Can management embrace audacious change? That’s the bold question that Julia Kirby, editor-at-large at Harvard Business Review, posed at the launch of the Drucker Forum 2014 in Vienna Austria on March 10, 2014. Can the leaders of the world’s most important organizations transform their management practices so that their organizations get on a path to growth and prosperity, instead of steady economic decline?
An absurdly romantic fantasy?
Here’s how it might unfold.
First steps taken
Let’s suppose most of the world’s thought leaders on management were to come together to address and help resolve the issues facing management today at the same place at the same time.
And what if their discussion took place under the guiding spirit of a thinker like the late Peter Drucker, who enjoyed universal respect and whose wisdom brought out the best in everyone, so that the focus was less on emphasizing the differences between their individual contributions and more on how much they had in common?
Let’s recognize that this already began happening at the Drucker Forum in November 2013, so that the thought leaders can build on a track record of a convergence on commonalities.
What if the thought leaders were to embrace the commonalities of their thinking explicitly, with passion and commitment?
And what if this was a common vision of an audaciously revitalized concept of leadership and management that began to be seen as a guiding beacon for organizations all around the world?
Time will tell, but the first steps have already been taken.
The place and date for bringing many of the world’s management thought leaders together are set: the Drucker Forum in November 13-14, 2014 in Vienna, Austria.
The bold challenge
to the thought leaders has been issued. “We have arrived at a turning point,” says Richard Straub in the conference description entitled “The Great Transformation: Managing our way to prosperity.”
“Either the world will embark on a route towards long-term growth and prosperity, or we will manage our way to economic decline… the very coherence of our societies is at stake. Incremental changes won’t suffice…. What does it take to reshape management as an effective social technology
… for transforming our institutions and organizations?”
Many of the world’s thought leaders have accepted the invitation. The conference chair is Adi Ignatius, Editor-in-chief of Harvard Business Review, which strongly supports the Forum. The speakers constitute a veritable who’s who of management thinking today, including Clayton Christensen, Gary Hamel, Herminia Ibarra, Roger Martin, Pankaj Gemawat, Lynda Gratton, Nilofer Merchant, Rita Ghunther McGrath, Vineet Nayar and Julia Kirby, among many others.
The guiding spirit for the event—the late Peter Drucker—is bound to bring out the best in everyone. His books, such as Management
(1973) and Innovation and Entrepreneurship
(1985), continue to serve as guides for managers decades after they were written. That’s because Peter Drucker foresaw more clearly than others what was coming and said exactly what he thought, without compromise. It’s also because he had a large concept of management that was fundamental to achieving genuine social and economic progress. “Management and managers,” he said,”are the central resource, the generic, distinctive, the constitutive organ of society…and the very survival of society is dependent on the performance, the competence, the earnestness and the values of their managers…What managers are doing is therefore a public concern.”
The discussion begins
The discussion began at the first launch event in Vienna, Austria earlier this week amid a consensus that the failings of management have been with us for a long time.
A long-term failure of management
Julia Kirby, editor-at-large at Harvard Business Review, cited the 1980 Harvard Business Review article by Bob Hayes and Bill Abernathy: “Managing Our Way To Economic Decline
.” The piece begins: “During the past several years, American business has experienced a marked deterioration of competitive vigor and a growing unease about its overall economic well-being.” This was 1980, but, she said, it’s just as true today.
The article blamed management. “The reason why the economy is screwed up,” she said, “is because of management. The authors blamed this contagion on short-term focus and a failure to invest in long-term competitiveness.”
This in turn is related to an excessive concentration on short-term shareholder value, which ironically flows from one of Peter Drucker’s most famous dicta, “You manage what you measure.”
“What we had with shareholder value was this really nice metric,” said Julia Kirby, “As managers, we love metrics. It gives us something to manage. It had a kind of runaway effect in managing to that measure, because as we got better and better at it, we had more and more blinders on, in respect of all the other forms of value creation that we needed to engage in as organizations and as managers.”
The fact that we can now measure and track of lot of variables hasn’t seemed to help. Unfortunately, in many large firms, this has led to asking people to focus on many variables in a single time frame. “It’s an absence of leadership,” said Julia Kirby, “in failing to make clear what the focus should be in a certain time frame, instead of just flooding people with 25 or even 300 variables on their radar screen.”
Felix Thun-Hohenstein, Global Business Director of 3M/Winterthur Technology Group, welcomed the capability to measure more things. “But,” he said, “the question is: are the tools being used properly?
It’s great to have KPIs as tools, so long as we don’t use them to mistreat our people, by using metrics to take away responsibility, accountability and the freedom to integrate the data to make decisions. I see that happening very often in companies: simply using the metrics as a decision-making process rather than drawing on the knowledge and experience of the people.”
Angelica Kohlmann Kupper, CEO of IFITECH (Germany), pointed to the demoralizing effects of hierarchical methods of management. “In the Traditional Economy,” she said, “people cared about hierarchy. Everyone, including Peter Drucker, tried to diminish the role of hierarchy within companies.
But nothing really changed. For young people in startups, it’s the reverse. The most important thing for them is the innovation they can bring. They don’t care so much about position. As a result, the Traditional Economy has difficulty in attracting young talented people. They don’t want to work with those firms anymore.”
Failure of innovation
The focus on shareholder value also tended to make firms inward looking. It led to a focus on what’s good for the firm. This way of managing has difficulty with innovation and it’s not very agile, which is a real problem in a dynamic marketplace. Management in the traditional economy is becoming steadily more efficient but it’s less and less able to capture the gains of its efficiencies. In fact, it’s getting harder and harder to make profits by managing in this way. As John Hagel noted in the Drucker Forum last November, the rates of return on assets and on invested capital of US firms are now only one quarter of what they were in 1965.
Management has fractured into sub-disciplines
When the discussion turned to what is keeping managers from addressing these issues, Julia Kirby, along with others, pointed out that “management as a discipline has effectively divided and conquered itself. The fragmentation of the discipline in the academy and in practice has robbed it of its power to take on big challenges. Management’s ‘progress’ is to make ever smaller incursions into the weeds and down rabbit holes.”
The way forward
Despite these grave problems, there was general optimism that the way forward was possible.
Participants could see many signs of what Peter Drucker called the Entrepreneurial Society, aka the Creative Economy. Richard Straub, president of the Peter Drucker Society Europe, quoted Peter Drucker who said: “I never predict, I just look out of the window and see what’s visible but not yet seen.”
Ever since Peter Drucker talked about the Entrepreneurial Society back in 1985, it has become steadily more prominent. It is now a vibrant rapidly growing economy made up of vast numbers of small and medium-sized startups, as well as some famous large high tech firms like Apple and Amazon, and islands of creativity even within large old firms like GE that are still mostly operating in the traditional mode.
Many participants saw this as the economy of the future and the way to prosperity. It’s an economy where the principal focus is on delivering profitable customer delight. It gives customers what are increasingly demanding, namely, better, faster, cheaper, smaller, lighter, more convenient, and more personalized. It is outward-looking as compared to the Traditional Economy. The paradoxical result is that it ends up making more money for the firm than if it were tightly focused on making money.
Firms in the Creative Economy look at profitability in a different way from the Traditional Economy–it is a result, not an objective. Just last week, Tim Cook, the CEO of Apple [AAPL], was asked by a shareholder about an activity that wasn’t apparently giving any direct return to the bottom line and he was pressed to say why he was doing it. His answer was, “I don’t care about the bloody ROI of that activity. We don’t manage Apple like that.”
There are many things in Apple that don’t make money in themselves. The music store (iTunes) and the App store are hugely popular but they don’t make much money. Apple also loses money on free software upgrades. Apple’s view is that if the overall package of things that Apple delivers delights its customers in a profitable fashion, then it doesn’t matter that any individual activity doesn’t make a profit. Everybody in Apple knows that the bottom line at Apple is delighting customers.
Inspiring the workforce
One participant, who worked in a traditionally managed firm, asked whether it was possible to inspire people who perform a mundane activity, like making bricks. The response was to refer to the old story of some men who are laying bricks and who were asked what they are doing. One said he was laying bricks. The second said he was constructing a wall. The third said he was helping building a cathedral.
The same activity is seen in three different ways.
The Traditional Economy, which is focused on making money, will not inspire people. It’s not at all like building a cathedral. Telling people that it is will simply make them cynical. John Hagel explained at last year’s Drucker Forum that at present, only 11 percent of the workforce are passionate about what they do at work. That will not lead to an inspired workforce. That will not give us a workforce that is capable of continuous innovation. That will be a workforce that is filling in time and collecting their paychecks. We need managers to formulate a worthwhile goal, akin to building a cathedral, and then enable people doing the work see their work as part of that noble goal.
Measurement for prosperity
There was a lot of support at the launch event for the focus of the 2014 Forum on prosperity. “When you use a term like ‘prosperity’, said Julia Kirby, “it allows you to think about other measures of well-being. There are now lots of ways in which people are getting objective rigorous metrics on things other than shareholder value. It helps them understand: am I better this year than I was last year at creating value for customers? And creating value for my own people? And creating value for my community? As we get a fuller range of metrics, we can move away from a single-minded focus on shareholder value.”
Richard Straub commented that “employee engagement would give a better perspective on the longer term development of a firm than shareholder value. However, even though companies have these data, in many cases they tend not to talk about it.”
Angelica Kohlmann Kupper said that the values of people in the startups of the Creative Economy were quite different from people in firms in the Traditional Economy. She said that since working a lot with young tech companies in the Creative Economy, “my view of the world changed completely. It was a big transformation. The first thing that matters for the people in those firms is: what innovation can I bring? The young people are passionate about it. They want to have fun. They want to bring something new. Of course, they also care about money. They don’t mind having some good shares in the firm. But this is number two. And hierarchical position? They don’t care about hierarchical position at all. It’s totally irrelevant. This is a big difference. The traditional firms have a lot to learn from these young people.”
Johan Roos, CEO and Dean of the Joenkoeping International Business School, Sweden, said that he had removed a layer of managers at his business school. “The people who were most upset,” he said, “were those who were brought up valuing title and position. For the younger generation, they don’t care.”
“It is worthwhile,” said Lukas Michel, Managing Director of Sphere Advisers AG, “to think about how we organize our firms around inspiration, around the ambition of people, and around purpose.”
Can management get us out of the mess it has created?
Julia Kirby suggested that if management had gotten the economy into a mess, it could also get us out of it. She said that this should be the role of the Drucker Forum. “It’s to create the locus of thinking about: What are the grand challenges in management? What could management do to get us back on a path to prosperity? What could create a center of gravity for management? What could create a consensus for action, with energy and commitment about it? There has been a failure on the part of the management to understand how consequential their work is. That’s what we have to keep in mind. It’s up to management to manage our way to prosperity.”
“The Drucker Forum,” she said, “can be an important locus for identifying big issues that management can tackle only collectively, and can stage the kind of discussion that can result in greater understanding, consensus on desirable action, energy, and commitment. Managers are rule-makers within their firms. They will increasingly see that they can participate in rule-making on a larger stage.
And indeed, that they must participate in it, given their unprecedented heft, pan global reach, and messaging prowess. They are too powerful not to be principled.”
The choice ahead
That’s the choice in front of us. The Drucker Forum in November 2014 is a historic opportunity to deepen the understanding of these challenges and help organizations and managers grasp what is at stake, and so facilitate and enable the transition from one way of running the world to a very different and more prosperous one. Organizations in the Traditional Economy may well stagger on for quite a long time, but they will eventually give way to powerful economic forces that are undermining this way of operating.
The issue is: Will the transition to the Entrepreneurial Society be slow and ugly and brutal with a lot of unnecessary liquidations and job losses? Or will it be quick and elegant and intelligent? The Drucker Forum 2014 can help us to get to the latter, more prosperous outcome.
“The current way of managing corporations,” said Richard Straub in his closing remarks, “is not susceptible to bring to the surface the productive and creative capabilities of employees at a large scale. An entrepreneurial society could make all the difference. Knowledge workers and knowledge entrepreneurs who are no longer suffocated by the straight jackets that large organizations force upon them and who contribute as largely autonomous partners to the enterprise could free up huge amounts of productive and creative energy. You won’t find this is any economics statistics but the impact will be profound in terms of value creation, innovation, growth and job creation. These are existing reserves (like oil reserves in the ground). They are not accounted for by any economic model but they could make all the difference in our way to prosperity.”
And read also:
The Great Transformation: A Turning Point
Drucker Forum 2013: A New Center of Gravity for Management
The Copernican Revolution In Management
The Meaning of Management: The Great Awakening
The five big surprises of radical management
An earlier version of this article appeared on Forbes.com