MANAGING IN THE NEW ECONOMY: EVOLUTION OR REVOLUTION?

What constitutes proper management practice has been—and always will be—a work in progress. Until now, that practice has evolved with changing technology, business conditions, financial markets and the needs of people and organizations.

Today’s executives might usefully ponder whether the measured march of management is now being buffeted by the storm of revolution. Or alternatively, is the revolution an illusion driven by a frenzy of fad and publicity? After all, with the likes of re-engineering, empowerment, scientific management, total quality management and continuous improvement in its intellectual lineage, it is not as if management thinking has never been shaken up before. Inevitably though, the revolution does not live up to the hype, and management thinking adjusts by incorporating that which has enduring value.

Management practice profoundly affects enterprise performance. Those not current will not prosper and may not survive. In revolutions, the prize does not normally go to the slow and steady gradualist. It goes to those at the cutting edge out in front of the turmoil. It is important that executives have an informed perspective on what is happening in management thinking today. My own view is this: Things are not quite as new as they seem. What it takes to manage an enterprise effectively is changing, but there are still a lot of constants, things that remain the same. Forgetting about the constants may be more perilous than pushing the envelope of change.

Recent articles in two of North America’s most thoughtful and prestigious business periodicals illustrate the proposition that something very major is going on in management thinking. The Aug. 28, 2000, BusinessWeek was a splendid double issue that put the 21st-century corporation under a microscope. Senior writer John A. Byrne asks: “What advice would Alfred P. Sloan Jr., the legendary architect of the 20th-century corporation, offer to today’s leaders? If he proved to be as farsighted about the coming century as he was about the last, the former Chairman of General Motors Corp. and author of My Years with General Motors, would advise them to leave his tome on the shelf, understanding that it’s as outdated as a ’26 La Salle.” Byrne continues: “The 21st-century corporation must adapt itself to management via the Web. It must be predicated on constant change, not stability, organized around networks, not rigid hierarchies, built on shifting partnerships and alliances, not self-sufficiency, and constructed on technological advantages, not bricks and mortar. Already, old business models that emphasized fixed assets, working capital and economies of scale have become increasingly vulnerable to nimbler organizations that employ new technologies to reduce costs.”

Now consider the father of the term “management by objectives,” Peter F. Drucker. To my mind, Drucker is the 20th century’s pre-eminent management thinker. His contribution to what works and does not work in running organizations is staggering. By extension, so is his contribution to how well we live. In the Oct. 5, 1998, issue of Forbes, Drucker writes: “As we advance deeper into the knowledge economy, the basic assumptions underlining much of what is taught and practised in the name of management are hopelessly out of date….Most of our assumptions about business, technology and organization are at least 50 years old. They have outlived their time. As a result, we are preaching, teaching and practising policies that are increasingly at odds with reality, and therefore counterproductive.” The title of that article, “Management’s New Paradigms,” and the introduction, are also instructive: “In a fast-changing world, what worked yesterday probably doesn’t work today. One of the fathers of modern management theory (Drucker) herein argues that much of what is now taught and believed about the practice of management is either wrong or seriously out of date.”

Byrne’s advice that My Years with General Motors is as outdated as a ’26 La Salle is, more than anything, what got me going on this article. In the annals of management literature, Sloan’s account of the rise of General Motors tops, arguably, the list of the most important business books ever, along with, coincidently, Drucker’s own inside look at General Motors, The Concept of the Corporation. To diss My Years with General Motors is to diss a deity. Even Bill Gates calls My Years with General Motors “probably the best book to read if you want to read only one book about business.” (Fortune, Feb. 15, 1999) What we know about vision, policy, strategy, execution, operations, organization, centralization/decentralization, the manager as generalist, marketing and the special nature of manufacturing has its roots in My Years with General Motors. If the book should be left on the shelf, then management really is in revolution. I am not quite there yet.

The goal of this paper is not to build a straw man and then trash it. Nor is it to minimize the views of the likes of Byrne and Drucker. They are surely not alone and what they have to say is worth a lot of executives’ time. Bluntly, the executive that does not know Drucker has one hand tied behind his or her back. Rather, my goal is to make the point that in the business world of the future, executives will still have to do a lot of things well that they had to do well in the past.

How fast and how much management practice must change to assure a good chance of enterprise prosperity may be up for debate, but what is driving the process is not. Behind most of the action is a blizzard of speed, technological change, globalization and complexity. Stunning advances in microelectronics, genetics, optics, materials, lasers, communications and the organizational sciences are turning workplaces, work processes and products upside down at a breathtaking pace. We are living in our very own industrial revolution and it is every bit the rival of its steam/textile/paper-money and electricity/internal-combustion-engine/assembly-line driven predecessors. The case is so compelling that the pace of future technological advance will make the present look like a period of tranquillity. Growing open-market capitalism, more commonly known as globalization, has ramped up the competitive environment abruptly and spectacularly. As everyone in an industry increasingly becomes everyone else’s competitor, being the best in a province, region or even country becomes a recipe for mediocrity and eventual failure. WTO/IMF/World Bank protests aside, globalization is likely to accelerate from here. Finally, understanding and projecting the forces that materially shape and impact the environment in which an enterprise must function is becoming more difficult, and at an exponential rate. The business world has become mind-bendingly complex seemingly overnight. Executives are supposed to see the big picture, but when each of the little pictures presses the limits of comprehension in their own right, that is no small challenge. For executives, the speed/technology/globalization/complexity cocktail is something to behold. Small wonder a revolution in management practice has appeal.

Now, let’s look at some of the constants in the executive’s future. First of all, successfully managing an enterprise will always require vision. Enterprises that lack a clear picture of what they are and where they are headed tend to flounder, get distracted, squander resources, squabble internally, lose competitive advantage and frustrate staff, customers, shareholders and suppliers. Popular lines like, “If you do not know where you are going, any road will get you there,” and, “If you do not know where there is, how will you know when you are there,” are more than just funny. They carry a real message. If the business environment becomes more fast-moving and uncertain, as is likely, expect vision to become more crucial to enterprise success. When things are in rapid flux, it is vision that focuses management, decision-making and planning anchors.

Second, business will always be about customers who must be sold a product at a profit and kept satisfied. The enterprise that loses its customer focus is headed for deep trouble very quickly, whatever the business environment serves up. It may be the electronic age, but it is the same old customer: At your peril, take customers for granted, ignore them, slight them, give them short shrift, abuse their loyalty, insult them, trick them, gouge them or let them think you do not care. Moreover, globalization and the Internet are likely to give customers in many industries increasingly more choices and options, and therefore increasingly more leverage and clout with the enterprises that want to serve them. The satisfied customer has always been key to enterprise success; that will not change any time soon.

Third, management is getting the things that are worth doing done through people. The executive does not need to know how to do all or even any of the tasks performed by the employees. The executive needs only to know how to motivate employees to do the tasks properly. The same argument holds for employees as for customers. The business environment may be driven by a whirlwind of change and turbulence, but the things that make employees tick are constant: fairness, understanding, empathy, respect, consideration, candour, honesty, integrity, example, competence, involvement, dealing with problems, opportunity, a sound reward system, security and clearly articulated goals.

Fourth, enterprises always have costs. Enterprises exist to serve customers, not control costs. But that said, enterprises that do not control costs effectively will not indefinitely prosper. The need to focus on costs is unlikely to change any time soon, and the grim consequences of not controlling costs effectively are not likely to change any time soon either. The stone-age executive and the e-executive who ignore costs end up in the same place. The e-executive may or may not get there more quickly, but the place is just as forbidding.

Fifth, a heavily indebted and/or poorly matched balance sheet has always been a financial accident just waiting for a downturn in revenues, and/or a sharp jump in interest rates and other financing costs, to happen. The New Economy may offer more avenues to mitigate balance-sheet risks through assorted strategies involving futures, options and swaps, and better forecasting and financial management techniques. But the stark reality of the balance sheet will never change. Prudent balance-sheet management will remain a cornerstone of proper management practice. Not taking the balance sheet seriously is a recipe for failure.

Sixth, earning a return on investment that exceeds the cost of capital will always be one of management’s core responsibilities. In the short run, not doing so threatens competitiveness, share price and the ability to attract capital and strong people. In the long run, failure is likely. Not covering capital costs is not an option.

Seventh, we are told over and over that enterprises that are not adaptable, flexible, responsive, nimble and innovative won’t prosper, and may even be doomed in the hyper-fast New Economy. Adaptability, flexibility, responsiveness, nimbleness and innovativeness have always been important ingredients of business success. This is not the first generation of executives for whom success or failure has crucially depended on the capacity to adjust to change in an effective, timely fashion. Twenty-five-hundred years ago, the Greek philosopher Heraclitus offered: “There is nothing permanent except change.” One hundred and fifty years ago Charles Darwin really hit the nail on the head: “It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.” Managing change has been at the top of the executive agenda since the time of the first executive, and it always will be.

Finally, ongoing enterprise success will always depend on effective succession. Leadership transition is as important as it has ever been. Running an enterprise is about vision, pulling together the people, hard assets and financial capital to execute the vision, and having a team in place to accept the torch when it is passed. Regrettably, ensuring the latter condition too often gets too little attention.

There was a song years ago by Buffalo Springfield that began: “There’s something happening here/What it is ain’t exactly clear.” Buffalo Springfield could have been talking about management today. Executives should do a lot of thinking before they tear their management structures apart. That corny old line about the early bird getting the worm, but the second mouse getting the cheese makes a point executives should ponder. An e-company commercial I saw recently says it well: “Ten out of ten e-companies run on people, employees, customers and suppliers.” That goes for all enterprises. It always has and always will.