Strategist Gary Hamel Re-Imagines Management

By Allan Alter  |  Posted 09-13-2007

Strategist Gary Hamel Re-Imagines Management

The efficiency-focused management model has run its course, says strategist Gary Hamel. To see the future of management, look to the Internet, open source, free markets and democratic institutions.

Has management as we know it reached the end of the road? Strategy expert Gary Hamel thinks so. Yes, traditional management approaches have led us to achieve great things. "If you have a couple of cars in the garage, a television in every room and a digital device in every pocket, you can thank the inventors of modern management," he writes in his upcoming book The Future of Management (Harvard Business School Press, October 2007; $26.95). But our century-old emphasis on planning, organizing and controlling won't help companies solve their 21st century problems. In an era marked by global competition and commoditization, adaptability, speed and creativity are essential for survival, says Hamel, whose previous books, "Leading the Revolution" and "Competing for the Future" (with C.K. Prahalad), earned him a reputation as one of the great strategic thinkers of our time. "The old management model is simply not good enough."

The future management model is taking shape, but some aspects are already evident, Hamel told CIO Insight executive editor Allan Alter. Companies will finally begin to be as open and democratic inside their doors as societies are outside those doors. Go/no-go decisions on projects and investments now made by a handful of executives will be made collectively by hundreds of employees.

Talent will matter far more than titles. And one of the most important catalysts and models for 21st century management will be the Internet. "Technology makes it possible to organize and manage in new ways," says Hamel, a visiting professor of strategic and international management at the London Business School and co-founder of the school's Management Innovation Lab. An edited version of Hamel's conversation with CIO Insight follows.

CIO Insight: Are we on the verge of a major change in how companies will be managed?

Hamel: We are. Companies today face a new set of business challenges for which the old management model is simply not good enough.

The world is not only becoming less predictable, but it is also becoming less benign. In a world of accelerating change, we have to accelerate the pace at which companies are able to reinvent themselves, and that doesn't mean simply a superficial reinvention, such as new products and new services. It means organizations must really challenge their business model, the very reason for being. The only antidote against irrelevance in the world are business' capacity for fast-paced adaptation and change, and the reality is that most organizations are pretty inflexible. Too often innovation is something that happens at the margins, something that has yet to be made everyone's job. Not only are products and services becoming commoditized, knowledge itself is becoming commoditized. The impact of the Web has made it much easier to access information and harder to keep any information or knowledge proprietary.

Companies are going to have to figure out new ways of extracting more value, more inspiration, more creativity out of the people who work for them. Because in the end, the only way any company can protect its position within the industry ecosystem is adding more value per capita than any of its competitors.

Regularizing the Irregular

The great accomplishment of management was to take irregular activities and regularize them by establishing protocols, standards, and discipline. When you look forward to this new century, discipline, great execution and efficiency are still going to be important, but they are not the high-value problem for an organization. How you are going to become more adaptable so you don't have to go to the typical valley-of-theshadow- of-death crises to set your company on a new course? How would you exploit the imagination of every employee every day?

The focus of the traditional management model was on steadily optimizing a business system for efficiency. But what often happened in that optimization process is that the company became less and less adaptable. We really wanted employees who are largely drones. We didn't want people who were free spirited. Modern management drove out of most organizations precisely the kinds of qualities that are going to be so essential in this new century. Today, most companies are less adaptable and less innovative than the people who work for them.

We live in a world of Googlers and bloggers and mashers and podcasters. And yet at work, our management system literally bleached those qualities out of people between the hours of 8 and 5. Why are our organizations less human than the people who work there?

What will the new approach to management look like?

It has yet to emerge. But it is important to remember that the management system we have [today] evolved over a period of decades. There is a set of new problems for which old management is clearly not adequate. There is a new set of tools that will allow us to manage in ways that we never could before, and a lot of those tools obviously are based around the Web.

If you think about management in the simplest way, it's about doing two things. One is to amplify human capability and to get people the tools that allow them to achieve more than they otherwise could. The other is aggregating human capability. How do you put together the efforts of the individuals so they can do collectively what they couldn't do individually?

Technology of the marketplace

For the last thousand years, there are only two technologies for doing that. One was the technology of the marketplace. Markets are very good at amplifying human capabilities, at drawing people in who have passion to do things, to sell things, to make things. We talk about the animal spirits of the marketplace. But markets are not very good at aggregating human capabilities. A market is not going to build a Boeing 787. Aggregating human capabilities since the pyramids were built was based on the technology bureaucracy. That's part of management: hierarchy, planning systems, reporting, standard operating procedures, tight job definitions, role definitions and so on. Yet, the development of autocracy has no place for human imagination, creativity and passion. [The autocracy] wants people who are mostly docile, who would do as they are told, who follow instructions and not screw up. But now, when you look at the Web, what you find is fundamentally a new technology for amplifying human imagination, [a technology] built around the notion of community.

Technology makes it possible to organize and manage in new ways, but it usually takes companies and individuals quite a while to find a way to exploit that new technology. Not only are there new problems but we have new tools that allow us to compound human effort in ways we never could have done before, something like open source.

The last time I checked, there were over 150,000 open source projects around the world with 1.5 million participants. You could aggregate human effort with almost no hierarchy, no job descriptions, mobilizing an army of volunteers around the world. That is management innovation and it was simply inconceivable 15 years ago.

What will managers actually do?

The answer is less and less. We are always going to be focusing efforts, setting priorities, allocating resources and building nurturing commercial relationships, so the work is not going to go away. But it's going to be pushed much more to the periphery of organizations and less and less will the work of management be done by the bureaucratic class, you know, the graduates of the top-level business schools and perhaps a particular set of titles and credentials.

More of the work of management will be distributed to anyone across the organization or beyond the organization who is capable of doing that work. Think about the old telephone system, a centralized architecture with all these intelligences built into the big central switches. What happened over the last 15 to 20 years is that it basically got blown up and all these intelligences moved to the periphery of the network to PCs, routers, and hubs. No longer were a few people at the center writing code that would run the entire telephone system.

The reason the Internet has been so adaptable is that when you write a blog or upload a video, nobody asks, did you go to journalism school? If you have a great idea, nobody asks, are you a senior vice president ?

What they are interested in is the quality of the idea and whether it can attract the interests and the passion of others. The typical Fortune 500 company today is the organizational analogue of AT&T's telephone system of the 1970s. We are going to see as dramatic change in our management architecture over the next 30 to 40 years as we've seen in the information architecture over the last 10 to 20 years.

When Google made available the APIs for Google Maps and Google Earth, people put together thousands of mashups. We are discovering how broadly distributed human creativity is in the population. How many people if you give them the tools can do something new and interesting?

Tools of Innovation

Yet, many companies have done very little to get their first level of employees the tools of innovation. I can go onto Lego.com today and download a sophisticated CAD program that allows me to build Legos in three dimensions. They'll ship me whatever bricks I need to build that in a real world. Where is a company where first-level employees have been given powerful CAD tools that allow them to prototype, redesign and play with the company's products? How many employees have access to sophisticated financial models and been allowed to explore alternate pricing scenarios, for example?

It's going to take a relatively long time for managers to understand how this new technology is going to allow us to reinvent the work of management. But the process of that happening is absolutely inevitable. First, we have some new problems that stretch to traditional technology. Second, we have some new tools that allow us to aggregate and amplify human capabilities in ways that were never before imaginable or possible. Third, we have some new expectation on the part of those who are going to be coming to work over the next decade or two.

Talent, Not Title, Counts

For those who are growing up in the world of the Internet, credentials and titles count very little. They will have very little patience for working in traditional hierarchical organizations, where your progress is governed more by your political skills and your willingness to brown-nose the boss than it is by your contribution. They will have very little patience for many of the overtly bureaucratic behaviors like hoarding information, using information for political purposes or exploiting positional power to get your way. Those are the very behaviors that have allowed many of today's senior executives to get ahead. Those behaviors are going to be less and less tolerated by the generations that will be coming to work over the next decade or two. We are on the brink of a dramatic reinvention of management.

If you look at the last 15 years, basically every company around the world has been dramatically reinventing its business philosophies, logistics supply chain, customer support. The Web has been central to doing that. It allows 24-by-7 customer support. It allows them to deliver services digitally online, allows companies to arbitrage labor costs around the world. It has had a huge impact on business philosophies.

Most CIOs understand the Web as a powerful tool for driving operating efficiency and they understand the Web as a catalyst for new business like digital music. I don't think they yet see the Web as a tool for dramatically reinventing the work of management.

When management has reinvented itself, what will be the role of the employee?

In the organization of the future, every single employee has a voice and gets heard, something approaching a democracy of ideas that no executive will be able to control. Just like when no company can really control what customers have to say about its brand, executives are not going to be able to control the conversation inside of their companies, either.

One large organization I know, its employees have a social network in MySpace, and none of the senior executives I talked to knew that 7,000 of their employees were trading anecdotes, commenting on the company and sharing their ideas. The idea that somehow senior management will be able to control who knows what, who talks to whom, that's going to be gone. Increasingly, the organization's powers will be granted from below rather than from above.

If you look at any online community, you will find hierarchies of expertise, of talent. Some people's blogs are much more referenced by others. You get your influence by earning it with your peers, by having something interesting and important to say. In traditional hierarchies, big leaders appoint the little leaders. Power cascades down from the top. In the future, power will be granted from below and will be contingent on the particular value you add.

Manage Like an E

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One of the reasons companies often get caught behind the change curve is that it is very difficult for talent and capital resources to be quickly reallocated around new opportunities. Companies tend to over-invest in what is at the expense of what could be, not because people fail to see the new opportunities, but because existing programs and initiatives have powerful constituencies who want to hang onto their resources and their people. If you look at any electronic marketplace, take NASDAQ for example, capital flows very quickly to the new ideas and new opportunities. The same is going to be true in companies.

Take everyone in a large company who has a discretionary budget of more than $100,000 per year. What if you said to those individuals, take 1 percent, 2 percent, 3 percent of that budget and invest in any idea anywhere across the company that you find interesting; you could form syndicates with other people to form bigger ideas that require more resources. The Web makes it very easy for buyers and sellers to find each other and one of the challenges in larger organizations is how do you make it easy for people with new ideas to find the resources. Because in a bureaucracy, typically, if I have a new idea, the only place I could get funding is up the chain of command.

Fierce Competition

The power to allocate resources is going to be much more widely distributed in companies. There will be hundreds of people to fund new ideas, new projects. There will be fierce competition. They'll get to spend more of their capital doing that. They will be rewarded by having more of their budget under their discretionary control go into new ideas.

More and more decisions in companies are going to be based on a wisdom of the crowd or collective intelligence. Somewhere between 25 percent and 50 percent of all executive decisions are wrong. Often very large decisions about acquisitions or market expansion get made by very small numbers of people. That's going to change. In the future, the idea somebody would make the decision to do a big [project] without testing that idea against the wisdom of the entire organization would just be foolhardy.

Sidebar: CIOs Seen as Obstacles to Innovation