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Management as still taught in many business schools is on the way to oblivion. Today rather than solving problems it creates them. Management’s so-called “best practices” have caused a multitude of issues that only became apparent after a delay of decades, but are now having a major impact. Every recent MBA graduate makes a good faith contribution to the spread of these practices. Now that they are being adopted by all organizations around the world, the limitations and weaknesses of these “best practices” are becoming increasingly apparent.
They fail in a dynamic market environment. They nip innovations in the bud through bureaucracy and rigid processes. They overwhelm the decision-making ability of companies in an increasingly complex and uncertain environment. They are far too slow to learn and adapt to new challenges. They squander scarce and valuable human resources in pointless and petty turf wars. They frustrate workers, stifle entrepreneurial creativity and risk-taking, and hamper collaboration across divisions or organizations.
Your business value continues to decline. But why? First, let’s take a look at why they’ve worked so well for so long.
At the beginning of the 20th century, F. Taylor established the discipline of scientific management. His approaches created immediate monetary benefits for companies by increasing productivity and quality and reducing labor costs. Indeed, this was one of the fundamental innovations of the second industrial revolution. The business schools that were emerging at the time adopted Taylor’s theories and made them the basis of management education. The strict functional separation of the organization combined with central control and a shift of knowledge from skilled workers to managers increased industrial productivity. All this worked so well that specialization and deterministic planning and control were seen as general principles for efficiently organizing all types of work. Taylor’s practices have been applied to many other areas of business, such as strategic planning, accounting, human resource management, and product innovation. And it worked quite well there, too, as markets were growing in a predictable manner at the time and there was still plenty of untapped space for competitors. However, this state of affairs could not last forever.
Globalization and the Internet disrupted this environment. Globally distributed value chains and on-time delivery increased the complexity of the markets. The Internet democratized communication and opened up markets on a global scale, lowering barriers to entry for many industries. Competition became fiercer than ever, there were many more competitors, customers suddenly had a lot more choice, prices fell and margins disappeared in the blink of an eye. Flexibility, speed and adaptability were now in demand. The “best practices” for achieving maximum efficiency have largely lost their effectiveness and thus their usefulness. But they were now firmly ingrained in the minds of many managers as the gold standard of corporate governance and so they hold onto that.
Today’s market environment is complex and hyperdynamic. Businesses have to adapt. And they must do it quickly. Management’s outdated “best practices” have proven to be inadequate for this. The criteria for success have changed fundamentally. Companies need to find new practices to be successful in the new environment.
It does this by overcoming the self-imposed limitations of today’s management. Why always plan in fixed annual rhythms when customers can easily turn away from products at any time? Why always wait for the next budget cycle before approving funds for a new market opportunity? Why always control tasks and resources along fixed hierarchies when relevant business activities usually require fast ad hoc communication and coordination via networks of knowledge workers?
Today’s market environments require management practices that can deal with complexity and dynamics, with increasing customization of products and generally with digital processes. In short: With fast, customer-oriented innovation. New management principles of this kind are emerging with innovative top players such as Amazon, Haier, commercial banks, Nucor and Morning Star: They break down silos and decision-making bottlenecks, focus on customer needs and establish entrepreneurial skills and incentives throughout the organization. These companies and many others show that these practices are not the privilege of startups or digital disruptors. They work successfully for companies of all sizes and industries. But be careful: This time, using a few new methods at the operational level will not be enough. The change is more fundamental. It will affect all levels of management.
Frederick Taylor brought us one of the greatest management innovations of all time. Taylorist practices have now reached their marginal utility. Today we need something different. Something better. Something that helps deal with the uncertainties of the digital age. Something that gives the management a sense again.
The change is here. time to adjust.
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