Professor of Strategy and Entrepreneurship; Academic Director, Institute of Entrepreneurship and Private Capital
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Just what is management? Is it a science? Is it - as Peter Drucker proposed - a liberal art? Or simply a craft? Perhaps it is this lack of clarity about the exact nature of management that makes it so prone to fads and fashions - a discipline that has been repeatedly disrupted and is constantly on the lookout for the next new thing, whether frightening or reassuring.
The latest focus is on big data. For Silicon Valley’s evangelical techno-optimists, the combination of big data and artificial intelligence could eventually dispense with the need for human agency altogether. Already, a growing number of firms are betting that more and better use of data can give them a tangible competitive boost in the here and now: more detailed knowledge, and better analysis - of customers, employees and the business environment - have the potential to reduce risk and uncertainty and radically improve decision-making. In an information age, competitive edge will surely accrue to those firms which use information best. Won’t it?
We shouldn’t assume so. Managers are wrong to put their faith in any such certainty, argue Jonas Ridderstrale and Julian Birkinshaw in their new book, Fast/Forward. The title sums up a deceptively simple theme: in a fast-changing world, mountains of data and super-detailed analytics can get us only so far. Indeed, they carry risks of their own. Ridderstrale and Birkinshaw observe that many companies are more comfortable analysing and debating than acting decisively and intuitively. The default assumption that more and better information is always better actually cramps companies’ ability to move fast. To navigate the future, the ability to act with decision and purpose will trump big data. Priorities need to be reversed.
As Birkinshaw admits, theirs isn’t the first call to action. But the prescription is far from easy to put into practice. It involves issues of strategy, organisation and leadership. It also requires an ability to accommodate priorities that are pulling in different directions. It entails getting to grips with some awkward paradoxes thrown up by the information age. Crucially, it goes beyond the competitive-advantage, ‘built to last’ view of business success. Business is constantly evolving, and no competitive advantage lasts forever. ‘What we need instead,’ write the authors, ‘is for companies to figure out how to make the rate of change inside at least as rapid at the rate of change outside… Fast/Forward companies have an evolutionary advantage: they are fit for the future’.
The information age carries the seeds of its own destruction
The starting point is the counterintuitive way the world is changing. One of the paradoxes of progress is that the information age carries the seeds of its own destruction. Where data is ubiquitous and search costs zero, it becomes a commodity that can’t confer distinctive or enduring advantage. So at the same time as steering a course through huge oceans of data, firms have to look over the horizon to the next stage.
There is a less obvious point. Yes, there has been and is a steady generational increase in human intelligence; but the overall global stock of knowledge is growing even more quickly. So relative to that global measure, we are each becoming more ignorant. The more we know, the more we don’t understand. The implication is this: the ability of any individual, however insightful, to master all the disciplines needed to guide a firm of any size lessens by the day. To quote Warren Bennis, ‘None of us is as smart as all of us’.
Furthermore, the more connected the world, the more complex it becomes. Variables and feedback loops become ever more numerous and entangled – their complexity outstripping the ability of computers to provide meaningful results – and this even before the full-blown internet of things. The result is a non-linear business landscape where the only thing that can be predicted is unpredictability.
Neither bureaucracy nor meritocracy are good at coping with rapid change
It’s not just prediction that is impossible. In many areas, the multiplication of data points doesn’t increase certainty: it undermines it. Information overload and its corollary, attention deficit, serve only compound the quandary. As the Brexit debate demonstrated, says Birkinshaw, individual beliefs matter as much or more than the views of experts: look no further than Trump and Farage to see the formidable results that, for good or ill, those who harness beliefs can achieve. Belief and emotional commitment supply the momentum without which rationality all too often seems sterile and static.
In this environment, where the future can’t be predicted, the focus shifts to the need for decisive action. Conventional planning and strategy, and even basics like budgeting (‘plans with numbers’), are ‘just not a very useful way of spending your time’, notes Birkinshaw. Indeed, beyond a certain point, planning by rational analysis is no longer a help but a hindrance. In individuals and companies – sometimes even states – it can lead to analysis paralysis and round-in-circles debate, or obsessing about getting things exactly wrong instead of roughly right. Think Nokia, Blockbuster, and Kodak, all of which were well aware of what was happening in their marketplace but couldn’t get beyond knowing to doing.
Hence, says Birkinshaw, effective management involves ‘getting beyond sensing and looking ahead to actively build an organisation and a style of leadership that underpins ongoing change’.
In the new world, the top-down strategy ‘cascade’ is inverted. Assumptions about predictable markets and all-seeing leaders are rendered useless. Instead, propose the authors, strategists should take their cue from the ‘agile’ movement that has revolutionised software development over the last decade, and whose thinking is now steadily permeating other management domains.
Adhocracy is more about adopting a new mind set rather than ticking boxes
The opposite of a waterfall, ‘agile’ is an iterative, exploratory process that starts at the bottom from direct interaction with the user and then progresses through the crafting and refining of working prototypes. In this sense, Fast/Forward strategy is the product of action, engagement and intuition underpinned by a guiding sense of purpose rather than a top-down exercise in rational planning and analysis. ‘Our mindsets need to be rebooted,’ says Birkinshaw. ‘We should stop thinking about strategy as a mainly intellectual activity aimed at creating a unique position in an unknown future. Instead, fast/forward strategy-making is about doing things’. Doing is better than guessing, so strategy becomes delivery – a real-time process of trial and error in which experimentation and engagement reinforce one another to build forward momentum.
This focus on action and engagement has radical implications for the nature of organisation. A century ago, bureaucracy, based on hierarchy and standards, was a big organisational advance: without it railways and mass-production, for example, could never have developed. As intellectual rather than financial capital became the scarce resource, in the second half of the last century the meritocracy came to the fore. Universities and professional service firms are good examples – knowledge-based organisations in which an individual's position within a hierarchy is less important than his or her knowledge and how that knowledge is used.
Unfortunately, being inwardly focused and rules-based, neither bureaucracy nor meritocracy are good at coping with rapid change. With their bias to consensus and detail, meritocracies can get bogged down in seemingly endless debate, at the expense of actually doing anything. Immersed in their own preoccupations, they fail to notice the world speeding up around them. Instead, getting beyond analysis paralysis requires a less fixed, more fluid and adaptable form of organisation: what Ridderstrale and Birkinshaw term ‘adhocracy’.
Adhocracy is an idea that has been around for decades, in the general sense that it is the opposite of bureaucracy. But it comes into sharper relief, says Birkinshaw, when viewed through the lens of the new emphasis on strategy-as-action: ‘We want to redefine adhocracy to make it useful’. Realistically, few large firms will be able to reshape themselves as agile organisations able to turn on a sixpence in the blink of an eye – or even ever. While an internet start-up would aim to avoid bureaucracy and the endless pursuit of perfection, established companies face research, regulatory and reporting needs which make elements of bureaucratic and meritocratic organisation unavoidable. They face the difficult task of cultivating islands or cells of adhocracy within the larger structure.
Combining different organisational types is hard. Adhocracy is an uncomfortable bedfellow for more staid hierarchical forms. Yet some large companies have managed the feat: the authors single out Amazon, WPP, Air Liquide and Lloyds Bank as examples of firms that have successfully cultivated action alongside thought, exploration as well as exploitation, experiment as well as rigorous execution. As the name suggests, adhocracy is more about adopting a new mind set rather than ticking boxes. Projects, ‘skunk works’ – experimental laboratories within a company that operate independently of a main research division – and internal start-ups are well-known examples.
Pay more attention to purpose and intuition and less to rules and regulations
But that doesn’t preclude more ambitious initiatives. Birkinshaw points to ING bank’s radical fast/forward rejigging of its Amsterdam headquarters. Inspired in part by a visit to Spotify, the bank has put its 3500 HQ staff into small ‘squads’, typically of nine people and concentrating on specific user needs, each with freedom to shape its own working methods and physical space.
Adhocracy, based on opportunity, decisive action and commitment, is a management as well as an organisational model. As such, as Birkinshaw acknowledges, it is a challenge to today’s approach to running organisations – an approach based upon finance, engineering and algorithms.
The opposite of managing by the numbers, it requires of leaders that they are present at the heart of the action rather than lurking apart in offices. They need to learn directly from customers and the front line rather than from reports and spreadsheets. They must pay more attention to purpose and intuition and less to rules and regulations. For individual employees and middle managers, it promises – and demands – something more like a ride on a roller coaster than a daily commute from Surrey on the 7.25. The authors end their book with a plea for spontaneity. Adhocracy favours the open, the natural, the uninhibited – the reverse of the structured, sterile and anxiety-ridden approach that characterises decision-making in many large companies.
In other words, it’s human. Behind the theory, what Fast/Forward ultimately says is that management is an activity that’s best – in both senses of the word – done by humans, not computers.
Fast/Forward: Make Your Company Fit for the Future by Julian Birkinshaw and Jonas Ridderstrale is to be published by Stanford University Press
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