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Bridging That Divide Between the Old and the New
Civilization today is poised at the brink of a great divide between an old way of life that is dying and a new way of life that is still being born. Behind lies an Industrial Age that lavished wealth on a world that was poor—but which also left a polluted planet, quarrelsome societies, and empty lives. Ahead lies the much heralded promise of the Information Age—but its growing contours continue to surprise and shock us. Who would have thought that a global economy would appear almost overnight? That the Soviet Union would just disintegrate? That the United States would slip into decline?
There are many ways to examine such complex issues, but basically these are problems of managing social institutions. As a knowledge economy spreads around the world, the largest professional group today is the rising managerial class that guides a growing infrastructure of complex organizations. Most of the worries that dominate the news emanate from the interaction of corporations, governments, schools and universities, hospitals, news media, armies, and other institutions that support modern life. Peter Drucker described it this way: "Because a knowledge society is one of organizations, its central organ is management. Management alone makes effective all of today's knowledge."
And as events accelerate to produce ever more complex technologies, intense competition, and turbulent, constant change, the aging foundation of this entire institutional system is failing everywhere. Witness antigovernment sentiment in the United States, the crisis in health care, and demands to reform education. IBM, once regarded as the best-managed corporation in the world, recorded the biggest business loss in history recently, which was soon exceeded by General Motors (GM). Confidence in institutions has fallen from 52 percent in 1966 to 22 percent in 1994, and no recovery is in sight.
Out of all this confusion, a workable new social order must be constructed to manage a radically different world. This book describes the organizing principles that are emerging to master this challenge—The New Management—and it offers guides on how managers can lead their old institutions into this new era.
WHAT REALLY IS THE NEW MANAGEMENT?
Most people have an intuitive grasp of management because we are raised in a world of organizations, so at an early age we absorb the basic concepts of working life. That's why management education is often dismissed as "common sense."
But it is exactly this commonly understood sense, or "paradigm," that is the problem. Prevailing management concepts were conceived for an industrial past, so they are not useful for a vastly different economy based on knowledge. The founding fathers of management would be baffled to hear modern managers talk of "networks," "telecommuting," and "virtual organizations."
The Evolution of Management
The classic theories of Henri Fayol, Max Weber, and Frederick Taylor defined the traditional view of "mechanistic" organizations to manage the simple conditions of the Industrial Age. What could be more reasonable in an "age of machines" than to construct institutions as "social machines"? Today, however, a more complex world described by the "supertrends" in Box 1.1 has made this model obsolete.
The force driving this transformation is the inexorable increase in computer power by a factor of ten every few years. Forty percent of American homes now have personal computers (PCs), and the number is growing 30 percent per year. The average household uses computers twice as much as it uses TV, and computers are also connecting people together through the Internet and information services like America Online, CompuServe, The Microsoft Network, and Prodigy. In 1994, the first three-dimensional virtual meeting was held across the Pacific between teams of Japanese and Americans whose images "met" in a virtual conference room. One participant described the experience this way: "We've been dreaming of cyberspace for a long time. Here it is, the way people really interact." Bill Gates claims all these capabilities will be in common use by the year 2000.
By the end of this decade, then, average people should be able to work, vote, learn, shop, play, and conduct almost all other aspects of their lives electronically, using multimedia PCs that combine the intelligence of a supercomputer, the communications of a portable telephone, and the vivid images of high-definition TV. These trends foretell a transformation of the entire social order, and the battle to define a new social order will be waged in the way we design and manage institutions.
Managers have begun to restructure their organizations in recent years as Total Quality Management (TQM), alliances, reengineering, self-directed teams, empowerment, community, and other innovations suddenly burst on the scene. A recent issue of Fortune even announced " The End of the Job," and Kunhee Lee, chairman of Samsung Corporation, the largest Korean conglomerate, told his managers, "Change everything except your wife and kids." Figure 1.1 outlines this rich body of emerging thought, showing how the introduction of major new concepts has progressively moved the practice of management toward an "organic" focus. The entries are not exhaustive, but they offer a general guide to the rapid evolution of management today.
The neat concepts of classical management were challenged in the 1950s when Abraham Maslow, Elton Mayo, and Douglas McGregor showed that the field was expanding to include human and social factors. Later, in the sixties and seventies, bolder insights burst the boundaries of the old management altogether. Chester Barnard, an executive at American Telephone and Telegraph (AT&T), described management in terms of social systems. Paul Lawrence and Jay Lorsch discovered that effective organizations consist of diverse parts united into a coherent whole. Warren Bennis foresaw the need to replace authoritarian control with democracy. And Henry Mintzberg found that managers are engaged in an action-oriented flow of people and information rather than sterile problem solving.
Although these were radical ideas at the time, they can now be understood more clearly as the first wave in a flood of organic concepts that swept through the 1980s and 1990s. W. Edwards Demming and J. M. Juran pioneered the quality revolution. William Ouchi, Tom Peters and Robert Waterman, and Peter Vaill helped us see that excellent managers instilled purpose and meaning. Ray Miles and Charles Snow showed that modern organizations consisted of networks. Gifford Pinchot and Russell Ackoff brought free enterprise inside the firm. Peter Senge outlined the principles of organizational learning. Terrence Deal, Allen Kennedy, Peter Frost and his colleagues, Lee Bolman, and Michael Ray revealed how institutions form their own cultures and spiritual beliefs. And my book The New Capitalism showed that all this change flows from traditional Western ideals of enterprise and democracy.
The Old Versus the New Management
While it is clear that a new stream of management has appeared, there is great confusion over what this New Management will consist of when it matures. A quick scan of the business media shows a bewildering blur of new management ideas extolling everything from "greed is good" to "business ethics," and an authoritative survey recently concluded that there is little agreement on today's management paradigm.
This confusion is particularly severe because it often rages across a great divide separating the past from the future. The economic history of our time will likely be told as a tugging and pulling between the old versus the new: power versus participation, hierarchical control versus market freedom, profit versus society, growth versus the environment, and so on.
On the "new" side of this divide, many proponents of progressive change are caught up in a revolutionary zeal that proclaims the virtues of "empowered people," working in "fluid structures," to serve "human needs" and "protect the environment," all energized by "spirituality." These are exciting ideas, but they often appear naive to managers who are struggling to survive a hard world. Managers who responded to the CIT survey offered the following reactions: "Just because an idea is old does not mean it is bad," and "There will never be a substitute for the discipline and accountability of the old system." One executive put it this way, "The implication that we've come to a crossroads in business management is full of hot air.... We need to remember, follow, and reinforce the good old ideas ... no one has discovered any new secrets of management."
On this "old" half of the divide, it's true that many executives are stuck in outdated views. Listen to some typical comments from managers in the CIT survey: "It is incredible to witness just how terrified senior managers are of change. They paid their dues in the old system, and now they feel a right to privileges within that system," and "Some people must exert total control over every aspect of their business." These are valid criticisms; however, adherents to the Old Management raise crucial objections that test new ideas, and their influence maintains a healthy continuity with the past. Serious change is going to require more than lofty sentiments.
For instance, it is refreshing to see attempts to empower employees sweep across the land, but these innovations often fail because of unrealistic expectations. Weirton Steel excited the nation when it became the largest employee stock ownership plan (ESOP) in America, yet now the company has fallen on hard times and so it has been forced to take drastic measures, including the same type of layoffs often associated with "heartless corporations." Weirton's owner-workers are justifiably angry: "How can we be laid off if we own the company?" asked a puzzled shareholder.
The road to a New Management is littered with the ruins of such noble failures, so it would be wise to acknowledge their cause honestly if we want to avoid them. In the Weirton Steel case, avid proponents failed to recognize the enduring truth that "authority must be commensurate with responsibility." While workers were enthusiastic about their newfound powers, they were unprepared to suffer losses because they did not realize that ownership incurs the risk of control as well as the right of control. The same fatal flaw is damaging employee governance in Europe.
These forms of worker participation have been a beacon for enlightened management, but they accorded employees dominant control over their enterprises without ensuring that this power was used responsibly, allowing workers to reward themselves without commensurate gains in performance. The most brilliant management innovations cannot repeal the iron laws of economic reality that require us to live within our means. A New Management can offer people the power to control their lives, but it must also hold them accountable for performance as well—just as the Old Management did.
The reverse is also true: demands to improve productivity mean little unless they are accompanied by the power to control one's work life. The use of downsizing and other attempts to reduce costs are often disappointing because they are usually imposed from the top down in a rather arbitrary way, causing fear, stress, and resentment at being treated unfairly. At a time when CEOs routinely claim "our employees are our greatest asset," this is precisely the wrong approach. Top-down change disempowers people and prevents local solutions that are usually superior—hallmarks of the New Management.
These confusing conflicts between outmoded practices and untested promises are the principal obstacle to economic progress. We can't go back to a past that no longer works, and yet we seem to be having difficulty finding solid ground to move ahead. How can organizations be productive when managers seem confused over what they expect from their employees? Will American companies lose the product markets of the future to global competitors as they did before in electronics and automobiles? Most importantly, the full impact of this upheaval will hit when the next wave of information systems arrives about the year 2000. Will we be ready to handle this enormous untamed power of the Information Revolution? The question can no longer be avoided: What really is the New Management?
The New Foundation of Management: Democracy and Enterprise
I believe a new foundation of management is emerging that can bridge this divide between the old and the new. Not only can this conflict be resolved, the New Management absorbs the Old Management into a broader, more powerful framework that makes sense of all the concepts, problems, and innovations that confuse managers today. The key to understanding this crucial resolution is to see that the two complementary principles of democracy and enterprise are now transforming organizations into a balanced whole.
Managers have always worked in a market economy, of course, and we all live in a democratic society, so what is really new? What's new is that these practices have been notably absent in organizations. There has been precious little entrepreneurial freedom inside corporations or governments because they were traditionally managed as centrally planned hierarchies, and the mere thought of democracy was anathema in business. Even the Catholic Church acknowledges that it is not democratic.
But within the past few years, these two principles have been bringing a fresh new vitality into corporate life. As we will see, today's movement toward smaller business units, entrepreneurial freedom, accountability for economic results, and other enterprise principles is likely to culminate in complete "internal markets." Likewise, a similar trend toward empowerment, participation, collaborative working relations, human values, and other democratic ideals should lead toward "corporate communities."
Please note that there is a difference between the concepts of "enterprise" and "internal markets," and between "democracy" and "corporate community."
The power of free enterprise is introducing some aspects of market behavior in organizations, but it is hard to envision hostile takeovers of corporate divisions. So organizations are unlikely to become completely free markets. But as Chapter 2 will show, if managers encourage the starting of internal ventures, provide the wide operating freedom that enterprises need to thrive, and reward entrepreneurs for their success, these conditions constitute what I call an "internal market."
Likewise, the ideals of democracy are moving into organizations, but this is not likely to be a legal system of representative government. Webster's dictionary defines "democracy" as originating from the Latin demos, meaning "the people." In this broader sense, democracy is a system of governance based on the rights of people. As we will see in Chapter 3, the application of democracy in organizations usually takes the practical form of collaborative working relations that form a corporate community.
Thus, internal markets and corporate community are defined here as "organizational equivalents of enterprise and democracy." These two concepts together offer such breadth of understanding that they provide managers a unified, practical body of principles. No single framework is able to explain all aspects of management, but I estimate that most, and possibly as much as 70 to 90 percent, of today's management innovation flows from these two key principles.
If this view is valid, the union of democratic and entrepreneurial principles should resolve the clash between the Old and the New Management noted above. In fact, it does exactly that: "empowered people" must assume both rights and responsibilities, "fluid structures" require freedom and accountability, "human needs" include the welfare of social constituencies and profit for investors, and spirituality—ah, spirituality!
Excerpted from The New Management by WILLIAM E. HALAL Copyright © 1998 by William E. Halal. Excerpted by permission of Berrett-Koehler Publishers, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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