On my Christmas holiday travels i was able to read the last Economistof 2016, and saw a relevatory column by “Schumpeter” where he eulogizes the foundation theories of modern management thought.
He likens modern management theory to pre-reformation catholic dogma- where often unbelieving priests sold “get out of purgatory” indulgences to desperate congregants… Yes sounds like modern management consultancy to me.
For the last three decades we have taken the four pillars of management theory as read, without questioning there objective foundation. The Economists Schumpeter takes an innovative approach and actually questions whether the foundations of our business theories are still robust.
He doesn’t. He comments “The gurus have lost touch with the world they seek to rule. Management theory is ripe for a Reformation of its own.”
Modern Management theories are organised around four basic tenets constantly regurgitated in every business book you read or conference you attend, or lecture you attend.
- Is business more competitive than ever?
Schumpeter identifies the first that business is more competitive than ever. looking at amazons bysiness top 100 and you’ll see many popular titles promoting the impression of a hyper-competitive world in which established giants are constantly being felled by the forces of disruption. Ive been asked to do a couple of sessions on disruptive innovation as one of the greatest business threats facing todays corporates.
A simple glance at the numbers (or sampling a brew from the worlds increasingly oligopolistic breweries) should be enough to expose this as fiction. The most striking business trend today is not competition but consolidation.
In fact, the years after 2008 have seen one of the biggest-ever bull markets in mergers and acquisitions, with an average of 30,000 deals a year worth 3% of GDP. Technology is high on the list of industries that are concentrating. In the 1990s Silicon Valley was a playground for startups. It is now the fief of a handful of behemoths.
2. Is Entrepreneurship the foundation of sustained success?
A second, and related, dead idea is that we live in an age of entrepreneurialism. Management Gurus like Peter Drucker and Tom Peters have long preached the virtues of enterprise. Governments have tried to encourage entrepreneurialism as an offset to the anticipated decline of big companies.
But, the evidence tells a different story- entreprenuialism is at a dead end. In America the rate of business creation has declined since the late 1970s. In some recent years more companies died than were born. In Europe high-growth startups are rare and most startups stay small, in part because tax systems punish outfits that employ above a certain number of workers, and also because entrepreneurs care more about work-life balance than growth for its own sake. A large number of businesspeople who were drawn in by the cult of entrepreneurship encountered only failure and now eke out marginal existences with little provision for their old age.
From my own experience, entreprenuialism within companies is also in declibe as increasingky risk averse corporate strait jacket executives in layers of governance inhibiting any independent thought.
3. Is business getting faster?
The theorists’ third tenet is that business is getting faster. There is some truth in this. Internet firms can and have acquired hundreds of millions of customers in just a few years. But in some ways this is less impressive than earlier roll-outs: for example well over half of American households had motor cars just two decades after Henry Ford introduced the first moving assembly line in 1913 and there was a similar level of penetration for radio, TV, whiteware appliances and telephones.
But in many respects business is slowing down. Firms often waste months or years checking decisions with various departments (audit, legal, compliance, privacy and so on) or become mired in dealing with governments’ ever-expanding bureaucracies. Now that it is so easy to acquire information and consult with everybody (including suppliers and customers), organisations frequently dither endlessly.
4. Is Globalization a one way street?
A fourth wrong notion is that globalisation is both inevitable and irreversible. This has been repeated in a succession of bestselling books—most notably Thomas Friedman’s “The World is Flat” of 2005—and propagated in corporate advertising such as HSBC’s “The World’s Local Bank” campaign.
But a look at history shows that global inevitability is nonsense. The world of 1880-1914 was in many ways just as globalised as it is today with possibly even freer movement of capital, people and profits than today. Yet, it still fell victim to war and autarky.
It seems recentky that globalisation is showing signs of going into reverse. Donald Trump preaches muscular American nationalism and threatens China with tariffs. Britain is disentangling itself from the European Union. The more far-sighted multinationals are preparing for an increasingly nationalist future.
The backlash against globalisation points to a glaring underlying weakness of management theory: its naivety about international, national and local politics. Modern management orthodoxies were forged in the era from 1980 to 2008, when liberalism was ascendant and “third-way” politicians were willing to sign up to global rules.
But today’s world is very different. With the west’s productivity growth dismal, with companies fusing at a furious rate, with entrepreneurialism stuttering, and with populism on the rise; the old rules of business are being torn up. Management theorists need to examine their foundations and ensure their ideas are intune with the world. Otherwise we risk being exposed as just so many overpaid peddlers of dead ideas.
So where do we go from here? One means of redresing this out of touch theory is a robust attempt at scenario planning. Looking at the foundations of future griwth for your business attunded to actual trends and uncertaintues. Break out from tired theories to address the stark realities of the future.
And funnily enough i am involved with four multinationals looking at an increased focus on scenario planning in 2017.