Many of the world’s leading management thinkers converged on Vienna, Austria, last week for the Global Peter Drucker Forum 2013 to explore the managerial implications of complexity. The closing panel was asked to say what the man who virtually invented management—Peter Drucker—would have made of this two-day gathering. Here’s how I responded (lightly edited).
1. Management is exciting!
The most important thing that would have struck Peter Drucker is the shared passion for the importance of management. Management is often seen as a boring dreary subject. What was striking was that everyone here shares a passion for the transformation of leadership and management in organizations and is working towards that goal. Everyone here cares about management. We believe that management matters. We know that management affects more lives more profoundly than anything else our species does. Peter Drucker would see the fact that only 11 percent of the workforce is passionate about their work as nothing less than a human tragedy. Is this the best the human race can do?
He would also have endorsed Doris Drucker’s thought that the so-called Information Revolution is not really about information or even communication. It’s a much bigger idea. It’s about human behavior and human values.
He would also have been struck by the common ground among people with very different backgrounds and different generations. He might say that we have validated some old truths and we have learned something, even if, as Richard Straub and Julia Kirby pointed out, we have often discovered how to formulate better questions than to give better answers. We have identified the key challenges ahead and we have pointed to a way forward.
2. Our organizations are in trouble
Another point would have stood out for Peter Drucker: the realism of the discussions. In most business conferences these days, the talk is all blue sky, big profits, the booming stock market, how great we are, and rah-rah-rah. There is usually little mention of the cheap government money that is fueling those corporate profits, or the 2008 financial meltdown caused by failure to cope with excessive complexity, an event that almost caused a global calamity, or the subsequent failure of the global economy to experience a significant economic recovery or provide meaningful employment for all its citizens.
At this conference, by contrast, speakers depicted a realistic picture of the situation: most of our large and important organizations are in trouble. The way they are managed is a bad fit with the dynamically complex context in which they find themselves.
John Hagel quantified the problem when he cited the finding of Deloitte’s Shift Index that, when the financial engineering and gadgets are stripped away, the picture looks different. The rate of return on assets of US firms is only one quarter of what it was in 1965. Firms are less and less able to capture the economic benefits of their activities. And in a world in which innovation is key it’s not just a personal tragedy that only 11 percent of workers are passionate about their work: it’s also a major performance problem for firms that depend on worker passion for creativity and innovation.
Other speakers came to the same conclusion from different angles.
- The traditional structure of the 20th Century firm—line organizations—doesn’t work any more (Georg Kapsch)
- We have the “wrong organizational models” (Don Tapscott).
- “Helicopter parenting” doesn’t work any better in the workplace than it does in the family (Charles Handy)
- The “fear-based environments” prevalent in today’s large organizations kill innovation; a lack of creative confidence stifles creativity (Tim Brown, CEO of IDEO)
- Our organizations are failing us. If 80 percent of our organizations disappeared, they would not be missed. Many of them are “zombie organizations” which explains why so few in the workplace are genuinely passionate about their work. (Umair Haque)
- Our organizations have “run out of gas”; we are at a punctuation point in history; we need “fundamental change”. (Don Tapscott)
The similarity of the discussion in the public sector was striking. An equally grim picture emerged as to the current state of those organizations.
3. A new synthesis is emerging
At the same time, Peter Drucker would have been impressed by the optimistic convergence on how organizations should be managed so as to deal with dynamic complexity. Although speakers often referred to these issues in different terms, there was much common ground.
Don Tapscott talked about self-organizing learning networks of individuals that create value.
John Hagel talked about a shift to scalable learning from scalable efficiency, with the a change in the organization’s DNA. This will require institutional innovation, not just innovation in products. It means thinking about the firm differently: as Bill Joy said, no matter how many smart people you have in your organization, there are more smart people outside. Scalable learning means connecting people beyond the firm’s organizational borders.
Tim Brown talked about design thinking, with a different kind of ecosystem, and a different kind of organizational “code” that is creative, adaptive and open. We need organizations that are fit for the Creative Economy. To achieve this, we need to apply design thinking not just to products but to the design of organizations themselves.
Fredmund Malik talked about the substitution of “old world” organizations with “new world” organizations, in an inevitable process of creative destruction. Those organizations that remain in denial of the need to change will become extinct. The result will be a “Great Transformation”.
In the public sector, Ben Ramalingam talked about learning from positive deviance, by exploring the meaning of extreme positive data points and then replicating those “bright spots”.
These are different ways of thinking and talking about what organizations should look like to deal with dynamic complexity. There was significant convergence in the underlying substance on a different way of thinking about organizations.
4. Five dimensions of how organizations must evolve
We can see that convergence more clearly when we look at the five major dimensions of an organization, i.e. goals, structure, coordination, value and communications. When we look at each of these dimensions separately, we can see how much convergence there really is, both between the foundations that Peter Drucker himself laid and the speakers, and between the speakers themselves.
Take for instance, goals. Peter Drucker’s foundational insight of 1973 was: “the only valid purpose of a firm is to create a customer.” This insight was the basis of many of the interventions in the last two days.
A participant said that he had never heard the word “purpose” used so frequently at a conference. One reason for that is that in a confusing, complex, dynamic, ambiguous world, purpose provides a compass. It also reflects the fact that the balance of power in the marketplace has shifted decisively from inside the firm to the customer. The customer now has many choices, along with instant reliable information and an ability to communicate with other customers. The customer (collectively) has become the boss of the firm.
Different speakers had different ways of expressing the idea that making money for shareholders is the result, not the goal of the firm.
- Companies must not be managed exclusively according to monetary values. Shareholder value is important but it’s not the only goal. A money-driven economy won’t work. (Fredmund Malik).
- Purpose is the glue that holds people together. (Rick Goings, CEO of TupperWare Brands)
- If money becomes the point, you have lost the point. (Charles Handy)
- An organization that thrives on a sense of purpose attracts talent naturally. (Tim Brown, CEO of IDEO)
There is a difference in terminology here, but there is also a common theme.
These speakers are recognizing in different ways that the preoccupation with maximizing shareholder value over the last couple of decades missed the turn that Peter Drucker signaled in 1973: maximizing shareholder value is not the purpose of private sector firms: the purpose must be something outside the firm. If making money for the firm or its executives ever becomes the purpose, things are likely to badly awry, as events over the last decade or two have shown.
The goal of the organization is not to make money.
- In the private sector, it’s to create a customer.
- In health, it’s to help patients.
- In education, it’s to educate students.
- In government, it’s to help citizens.
This reformulation of the goal of organizations is key because it leads to all of the other changes that speakers talked about, that enable an organization to cope with dynamic complexity.
Most of the speakers referred in various ways to the change in the structure of work in organizations, with managers going from controllers of individuals to enablers of diverse self-organizing teams and networks, both inside the organization and outside. This is a very different way of structuring work for an organization. Indeed much of the work of an organization takes place outside the organization, both in networks of partners and with customers with whom the organization is interacting.
So how can work be coordinated, when its goal, and even much of the work itself, lie outside the boundaries of the firm? Again, there was a lot of different terminology used, but also a lot of common ground:
- Some called it “design thinking” (Tim Brown and Roger Martin).
- In software development, it is called “Agile” or “Scrum” or “Kanban” (Harvey Wheaton, Chair of the Scrum Alliance; and Clas Neuman, Global Head of SAP Labs Networks)
- Some call it “light footprint” (Charles-Edouard Bouée, Roland Berger Strategy Consultants).
- In the US military, it is called “mission command” (Roger Martin).
- In the public sector, some spoke of “strategic agility” (Yves Doz) or “system stewardship” and “test, learn and adapt” (Michael Hallsworth)
- There was also “managing positive deviance” and learning from the bright spots of accomplishment (Ben Ramalingam).
- Developing “dynamic rules of the game” (Mikko Kosonen)
- Breaking down the walls that separate government departments (John Elvidge)
Despite the different labels, these speakers are describing an emerging way of coordinating work in the face of dynamic complexity. It’s an approach that solves a conundrum that stumped 20th Century management, namely, how do you get continuous innovation at the same time as disciplined execution? 20th Century management oscillated between those two poles and never got it right. If you achieved one, you lost the other.
The reality is that hierarchical bureaucracy, with its rules, plans and reports, simply can’t get that job done. The new approaches to coordinating work, which have emerged over the last fifteen years, resolve that conundrum. They enable both continuous innovation and disciplined execution.
They involve working in short iterative cycles, giving autonomy to the people doing the work, getting direct feedback from customers or their proxies at the end of each cycle. In the process, the manager’s role shifts from being a controller to someone who enables the emergence of creativity, and removes impediments. As Clas Newmann said, this way of operating allows the firm to get new stuff out the door both better and quicker and meet customers’ shifting needs.
In the 20th Century organization, efficiency and predictability were paramount. But the world has changed. Line organizations driven by efficiency and predictability will have trouble in flourishing: they lack the ability to sense and adapt to the dynamic complexity of their environments.
The values that have become much more important are transparency, continuous improvement and sustainability.
Many speakers highlighted the importance of transparency.
- Chandra (Natarajan Chandrasekaran, CEO of Tata Consultancy Services) stressed that all data must be visible to all levels.
- Rick Goings talked about having “a big room” with all the data so that people can see what’s going on.
- Don Tapscott said that “as companies are becoming naked, they need to get fit.”
- Most speakers stressed that as the world becomes more dynamic and complex, authentic leadership becomes central and transparency is key.
The need for continuous improvement and innovation flows from the fundamental shift in power in the marketplace from seller to buyer, requiring a shift from an internal focus to an external focus. The firm shifts from an inside-out dynamic of “delivering stuff to customers” to an outside-in dynamic of “understanding and meeting our customers’ shifting needs”. Chandra noted the importance of continuously re-imagining your business as the technology and customer needs shift.
Sustainability also becomes critical for establishing relationships that will grow the business over time, not simply conduct one-off transactions. As Umair Haque said, don’t think about changing products: think about changing lives.
Communications, which were predominantly one-way and top-down in the 20th Century firm, become interactive and multi-directional. They are more horizontal than vertical. It’s not that vertical communications disappear, but horizontal communications become much more important, both inside and outside the firm. Instead of telling people what to do from an authority perspective, communications become conversations in which there is mutual respect for viewpoints and expertise.
There’s an interesting illustration of this shift on the front page of the Financial Times this morning (November 15). JPMorgan, the big global bank, launched, or rather was about to launch, an effort to communicate with its customers in a live session on Twitter with the handle @askJPM. It had to abandon the session even before it was launched because it was overwhelmed by the vast inflow of negative messages from its customers.
Here we have an old-world organization trying to move into the new world and suddenly realizing that it hasn’t understood what its current situation is or what its relationships with its customers are. It’s a dramatic example of Doris Drucker’s point that the new world of communications and social media isn’t simply about setting up a Twitter session or even communications. It’s about behavior and values. It involves about the organization rethinking fundamentally how it operates and what that means for its relationship with the world.
5. A new center of gravity for management
So if we look at each of these dimensions—goals, structure, coordination, values and communications—we can see more clearly that the speakers, although often using different terminology, are presenting a very similar vision of how organizations will need to be managed in order to cope with complexity, a vision that is very different from the way most large organizations are being managed today. It underlines the point made by Rick Wartzman that the Drucker Forum should be about instigating behavior change.
It also points to the suggestion that Richard Straub made at the outset of the conference that the Drucker Forum could and should become “a center of gravity for management in the world”, a kind of “world management forum”. The consensus that has emerged here in the last two days has provided a solid foundation for such a “center of gravity”.
Would Peter Drucker have been surprised by anything at this conference?
Steve Denning: In some areas, he might have said, “I told you so!” That’s the case in particular with the idea that the goal of a firm is to create a customer, which was so central to his thinking and has also been so central at this conference.
The area that would most surprise him would be the area just flagged, namely, how work is coordinated. In his books in the last ten years of his life, Peter Drucker was constantly puzzling: how could we improve the productivity of knowledge work? He saw that we hadn’t really made much progress: what could possibly be done to achieve more progress? And he really had no answer at the time.
What’s happened over the last fifteen years is that we have made progress. I believe that he would be surprised and pleased to learn about design thinking and Agile and Scrum and light footprint and mission command and so on. All of those things which have emerged in the last fifteen years would have been a very pleasant surprise. My judgment is that he would have strongly endorsed these developments.
What would Peter Drucker have made of the extraordinary emergence of new technology and social media?
Steve Denning: Peter Drucker would have endorsed the point that Don Tapscott made that technology doesn’t guarantee a positive future. The future is something that needs to be achieved. Technology could lead us to some very positive developments, but it could also lead us down some very bad paths. These are choices that have to be made. The technology enables the possibility to have much more interaction and a much more valuable society. But it also creates other darker possibilities that we must be alert to.
How should we create the kind of leaders that we need for this new world?
Steve Denning: In some sectors, there is a very large experience of training leaders for the emerging Creative Economy. This is particularly so in the software development sector, where innovation is the driving force. This sector has the largest and most developed approach to training leaders for continuous innovation and self-organizing teams. By and large, the experience has been largely positive and could certainly be applied to other sectors. Other sectors could learn a great deal from it.
The other aspect of creating the right kind of leaders is of course to change the organizations themselves, so that they encourage the kind of leadership that we need, as opposed to the organizational environments that many speakers described, namely, organizations that kill innovation, that kill enthusiasm, that kill trust, and that kill the spirit that we are looking for in leaders. If you have that kind of a management environment, you hardly need to ask: why don’t we have the kind of leaders that we need? It’s pretty obvious that with those environments, we’re not going to get the kind of leaders that we need. It won’t matter what training programs are put in place. So changing the organization themselves is the most urgent task to achieve the kind of leaders that we need.
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