The largest taxi company in the world, Uber, owns no cars. The largest hotel in the world, Airbnb, owns no rooms. These and other similar companies are shifting the basis of competition from control over assets to creatively delivering value to the customer. The idea that a company’s competitiveness rests on its ability to control resources and accumulate assets may have been relevant in the industrial era, but it’s mostly irrelevant in the information age. Today, digital innovations from around the world are enabled by technology. But governments struggle to keep control, as even the legal frameworks are rendered obsolete. We’re seeing this with Bitcoin and other crypto-currencies – parallel global financial systems are emerging that threaten government sovereignty.
From strategy-structure-systems to purpose-people-process
Business management needs to be reinvented for the new era. In 1997 the late Professor Sumantra Ghoshal, along with Christopher Bartlett, published The Individualized Corporation, a book with a radical manifesto for reinventing management. They wrote that the dominant emphasis on strategy, structure and systems in organisations stifles people. They advocated a shift in focus towards purpose, people and process, such that companies would enable each individual to contribute meaningfully using their knowledge and creativity. The authors’ core belief was that a firm can only be revitalised if its people are fully engaged. They urged senior management to give frontline managers the freedom to unleash their entrepreneurial and creative abilities.
Professor Ghoshal and Bartlett said that the old style of management was characterised by contracts, controls, compliance and constraints. They suggested a new approach based on developing a climate of trust, discipline, stretch and support. Senior leaders need to shape the company’s purpose by inspiring people and supporting them to attain their stretch goals. In that environment, people will bring their best ideas and work collaboratively in a disciplined manner to deliver the company’s vision. Professor Ghoshal talked about this ideaat the World Economic Forum.
These ideas resonate with my experiences as a strategy consultant to the Fortune 500. The senior management acted as controllers of the purse strings and expected the frontline managers to implement strategies that were developed behind closed doors in boardrooms or at strategy retreats. The hierarchy and silos in organisations persisted with refrains of ‘it was a good strategy but failed in implementation for lack of buy-in’. I came to meet Professor Ghoshal and learnt from him as his PhD student.
My take on The Individualized Corporation is that modern corporations are much more than a pure economic entity that’s only answerable for delivering profits and productivity. It is a social system, where people work and socialise, make friends and collaborate in order to build something larger than them. People can be proud to identify with their company’s mission. The senior leaders who shape and articulate the vision can attract and enable the most talented people to realise it. Organising is about designing processes that permit people to take the initiative and build trust and cooperation.
There is no need for strategy to be a closely guarded secret that’s developed behind closed doors or controlled through the allocation of resources by a select few senior leaders. That approach just stifles individual creativity and people become disengaged, as they use just a small fraction of their knowledge at work. Take Elon Musk and his companies, be they Tesla, SpaceX, SolarCity or PayPal. No matter how bright he is, Musk will have needed highly committed and engaged teams to help him deliver his many ventures.
Being competitive is about having knowledge and creativity
Now, I teach in a Silicon Valley executive MBA programme, where the average student is a 42-year-old successful manager from a local company such as Google, Tesla, Pixar, Intel or Oracle. In their experience, it’s simply not possible for any manager to control the technical knowledge of workers who have their own personal power from their expert knowledge. Competition in business is now about having knowledge and creativity rather than controlling resources. Which company solves the real industry problems? How does a business deliver the best value through its product or service to the customer? These issues determine who the winner is. We have to work on issues that matter to us, our communities and the world. Each individual matters.
The move away from the strategy-structure-systems model of organising to the purpose-process-people one is evident in many changes. The rise of the social enterprise is all about organising for a purpose, to solve some social problem. Conscious capitalism has companies focusing on societal good and serving a purpose. The open source movement – an online community where developers and users create and share software – is another example of doing something for the greater good. Then you have the Humanistic Management Network, a global movement featuring more than two thousand academics, managers and policymakers. They value human dignity and social well-being in management over profits and productivity.
Professor Ghoshal and Bartlett wrote about how the relationship between the individual and the organisation will change. Rather than offer job security, businesses will provide employability – an opportunity for people to practise their craft and skills in order to develop and hone their gifts. Tim Ferris, author of The 4-Hour Work Week, writes about how this is happening right now. People go where there is work and will trade job security for the opportunity to grow. The technical experts at industrial-era companies moonlight for start-ups or act as mentors and advisors. They work to express themselves and build up their skills and personal brand. Engaging talented individuals is becoming more pertinent with the advancement of the information age.
More than 450 million users in 108 countries use the Uber app every month to hail a cab. The app is designed with a universal language that appeals to both the tech-savvy user in Silicon Valley as well as the car driver in India who may not have a high school education. We’re now seeing more people using carpooling apps rather than owning a car that requires insurance and maintenance and can be hard to park when there are so few spaces. In the hotel industry, it takes Hilton or Marriott two years to add as many rooms to their inventory as Airbnb can in two weeks. Enabling trumps control in the new era.
Practice – don’t preach
As a practice-oriented scholar, Professor Ghoshal didn’t just write about these ideas, he embodied them in how he lived and worked. While a PhD student, I was keen to work on his research project. He told me: “I would be doing you a disservice by using you as cheap graduate student labour on my projects. Go find your own interests. You are the fresh blood.” His door was always open for discussing whatever I wanted to discuss. He would read even the half-baked ideas in my essays very carefully and offer in-depth feedback. He provided context that helped me discover my areas of interest.
When nearing graduation, I asked him how I should prepare for presenting my thesis at hiring universities. His advice was, “Be dead honest. Do not claim anything that is not backed up by your research, and keep focused on the work you have done and plan to continue to do.” This advice was not about landing a job, but about the importance of doing meaningful work. If I ever thanked Professor Ghoshal for such caring engagement, he would always give me a story about his thesis supervisors (Christopher Bartlett at Harvard and Elenor Westney at MIT, where he got his two doctorates simultaneously) and say; “Don’t thank me. I am simply doing what my teachers did for me. Just pass it on.”
Once, when he was visiting California, where I live, we met for dinner after he had been teaching all day. I tried my best to get him to leave the hotel where he was teaching and staying, inviting him to see my hometown as a local. He declared that he had to go back to his room to work on a case study immediately after dinner, because “I have no time to be a tourist. This is what I do. Someday in the future, someone will read what I write and maybe they will be inspired to carry the work forward.” Some of those carrying his work forward will be at the only conference focused on managerially relevant research hosted by London Business School in his memory. His ideas continue to be relevant in a field where management fashions change with the seasons.
Jyoti Bachani is Associate Professor of Strategy and Innovation at St Mary’s College of California and Visiting Research Associate at Imperial College