Monday, December 15, 2008

Innovative management: A conversation with Gary Hamel and Lowell Bryan – Part 1
Forward-looking executives must respond to the growing need for a new managerial model.
NOVEMBER 2007 • Joanna Barsh
Over the next few positings, I will excerpt a tremendous, insightful interview lead by Joanna Barsh of McKinsey with Gary Hamel and Lowell Bryan on the future role of leaders. An underlying theme of these discussions is that management must evolve to profit from new technology and globalization. This is true whether we are in good times or bad—innovation is needed as much if not more in these times than when the markets were growing. As we discussed before, companies must be ambidextrous. Management must be in place to do repetitive things exceptionally well while at the same time create the environment and empowerment to encourage and profit from innovation; process is critical in both.

“Sometime over the next decade,” warns renowned strategy guru Gary Hamel in his new book, The Future of Management, “your company will be challenged to change in a way for which it has no precedent.”What’s even more worrisome, he argues, is that decades of orthodox management decision-making practices, organizational designs, and approaches to employee relations provide no real hope that companies will be able to avoid faltering and suffering painful restructurings.

McKinsey partners Lowell Bryan and Claudia Joyce, in their recently published book, Mobilizing Minds,2 arrive at a similar conclusion from a slightly different perspective. They find that the 20th-century model of designing and managing companies, which emphasized hierarchy and the importance of labor and capital inputs, not only lags behind the need for companies today to emphasize collaboration and wealth creation by talented employees but also actually generates unnecessary complexity that works at cross-purposes to those critical goals.

Forward-looking executives will respond to this looming challenge, these authors conclude, by bringing the same energy to innovative management that they now bring to innovative products and services.

The opportunity is substantial. Against the backdrop of the digital age’s dramatic technological change, ongoing globalization, and the declining predictability of strategic-planning models, only new approaches to managing employees and organizing talent to maximize wealth creation will provide companies with a durable competitive advantage. It won’t be easy. As companies discard decades of management orthodoxy, they will have to balance revolutionary thinking with practical experimentation to feel their way to new, innovative management models.

Hamel is the founding director of the Management Innovation Lab, a nonprofit research organization with offices in London and Silicon Valley dedicated to accelerating the evolution of management practice.3 He recently joined Bryan for a conversation on the subject of management innovation. Joanna Barsh, a director in McKinsey’s New York office, moderated their discussion.

Joanna Barsh: What is the opportunity both of you have identified and how did you spot it?

Gary Hamel: For almost 20 years I’ve tried to help large companies innovate. And despite a lot of successes along the way, I’ve often felt as if I were trying to teach a dog to walk on his hind legs. Sure, if you get the right people in the room, create the right incentives, and eliminate the distractions, you can spur a lot of innovation. But the moment you turn your back, the dog is on all fours again because it has quadruped DNA, not biped DNA.

So over the years, it’s become increasingly clear to me that organizations do not have innovation DNA. They don’t have adaptability DNA. This realization inevitably led me back to a fundamental question: what problem was management invented to solve, anyway?
When you read the history of management and of early pioneers like Frederick Taylor, you realize that management was designed to solve a very specific problem—how to do things with perfect replicability, at ever-increasing scale and steadily increasing efficiency.
Now there’s a new set of challenges on the horizon. How do you build organizations that are as nimble as change itself? How do you mobilize and monetize the imagination of every employee, every day? How do you create organizations that are highly engaging places to work in? And these challenges simply can’t be met without reinventing our 100-year-old management model.

Lowell Bryan: I arrived at the same point from a slightly different perspective. McKinsey asked me about 12 years ago to try to understand the impact of technology and globalization on our clients. We concluded that these forces were creating a fundamental discontinuity. Or to put it differently, that technology and globalization were creating a set of opportunities that didn’t exist before.

We observed that companies were struggling to take advantage of the opportunities created by digitization and globalization because their organizations were not designed for this new world.

Joanna Barsh: Is this a topic that CEOs are eager to hear about?

Gary Hamel: Not necessarily. The Internet is making it possible to amplify and aggregate human capabilities in ways never before possible. But most CEOs don’t yet understand how dramatically these developments will change the way companies organize, lead, allocate resources, plan, hire, and motivate—in other words, how new technology will change the work of managing.
Throughout history, technological innovation has always preceded organizational and management innovation. Think back to the end of the 17th century, when muskets started to be introduced into European warfare. At the time, battle formations were very deep, very square, with the archers in the middle of the formation shooting over the heads of the archers in front of them.
Eventually, those formations changed in size and scope to better reflect the capabilities of muskets. But it took almost 100 years for this to happen. Why? Because a couple of generations of generals had to die off before military planners were able to use this new weapon in a productive way.
It won’t take 100 years this time. Still, if we’re going to fully mobilize human minds, to borrow Lowell’s phrasing, we’re going to have to turn a lot of our legacy management beliefs on their head. The old model was, “How do you get people to serve the organization’s goals?” Today we have to ask, “How do you build organizations that merit the gifts of creativity and passion and initiative?” You cannot command those human capabilities. Imagination and commitment are things that people choose to bring to work every day—or not.

Lowell Bryan: I think the technological revolution that occurred in the past 15 years was basically equivalent to the industrial revolution—a fundamental discontinuity. And just as technologies have S curves, the technology of management also has an S curve.

If you look at the big management innovations that Gary has talked about—from, say, Taylor in the 1890s up to [Alfred P.] Sloan in the 1920s and then popularized by [Peter F.] Drucker and [Marvin] Bower—you could argue that the maturity of the 20th-century management model didn’t come until the 1960s and 1970s. Only then did what we view as modern management become pervasive throughout the world. In other words it took 50 to 60 years. Modern management itself was basically an effort to deal with the aftershocks of factories, which were created over 100 years before Frederick Taylor was born.

In other words, we are in the early stages of a very long innovation of organizational design that will eventually go to places we can’t yet see. But you can see enough to identify huge opportunities for companies to take advantage of what is already known. Innovation in organization is occurring all over the place, but a lot of those innovations go nowhere. There’s lots of experimentation going on, but organizational barriers prevent the adoption of good innovations throughout the company.

Gary Hamel: There are three reasons the technology of management may well change as radically over the first few decades of this century as it did during the adolescence of the last one. First, as Lowell says, is the impact of new technology. The availability of powerful new tools for coordinating human effort will profoundly change the work of management over the next few years. And then we have that new set of challenges I mentioned earlier: the increasing demand for companies to be adaptable, innovative, and exciting places to work. A third force for change is a revolution in expectations. Take a look at our kids—the first generation that has grown up on the Web. Their basic assumption is that your contribution should be judged simply on the merits of what you do rather than on the basis of your title or your credentials or providence or anything else. This is the lesson they’ve drawn from the experience with what I call the “thoughtocracy” of cyberspace.

Joanna Barsh: Are the thinking-intensive industries driving what Gary is talking about?

Lowell Bryan: New organizational models are needed in all industries because all companies engage in thinking-intensive work. The traditional, hierarchically based 20th-century model is not effective at organizing the thinking-intensive work of self-directed people who need to make subjective judgments based upon their own special knowledge. Such people work in all companies, in all industries, and in the digital age it is these people who create wealth. We need a model for such work—a model that uses hierarchical decision making only for activities that need that authority, such as allocating resources, appointing people to jobs, or holding people accountable—but at the same time enables self-directed professionals to collaborate with their peers continuously. And that’s where you need to adapt the model: by creating mechanisms to enable such collaboration to be efficient and effective. Such mechanisms can help the organization to work horizontally as well as vertically.
Every large company, even a retailer or a mining company, has large numbers of thinking-intensive employees who need to collaborate with one another. That’s where the value is today. The winners will be those that enable their thinking-intensive employees to create more profits by putting their collective mind power to better use.

Joanna Barsh: You both talk about talent and human beings as a company’s biggest asset. Are CEOs on that wavelength?

Lowell Bryan: Part of the issue is the definition of talent. Everybody says they want more talent, so it’s almost uninteresting to ask people what their biggest challenge is; it’s always going to be talent. But to be very clear, it isn’t just intrinsically talented people you need. You can hire all the intrinsically talented people you want. There’s a market for talent, and as long as you’re willing to pay what that marketplace demands, you can attract talented people. The real challenge is making profits off those talented people. That’s where the big opportunity is. The leading companies today are combining talent and technology and organizational design to generate much higher profits per employee than was possible in the past. So the trick becomes, “How do I hire talent that I can profit from?”

Gary Hamel: In a market where talent is largely a commodity and can be bought anywhere, the secret sauce is creating an environment in which you push that frontier out, in which you can steadily raise the returns on human capital. The combination of technology and talent is a powerful catalyst for value creation, but to take advantage of the Web’s capacity to help us aggregate and amplify human potential in new ways, we must first of all abandon some of our traditional management beliefs—the notion, for example, that strategy should be set at the top. So I think Lowell is 100 percent right: in terms of managing creative-thinking people, you have to separate the work of managing from the notion of managers as a distinct and privileged class of employees. Highly talented people don’t need, and are unlikely to put up with, an overtly hierarchical management model. Increasingly, the work of management won’t be done by managers. It will be pushed out to the periphery. It will be embedded in systems. I think we’re on the verge of what I would call a postmanagerial society. The idea that you mobilize human labor through a hierarchy of overseers and bureaucrats and administrators is going to look extraordinarily antiquated a decade or two from now.

Lowell Bryan: These thinking-intensive people are increasingly self-directed. In fact, they’re directed as much by their peers as they are by supervisors. The management challenge is akin to urban planning. The art of it is that you must enable people to make thousands and thousands of individual decisions about how to live and work, but you have to create the infrastructure to make it easy for them to do so. You’ve got to have the sewer lines, you’ve got to have the four-lane highways, you’ve got to have the pedestrian malls thought through in a way that individuals find it natural and easy to work either by themselves or with others.

Gary Hamel: There’s a danger too, I think, of creative apartheid. Too many executives seem to believe that while a few people in the company may be really clever and creative, most folks aren’t. When you look at companies like Toyota, you see their ability to mobilize the intelligence of so-called ordinary workers. Going forward, no company will be able to afford to waste a single iota of human imagination and intellectual power.

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