in business management is full of hot air.… We need to remember, follow, and reinforce the good old ideas … no one has discovered any new secrets of management.”12
On this “old” half of the divide, it’s true that many executives are stuck in outdated views. Listen to some typical comments from managers in the CIT survey: “It is incredible to witness just how terrified senior managers are of change. They paid their dues in the old system, and now they feel a right to privileges within that system,” and “Some people must exert total control over every aspect of their business.” These are valid criticisms; however, adherents to the Old Management raise crucial objections that test new ideas, and their influence maintains a healthy continuity with the past. Serious change is going to require more than lofty sentiments.
For instance, it is refreshing to see attempts to empower employees sweep across the land, but these innovations often fail because of unrealistic expectations. Weirton Steel excited the nation when it became the largest employee stock ownership plan (ESOP) in America, yet now the company has fallen on hard times and so it has been forced to take drastic measures, including the same type of layoffs often associated with “heartless corporations.” Weirton’s owner-workers are justifiably angry: “How can we be laid off if we own the company?” asked a puzzled shareholder.13
The road to a New Management is littered with the ruins of such noble failures, so it would be wise to acknowledge their cause honestly if we want to avoid them. In the Weirton Steel case, avid proponents failed to recognize the enduring truth that “authority must be commensurate with responsibility.” While workers were enthusiastic about their newfound powers, they were unprepared to suffer losses because they did not realize that ownership incurs the risk of control as well as the right of control. The same fatal flaw is damaging employee governance in Europe.
These forms of worker participation have been a beacon for enlightened management, but they accorded employees dominant control over their enterprises without ensuring that this power was used responsibly, allowing workers to reward themselves without commensurate gains in performance. The most brilliant management innovations cannot repeal the iron laws of economic reality that require us to live within our means. A New Management can offer people the power to control their lives, but it must also hold them accountable for performance as well—just as the Old Management did.
The reverse is also true: demands to improve productivity mean little unless they are accompanied by the power to control one’s work life. The use of downsizing and other attempts to reduce costs are often disappointing because they are usually imposed from the top down in a rather arbitrary way, causing fear, stress, and resentment at being treated unfairly. At a time when CEOs routinely claim “our employees are our greatest asset,” this is precisely the wrong approach. Top-down change disempowers people and prevents local solutions that are usually superior—hallmarks of the New Management.
These confusing conflicts between outmoded practices and untested promises are the principal obstacle to economic progress. We can’t go back to a past that no longer works, and yet we seem to be having difficulty finding solid ground to move ahead. How can organizations be productive when managers seem confused over what they expect from their employees? Will American companies lose the product markets of the future to global competitors as they did before in electronics and automobiles? Most importantly, the full impact of this upheaval will hit when the next wave of information systems arrives about the year 2000. Will we be ready to handle this enormous untamed power of the Information Revolution? The question can no longer be avoided: What really is the New Management?
The New Foundation of Management:
Democracy and Enterprise
I believe a new foundation of management is emerging that can bridge this divide between the old and the new. Not only can this conflict be resolved, the New Management absorbs the Old Management into a broader, more powerful framework that makes sense of all the concepts, problems, and innovations that confuse managers today. The key to understanding this crucial resolution is to see that the two complementary principles of democracy and enterprise are now transforming organizations into a balanced whole.
Managers have always worked in a market economy, of course, and we all live in a democratic society, so what is really new? What’s new is that these practices have been notably absent in organizations. There has been precious little entrepreneurial freedom inside corporations or governments because they were traditionally managed as centrally planned hierarchies, and the mere thought of democracy was anathema in business. Even the Catholic Church acknowledges that it is not democratic.
But within the past few years, these two principles have been bringing a fresh new vitality into corporate life. As we will see, today’s movement toward smaller business units, entrepreneurial freedom, accountability for economic results, and other enterprise principles is likely to culminate in complete “internal markets.” Likewise, a similar trend toward empowerment, participation, collaborative working relations, human values, and other democratic ideals should lead toward “corporate communities.”
Please note that there is a difference between the concepts of “enterprise” and “internal markets,” and between “democracy” and “corporate community.”
The power of free enterprise is introducing some aspects of market behavior in organizations, but it is hard to envision hostile takeovers of corporate divisions. So organizations are unlikely to become completely free markets. But as Chapter 2 will show, if managers encourage the starting of internal ventures, provide the wide operating freedom that enterprises need to thrive, and reward entrepreneurs for their success, these conditions constitute what I call an “internal market.”
Likewise, the ideals of democracy are moving into organizations, but this is not likely to be a legal system of representative government. Webster’s dictionary defines “democracy” as originating from the Latin demos, meaning “the people.” In this broader sense, democracy is a system of governance based on the rights of people. As we will see in Chapter 3, the application of democracy in organizations usually takes the practical form of collaborative working relations that form a corporate community.
Thus, internal markets and corporate community are defined here as “organizational equivalents of enterprise and democracy.” These two concepts together offer such breadth of understanding that they provide managers a unified, practical body of principles. No single framework is able to explain all aspects of management, but I estimate that most, and possibly as much as 70 to 90 percent, of today’s management innovation flows from these two key principles.
If this view is valid, the union of democratic and entrepreneurial principles should resolve the clash between the Old and the New Management noted above. In fact, it does exactly that: “empowered people” must assume both rights and responsibilities, “fluid structures” require freedom and accountability, “human needs” include the welfare of social constituencies and profit for investors, and spirituality—ah, spirituality!
Spirituality has become a powerful new entry in management recently, as we will see later. Lawrence Perlman, CEO of Ceridian Corporation said, “Ultimately, the combination of head and heart will be a competitive advantage.”14 But I think much of this interest is misleading. Some of my most disappointing experiences have occurred in organizations that profess spiritual values. Because we tend to equate spirituality with “goodness,” people often avoid discussing the hard necessities of economic life—conflict, poor performance, and so on—thereby allowing such problems to fester until they explode. After all, the history of religion abounds with war. Tom Peters ignited a controversy when he said, “I find the idea of spirituality in the workplace appalling.”15
It seems to me that spirituality is destined to become part of the New Management, but it will be more broadly conceived. As we will see later, the spirit is both the source of our highest ideals and a practical discipline that leaders use to resolve intense differences among demanding clients, empowered workers, and tough business partners. Our approach to the spirit cannot be limited to traditional dogma nor New Age mysticism. As Walt Whitman told us, life is a sacred whole that encompasses all. Institutions are no less an integral part of life, ablaze with endless meaning that encompasses the messy, disturbing realities as well. The spirit that animates life permeates all life, not just those aspects we prefer.
The concepts comprising the New Management paradigm, or system, are outlined in Table 1.1, in contrast with the corresponding features of the Old Management. Of course, we can’t “prove” where this revolutionary transition will lead. By approaching the task in a systematic way using the research method described in the Introduction, however, I think we can provide a reasonably sound forecast that sketches out the new system.
The following chapter summaries explain the concepts in Table 1.1 and thereby provide an overview of the book. As shown, the book is divided into three parts. Part One lays a conceptual foundation by describing how the two central themes of internal markets and corporate community form a new management system. Part Two focuses on building three structures that constitute the heart of this system: the organization’s relationships with its clients, its workers, and the environment. Part Three explores how modern managers can lead this type of organization effectively in an era of constant change, empowered people, and global markets.
Each of these three parts is introduced by a table that more fully outlines the logic of this transition from Old Management concepts to their corresponding New Management concepts. As these tables—1.2, 1.3, and 1.4—show, the most prominent feature of this transition is synthesis, the creative integration of old practices and new trends in the Hegelian sense: the old status quo (the “thesis” of the Old Management) is combined with opposing evolutionary forces (the “antithesis” of change) to produce a new status quo (the “synthesis” of the New Management).
It is important to observe that what many consider the New Management actually consists of the opposing forces or trends alone (the antithesis). This limited nature of so many hot but ephemeral management fads explains why the overhyped promises noted earlier often earn the disdain of mainstream managers. One executive complained to me of “New Age business babble,” and another thought “the New Management in many cases is business school claptrap.”
To avoid this problem, the concepts listed in Table 1.1 are firmly rooted in economic reality. I’ve carefully integrated successful management innovations to produce a blend of theory and practice based on the work of creative executives: leaders such as Richard (Skip) LeFauve, chairman of GM-Saturn, who expanded the old focus on profit to include the interests of workers, clients, and other stakeholders; Anita Roddick, founder of the Body Shop, who set a new standard for high-quality products that provide genuine value and protect the environment; and Bert Roberts, CEO of MCI, who created a dynamic organization that continues to outperform AT&T.
Principles are shown to flow out of hundreds of such examples, illustrated with anecdotes, cases, quotes, data, figures, and exercises to provide a vivid, realistic understanding of how creative leaders design and manage organizations today. While the book focuses on American business, it also covers government and other institutions within the context of today’s global economy.
Chapter 2. From Hierarchy to Enterprise: Internal Markets Are the New Form of Organization Structure
Large corporations are disbanding their former hierarchies, but surely there must be a new model that is more precise than “flat structures,” “flexible organizations,” “networks,” and other popular terms.
Just as former socialist nations are moving to markets, so too are leading-edge corporations such as MCI, Hewlett-Packard (HP), and Asea Brown Bovari (ABB)—“internal markets.” Internal markets bring the power of free markets inside organizations by defining all units as small internal enterprises working together within a supportive corporate infrastructure.
This cooperative cluster of internal enterprises offers the creativity of small business ventures and the economic power of large corporations. Markets have their drawbacks, but they are spreading throughout the new social order because they provide the dynamic foundation needed to manage complexity and change.
Chapter 3. From Profit to Democracy: Corporate Community Is the New Form of Organization Governance
The conflict between profit and social welfare has been a long, bitter struggle waged continuously over the same tired ground. Social responsibility enjoyed popularity in the 1970s, but became an empty piety when the Reagan era restored a focus on profit. Either view alone is unrealistic since the broader reality is that business is a socioeconomic institution.
A wholistic perspective is emerging as it becomes clear that any organization is a political system composed of five main constituencies: investors, employees, customers, business partners, and the public. Since success hinges on the support of all these groups, progressive firms such as GM-Saturn, IKEA, and the Body Shop strive to create a political coalition that serves all interests better, including making profits for investors.
This can be seen as “a better way to make money,” but the New Management presents a more powerful perspective. The role of business is expanding to form a “corporate community” composed of all stakeholders, with profit being a critical but limited goal.
Chapter 4. The New Management Synthesis: Uniting Internal Markets and Corporate Community
The themes of internal markets and corporate community are integrated here into a conceptual foundation for the New Management. It may appear that these concepts oppose one another. Markets are associated with conservative values of enterprise, competition, and profit, while community is thought of in terms of liberal values of democracy, cooperation, and social welfare.
But these orientations are essential parts of any social system. Western society has always struggled to reconcile markets and community, which is why free enterprise and democracy are the two pillars supporting modern civilization. In institutions, this union is symbolized by the metaphor of an “organization tree”: a living organism rooted into its economic terrain by internal enterprises and guided by the social values of its community.
Excellent managers create more powerful organizations based on a creative tension between these two halves of the New Management. Internal markets are needed to master a diverse complex world, yet this diversity must be pulled together into corporate communities that are economically productive and socially harmonious.
Chapter 5. The Serving Enterprise: Relinquishing Our Grip on Self-Interest
One of the harshest features of previous business practice was the sell-at-any-cost marketing that turned television into a cultural wasteland, urged shoddy products on a gullible public, and failed to serve a growing need for improving the quality of life.
This chapter shows that global competition, demanding clients, and growing social problems are moving marketing away from simply selling goods toward a client-driven focus on improving the quality of life. Creative business is becoming a “serving enterprise” that uses sophisticated information systems to understand social needs, customize products and services, evaluate client satisfaction, and make advertising more useful.
The result is a working partnership between organizations and their customers that benefits both parties. If managers can relinquish their immediate self-interest, the difficult problems that abound today can be converted into limitless opportunities.
Chapter 6. Knowledge Entrepreneurs: A Working Contract of Rights and Responsibilities
Employee empowerment is becoming common now, but global competition has forced employers to cut costs and boost productivity. Even the Japanese are laying off workers. Suddenly, working relations no longer seem as promising as they once did.
Such conflicting trends signal a historic shift in work. The old lifetime employment system of the Industrial Age is yielding to a more sharply focused contractual system that links rewards to output. A new breed of “knowledge entrepreneurs” is emerging in which teams act as quasi business partners with the corporation, sharing both the rights and responsibilities of management.
Some organizations will continue to provide traditional work relationships, but the same forces that are driving the world to market economies are forcing employees to assume entrepreneurial roles. People will thereby have to become more self-reliant, but they will also gain the benefits entrepreneurs have always enjoyed.
Chapter 7. Intelligent Growth: Balancing Ecological Health and Economic Progress
After decades of conflict over economic growth versus the environment, the concept of “sustainability” has been widely accepted. But how can sustainability be attained when the industrialization of less developed nations will inevitably increase the load on the environment by a factor of five to ten?
We are not likely to resolve this issue by insisting on either a pristine environment or unchecked growth. A form of “intelligent growth” is appearing as business accepts the necessity for a healthy environment and turns its problem-solving skills to this end. Progressive firms now consider a clean manufacturing cycle—from product design to disposal—a sound competitive advantage.
If environmentalists, government officials, and businesspeople can resolve the difficult problems involved, the industrial world could be transformed into a new economic system that is able to improve the lives of ten billion people while safeguarding the environment. Indeed, there is little choice.
Chapter 8. Continuous Change: Rooting the Organization into Its Environment
Strategic planning faded in the 1980s when companies found that it usually produces bureaucracy rather than actual change. The problem is that any type of planning coordinated from the top will incur the disadvantages common to all centralized controls.
The New Management comprises a more powerful form of strategic change that harnesses the energy of outside forces. Internal markets and corporate community integrate organizations into their environment, allowing the ebb and flow of external events to produce “continuous change” throughout the institution.
Individual organizations may favor different aspects of the New Management. But in an age when the only constant is change, the organic, fluid, messy nature of living systems must provide the creative behavior needed to survive a turbulent world.
Chapter 9. Inner Leadership: How to Handle the Coming Power Shift
Participative leadership has become essential now, but it is leading to a profound shift in power as the informal organization rises to challenge authority with conflicting demands. How can leaders marshal the talents of their followers while avoiding this disintegration into a cacophony of diverse interests?
Good leaders resolve these challenges by drawing on the power of their personal intuition, insights, and spiritual awareness—“inner leadership” that acts from the inside out. The leader welcomes disagreements in a constructive spirit, listens carefully to critical opposition, acknowledges his or her own weaknesses, holds followers responsible for meeting their goals, and relies on inner wisdom to guide the organization through stress and uncertainty.
When leaders and followers are joined in such an intense existential dialogue, more useful guidance can be wrought that is steadfast and unerring. The truth usually emerges for all to see, and leaders may then embrace it on behalf of their followers.
Chapter 10. Managing a Unified World: Global Order out of Local Institutions
This concluding chapter examines the macroeconomic implications of the New Management. The United States is suffering from a lack of direction, Russia is facing doubts about Western-style capitalism, and social support is disappearing as welfare states are abandoned. All these dilemmas pose the same basic problem: how can a decentralized world of free markets provide the guidance needed by the West, the security demanded by the East, and the social support people require everywhere?
The New Management suggests a middle ground between government planning and unguided markets: a local blend of enterprise and community at the grassroots level. We will see that the rapid spread of huge new consumer markets around the world is encouraging robust competition, albeit guided by alliances among business partners, employees, governments, and other stakeholders. For the West, the result may be a “New Capitalism” that encourages cooperation among autonomous economic actors. The same concept offers the East a “New Socialism” that draws on their cohesive cultures to manage free markets in a more orderly and productive manner.
This illustrates that the same principles of the New Management apply to all economic levels. Whether it is a team of knowledge workers managing its own affairs, a complex organization guided by executives, or a national economy led by government, all require a similar blend of enterprise and democracy.
Let’s briefly review the logic of this introductory chapter to put the transition to a New Management in perspective:
1. Like the Industrial Revolution, the Information Revolution is transforming business, government, and other institutions.
2. A wave of innovation is under way that promises to replace the Old Management with a New Management.
3. However, conflicts between “old” and “new,” “left” and “right,” and so on create confusion over the New Management paradigm.
This transition to a New Management is supported by the CIT Study. As Table 1.5 shows, many of these concepts were widely practiced in 1995, although some are lagging because they provoke resistance. The data also show that 83 percent of the respondents think the New Management is needed, 74 percent estimate it should enter the mainstream in five to ten years, and 78 percent say companies that do not change will fail or suffer a marginal existence. Listen to how typical managers view the prospects: “Things are changing rapidly but we still have a long way to go,” “Some are using the New Management now,” “I think it’s already entered the mainstream to varying degrees,” “More companies will make the transition in 1996–1998,” and “If we don’t see changes soon, business will lose effectiveness.” (Details of this study are reported in later chapters.)
It’s obvious that implementing the New Management will prove daunting because the opposition to institutional change is always intense. I recall the struggle of getting managers to seriously consider the need for change during the seventies and eighties. Even the prospect of a Knowledge Revolution seemed outlandish to many competent people. It would have been difficult to act then, but bold leadership could possibly have avoided the fall of GM, IBM, and other great companies, the loss of American markets to foreign competition, and today’s slide into social decline. Could a similar cynicism divert us today?
It’s always possible, but unusually powerful forces are at work because a knowledge-based world introduces new economic imperatives. As we will show later, democracy and enterprise have now become economically efficient. This shift in the laws of economics is one of the pivotal events of our time. It may seem a bit theoretical, but there is no stopping an idea whose time has arrived. We have just witnessed the power of the Information Revolution in the fall of Communism, the decline of big government, restructuring of corporations, and other historic changes that are caused basically by the spreading of information technology.16
While the concepts in this book may be appealing, then, they are always argued on the basis of economic value because that is the test of good management. As information flows around the world instantaneously, it also moves capital, knowledge, and labor to their point of greatest productivity.17 Peter Drucker predicts the new economy “will inevitably be far more competitive than anything yet known.” Even “New Age” companies are yielding their altruism to the necessity of increasing productivity, cutting prices, and improving marketing. Arnold Hiatt, former CEO of Stride Rite Shoes, says, “The first act of social responsibility is to make money.”18
Meeting this test of economic reality does not mean that we must slavishly accept business practices we may not approve of. Organizations, like families and societies, are so infinitely rich that they defy any one approach to understanding; each is characterized by a special blend of people, skills, and other conditions. The New Management offers valid principles, but they must be interpreted to suit the unique needs of each individual acting in each situation.19 Here’s how managers in the CIT survey expressed it: “The New Management must vary for different organizations and human resources,” and “It depends entirely on the company, industry, the competition in the field, and the type of leadership.”
If the New Management requires us to embrace everything in a spirit of wholism, how can we possibly find our way through such a limitless range of possibilities? What criteria can guide us? I think the answer is that managers should practice their profession in the same manner all skilled practitioners have traditionally done: by systematically discovering what best works for them.
From this view, management is much like science. Scientists propose a theory to explain how the world behaves, they test the theory against empirical evidence, revise it accordingly, and continue this cycle to perfect a theory’s explanatory power. In like manner, good managers approach their profession with a mental model or philosophy that explains how their organization behaves. They test the concept against the outcome using trial and error, and revise it to improve their management abilities. Ask any seasoned manager and you will get a carefully built, detailed personal philosophy that has been honed to perfection over years of hard experience.
I conclude that faith in the concepts of a New Management is essential to create a different future, but it must be based on healthy skepticism. In a changing, complex world where bewildering new ideas are emerging constantly, leaders must test their vision to avoid half-truths or fantasy. There is simply no other way to forge the hard new understanding needed to distinguish between outmoded practices of the past and grandiose claims for the future.
As we’ve seen, the New Management favors neither power nor freedom, profit nor society, material growth nor the environment. It is all these and more, presenting managers with an enormous responsibility for learning to act in the face of complexity, change, and sheer mystery. So it seems to me that managers will need everything we can our lay hands on in the years ahead, including those ideas inherited from our ancestors and those yet to come.
1. I realize that the contention that the United States is in decline may be controversial, but later chapters will show that, although the American economy is successful in many ways, the nation as a whole is showing serious signs of decline. For instance, average wages rose steadily throughout the industrial past, yet they have been flat, at best, for the past two decades.
2. The U.S. Bureau of Labor Statistics reports that 15.4 million people were managers in 1994, making managers by far the largest professional group. Also, the study of management now enrolls the greatest number of students at colleges.
3. Peter Drucker, The New Realities (New York: Harper & Row/Perennial, 1989), p. 223. Peter Drucker, “The Age of Social Transformation,” Atlantic Monthly (November 1994), p. 72.
4. Louis Harris, “What in the World Is Going on in This Nation?” Vital Speeches of the Day (August 15, 1994), pp. 663–666. William E. Halal, “The Deeper Cause of National Decline: American Institutions Need American Ideals,” By George (November 6, 1992).
5. The new science of complexity is described by Mitchell Waldrop in Complexity: The Emerging Science at the Edge of Order and Chaos (New York: Simon & Schuster, 1992), and by David Freedman in “Is Management Still a Science?” Harvard Business Review (November-December, 1992)
6. “Home Computer Sales Explode as PCs Turn into All-Purpose Information Appliances,” BusinessWeek (November 28, 1994). Bill Richards, “Test of Virtual Reality Spans the Pacific,” Wall Street Journal (November 16, 1994). Elizabeth Corcoran, “Bill Gates Heads Home,” Washington Post (November 13, 1994).
7. William Bridges, “The End of the Job,” Fortune (September 19, 1994).
8. This statement was quoted to me by Korean managers.
9. Abraham Maslow, “A Theory of Human Motivation,” Psychological Review (1943), Vol. 50, pp. 370–396. Elton Mayo, The Social Problems of an Industrial Civilization (Cambridge, Mass.: Harvard University Press, 1945). Douglas McGregor, The Human Side of Enterprise (New York: McGraw-Hill, 1960). Chester I. Barnard, The Functions of the Executive (Cambridge, Mass.: Harvard University Press, 1968). Warren Bennis, Beyond Bureaucracy (New York: McGraw-Hill, 1966). Paul Lawrence and Jay Lorsch, “Differentiation and Integration in Complex Organizations,” Harvard Business Review (June 1964). Henry Mintzberg, “The Manager’s Job,” Harvard Business Review (July-August 1975).
10. W. Edwards Deming, Out of the Crisis (Cambridge, Mass.: MIT Press, 1986). J. M. Juran, Juran on Leadership for Quality (London: Collier Macmillan, 1989). William Ouchi, Theory Z (Reading, Mass.: Addison-Wesley, 1981). Tom Peters and Robert Waterman, In Search of Excellence (New York: Harper & Row, 1982). Peter Vaill, Managing as a Performing Art (San Francisco: Jossey-Bass, 1991). Gifford Pinchot, Intrapreneuring (New York: Harper & Row, 1985). Russell Ackoff, Creating the Corporate Future (New York: Wiley, 1981). Raymond Miles and Charles Snow, Fit, Failure, and the Hall of Fame (New York: Free Press, 1994). Peter Senge, The Fifth Discipline (New York: Doubleday, 1990). Terrence Deal and Allen Kennedy, Corporate Cultures (Reading, Mass.: Addison-Wesley, 1982). Peter Frost et al., Organizational Reality (Santa Monica, Calif.: Goodyear, 1978). Lee Bolman and Terrence Deal, Reframing Organizations (San Francisco: Jossey-Bass, 1991). Michael Ray, “The Emerging New Paradigm in Business,” in John Renesch (ed.), New Traditions in Business (San Francisco: Berrett-Koehler, 1992). William E. Halal, The New Capitalism (New York: Wiley, 1986).
11. For instance, see a fine review of this confusion by Martha Nichols, “Does New Age Business Have a Message for Managers?” Harvard Business Review (March-April 1994), and the responses reported in “Letters to the Editor,” Harvard Business Review (May-June 1994), pp. 144–148. Jeffrey Pfeffer, “Barriers to the Advance of Organizational Science,” The Academy of Management Review (October 1993), pp. 599–621.
12. The executive is quoted from “Changing Times in the Automotive Industry,” Academy of Management Executive (February 1988).
13. “Weirton Steel Workers Are Furious That Their ESOP Can’t Save Jobs,” BusinessWeek (September 9, 1991). Robert L. Rose and Erle Norton, “ESOP Fables,” Wall Street Journal (December 5, 1993).
14. “Companies Hit the Road Less Travelled,” BusinessWeek (June 5, 1995).
15. See The New Leaders (September-October 1994).
16. Walter B. Wriston, The Twilight of Sovereignty: How the Information Revolution Is Transforming Our World (New York: Scribner, 1992).
17. See “Borderless Finance: Fuel for Growth,” in the special issue of BusinessWeek titled 21st Century Capitalism, (1994), which illustrates how global money markets increasingly govern the management of corporations and even governments.
18. Udayan Gupta, “Cause-Driven Companies’ New Cause: Profits,” Wall Street Journal (November 8, 1994). Leslie Kaufman-Rosen, “Being Cruel to Be Kind,” BusinessWeek (October 17, 1994).
19. This point is well made by George Harrar, “The Tools of Success,” Enterprise (October 1994), and Andrew Serwer, “Lessons from America’s Fastest Growing Companies,” Fortune (August 8, 1994).
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