The Future of Management

I heard strategy theorist Gary Hamel speak at the AACSB conference.  Hamel said management schools are doing everything wrong.  I found more detail about Hamel’s views in his book The Future of Management (Harvard Business School Publishing, Boston, Massachusetts ©2007).

In my classes, I (Fred) have been teaching that the most successful companies have made innovation systematic.  Hamel goes further; he says innovation must be systemic, permeating the daily activities and attitudes of every employee – and not just in R&D or product development departments.  Fear of change has been banished, the potential of every employee to contribute ideas and energy has been nurtured and realized, and organizational charts and structures change at the drop of a hat.

In this regard, Hamel likes Whirlpool, Toyota, Google, and a few others.  Here are key passages from his book: 

(p.31) While Whirlpool's innovation efforts have been widely reported, a competitor would find it hard to duplicate what is now a deeply engrained innovation system – for the same reasons it would be difficult to pick apart Toyota's multifaceted management advantage.

 

(p.34) Management innovation follows a power law: for every truly radical idea that forever changes the practice of management there are dozens of others that are less valuable and less influential. But that's no excuse not to innovate. Innovation is always a numbers game: the more of it you do, the better your chances of reaping a fat payoff.

 

(p.36) Many executives doubt that bold management innovation is actually possible. Strangely, managers are unsurprised when science advances by leaps and bounds, yet seem unperturbed when the practice of management fails to do the same.

 

(p.38) If management innovation has been mostly incremental in recent years, it may be due to a lack of daring in the choice of problems to tackle. Ask yourself, has your company ever taken on a management challenge that was truly unprecedented, where you couldn't rely on another company's experience as a guide? General Electric has. In 2006, chairman Jeff Immelt set his colleagues the goal of growing GE's top line at twice the rate of global GDP growth, net of acquisitions. No company of GE's size has ever managed this sort of growth, yet that didn't deter Immelt from taking on the challenge. If the problem is big enough, progress of any sort will be valuable, even if you never find a "solution." I once heard former U.S. Secretary of State George Shultz draw a distinction between "probems you can solve" and "problems you can only work at." As a seasoned diplomat, Shultz knows that some problems, like ethnic strife, global poverty, and terrorism, defy once-and-for-all solutions. Yet he also understands that when you're up against problems of this scale and significance, even modest advances can yield big dividends.

 

(p.102) What makes Google unique, though, is less its Web-centric business model than its brink-of-chaos management model. Key components include a wafer-thin hierarchy, a dense network of lateral communication, a policy of giving outsized rewards to people who come up with outsized ideas, a team-focused approach to product development, and a corporate credo that challenges every employee to put the user first.

 

(p.103) [Google top execs] Brin and Page understand that in a discontinuous world, what matters most is not a company's competitive advantage at a single point in time, but its evolutionary advantage over time. Hence their desire to build a company that is capable of evolving as fast as the Web itself.

Hamel’s oft-quoted aphorism: Organisations used to require intelligence, obedience and diligence from an employee – but they could get that from a cocker spaniel. Today’s organizations need employees to display passion, creativity and initiative.

I liked Hamel’s book, despite some bloopers:

• Hamel appeals to Francis Fukuyama’s largely discredited “end of history” notion.
• His reference to the “college student who spends less on an airline ticket to Fort Lauderdale than he'll spend on booze over spring break” is sadly out of date…
• His statement that “the law of diminishing returns kicks in and at some point the ratio of progress to effort starts to sag” doesn’t accord with learning theory as I understand it – and as Hamel notes, organizational learning is what it’s all about.

The main take-away for management educators is that we should be teaching how to create corporate culture.  A good idea, but most new MBA grads are in no position to create culture.  On the contrary, they tend to be overwhelmed by the prevailing corporate culture two weeks after starting their new jobs, or the second time their passionate, creative initiative is punished, whichever comes first.  In this regard, Hamel’s advice is reminiscent of the Microsoft helicopter joke.  (If you haven’t heard it, ask me.)

Still, it’s food for thought.  And at least, business schools might seek out companies that are sympathetic to this new view, and point our grads in their directions.  Or, we might emphasize Hamel’s ideas in executive ed courses.  I look forward to discussing these ideas with you; enter your comments on this page.  

Cluster Bucks

If you’re an economic development wonk, this column is for you. (Others, ‘scuse me.) It proves that spontaneous growth clusters do happen, and don’t need to cost much.  Note especially the part about "knowledge and a shared sense of possibility and empowerment are every bit as valuable as money."

The New York Times recently gave me credit for being godfather to the Northwest Education Cluster. I love this group. While piles of politics, coveys of consultants, and bales of bucks have failed to produce robust entrepreneurial clusters in the industries that Oregon officially targets, NWEC took off and has thrived for five-plus years – at the cost of a few pizzas.

NWEC now comprises more than forty companies. Pearson has paid a half billion dollars to acquire one of them (eCollege), and others are raising out-of-town capital at an impressive pace.

Fine, committed people bought those pizzas, and were key to NWEC’s success. More about them below. Various Oregon magazines called to ask me about NWEC, and the following is a digest of the resulting interviews.

How did NWEC get started?
I had met investment banker Kelvin Ng socially, through the BudoDojo and the Harvard Club. In August 2003, he wanted to get Portland's education companies together, and asked Dr. Niki Steckler and me to emcee. I arranged a room at the Oregon Graduate Institute, added my education industry contacts to Kelvin's, and ordered some pizzas. Kelvin brought along Jim Snyder, who has been leading the group ever since.

What was your role?
I think the value I added was in mapping a way forward in the event that the group found value in meeting with each other. I also suggested the right questions to ask, to determine whether that value was there. (Jim still has a flow chart of all this in NWEC’s web archive.) It was Kelvin’s idea to call the meeting, but “just to see what will happen.” So, Kelvin’s initiative and mine complemented each other nicely. We decided not to force matters; if sparks flew, we’d host more meetings. If no sparks, we would enjoy the group’s company for an evening, and then forget about it.

As it turned out, there were sparks. We had more meetings at OGI. Bill Kelly, LaVonne Reimer, and Mona Westhaver injected a lot of energy into the early meetings. My company donated and hosted the group’s first web site. Subsequent developments played out actually much as the flow chart prescribed.

What did it take to get started?
To my knowledge, NWEC has received no direct government support – though some state education-related agencies participate – and in fact, not a whole lot of financial support from anyone. It is thus a good example of a decentralized, spontaneous, networked initiative for knowledge-based industry and economic development. My European friends are amazed that this can happen; in Europe, most such things are instigated by governments. But it is possible because when it comes to cluster formation, knowledge and a shared sense of possibility and empowerment are currencies every bit as valuable as money.

Your new book is on this topic. What is it about?
It is called Social Culture and High-Tech Economic Development: The Technopolis Columns (Palgrave-Macmillan 2006; European readers can get it direct from Palgrave here). The title pretty much describes what it is about, and it draws heavily on my experiences in Austin and Portland (and other places where I’ve consulted) encouraging technology-based regional development. I highlight the Northwest Education Cluster in the book, and Portlanders will recognize local figures and names. Ralph Shaw, Pierre Ouellette, and Chet Orloff contributed chapters. Some chapters are columns I wrote earlier for The Oregonian and the Portland Business Journal. Engineering the right social interactions among NEC members and between NEC and the larger community were key to the cluster’s success.

Had you been involved in anything like this before?
I’d been a founder and board member of the Austin Technology Council, which quickly grew to more than 400 company members. ATC’s founding had been preceded by several conferences at the IC2 Institute, all of which raised enthusiasm about software and tech cooperation in Austin. I wanted to see whether we could quick-start NWEC without all the preliminaries, and it proved to be a “yes.”

I’d used a DARPA grant to launch the Northwest Advanced Display Forum (NADFOR) in 1998 as a networking organization focusing on the business and strategy issues of the Northwest’s display industry. Eventually, we gave NADFOR to SID (the Society for Information Display), an international organization which until that point had dealt with technical issues only. But NADFOR, too, was a model I referred to when looking ahead to possibilities for NWEC.

I’ve consulted on new business incubation, in many countries. I helped the Portland Development Commission plan the incubator near Portland State University, and talked the Beaverton city council into starting the incubator which became the Open Technology Center.

Were there other success factors?
Oregon continues to attract educated people who are passionate about education. They are obvious employment targets for education companies, and obvious candidates to become education-related entrepreneurs. They don’t want to leave Oregon, so the companies have to come here and/or stay here.

Naturally, NWEC does what clusters do: meet for knowledge sharing and social networking, and connect with universities, governments, and other cluster initiatives in the region.  Technically of course NWEC is an industry association, representing companies in a nascent cluster.

Where VCs used to shun companies with “assets that could walk out the door tomorrow,” that is now changing. This means an enterprise with smart, committed, creative, relatively immobile people can now attract venture capital. A number of these companies also have proprietary code assets, but educational software is still not a mass market, nor one that commands high markups. Perhaps slow but sure growth, without the pressure for investor liquidity, is a success factor.

Why did you push in this area....why this particular project?
At that time in Portland, and I suppose still today, there was a lot of thrashing about concerning biotech, the off-shoring of semiconductor jobs, and so on. It absorbed a lot of energy and press attention, but I noticed there were several industries quietly thriving: outdoor clothing and gear (Columbia Sportswear and others), knives and small tools (Leatherman and others), running shoes and athletic wear (Nike and others), and education-related businesses (eCollege and others). Of course, flat panel displays were still thriving in Oregon as well, and several kinds of software companies. NWEC was an opportunity to help one of these unsung, embryonic clusters give itself a boost. It was a satisfying way to make a real difference when the biotech etc. initiatives were still just yakking.

Companies we've talked with say the vast majority of their revenue comes from outside the state of Oregon. Any speculation as to why this is the case? Do budget woes in Oregon education have something to do with it?
There are only 3 million people in Oregon. The vast majority of everything happens outside Oregon. Oregonians are passionate about education, but not always rich enough to pay for it.

The Oregon Business Plan Summit very much emphasized the importance of a strong education system, for benefiting the local economy and competing globally. Could this fuel companies within the education sector?
The Oregon Business Plan has been in development for at least five years now. What changes have been seen in Oregon education? Look at the (non-NWEC) companies involved in OBP. Have they lobbied to raise school taxes? Announced ongoing commitments to make significant gifts to school districts? I’ve been away and I’m uninformed, but I’d guess the answers are none, no, and no. The universities should partner with the NWEC companies and the school districts to write federal grant proposals for research and technology transfer. Our Congressional delegation would surely help with this.

I refer you to Jim Snyder's guest column in Education Week this month (Jan. 08).  The NW Ed Cluster's national profile grows.