The new ecology of leadership: Revisiting the foundations of management

by: Issues: May / June 2012. Tags: Leadership. Categories: Leadership.

This management thinker and author writes that “the central challenge in the Western World now is not to make existing organizations more efficient and to allocate resources. That struggle has moved to the East. The challenge here is to reinvent our economies, to innovate and create wealth.” Readers will learn which  tactics and tools they can use to achieve these extremely important goals.

Many of the comfortable truths about management thought and practice are based on certain, specific assumptions about human nature. In The New Ecology of Leadership: Mastering Business in a Chaotic World, I suggest that we revisit these assumptions and advance a new mental model that effectively turns the world of management thought and practice as we know it on its head. This article outlines the mental model developed in the book and looks at its implications for reflective practitioners. Before doing this, however, a little historical context is required.

The professionalization of management

Ever since the attempt to professionalize management in the late 1950s, management theorists have assumed that if humans aren’t rational in a logical way, then they ought to be. Economists, who played such a prominent role in the development of the management field, described this version of rationality best.[1] People are seen as “resourceful, evaluative, and maximizing” to use a more recent formulation.[2]

As far as the management scientists were concerned, emotion was the enemy of reason and their vision of the ideal manager’s mind resembled that of the hyper-logical Mr. Spock of Star Trek. The fact that managers’ minds seemed to resemble that of Homer Simpson, simply added grist to the academics’ mills![3]

Initially, this view of managers as rational agents served the business schools and their clients well. America was the only significant industrial power to come out of World War II with its infrastructure intact; its corporations were preoccupied with responding to a baby boom and worldwide growth. This applied to Canada too, but on a much smaller scale. The war had demonstrated the benefits of mass manufacturing and the strategy was more of the same, with organizations organized in functions and forming elaborate divisional hierarchies to manage the growth. The ideal model was General Motors and the iconic managers were the great rationalizers, like GM’s Alfred P. Sloan and General Robert E. Woods of Sears, Roebuck.

The business schools mimicked these functional structures, forming departments of marketing, production, finance and business policy that still exist in most of them today. Because of the inability to run controlled experiments, research took the form of identifying context-free “principles” abstracted from the past and usually from the examination of apparently high-performing organizations.  Teaching took the form of delivering the principles embedded in conceptual frameworks so that students could “apply” them once they got into the workplace.

Trouble emerges in the 1970s

Things began to go awry in the seventies. Growth faded as Germany, Japan, and other industrialized economies recreated their infrastructures, usually with much more advanced technology. The oil crisis undermined the foundation of cheap energy on which the American economy had been built. A fight for control of corporate America broke out. Critics charged that “fat cat” business managers had become complacent and were no longer acting in the best interests of the most important suppliers of resources – the shareholders. A seminal article appeared in Harvard Business Review in 1980, entitled “Managing Our Way to Economic Decline”.[4]

We now know that the shareholders and the financial industry won that battle for corporate control. In the business schools, the finance function emerged as top dog and the economists began to apply the teachings of their discipline to the firm via organizational economics (agency theory and transaction cost economics). The resulting shareholder value model of the firm has dominated for the last thirty years or so.

The business schools did not change their functional siloed structure (academic tenure makes it very difficult), but a new function called “leadership” emerged and began to grow very fast. If “management” was now all about maximizing shareholder value, then leadership became the dumping ground for all the human concerns in organizations, the aspects of our human nature that didn’t fit into the iron cage of the “rational-agent.” It might not yet be a rigorous discipline, the proponents of leadership studies argued, but at least it was “relevant”.

Today it is clear that the central challenge in the Western World now is not to make existing organizations more efficient, especially in the way that they allocate resources. That struggle has moved to the East. The challenge here is to reinvent our economies, to innovate and create wealth. Neoclassical economics and the shareholder-value model cannot help us now. The new models are firms like Apple, which is trying to remain the world’s largest “start-up.” Functional silos are anathema here. The image is one of constant movement, like that of hunting bands, continually forming and reforming to explore and exploit emerging opportunities snared in a vast web of practice and knowledge. If something catches on, these firms will outsource anything that might require them to pour organizational foundations, for to do so would drive their hunter-entrepreneurs away.

Ecological rationality and narrative truth

Today, thanks to the work in many fields ranging from behavioural economics to neuroscience, we know that the rational-agent model of human nature, while not necessarily “wrong,” has severe limitations. We never were and never can be rational agents, except for short periods of time in highly artificial and controlled contexts (ideally scientific experiments). Emotion, far from being the enemy of reason, is its essential ally. Reason can lay out the options, but it takes emotion to choose among them – to make decisions. It is clear that our minds are not general-purpose computers, like we thought they might be 50 years ago. Our minds are context-dependent: we have evolved to extract cues to action from the contexts in which we find ourselves. We can think about the world in just as many ways as we experience it.

Despite these revelations, however, the rational-agent model has not been overthrown. Its proponents have been able to attribute these findings to human “irrationality” and cling to their model as the only “gold standard” for rationality. In his new book, Thinking, Fast and Slow[5], Daniel Kahneman, the Princeton psychologist who won the 2002 Nobel Prize for Economics, says that he “cringes” when his work is advanced in support of human “irrationality.” But by describing his work as “heuristics and biases,” and not advancing his own standard for rationality, he leaves the field to the rational-agent model and Mr. Spock by default.

This is where The New Ecology of Leadership comes in, with a positive definition of a “gold standard” for rationality. It is the collective activity of myriad special-purpose apps that we now know comprise our minds, and have helped us to survive as a species for the last 100,000 years or more. It is an ecological rationality that allows us to make fast “good-enough” decisions, by extracting cues to action from the situations in which we find ourselves.[6] If that is not the gold standard for rationality, what is?

This ecological rationality is coupled with our concern for narrative truth. What happens is fact and the concern of Mr. Spock (scientists). How we think and feel about what happens is narrative truth and the concern of story-tellers (leaders). It is becoming clear that compelling stories are constitutive of our identities as individuals, as families, as communities, as nations and, of course, as organizations. We become the stories that we tell about ourselves! Conversely, and more promisingly, if we can change our stories, we can change who we are!

Implications for practitioners

Many management academics and mainstream consultants are probably going to dislike the whole concept of ecological rationality. If contexts matter and history matters, then context-free advice becomes restricted to solving pedestrian day-to-day problems that are generic rather than unique. Some of these are big and complicated issues. The selection and installation of an Enterprise Resource Program (ERP) would be a good example. But the tough, complex, so-called “wicked” questions about how to create, innovate and reinvent ourselves have to be handled quite differently. Here, what were once hallowed “principles” will be reduced to the status — at best — of desirable outcomes. At worst they will be seen as empty slogans.

If these mainstream academics and consultants struggle, however, thoughtful practitioners, after working with the new mental model, will love it. After all, the ecological nature of the mental model means that, at some deep level, it will just feel right, resonating with their practical experience. Thus it is essential to grasp the broad outlines of the mental model in the book:

two traps and the “Sweet Zone”
Diagram 1: The full ecocycle, showing three contexts, two traps and the “Sweet Zone”

At the core of the representation of this new mental model is the ecocycle, a stylized infinity-shaped loop that captures the trajectory of a complex system over time. The “front” part of this loop (solid line) is the familiar “S”-shaped life cycle, as organisms in a system are conceived and born in small, loosely-connected communities of trust (bottom left of the diagram), grow through the application of logic (strategic management) and mature in power as large-scale, tightly-connected structures (top right of the diagram). Here, as their strengths become weaknesses in changing circumstances, they eventually decline and die. Unless, that is, they can take on the characteristics of a complex ecosystem and enter the “back loop” of the ecocycle. The back part of the loop (dotted line) is a reversed “S”-shaped cycle of destruction (bottom right of the diagram) and renewal, as a complex ecosystem renews itself through destruction and renewal via creative leadership (top left of the diagram).

Together, the twin “S” loops form an infinity symbol that has dynamics very similar to those of the famous Lorenz “butterfly” attractor from chaos theory. One can see this in the twin spiral “traps” at either end of the ecocycle.[7] On the left is the entrepreneurial failure or change trap, familiar to anyone who ever tried to get a new venture going. One tries approach after approach, experiment after experiment, but nothing seems to work.

On the right hand side is the success, competence or stability trap, where one can’t stop doing what one has become good at. This trap is observable every day in the trajectories of firms like General Motors that spun in the spiral for forty years before finding renewal in the fires of bankruptcy. Kodak, despite understanding intellectually that digital photography was replacing film-based systems, could not extract itself from the competency trap. The firm is currently in bankruptcy proceedings.

The sweet zone

The difficulty of escaping from either of these traps suggests that it is best for established organizations to avoid them in the first place! Of course every organization has to be born and escape from a failure trap, but once it is established and growing, it is best not to go near either trap again. This requires the organization to “tack” between the two traps – between discipline and freedom. This thought is captured in the second diagram, where we “zoom in” a little on the sweet zone:


Diagram 2: Tacking in the “Sweet Zone” between discipline and freedom

The vertical, zig-zag trajectory shows the organization moving between discipline (embedded as virtuous habits) and freedom (to innovate and create through small-scale experimentation). The “zigs” to the right correspond to the activity we call “management.” The “zags” to the left have become known as “leadership.” All the while, the organization is growing in scale (moving up) toward a sustainable future (sustainable because the organization is always renewing itself). This emphasis on sustainability, as opposed to maximization, is a key difference between ecological and economic models.

Another important feature of the model is that the management tools and settings must result in discipline being embedded in what can be thought of as virtuous habits in an “enabling” bureaucracy. If the rules and policies are imposed in the form of a coercive bureaucracy, then the firm will be unable to move powerfully back to the left hand side of the sweet zone. Instead it will get stuck in the middle, at the mercy of other forces. Many organizations end up adrift here. They are distinguished only by their mediocrity, which is usually the result of three connected causes:

  1. Fundamental confusion about the business purpose of the organization’s core processes;
  2. Poorly performing product development, production, supplier management, and sales processes that tend to get worse instead of better;
  3. Dispirited people operating these broken processes at every level of the enterprise.

Tools and settings in the sweet zone

We need to do one further zoom in on the sweet zone to look at the tools and settings (mini-contexts that you control) available to managers and leaders in the sweet zone:

four sets of “navigation” tools 

Diagram 3: The organization in the centre of the sweet zone with four sets of “navigation” tools

Diagram 3 is the core of the new mental model and repays close study. First, you should notice that it places managers and leaders inside the model, not outside as many of them have been taught to be. Second, you will notice that a 2×2 matrix, with four different sets of “navigation” tools, has been rotated a quarter-turn to the left and dropped into the centre of the sweet zone. The matrix itself is well-known. It was developed by Harvard Business School Professor Howard Stevenson.[8] It contains four categories of “navigation” tools – power, management, leadership and culture.

In The New Ecology of Leadership I add the terms “settings” to the word “tools” to reflect the reality that tools are always used in mini-contexts or settings that are under the control of the user. A well-chosen setting can enhance the use of a tool; a poorly selected one can dull or even nullify the effectiveness of a tool.

Here is a brief guide to the features of the navigation tools and their settings – in the book each of them is explored in much greater depth:

1. Power tools and settings: instructions and directions: These are the direct, fine-grained tools and power settings that individuals control directly. Power is derived from a variety of characteristics ranging from immediate physical presence to positional power, granted by virtue of one’s rank in an organization and one’s status in its informal networks, such as the core group. Power settings are the immediate physical environment, the layout of your office, the clothes you wear, and so on. When there is little agreement on either where the organization should go or how it is going to get there, these power tools are essential.

Power tools and settings help you move the organization left or right and down, reflecting the small scale at which they function effectively.

2. Management tools and settings: rules and incentives: These are features of formal systems, such as organizational structures, standard operating procedures, and control systems that typically reward certain activities of people within the organization, while constraining others. They are the essence of the means, the methods that have proved successful in the past, and they represent the embodiment of power in impersonal systems. When there is little agreement on how the organization should operate, it is imperative that these tools be developed.  

Management tools and settings help you move the organization up or down and to the right, reflecting their emphasis on tasks and discipline and the pursuit of means.

3. Leadership tools and settings: images and invitations: Leadership is about people and relationships; it is the appearance of power as a social phenomenon that results in the creation—development—of purpose and meaning within a group. Leadership relationships can exist at all levels in an organization, and in some organizations the relationship between leaders and followers can switch as circumstances dictate. When there is little agreement on the purpose of the organization, why it should exist, these leadership tools are critical for its discovery and development.

Leadership tools and settings help you move the organization up or down and to the left, reflecting their emphasis on people and purpose and the pursuit of ends.

4. Culture tools and settings: customs and conventions: These are the least refined of the tools and the most difficult to wield. They are the often-tacit customs and conventions within an organization that determine how things are done. When a high degree of agreement on ends and means has been reached in an organization and the organization appears to be “running on rails,” then it is usually culture tools that are playing a significant part.

Culture tools and settings help you move the organization left or right and up, reflecting their ability to function on very large scales.

Although the preceding list clarifies the distinctions among the tools, they all overlap to some extent; power overlaps with leadership and management, and all three interact with culture. Thus, it is impossible to use the tools separately. Their use always has to be integrated, so that they support each other.

Staying within the sweet zone creates a constant challenge to managers to use these “navigation” tools and settings in the continual search for a dynamic balance between means and ends in a changing environment. This is the core message of The New Ecology of Leadership.

Homer Simpson bests Mr. Spock

It has taken us 50 years to understand that the logic of Mr. Spock, elegant though it might be, is usually no match for the homespun ecological rationality of Homer Simpson and his family in the rough-and-tumble world of space and time, cause and effect. Homer’s decisions are made quickly and are often “good enough.” If they don’t work out, he and his “family” are fast learners and usually capable of making corrections. For innovation and creativity, fast feedback and flexible outlooks win every time.  The cool logic of Mr. Spock has a role to play in the lives of all complex organizations but its purpose needs to be made clear and its use contained. That logic need not be replaced but it does need to be embraced by the warmer eco-logic of Homer and the rest of his tribe.

[1] Khurana, R. 2007. From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession. Princeton, N.J.: Princeton University Press.

[2] Jensen, M. C., and W. H. Meckling. 1994. “The Nature of Man.” Journal of Applied

Finance 7(2): 4–19.

[3] The uses of Mr. Spock and Homer Simpson in this context comes from Thaler, R. H., and C. R. Sunstein. 2008. Nudge: Improving Decisions about Health, Wealth, and Happiness. New Haven, Conn.: Yale University Press.

[4] Hayes, R. H., and W. J. Abernathy. 1980. “Managing Our Way to Economic Decline.”

Harvard Business Review 58 (July–August): 50–57.

[5] Kahneman, D., 2011. Thinking, Fast and Slow, Canada; Doubleday Canada.

[6] Smith, V. L. 2003. “Constructivist and Ecological Rationality in Economics.” Ameri- can Economic Review 93(3) (June).

[7] March, J. G. 1994. “The Evolution of Evolution.” In Evolutionary Dynamics of Organi- zations, ed. J. A. C. Baum and J. V. Singh, chap. 3, 39–49. New York: Oxford Uni- versity Press.

[8] Stevenson, H. 1998. Do Lunch or Be Lunch: The Power of Predictability in Creating Your Future. Cambridge, Mass.: Harvard Business School Press.