An end to management entitlement?

Have we reached peak management hubris? Two very different events over Christmas suggest that the tide might at last be turning.

In a landmark judgement in France, on 20 December the telecoms company France Télécom (later to become Orange) and seven of its executives, including the CEO and HR director, were found guilty of ‘institutionalised mental harassment’ of employees. The offences took place from 2007 as the firm underwent a ‘forced-march’ transformation after privatisation that among other things aimed to shrink the 120-strong workforce by 22,000 and transfer 10,000 more.

The tribunal decided that their behaviour constituted a systematic campaign of destabilisation designed to create a climate of fear and insecurity to induce people to quit. Ploys included unreasonable work demands and arbitrary job transfers in which managers found themselves working in call centres and employees were shifted from one end of the country to another at a moment’s notice. Over a three-year period 19 memployees committed suicide, some of them explicitly blaming company policy; one woman jumped from a fifth-floor window in front of colleagues.

The ruling is important for a number of reasons, both positive – the definition of managerial abuse as a criminal offence – and negative – the arguments for the defence that the tribunal unceremoniously dismissed. All too predictably, the defendants argued that what happened wasn’t their fault. There was no alternative to retrenchment; there was never an official policy of harassment, unfortunate consequences being the result of individual psychological fragility or job inadequacy, or alternatively of excessive zeal on the part of middle managers (to whom the direct responsibility for getting rid of people was delegated); and in any case the tribunal had no business querying corporate strategy.

The court threw out all these defences. It wasn’t querying the ends of strategy, it declared, but rather abusive means to those ends that amounted to a deliberate and systematic attack on working conditions. For the same reason, TINA (‘there is no alternative’) was no defence, whether to top or middle managers who implemented the hostile climate.

And despite the craven attempt of the brass to hide behind their inferiors, the policy of harassment had clearly originated at the top – the abuse was management policy, ie institutional. Interestingly, the company immediately accepted the tribunal’s verdict, somewhat undermining the top three defendants’ decision to appeal.

In quite another neck of the woods, the resignation of Boeing CEO Dennis Muilenburg on Christmas Eve was the culmination of a story that contains almost every element of overweening management ambition and entitlement: a once-great manufacturer whose physical engineering was corrupted by the financial variety; where soaring share price and executive pay were dependent on extravagant stock buybacks that could have funded a brand new aircraft design instead of the cheaper compromise that became the ill-fated 737 Max; where warnings of worker overstretch and poor-quality outsourcing were ignored; where despite warning pilot training and software instruction were economised on to get aircraft into the air quickly; and where relations with the industry regulator became unhealthily cosy; all these being complicit in the two crashes that killed 346 people and resulted in the 737 Max’s unprecedented 10-months grounding that shows little current sign of coming to an end.

The sorry story was compounded by the company’s hamfisted response to the crashes, characterised by The Economist as ‘an ugly mixture of remorse, evasion and swagger’, which it initially attributed to pilot error. For the record, Muilenburg was paid around $70m for his 4.5 years tenure as CEO, with another $30 to $40m due as a golden parachute, something unfortunately unavailable to those in the doomed aircraft; while between 2013 and 2019, Boeing donated a whopping $43bn to shareholders through stock buybacks.

In their different ways, these are both fairly extreme cautionary tales about the perils of managing backwards. The first casualty of reverse-engineering the way to desired results – 22,000 job losses for France Télécom, share-price appreciation in the case of Boeing – is legitimate purpose. The more single-mindedly the foreordained results are pursued, the greater the distortion, and the more likely it is that the means become ends in themselves.

As I have observed before, the end point of this fiercely top-down process – little different in its essential elements from Soviet-style central planning – is means that so overwhelm the original ends or purposes that organisations become their own opposite. At France Télécom, the perversion of purpose turned HR into the persecutor rather than protector of the workforce, increasing the sum of human misery rather than workplace fulfillment. Something similar is happening at Boeing: an aircraft manufacturer whose own employees express doubts about their families using products they have helped to build is in deep trouble, to say the least.

More broadly, such organisations are a reversal, and a grim travesty, of the model of capitalism that capitalists like to present to the world. As entrepreneur Nick Hanauer explains in a TED talk, ‘capitalism is an evolutionary system in which prosperity emerges through a positive feedback loop between increasing amounts of innovation and increasing amounts of consumer demand’.

Both are obviously necessary; absent either one of them there is no system to produce anything. What today’s capitalists have wilfully erased is the link between the two – which is jobs, without which there are no income and no consumers to create the demand for the innovations that entrepreneurs boast of. ‘Only consumers can set in motion this virtual cycle of increasing demand and hiring. In this sense, an ordinary consumer is more of a job creator than a capitalist like me,’ Hanauer observes.

As well as facing specific charges of managerial abuse and product failure, then – the Justice Department having opened a criminal probe into the 737 Max crashes – companies like the old France Télécom and Boeing stand accused of sabotaging the virtual cycle that sustains market capitalism itself. This time, history may be less inclined to forgive them.

With that, a happy New Year!

Towards a new management paradigm – slowly

‘Management is in crisis’, summed up a senior Silicon Valley engineer at the end of the 12th Global Peter Drucker Forum in Vienna at the end of November. His starting point was Drucker’s famous dictum that the purpose of business is to create and keep a customer, that its major functions – the only ones that yield results – are marketing and innovation, and that everything else is cost.

He left unsaid Drucker’s wider assertions: that the economy is a ‘social ecology’ and business ‘an organ of society’, and that society ‘endows businesses with wealth-producing resources (e.g. capital and talent) in order to serve customers.’ Managers in turn are the ‘central resource’ of society, whose very survival depends on managers’ ‘competence, earnestness and values’. ‘What managers are doing is therefore of public concern.’

On all those counts, Drucker might have agreed with the ‘crisis’ verdict. In one forum session, chair and innovation specialist Curt Carlson, former head of SRI International, underlined that innovation, the wellspring of productivity, prosperity, jobs, wellbeing and greater resources for common and societal ends, had lost its way.

Although much effort was devoted to mapping and creating innovation clusters and ‘superclusters’ – another session estimated there were no less than 7,000 worldwide – overall innovation productivity today was dismal. Incubators have little effect and most venture capital firms lose money, with 95 per cent of gains accruing to 5 per cent of firms. Corporate innovation projects had little value. The need for a systematic approach to innovation is as urgent as ever.

In other words, too much of management creates cost rather than value – bullshit work, in fact. It is thus failing in its first duty, competent economic performance providing cost-effective solutions to society’s problems, together with jobs and pay. This transforms it from Drucker’s ‘constitutive organ’ assuring the healthy functioning of society to its constitutive problem, its failures in its central task of capital allocation largely responsible for today’s inequality, a generation of wage stagnation, a decade of crisis and austerity, the ever-intensifying climate emergency, and the social unrest spreading through large parts of the world.

Today’s exhibit #1 in this regard might be Boeing, a once proudly engineering-led firm whose management is facing serious allegations of at best negligence and at worst concealment of design short-cuts on its currently grounded 737 MAX 8 aircraft, at a time when it was paying out more than its entire profits to shareholders in dividends and stock buybacks, to the particular benefit of its own executives.

The theme of the Forum was ‘The power of business ecosystems’. Does this hold out the promise of a ‘new management paradigm…finally?’, as the closing session asked. Well, yes … and no. Several speakers deplored the bandying about of the word ‘ecosystem’ for its connotation of cool and up-t0-date, warning that it could easily become another concept trivialised and voided of meaning by overuse, and that is indeed a danger.

Yet while in the final session LBS’ Julian Birkinshaw urged listeners to get past the idea that some huge new idea is going to come along and change everything, he conceded that on the ground the practice of management was changing. ‘We are seeing a lot of experiments with new ways of working. It’s not only the Ali Babas, the Amazons and the Googles, but also a lot of traditional companies that are experimenting. It’s not just a story of digital innovation. It’s a story of new business imperatives, causing companies to do different things.’

Take the surge of management energy emanating from giant Chinese companies such as Haier and Ten-Cent, both represented at the Forum (with 90 attendees China also provided a significant portion of the audience, another new development).

Haier CEO Zhang Ruimin, an avid student of Peter Drucker, spoke impressively of using the group as a platform to empower thousands of micro-entrepreneurs not just economically but (quoting Kant) with dignity as ends in themselves rather than instruments of the company. In the belief that large companies had to become ecosystems to survive, it was busy creating an ‘internet of food’ and an ‘internet of clothes’ comprising many interconnected devices that would make customers a living part of the ecosystem rather than a party to a one-off transaction, as in the past. A sale was no longer a zero-sum game with a winner and loser, said Zhang; it signalled the start of a relationship with the customer, not the end. Haier was not aiming for a walled garden: ‘We want a rain-forest, with some deaths, but giving perpetual life.’

As Birkinshaw pointed out, the ‘Darwinian’ Chinese model, using internal markets to sort the good ideas from the bad, with no protection for infant enterprises expected or given from the top, contrasted strongly with companies such as Pixar and Tupperware that sought to foster the same ends of innovation and creativity through more traditional means such as nurturing, collaboration and the deliberate mitigation of power.

But although Birkinshaw didn’t mention it, to many, including me, the most inspiring and hopeful management model on show was that of Netherlands health organisation Buurtzorg, represented by founder Jos de Blok.

Buurtzorg is by now rightly well known – a nursing and care organisation that from a 4-member start has mushroomed into an organisation of 15,000 professionals covering much of the Netherlands, and has now spread to 25 other countries, including Scotland (introduced by one of this column’s subscribers) and Wales. It is patient-centred, based on self-managing teams, and delivers better care at 65 per cent of the cost of the conventional industrialised version. Blok calls its model ‘integrated simplicity’, and it is as interesting for what it doesn’t do as what it does.

Things Buurtzorg doesn’t do, explained Blok, include ‘management meetings, policy notes, strategic documents, year plans, HR strategies, and other useless things.’ It doesn’t budget, and there is no finance controller or HR department. Head office consists of 50 administrators, 20 coaches and two directors. There are no management ranks. On the other hand, Buurtzorg built its own IT system (which it sells to others) to support carers and on which they input their 10-minutes-a-day admin. Blok would like Buurtzorg to be ecosystem infrastructure for all Netherlands healthcare, and it has set up a health insurer to apply the same simple principles to the payer side. This surely is management as it should be: invisible, part of the work, helping people to do their job rather than the reverse, and demystified.

Interestingly, in his summing up, Birkinshaw acknowledged that behind the hype ecosystems were beginning to, ahem, disrupt academic as well as practical management work. Both communities had to face up to the idea that the value of a firm now resides as much in its in its network of relationships as in existing physical assets and resources. As Michael Jacobides, also of LBS, has explored, it’s hard for alpha male CEOs to accept that they now live in ‘eco- not ego-systems’, while academics have to get over their sunk investment in the assumption that the standalone firm is the unique unit of analysis. Bluntly, ecosystems put the theory of the firm up for grabs.

Finally, and ironically, ecosystems help explain just why the long-awaited new management paradigm won’t impose itself overnight. While many now accept that shareholder value maximisation was flawed in theory and disastrous in practice, it is held in place by a closely-knit ecosystem of vested interest – business schools that teach it, consultancies that preach and implement it, fund managers whose pay depends on it, private-equity, hedge-fund and activist outfits that ruthlessly practice it to make their billions, lobbyists and politicians in hock to it, and CEOs such as Jack Welch who are happy to denounce it as the ‘dumbest idea in the world’ – but only once their extravagant share options have vested and they are safely in retirement.

Next year’s Drucker Forum has the theme of ‘leadership everywhere’. Yes – and among its tasks working to dismantle the Berlin Wall of the old management paradigm will be as urgent as building the new.

The evolution of management

The theme of this year’s Global Peter Drucker Forum in November is ‘business ecosystems’. That might look suspiciously like a fad or fashion. But although not everyone has yet realised it, it is a depth-charge under current management convention. Briefly, by substituting a biological metaphor for the current mechanical, numbers-driven version, it puts the ‘man’, not to mention ‘woman’, back at the heart of management, gives the company back its role as the engine of social progress and changes its imperative from maximising its own returns to doing its best for the system as a whole.

It also, just as intriguingly, brings into play the idea of evolution. As in nature, business ecosystems – fluid networks, often cross-industry, of partly competing, partly cooperating companies that come together to supply customer ‘jobs to be done’ in novel ways – evolve, sometimes in unpredictable directions. They can’t be managed directly: they can only be nudged. But what they lose in controllability they gain in potential scope. At the launch of the first iPhone in 2007, Steve Jobs, ever the control freak, wanted to keep it as a walled garden and only reluctantly opened up the Apple Store to outside developers. But that was the spark that lit an explosion of innovation. Twelve years on, iPhone users can choose between 2m apps offered by 500,000 developers, to whom Apple shelled out $27bn last year. As well as its other firsts, Apple had invented the first modern platform ecosystem.

Some economists and management thinkers have toyed with the notion of evolution. Joseph Schumpeter saw ‘creative destruction’ as the evolutionary process that propelled the economy forward. In her monumental book on surveillance capitalism, Shoshana Zuboff portrays the latter as a chance mutation of capitalism hit upon by Google which from small beginnings has spread at breakneck speed and is now supported by an ever-expanding ecosystem of its own. Evolutionary psychologists like Nigel Nicholson at LBS have catalogued how modern management techniques systematically cut across the grain of human nature, which is one reason why so many workplaces are uncomfortable and dispiriting places to work.

Much more ambitious is the project of prominent evolutionary biologist David Sloan Wilson, who in a new book called This View of Life argues that all science should be informed by an ‘evolutionary worldview’ – that is, social sciences as well as biological ones (indeed, he insists that at bottom the social sciences are biological. The subtitle of his book is Completing the Darwinian Revolution; one of his chapters is ‘Policy as a Branch of Biology’).

For the author, neo-liberal economics is a relic of pre-Darwinian 19th century thinking about the nature of the universe, having more in common with religion than science. After all, the prescription ‘laissez faire’, or ‘hands off’, only makes sense if nature, or an economy, is harmonious and self-ordering, and human nature immutable – two propositions that have no scientific basis. Yet here is the source of the economists’ foundational idea of the invisible hand delivering public welfare from the doggedly self-interested behaviour of the individual.

In reality evolution, the nearest thing to a perpetual motion machine, is constantly throwing up mutations to be tested by natural selection. It is always on the move, for good or less good (eg the declining effectiveness of antibiotics). One of the adaptations that proved advantageous in early human life was the ability to combine forces in small groups to hunt large animals or later to plant crops and defend territory – a real evolutionary advance. In those groups, the individualistic behaviours that had benefited individuals became an evolutionary disadvantage. ‘If there is anything that evolution teaches us, it is that the pursuit of lower-level self-interest does not automatically benefit the common good,’ notes Wilson.

We are hard-wired to live in and find meaning in small groups (one reason why loneliness is so damaging). Hard-wiring evolves only slowly. But, to oversimplify, evolution has cleverly developed supplementary processes of cultural adaptation and learning that are efficient superchargers to the genetic variety. Cultural evolution explains the astonishing speed at which human societies have developed from isolated groups of savannah dwellers into ever-larger units – villages, cities, provinces, culminating in mega-nations such as China and the US, pan-national groupings such as the EU, and even prototype global organisations like the UN: all this in no more than 10,000 years, the blink of an eye in evolutionary terms. These are huge evolutionary shifts, each move to a higher level offering greater fruits of cooperation but requiring more sensitive forms of governance to reach them. They are all hard won, with many a backward step before the next stage is reached; and, as we observe all too clearly today, each is dismayingly vulnerable to disruption from outbreaks of crudely self-interested behaviour more appropriate to lower levels (Donald Trump, Boris Johnson).

Much the same processes can be observed at work in business and the economy. In an evolutionary worldview, today’s emerging business ecosystems represent an important evolutionary advance, equivalent to the move from single-cell to multicellular organisms in nature, or a federation of city states to a nation. But while their potential is huge – McKinsey sees one-third of world business subsumed into a dozen or so multi-trillion dollar ecosystems (mobility, health, education, etc) in 20 years’ time – they are also finely balanced and prone to unintended consequences. Old habits die hard; many will fail. Surveillance capitalism and the Mafia remind us that there is no harmonious natural order from which positive outcomes will automatically emerge: ecosystems need managing, and managing at a different level from the one from which they are descended.

The contours of a management fit for the purpose of guiding a complex evolution-driven ecosystem in which the health of the larger umit self-evidently is the thing that has to be maximised are only just becoming apparent – and they are dauntingly unlike those familiar to managers of today’s profit-maximising standalone corporation, simplistic by comparison. But the prize, says Wilson, is that if we know how to use it natural selection gives us a potent means of separating out the best means of reaching a chosen goal, and business, where between-group selection (or competition) is especially intense, is an ideal crucible (Wilson’s term) ‘for the cultural evolution of groups that work well in the present and adapt well in the face of environmental change’. In this way, the evolutionary worldview and ecosystems represent an unexpected opportunity to rectify some of the mistakes made at the previous level that have brought us to the edge of disaster, by consciously acting with the flow of evolution rather than against it. The stakes have never been higher.

The purpose of business isn’t for business to decide

The recent statement by the US Business Roundtable distancing itself from the shareholder primacy principle it has upheld for the last 20 years, is potentially a big deal – as was the one in 1997 by the same organisation that enshrined shareholder value as the overriding purpose of the corporation in the first place.

That the new one, signed by 181 corporate grandees including Apple’s Tim Cook, Morgan Stanley’s Jamie Dimon and Johnson & Johnson’s Alex Gorsky, commits signatories ‘to lead their companies for the benefit of all their stakeholders – customers, employees, suppliers, communities and shareholders’ – is of course encouraging (although as Stefan Stern notes in a post to the Drucker Forum, it should hardly be startling ‘to hear CEOs committing to “delivering value to our customers” or “compensating [employees] fairly” (not “paying them more”, we should note).’

All the same, forgive me for suspecting that the new change of heart will have less powerful effects than the last one, at least in the short term. After all, the 1997 statement preceded, and underwrote, the period of wild financialisation and deregulation that culminated in the collapse of Lehman Brothers, followed by the Great Financial Crash, a decade of austerity, and the outbreaks of populist revolt that have culminated in Donald Trump and Brexit today.

Yet there is no hint in the statement that the ‘fraying of the American dream’, in Dimon’s words, or any of its manifestations in inequality, precariousness or ill health, is directly due this terrible error; no hint of mea culpa that shareholder primacy has failed even in its own terms, benefiting only a tiny proportion of privileged investors – prominent among them, as economist Thomas Piketty pinpointed, a small cadre of ‘supermanagers’ whose pay packets have benefited in direct proportion to the number of jobs cut and R&D projects forsworn; nor that the same executives colluded in an extreme ideology which, in the words of Shoshana Zuboff in her monumental The Age of Surveillance Capital, of which more soon, reinterpreted the public corporation ‘as a costly error, and its long-standing reciprocities with customers and employees … as destructive violations of market efficiency’. The regime of shareholder value maximisation is so noxious to publicly-quoted companies that their numbers have halved on both sides of the Atlantic under its aegis, with the same reduction in the numbers they employ.

Unless there is real acknowledgement of the above, and where we actually are now, any ‘reform’ will be limited to lip service, reinforcing the suspicion that the Roundtable initiative is motivated above all by vested interest and the fear that unless it moves first, it risks facing something much more threatening in the future – Democratic presidential candidate Elizabeth Warren’s Accountable Capitalism Act, for instance, or Jeremy Corbyn’s ‘inclusive ownership fund’, which might be the UK equivalent.

Even if the signatories mean what they say, altering today’s course to make a real difference to people’s lives – which has to be the underlying aim – is not a small task. Just as Hayek, followed by Friedman, Jensen, Meckling and Fama did when they set the shareholder value movement in motion in the 1970s, it involves going back to the basics on which the entire edifice of modern management sits. In this case, it means asserting, contra Friedman, Jensen et al, and probably putting into statute, that shareholder’s don’t own companies, and directors and executives are therefore not their agents.

Next, it means reasserting – something blindingly apparent to everyone except the present generation of capitalists – the importance of jobs. The relative peace and stability of what the French call ‘les trente glorieuses’ – the three decades of economic growth and prosperity following World War II – was based on Zuboff’s ‘reciprocities’, and in particular acknowledgement of the simple truth articulated by Henry Ford when he doubled his workers’ wages: mass-production only works when it is part of a system that also creates mass-consumers to buy the product they have made.

During those years, well-paid jobs were the link that closed the circle between production and consumption, and inequality fell. Today, when so many transactions are non-monetary (the devil’s bargain of ‘free’ online products in return for ‘free’ personal data), that circle, already weakened by shareholder-value fundamentalism, has been well and truly broken. Mending it will not be easy, to say the least.

The final obstacle in the way of reform is the formidable ecosystem that has grown up around the prevailing wisdom. Shareholder primacy is taught in business schools, advised in consultancies and, most insidiously, a vast fund-management industry ironically competes for our custom, and gets paid, according to the same quarterly-returns measure that has locked the toxic dynamic in place across the whole economy. ‘As long as the music is playing, you’ve got to get up and dance,’ Citigroup’s Chuck Prince memorably told the FT just before the GFC broke. The fact that, unforgivably, 99 per cent of the media assumes that shareholder primacy is part of the natural order of things ensure that in the background the music is still playing away.

All that said – deep breath – it would be wrong to despair. If a few people with strong opinions and a plausible but erroneous theory could (let’s not mince words) change the course of economic history in the 1970s and 1980s, it can be done again with one that is right. It won’t be simple, and the result will look nothing like it did then – the world has moved on. But we have learned that there is no such thing as technological inevitability – technology is just a means to economic ends. We know more urgently than ever before that, as an ecologist once put it, ‘The economy is a wholly-owned subsidiary of the environment’. And we know that in a post politics-as-usual world, pressure from below can lead to surprising results. So let’s not be too grateful for the soothing words of the business great and good. The purpose of the corporation isn’t theirs to dispense as they please. The purpose of business is to improve and sustain the environment for the benefit of all its inhabitants, whether it likes it or not.

W L Gore unplugged

W L Gore: the company others try and fail to imitate

The group behind the Gore-Tex fabric thrives on its unconventional corporate structure

In these days of near-instant unicorns and listings that net a fortune for founders, selling an innovative small business in order to join a large established company might seem counter intuitive.

When Jason Field did just this, joining WL Gore & Associates in 2005, it could have been seen as an indication of burnout, or at the very least a tacit declaration of desire for a more routine, less pressured existence. But you do not join the US materials science group, known to most for the Gore-Tex waterproofing of their hiking apparel, for a quiet life and sedate progress through the ranks of a conventional company. For a start, there are not any ranks.

Prior to joining Gore, Mr Field, then in his thirties, had owned a horse veterinary practice in Flagstaff, Arizona, where he had pioneered the idea of a new kind of stent. By the time he joined Gore, he had picked up enough about the unique culture of the “enterprise” (its preferred identifier) through his customers, some of whom worked at Gore’s nearby medical business headquarters, to be intrigued.

Mr Field says that the scientific expertise of his customers that worked at Gore had pushed him to be a better vet, while also helping him identify an opportunity “to apply my technological background in a new setting”. This initially led to him taking a research and development role in the company. First product: his stent. It was a natural fit.

Other aspects of Gore’s unusual working culture – including quite different reporting structures – took more adjusting to. Although roles and responsibilities at Gore are clearly defined, they are not captured in neat organisational charts, and the only concession to hierarchy is the word “leader” on a select number of business cards.

In Gore’s “lattice organisation”, anyone can talk to anyone, and no one tells another what to do. Instead new employees – all of whom become shareholders if they stay – are encouraged to navigate their own way through the business.

The self-propelled culture suited Mr Field. So much so, that somewhat to his surprise, he maintains, he emerged last year from Gore’s selection process as the fifth chief executive in six decades of history. A successful career at Gore and a close fit with the board and founding family over values and future direction were obviously important in his appointment. But those alone would not have been enough: no one gets to the top leadership role at Gore unless they have the strong support of colleagues, known internally as “associates”.

“We extend a lot of freedoms to associates,” says Mr Field. “For individuals who are strongly personally motivated and self-driven, that usually works well from the outset. For those who are used to being directed and told how to do things, it’s a challenge.” Not everyone is able to adapt, he notes.

Gore has a disarmingly simple working definition of leadership: a capability to attract followers, for which no other qualifications are a substitute. Mr Field quickly discovered that his previous business record counted for little. “That can be challenging for someone joining later with career experience, and I certainly went through it looking for my opportunity to build credibility and followership,” he says. “You really do have to demonstrate those capabilities, not just talk about them.”

As Mr Field describes it, to lead Gore is to steward a company that prides itself on innovating. It has a constantly expanding portfolio of more than 1,000 products, that range from Gore-Tex and guitar strings to heart patches and cable wiring assemblies used in aerospace.

But Gore’s most significant innovation may not be a particular product, but rather the unique non-hierarchical management model that enables the new products to emerge. “We do see companies trying to replicate some of what we do,” says Mr Field. “But it’s hard to take bits of it and apply them piecemeal, because it’s an ecosystem – a truly holistic way of working.”

When Bill and Vieve Gore founded the company in 1958, in Newark, Delaware, the aim was to build an organisation where inventive people could “have fun and make money”. But they did it seriously. Bill Gore was greatly influenced by human relations school theorists Douglas (Theory X, Theory Y) McGregor and Abraham (“hierarchy of needs”) Maslow, and emphasised the importance of purpose. In the case of Gore, this meant applying technology to have a meaningful impact on society. He also wanted to support human fulfilment, embodied in a set of principles and management practices designed to foster trust, initiative and enable the emergence of natural leaders.

“We talk about the sweet spot where personal interest, skills and experience and business needs intersect,” says Mr Field. “Where that happens, we really encourage associates to chase those experiences.” This, he believes, supplies the fun, the energy for forward momentum and the fuel for Gore’s creativity.

Nurturing this all-important culture absorbs much of Mr Field’s attention. And as the company has grown – in 2018 revenues were $3.5bn with a headcount of 9,500 – being so atypical a company has cut both ways.

There have been no shortage of growth opportunities in healthcare, aviation, electric vehicles and telecoms, for instance, but the company has learnt the hard way that it cannot expand faster than it can scale the culture – one person at a time.

It helps that Gore is privately held, so it does not need to react to every spike in the news cycle or short-term demands from Wall Street. But inventing your own rules means there are no conventional management short-cuts to fall back on. It has had to define decision-making roles and attribute accountability more clearly. There have also been uncomfortable moments when the company has struggled to reconcile the founding principles with the need for more structure to support growth. “Gore isn’t perfect,” Mr Field says.

“But we’re a human organisation, a learning organisation, and we think about our organisation and practices in the same way as we think about our technology… the more we can find proof points that we’re going in the right direction and allocate resources against those practices, the better off we shall be.”


Words matter at Gore, and they do not always mean what they do elsewhere.

To those who work there, Gore is the enterprise, not the company. It has leaders, never bosses.

Associates (included in the corporate identity) is not a euphemism for staff – it reflects the fact that they are shareholders who play an active part in upholding the four founding principles of freedom, fairness, commitment and waterline. The latter means avoiding actions that risk holing the boat without first consulting others.

Freedom is as much about helping others grow as oneself, and is bound by further obligations to fairness and accountability to personal commitments.

Gore encourages knowledge-based decision making, based on relationship building (so you know where the knowledge resides) and face-to-face communication, on the basis of which teams self-organise around the best ideas for new products or market opportunities.

Associates emerge as leaders by virtue of attracting followership, the only way of demonstrating leadership credentials – your business record is not sufficient. “If you call a meeting and people turn up, you’re a leader,” as one associate puts it.

Picking up the pound notes

‘What’s needed is a consortium of laboratory companies and a network of inspired innovators all eager to reinvent the way human beings work at scale’. Thus Gary Hamel earlier this year launching a ‘[New] Human Movement’ along the lines of the human Relations Movement – ‘the most important movement in management history’ – to kill bureaucracy and make business an environment ‘where human beings are free to flourish’.

Read it – it’s a stirring message. But with due respect for Hamel, I think that here he’s on the wrong track. What we lack is not labs or management inventors dreaming up flashy new ways of doing things. Instead, it’s patient thinkers able to integrate and take forward the basic things that we’ve known, or at least intuited, since the original human relations movement. As Jeff Pfeffer, another respected management professor, remarked at a 2008 conference on developing management ‘moonshots’, ‘we need an implementation, as much as an innovation, engine’.

Yet an ‘engine’ isn’t the right metaphor either. Consider what have been termed (including by Hamel himself) the ‘positive deviants’ of the business world: companies in a variety of industries that thrive and prosper by doing things so differently from their industry counterparts that they might be a different species. Think among others Toyota in motors, W L Gore in plastics and materials science, Handelsbanken (banking) and, a much more recent example, Buurtzorg, the fast-growing Netherlands nursing and social care organisation. By size, shape, industry and national culture, they are very diverse. Yet what they share is far more important than what they don’t. And it is something that their conventional congeners conspicuously lack: a commitment to building organisations around human beings.

Which prompts the thought: maybe they are a different species.

Thus, when Bill and Genevieve Gore founded their eponymous firm in the 1950s they wanted to create a framework in which entrepreneurially-minded engineers and scientists (as they were) could work on projects that mattered to them and would contribute to the world. They deliberately took as their starting point the human-relations-school theories of Abraham (‘hierarchy of needs’) Maslow and Douglas (‘Theory X, Theory Y’) McGregor.

It is probably not coincidence that the deviants share many qualities with Gore. They all exhibit a strong sense of purpose and identity – essential for cohesion, and powerful enough to deter those who don’t fit. They emphasize small groups acting as teams – nurses in Buurtzorg, multi-skilled craftsmen at Toyota. At Handelsbanken people talk of ‘the view from the church-spire’ view to illustrate the maximum geographical dimensions of a branch’s constituency; at both Handelsbanken and Gore expansion takes place as and when a leader emerges and a team forms around them to launch a new internal start-up. All depend on distributed decision-making around a few simple principles (Toyota crew members can and do halt the line many times during a shift to solve minor issues; Buurtzorg nurses switch between caring roles as required; Gore has ‘leaders’ – those who have followers – but no formal management ranks; Handelsbanken is run by its branches).

In all these organisations, personal commitments matter and are upheld by peer pressure. Since those commitments can be trusted, management bureaucracy (Hamel’s bane) is kept to a minimum. None of them has budgets, the linchpin of conventional command-and-control management, in the ordinary sense. The prime motivation is intrinsic, and the only performance management in the work. Headquarters overhead is typically tiny – at rapidly expanding Buurtzorg, 50 administrators and 20 trainers for 10,000 professionals deployed in 900 teams; Berkshire Hathaway, another positive deviant and one of the largest companies in the world, is run by 25 people from an office in an unprepossessing block in Omaha. While all of them use technology, none makes a fetish or boasts about it – at Toyota, the current manufacturing director, who worked his way up from the assembly line, is busy cutting and simplifying its automation.

Oh, and I nearly forgot: they are all outperformers. Toyota (which has been honing its production system, a genuine wonder of the business world, for 60 years old) is consistently the most profitable car company in the world. The privately-held W L Gore, in its way hardly less remarkable than Toyota, and also 60, has made a profit in every year of its existence; Fast Company labelled it ‘pound for pound, the most innovative company in America’. Handelsbanken has a 40-year profits record, ever since it adopted its current form. Even though it is formally a non-profit, Buurtzorg more than breaks even, ploughing the surplus back into R&D.

Intriguingly, the design principles that the deviants have in their own ways arrived at find echoes in significant research findings in other fields. Take the research that won Elinor Ostrom, originally a political scientist, the Nobel memorial economics prize in 2009. Ostrom researched ‘the tragedy of the commons’, the all-too-common occurrence, for obvious reasons highly unpopular with traditional economists, where the invisible hand of self-interest leads not to the common good but the reverse: overfishing, overgrazing, competitive nationalism and the exhaustion of planet earth.

Working from observation rather than mathematical equations (another slap in the face for conventional economists) Ostrom isolated eight core design principles that distinguished groups that made a success of managing a common resource from those that failed. Lo and behold, they closely replicate those used by our deviants: strong purpose, fairness in reward and cost, inclusive decision-making, commitment and peer-group monitoring, just conflict resolution, local autonomy and consistent governance.

Which brings us straight back to our opening theme – how to advance to a better paradigm – and the obvious puzzle it begs. Managers don’t customarily leave pound notes lying around on the ground: if we know what works, why doesn’t every company do it? One answer, ironically, is that groups, which as Ostrom found work by cooperation that favours all participants, can easily be derailed by self-interested individuals (aka the invisible hand) – after all, the joint capacity of a business group is a common resource that is just as vulnerable to over or unfair exploitation as a village green or fish-rich bay. Perversely, this behaviour is sanctioned and even encouraged by current economic and management theory, which consistently turns a blind eye to the commons problem and persists in viewing companies as machines and people as purely economically-driven robots.

Or think about it as an evolutionary struggle. Public corporations run on conventional lines are a waning breed, having lost half their US and UK numbers over the last decades. They are not well equipped for survival in a world that’s evolving towards broader, ecosystem-like constellations. But the new still struggles to make headway. The deviants are hard to copy, because (like Gore) they are born from different impulses, with as it were a new genetic make-up. As the company’s CEO told me recently, it’s tough for would-imitators to implement a Gore-type organisation piecemeal ‘because it’s an ecosystem – a truly holistic way of working’. In a forthcoming new book, John Seddon notes that the only way conventionally-trained managers ‘get’ a systems approach (common to all the deviants’ worldview) is by experiencing it at first hand. Abstract rational explanation doesn’t change their thinking – since the theory determines what they see, they perceive the paper on the ground as litter, not pound notes. What this means is that growth at the deviants is constrained not by opportunity or even competition, but the capacity to socialise new people into their different-in-kind way of working. Seddon calls this process ‘crossing the Rubicon’: the good news is that those who reach the other side don’t come back. The bad news: they have to do it one by one.

If this is halfway true, Hamel’s labs need a different agenda. Top of it would be removing the blinkers that prevent people seeing what’s before their noses – primarily ‘the absurd conception of human nature known as Homo economicus’, in the words of evolutionary biologist David Sloan Wilson, and secondly the simplistic notion of equilibrium or a natural state of things that is the only justification for Adam Smith’s invisible hand. As the inventor Edwin Land once remarked, the best innovations are often not a blinding realisation of something new but ‘a sudden cessation of stupidity … not having a new thought but stopping having an old one’. Now, where did all those pound notes go?

This changes everything

Change is responsible for more management angst than almost anything else on their agenda. With good reason: apart from leadership, it is the most discussed and least understood element in the discipline – witness a failure rate among large change initiatives that is commonly put at 70 per cent.

Why does change so often go wrong? One clue might be that in many big organisations the custodians of the change budget are… the IT department. There’s a plausible logic to this. IT is routinely presented as the ‘driver’ or less assertively the ‘enabler’ of change, the assumption being that going digital will automatically improve efficiencies and outcomes and thus should lead. Yet, as we all know to our cost, IT projects are even more prone to failure than change programmes.

The truth is that the logic is back to front. IT and change initiatives have a fatal flaw in common, which is that they start at the end, not the beginning. So managers debate strategic options, then draw up plans and schedules complete with quick wins, intermediate milestones, deliverables, and carefully orchestrated communications campaigns to keep people and programme marching towards the desired destination. Of course they do. Where else would you start than with a plan?

Unfortunately, however, there’s a snag. And it’s a fundamental one. While life – as the philosopher Søren Kierkegaard put it – is understood backwards, it can only be lived forwards. This deceptively simple truth means that managing by preordained result is both epistemologically and practically a nonsense. Organisations are human entities consisting of too many variables, too many shifting pieces, and too many feedback loops, all interacting with each other all the time, for them to submit to a fixed plan. Evolution, as someone said, is cleverer than you are. In other words, change is an effect as much as a cause. It is emergent.

This changes everything. The result is not just a different ‘change model’ but a different way of thinking. Conventional change models come straight out of the command-and-control (aka central planning) playbook, decreed from above and driven down through the organisation. In the alternative, systems view, on the other hand, change is better thought of as a process of discovery, proceeding not by way of an abstract plan plotted to a fixed destination, but through open-ended investigation and iterative experiment leading to constantly improving outcomes.

In this version, change starts by establishing not the destination but, much more prosaically, the starting point – something that, extraordinarily, most managers fail to do. Root-and-branch analysis of the current state of play on the ground – that is, face to face with the customer, rather than regulators, shareholders and inspectors – invariably confronts managers with two unwelcome findings. The first is that their real problems aren’t the ones they thought they were (and they are never the lack of fancy IT – sometimes indeed the reverse, as is the case with the shambolic Universal Credit roll-out).

The second, closely related, is that your product or service is way less good than your (or your regulators’) figures led you to believe. Only when you have digested that news (having passed through shock and denial on the way) are you in a position to figure out where and what to improve; and it’s only when the hypothesis has been tested in action that it is possible to envisage what the final change will actually look like.

Such a modest, empirical approach to change has two enormous advantages. The first is that it prevents managers wasting large amounts of money and effort on top-down change programmes that are doomed to fail. The second is that, conversely, cumulative improvements can eventually lead to the kind of gains that no one would have dared to put in a plan. Which all goes to show that the hoary Irish joke had it right all along. If you start from here, you can’t be sure where you’ll end up. But it will be a lot better than imagining you know where you want to go – because in that case you’d have to start from somewhere quite else.

This article first appeared in Professional Manager, June 2019

The management X-factor

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.