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For most of the history of management (beginning in the mid-1800s), organizations included command and control structures and top-down information flow. Managers were viewed as the boss, the big cheese, the man, or master within a hierarchical system of control. This is an authoritarian model of organization, where management drives the organization as a machine, and employees are just cogs among the big wheels. The basic idea underlying this tradition is that firms make money for their owners. Managers control the individuals in the firm, and a bureaucracy introduces rules, plans, and reports to create a predictable and stable organization. This is all in the service of efficiency and productivity. When things go awry, managers introduce cost-cutting and downsizing. The basic principles become self-reinforcing and interlocking.

The industrial revolution (from which modern capitalism emerged) spurred on the growth of hierarchical organizations as capital equipment (i.e., machines) began to take over the workplace, driven, in turn, by water power, steam power, and electric power. As the 19th Century gave way to the 20th Century, productivity rose quickly. Employees no longer made things by hand but learned instead to tend the equipment that made things. Looking back over the decades, Peter Drucker credited the management principles of Frederick Winslow Taylor with a 50-fold increase in the productivity of manual work during the 20th Century, an increase upon which rested, he noted, “all of the economic and social gains” of the times.

Today, despite the rise in productivity and living standards in the 20th Century, it is not clear that they can be maintained as we move further into the 21st Century. Productivity growth has been weak, and getting weaker, for decades in most industrialized countries. If the current pace continues, living standards in the USA and highly developed countries around the world will stagnate for most workers.

While authoritarian styles of management are still prevalent in many sectors of the economy, they are coming to represent an out of date, last century paradigm that is wrong-headed on many levels. If we need fresh evidence that management is broken, we only have to look at the 2017 numbers on worker engagement from Gallup. Only 21% of employees strongly agree that they are managed in a way that motivates them to do outstanding work. Overall, only 33% of US workers report that they are actively engaged in their work. Today, when so many business models are being disrupted by Internet-based newcomers, every organization needs to innovate to stay relevant, and authoritarian command and control structures just don’t get the job done. They hinder innovation more than they support it.

New ideas are emerging to encourage greater freedom and innovation in the workplace and to increase the speed of action. Broadly, these could be called network models rather than hierarchical models. Instead of control flowing downward through a hierarchy of people with fixed managerial roles (and sign-off authority), the new approaches provide structure through a flat network of individuals or teams held together by unifying philosophical principles, evolving roles, and a belief in individual responsibility. Examples of these ideas include (1) servant-leadership, (2) self-management (or holacracy), and (3) agile/scrum techniques (or radical management).

In our first example, the servant leadership approach proposes that the best leaders think and act as a servant to those they are leading. The approach is rooted in ancient philosophy, including Chinese Taoism and early Christianity. In the New Testament, for instance, Jesus tells his disciples (Mark 9:35), “If anyone wants to be first, he must make himself last of all and servant of all.” In modern times, Robert K. Greenleaf outlined the characteristics of the servant leader, first in an essay in 1970, and later in his 1977 book, Servant Leadership. Greenleaf taught that a servant-leader tends to the growth and well-being of the people they lead and the communities to which they belong. While traditional leadership serves to accumulate power at the top of an organizational hierarchy, the servant-leader shares power, putting the needs of others first in service to the common good. This is a model that has worked well in the non-profit sector, including churches. Where churches have run into trouble, however, is when they have strayed from this model by allowing the accumulation of power, prestige, and wealth at the top. Ideas similar to servant leadership can also be found in other techniques discussed below.

Our second example is called self-management. According to the Morning Star Self-Management Institute, self-management “is an organizational model where the traditional functions of a manager (planning, coordinating, controlling, staffing and directing) are pushed out to all participants in the organization instead of just to a select few. Each member of the organization is personally responsible for forging their own personal relationships, planning their own work, coordinating their actions with other members, acquiring requisite resources to accomplish their mission, and for taking corrective action with respect to other members when needed.”

The Morning Star Company is a California-based wholesale supplier of tomatoes and tomato products. The company was started in 1970 by Chris Rufer, a college student and one-truck owner/operator, who hauled tomatoes to processing plants. Rufer envisioned a firm where there were no bosses, only philosophical principles to which everyone would adhere. According to a 2016 Los Angeles Times article, Morning Star’s idea of self-management is an early form of what has become known as ‘holacracy’, a philosophy that takes its name from the ‘holarchy’ built of interdependent but autonomous units (called ‘holons’). Early ideas were first described by Arthur Koestler in his 1967 psychological treatise “The Ghost in the Machine.”

Zappo’s, now a Las Vegas-based shoe retailing arm of Amazon, is a well-known practitioner of holacracy. According to Tony Hsieh, CEO of Zappos, “research shows that every time the size of a city doubles, innovation or productivity per resident increases by 15 percent. But when companies get bigger, innovation or productivity per employee generally goes down. So, we’re trying to figure out how to structure Zappos more like a city, and less like a bureaucratic corporation. In a city, people and businesses are self-organizing. We’re trying to do the same thing by switching from a normal hierarchical structure to a system called Holacracy, which enables employees to act more like entrepreneurs and self-direct their work instead of reporting to a manager who tells them what to do.”

In holacracy, decision making is vested in self-organizing teams (structured around work roles) rather than a rigidly-dictated management hierarchy. Holacracy brings groups of people together around a single purpose, strengthening the group’s relationship with the organization’s purpose, and then clarifying and optimizing the way people get work done together. (In episode 061 of this podcast, I interviewed Karim Bishay, principal consultant at Living Orgs. We talked about holacracy in some detail in that episode.)

Our third example focuses on agile and scrum techniques, which began as a way for rapid product development in software projects by staying close to customer needs. Scrum is a methodology that allows a team to self-organize and make changes quickly, in accordance with agile principles. A scrum master is the facilitator and process manager for an agile development team. Steve Denning, in his book Radical Management (2010), describes the manager’s job as one of enabling self-organizing teams to delight the customer. Much of what Denning describes came out of the so-called ‘Agile’ movement which started by focusing on the improvement of software project implementation using self-organizing teams, ‘scrum’ techniques, and scheduled meetings every couple of weeks to discuss progress. Scrum teams engage in sprints, with short bursts to achieve a short-term objective and then report back. Agile principles and practices seem to work well in software development, where they started, but many of the agile techniques have expanded into wider business settings in recent years. It should be noted that agile methods for project management are broadly part of the quality movement, and have much in common with TQM (i.e., total quality management) for products and services.

These examples point to the emergence of new forms of organization that cast management more as servant than master. While management is still about getting work done, some fundamental things have changed, and are pushing society in this direction. First, the demand-side (the customer) is now fully in control. He/she can go elsewhere very easily. There are so many choices and so much overcapacity, particularly in the manufacturing sector, that the customer can be picky. Second, all workers are knowledge workers now. Today’s products and services have significant amounts of embedded knowledge incorporated within them, and instruction manuals and training programs need to be available to translate the full value of the offering via the manufacturer’s recommendations. Likewise, knowledge workers need to be given freedom to innovate as they undertake the work rather than simply commanded to do it, as in the past. The knowledge worker, by definition, knows more about the work than any potential boss, so it makes sense to push decision making out to the periphery where knowledge workers live and work.

Let me finish today by pointing out that Management by Positive Organizational Effectiveness (M+OE), the form of management advocated on this podcast, plays well with network-based management approaches that push decision making out to the organization’s periphery. Under M+OE, every organization has the same goal, to be effective within its environment. The overriding directive for each organization is to serve its environment and be rewarded in return. The job of management is simplified because top executives do not need to set objectives. Rather, product and service teams at the periphery are challenged to consider a key question every day, “How can we serve our environment well today?” Businesses, government agencies, and nonprofits have the same challenge. It is a question that is difficult to answer in a bureaucratic, top-down, command-and-control management system. It is best handled by flexible teams of knowledge workers intent on the success of individual offerings in the environment. Of course, we are not suspending the principles of accounting, economics, or finance, in making such decisions, but these are not necessarily constraints. The approach focuses on staying close to the customer, being passionate about serving, and looking for the presence of expected demand-side responses to verify effectiveness.

Given its features, Management by Positive Organizational Effectiveness offers the promise of a new style of venture capitalism. Consider the possibilities of taking a public company private, removing the C-suite team, installing servant leaders where necessary, and using the philosophy embedded within Management by Positive Organizational Effectiveness as the way to think about the job of management going forward. The company would be expected to remain private for at least five years until it met the tests of true greatness. In this scenario, management can fulfill a higher role as servant, rather than master.

Charles G. Chandler, Ph.D.
[email protected]

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Anthropologists tell us that anatomically modern humans (i.e., Homo Sapiens) emerged about 300 thousand years ago during the Pleistocene era on the African savannas. For over 95% of their history (until the present day), modern humans have been exclusively hunter/gathers, that is, they explored the bounty of nature in small bands, adapting their behavior as they encountered different environments. Few management skills were required other than communication and teamwork. The goal was the discovery and exploitation of food and other resources necessary for survival and continuation of the species.

While Homo Sapiens are not the first species that used stone tools, they took tool making to the next level to better extract value from, and survive in, different environments. In one sense, they were early knowledge workers. They developed and applied a body of knowledge about their environment to the search for food and other resources necessary for survival. A sense of freedom was available in this early form of group organization and management. Specialization of labor was likely along gender lines; the men did the hunting, while the women did the gathering (and nurtured the young).

About 12,000 years ago, horticulture and agriculture first emerged in what is called the Neolithic revolution. Key to this transformation was the domestication of certain plants and animals that could be produced using cultivation and herding practices. For example, the goat was domesticated about 10,000 years ago in Iran, emmer wheat about 11,000 years ago in the southern Levant, and rice about 10,000 years ago in China. The emergence of agriculture-based societies enabled permanent settlements and significant population growth. Whereas hunter/gathers survived with small team-based work groups, early agriculture-based settlements led to more formal types of organization. Early institutions undertook these functions (e.g., in the fertile crescent from Egypt to Mesopotamia) as irrigation, seed distribution, and grain storage were likely organized to avoid crop failure and famine. Widespread single-crop agriculture did not become common until the Bronze Age, about 6,000 years ago.

With settlements, further specialization of labor took place. Artisans such as the butcher, the brewer and the baker that Adam Smith idolized in his book Wealth of Nations (1776) became common. A series of industrial revolutions, beginning in the late 1700s in England and continuing into the 1900s, spread throughout much of the developed world as water power, steam power, and electric power were applied in turn to the production processes of factories and other venues.

The essence of modern capitalism is investment in, and the substitution of, capital equipment for manual work in the search for efficiency gains. By the early-1800s, a textile factory using a 100 HP steam engine could do the work of 880 men. One documented example ran 50,000 spindles, employed 750 workers, and could produce 226 times more than it did before the introduction of steam.

Still, up until the 1840s, US firms remained very small (just a few people). The owners managed, and the managers owned. At the time, transportation and distribution were facilitated by animals on the land, and by wind power on the seas. Commercial steamships were not common until after 1850. Bureaucracy was the new management technology of the mid-1800s and enabled the growth of large organizations, complete with middle management, such as the railroad and telegraph companies of the day.

So, is management best when it controls or when it enables freedom? If you look at the definition of management in the dictionary, you will come away thinking that it is largely about constraint — dealing with or controlling people and resources to achieve reproducibility and productivity. Since the Neolithic Revolution in agriculture, management has gradually imposed order and control on processes, in the service of normalization, standardization, and efficiency.

Certainty, management focused on efficient process control can provide benefits, depending upon environmental conditions. For example, total quality management (TQM) was a winning strategy for Japanese car companies that were conquering the American market in the 1970s and 1980s. Consumers of the time were looking for small, reliable, and efficient cars following OPEC-led gasoline price increases. So, normalization and standardization, and the reduction of defects that comes through various management approaches have been historically important beginning with the agricultural revolution, through the industrial revolution, and beyond. This thread of the story of management is primarily about efficiency gains, as well as meeting the demands of the market for quality.

Now, however, we are in the first half of the 21^st Century. The environment has changed and is changing still. The introduction of the Internet in the early 1990s has served to disrupt the business models of many brick and mortar enterprises. Increasingly, large and formerly dominant organizations have become walking zombies as their business models have come under threat from upstart online competitors. For instance, Amazon, Netflix, and Airbnb are capturing, and bringing into their orbit, large portions of the transactions in various retail, entertainment, and hotel spaces, taking business from established brick and mortar players. Internet-based players are creating new intermediation models on a large scale, not tied to a specific location on the map but ubiquitous in cloud-based servers.

There has always been a tension between human agency, such as the individual’s freedom to act and to realize his or her dreams, and the organization’s need to control, normalize, and standardize processes to create reproducibility. Yet today, many workers are feeling trapped in their jobs, bound by bureaucratic processes and soul-draining performance management systems that prioritize adherence to key performance indicators (KPIs) over worker freedom and innovation. At a time when firms scarcest resource is innovation and creativity, management control remains heavy-handed (because it can). Gary Hamel notes that although most employees can purchase a $20,000 car in their personal lives, they need to get official permission to purchase a $200 office chair in their lives as an employee. What’s up with that?

Ironically, the hottest management trends of today (small agile teams using scrum techniques) are something of a throwback to the Pleistocene bands of early humans that exploited their environment through hunting and gathering techniques for survival. Exploring new environments and changing conditions requires freedom of action, and it is time for management to loosen control. Indeed, organizations could think of themselves as being in the Pleistocene again, in need of a modern band of knowledge workers to explore and understand the changing environment and identify new resources for survival. The next time you run into a C-suite executive that wants to impose KPIs on your unit, tell him or her to loosen up and go back to the Pleistocene. Homo Sapiens operated quite successfully in that way for over 95% of human history. It would be a return to our roots.

Unfortunately, today’s management philosophy and practice stand in the way. It is the programming and conditioning between our ears that holds us back. We can’t get to a better future if maximization of profit and shareholder value continue to be prime directives. In fact, these are merely arbitrary and self-serving goals that are unconnected to natural law.

A new management philosophy is required. From first principles, we know that an organization must find ways to exchange benefits with its environment if it is to survive. A new approach to management is emerging which acknowledges and accommodates this reality. It is called Management by Positive Organizational Effectiveness. It holds that the goal of every organization is the same, that is, to be effective within its environment. An organization becomes effective within this framework by serving its environment and being rewarded in return, exchanging different types of benefits in the process that are needed to survive and thrive. This approach places effectiveness above efficiency in the hierarchy of organizational performance.

When the goal of every organization is the same, management is no longer free to set objectives from the top down. Rather, teams at the periphery are empowered to ask, “how can I best serve my environment today.” Like the freedom of the Pleistocene bands, these new teams are set free to create a better future around specific product and service offerings, a future that not only benefits them, but that serves to strengthen the common good as well. Perhaps we have much to learn from our Pleistocene roots.

Charles G. Chandler, Ph.D.
[email protected]

Reference:
Chandler, Charles G. 2017. Become Truly Great: Serve the common good through Management by Positive Organizational Effectiveness. Powell, OH: Author Academy Elite.