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The management X-factor

Thu, 6th Jun 2019

There are plenty of theories about the well established declining rate of innovation in the capitalist West. One large, but often neglected, contributor is the behaviour of all-powerful capital markets. In one much quoted study, US directors admitted they would pass up promising investment opportunities rather than disappoint Wall Street expectations and attract the attention of activists, private equity and other predators. (Here is an explanation for two other ‘mysteries’: the increasing number of companies shunning the public markets and remaining private, and the sharply declining life expectancy of quoted companies – today’s shareholder primacy model is simply not compatible with long-term corporate health and wealth.)
Another plausible reason for slowing innovation, though, is the laws of science, which make it ever harder to replicate the ‘10X’ improvements that have fuelled growth spurts of the past (rail equalling 10X canal, car 10X horse, electricity 10X candle, internet 10X print, jet 10X train, etc). Note in this context that platforms such as Uber, while certainly disruptive, aren’t actually market-creating or indeed even value-creating innovations to any large degree, their undoubted value to consumers being significantly undercut by the destruction of value to the same people as workers. Since Uber's current fare levels are avowedly unsustainable, the value to consumers may in any case only be temporary, lasting just as long as it takes to establish a de facto monopoly and operationalise autonomous vehicles, at which point prices will speedily rise to cover full costs and begin to compensate long-suffering shareholders. Meanwhile, even in medicines innovation is stalling as development costs rise and antibiotics lose their potency; and only the most ardent believers think Californian commuters will benefit from Elon Musk’s mooted 700 mph ‘hyperloop’ link between San Francisco and Los Angeles any time soon.
There is, however, one area where a multiple-times gain is immediately available, requiring neither expensive technology nor indeed much capital investment at all. All its components are already known. And it would benefit not just one sector, but the whole of the economy. It is, of course, management, the most ignored factor of all. The cost of mis-managing the resources we have at our disposal are beyond colossal. The late Peter Drucker got a lot of things right, but when he confidently predicted that by 2010 large businesses would be operating with half the management levels and one-third the number of managers of 20 years ago, he was spectacularly wrong. On the contrary: it is the explosive growth of management jobs that is the most remarkable feature of corporate employment over the last 20-30 years.
As I have noted before, many or most of them are bullshit jobs that only exist as a result of a kind of management ‘failure demand’ – failure to do something or do something right the first time. A good recent example would be the expensive advertising and marketing of dubious products that no one would buy otherwise, now through deeply duplicitous online manipulation and surveillance, or people checking up on and performance managing others. Gary Hamel reckons that excess bureaucracy costs the US $3tr, the UK £400bn annually. And that’s direct costs: factor in the opportunity costs of doing the wrong thing, the ‘unknown and unknowable’ cost of workplace stress, physical and mental ill health, absence and lack of engagement, and ‘pretty soon you’re talking real money’, as the US senator famously said. If, as John Seddon argues, systematically better management can at the same time permit private-sector organisations to create greater wealth and the public sector to consume fewer resources, that would be a double whammy of improvement. The side effects of better morale, higher engagement and greater wellbeing as a result of more effective public services would constitute a third.
At the broadest level, there are things we could do to remove energy-absorbing frictions that are so obvious they shouldn’t need saying. The great development economist and historian Carlota Perez believes that the IT and communications technology underpinning the fifth industrial revolution could yet lead to a new ‘golden age’ of social development, as previous ones have – but only if as in the past we shape and support it with institutions that make it a win-win for business and society both. It’s not unfettered markets that brought about past golden ages, but judicious channelling of technology and enterprise into areas that benefited wider society – so automobiles and mass-production drove suburbanisation supported by housebuilding and savings and ownership institutions, then pension arrangements and healthcare, all in a benevolent employment-creating circle that enabled ordinary folk to participate in the markets that new configurations had created.
Now things have changed. It’s no use demanding more of the ‘business-friendly’ policies that have led us into the current impasse. The overriding imperative is for all the actors – including business – ‘to make peace with the planet’, in Perez’ striking phrase, acting within its limits instead of treating it as a giant quarry-cum rubbish tip. That’s the first friction. In the same way, it must be obvious by now that there can be no golden age while economic incentives are so wildly out of alignment with social interests. We need to use markets – ‘the only natural economy, the only kind that makes sense, the only one that leads to prosperity, because it is the only one that reflects the nature of life itself’ (Vaclav Havel) – but not in a way that allows the proceeds to be monopolised by just one constituency, shareholders, at the expense of all the others. As we are now learning to our cost, inequality is a social friction on which both the economy and the polity can come to a grinding halt.
Just as importantly – the third great damaging cause of friction, and for most people the most immediate and pressing – the way our organisations are currently run is so grotesquely against the grain of everything we know about how human beings work that it would be comical if it weren’t so perversely destructive. Despite the best efforts of mainstream economics and management based on it, we don't belong to the fantasy race of homo economicus; treating people as if they did is Orwellian anti-management. It makes people unhappy and distrustful, the work dismal, and the places they do it, especially big companies, corrupt, inefficient and – the ultimate waste – stuffed with people doing jobs that they hate and have no purpose.
There’s no excuse for this. We know that humans scale one at a time. They work on intrinsic motivation (Frederick Herzberg’s ‘To get people to do a good job, give them a good job to do’, is still the unimprovable formulation here), appreciation, face-to-face communication and small teams with as much autonomy as possible. They need a worthwhile purpose they can identify with, that turns innovation and improvement into a part of the daily routine. If they have those, the rest follows after, including investment used at the service of humans, not to replace them. The most important investment needed to eliminate these frictions is the thought, energy and will involved in reshaping law, regulation and incentives to favour the planet and its inhabitants rather than an abstract idea of profit maximisation. The payoff: 10X happiness. Both input and outcome are admittedly hard to measure. But it’s a measure of how far management has strayed from its human roots that that may be the highest hurdle to getting it done.


 

 


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User comments

Andy Lippok :: 8th Jun 19
Oh, once again a cracking good article Simon, one I will encourage my network of people to sign up to, read and digest!
Henning Sieverts :: 8th Jun 19
I couldn't agree more!
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