In a Wall Street Journal article, “The End of Management,” Alan Murray makes a compelling argument that "modern management is nearing its existential moment.” He focuses on the last 100 years or so when large organizations developed to organize people and allocate resources for tasks that seemingly could be done much more effectively than individuals contracting with each other. Graduate business school programs have evolved, largely to educate large numbers of people to fulfill the needs of these organizations to deliver on that promise. One of the responsibilities of many, if not most, of the people in these organizations is to increase certainty or predictability with the intention of increasing quality and on time, on budget, performance. An unintended consequence of those efforts is to make the organizations resistant to change and seemingly even resistant to the dynamics of the market itself.
As the rate of change and market disruption accelerates to the pace we see today with the advent of things like social networking and smart phones, this sets up “a destructive clash between whirlwind change and corporate inertia.“ Murray argues that some of the classic failures of once market-leading companies has not been a result of “’bad management," but because they follow the dictates of ‘good’ management. They listened closely to their customers. They studied market trends. They allocated capital to the innovations that promised the largest returns. And in the process they missed the disruptive innovations…
Murray traces the development of managed corporations back to a 1937 book citing the importance of lowering transaction costs. We’d like to step even further back for a moment to the very origins of capitalism and organized business. Rodney Stark in his book “The Victory of Reason” provides a very detailed history of the evolution of business, as we know it. Activity started shifting from barter to cash in the 9th century and great monastic estates began hiring labor forces to perform complex, well-organized activities. By the 13th century, religious and societal issues around profits, property rights, credit, and vending had been resolved. Italian city-states began expanding trade into Europe and the rest of the Mediterranean.
Banks and management evolved to address the issues first of facilitating transactions over these greater distances and then lowering their cost. By the 14th century Italian schools were organized to teach required administration and management skills. Accounting, compound interest, double entry bookkeeping, and insurance were invented, all to facilitate transactions. As trade expanded to England, a nation of shopkeepers and manufacturing entrepreneurs sprang up and, as they say, “the rest is history."
Fast forward back to today with this historical perspective and we can see that everything we take for granted as we do business today was originally invented by someone to facilitate trade, which in turn was driven by thousands of entrepreneurs in all regions where they were allowed to operate and were not taxed out of existence. Modern management is just a relatively late development to solve the “recent” problems of large operations scattered over great geographic areas and allow them to continue to facilitate trade and lower its cost. Much of the value of that management has been in gathering, organizing, and dispensing information needed by large numbers of people in far-flung operations to get their work done and make the transactions happen.
Now, with the advent of instant worldwide communication, essentially free information, and the ability of large numbers of people to organize and collaborate without hierarchy, creativity and innovation can move far more rapidly than it can through a traditional organization. Individual entrepreneurs are again empowered, as they were in the middle ages, by these “new fangled inventions,” to start and build businesses. To survive and continue to add value to society, existing firms will be called upon to facilitate their employees ability to think and act like entrepreneurs and to find ways to make their collaborative efforts more valuable than “free” individuals can create through open source collaboration.
Bottomline: The game is on! Is your company addressing this enormous historical shift that rivals that which happened in the 9th to 13th centuries? Are you recognizing this new game? Are you “all in”?