If a new economic paradigm is coming, Steve Denning will be its prophet.
Don’t Diss The Paradigm Shift In Management: It’s Happening! http://www.forbes.com/sites/stevedenning/2012/10/31/dont-diss-the-paradigm-shift-in-management/ Some participants on Twitter ridiculed the suggestion in my TEDxOSLO talk last week that management is undergoing a paradigm shift. Would this ‘paradigm shift’, they smirked, have opportunities for ‘synergy’? Or perhaps increase the firm’s ‘leverage’? As it happens, “paradigm shift” is a mere #90 in the pantheon of business buzzwords, with only 206 uses in recent press releases, compared to some 161,000 uses of the #1 business buzzword, “leader”. Perhaps “paradigm shift” is so drastically out of fashion that it needs to be brought back? In any event, let’s be clear. I didn’t just say, “paradigm shift”. I said “a paradigm shift in the strict sense as laid down by Thomas Kuhn: a different mental model of the world.” With this qualification, I distinguished myself from those business writers who apply the term “paradigm shift” to some minor tweak to the existing managerial canon, such as a shift to more evidence-based management. As it happens, the parallelism of paradigm shifts in science to the paradigm shift that is now happening in management is exact. Let’s start by refreshing our memories of Thomas Kuhn’s path-breaking book, The Structure of Scientific Revolutions and remind ourselves: what is a paradigm shift in science? What is a paradigm shift in science? In 1962, Kuhn’s book challenged the prevailing view of progress in science. Until then, progress in science was seen primarily as the steady accretion of new facts and relationships, one on the top of the other. Kuhn suggested that in reality science experiences long periods of conceptual continuity and accretion. This is what he called “normal science”. However this is punctuated by periods of “revolutionary science” with abrupt discontinuities as the mental model changes in fundamental ways. Normal science comprises puzzle-solving within the existing mental framework. As normal science proceeds, discoveries are made that advance understanding, along with the emergence of anomalies that don’t quite fit into the prevailing mental framework. Efforts are made to stretch or bend or adjust the framework to accommodate the anomalies, even though the fit is only partial. A paradigm shift occurs when prevailing mental model has so many egregious anomalies that it “breaks” and a new mental model of the world is perceived to be a better explanation of how the world works. The Copernican revolution The classic example of a paradigm shift is the shift from the geocentric view that the sun revolves around the earth to the heliocentric view, put forward by Copernicus in 1539, that the earth revolves around the sun. Kuhn noted that the sun-centric view of the world did not offer more accurate predictions of celestial events, such as planetary positions, than the earth-centric mental model of the world. But the sun-centric appealed to scientists as a simpler and clearer way of understanding the universe, as well as pointing the way to more fruitful hypotheses to explore. In this sense, the sun-centric view of the world proved to be a “better” than then earth-centric view of the world, even though there was resistance from the powers that be for several centuries. Thus in March 1616, the Roman Catholic Church issued a decree banning Copernicus’s book until it could be “corrected.” The same decree also prohibited any work that defended sun-centric view of the world or that attempted to reconcile this view with Scripture. In 1633 Galileo Galilei was convicted of heresy for supporting the position of Copernicus and was placed under house arrest for the rest of his life. It wasn’t until 1835 that the Church’s prohibitions were finally removed. How do paradigm shifts occur in science? Kuhn argues that science evolves in a series of phases. The first phase is the pre-paradigm phase, in which there is no consensus on any particular theory and there are several incompatible or incomplete theories. The second phase occurs when a number of puzzles can be solved within a single mental framework or paradigm, which then becomes the dominant paradigm. Scientists gravitate to the new framework and normal science begins. Thereafter scientists try to solve puzzles within the assumptions of the dominant paradigm. Most scientists spend most (if not all) of their careers, accepting the prevailing paradigm and proceeding in a puzzle-solving mode within its basic assumptions. As time goes on, however, anomalies appear. Despite the anomalies, puzzle-solving within the existing mental framework continues and is indeed pursued with even greater tenacity, because prior successes generated by the prevailing paradigm encourage the belief that a solution to resolving the anomalies must exist, even though they seem to be very hard to find. Anomalies thus accumulate and the existing paradigm is stretched and bent and adjusted in an increasingly desperate effort to accommodate them. The third phase occurs when scientists finally accept that the significant efforts of normal science within the dominant paradigm fail to resolve the anomalies and revolutionary science begins. In this phase, some bold scientists realize that “the emperor is wearing no clothes” and start exploring alternatives to long-held, seemingly obvious, self-evident assumptions. Eventually these bold spirits develop a new conceptual framework that is seen to present a better way of reconciling the known facts with the anomalies. At first, the new rival paradigm itself appears to be accompanied by various gaps and anomalies, in part because it is still new and often incomplete. Initially, the new paradigm is typically greeted with strong resistance bothfrom the scientific community and even from other powers as in the case of the Copernican revolution. As a result, paradigm shifts in science do not occur easily. There follows a period in which there are adherents of different paradigms pursue their different theories. The revolutionaries are attacked by the powers that be for being theoretically unsound, incomplete, irresponsible, and so on, while the revolutionaries attack the dominant paradigm pointing out the magnitude and grotesqueness of the anomalies. This period of conflict may last for decades, particularly if the new paradigm comes, not from some of the existing leaders of the current scientific establishment but rather from some unexpected and peripheral source, e.g. the dramatically different theory of genetics coming from Gregor Mendel in Moravia or a revolutionary theory of stomach ulcers from Barry Marshall in Perth, Australia. In time, the gaps in the rival paradigm are filled and the theory is integrated and completed. As a result, scientists converge on it as a more productive way of looking at the world. Once most scientists agree that the rival theory should replace the old paradigm, a paradigm shift has occurred, even though some individual scientists may remain intransigent and continue to noisily defend the old paradigm. The new paradigm changes the way scientists look at the world, as well as the direction of future scientific research in the field. New questions are asked of old data. In due course, the textbooks are rewritten and university courses are revised. The parallels in management The parallels to what is happening now in management are quite exact. In the 19th Century, management was in a pre-paradigm phase, in which there was no consensus on any particular theory of management. Management thinking entered a second phase with the work of Frederick Taylor and his “principles of scientific management” (1911), which began with the ominous, prescient declaration: “In the past, Man has been first. In future, the system must be first.” The “system” that Taylor initiated has a number of underlying assumptions that are still “obvious” to many managers and theorists. It begins with the idea that a firm is in business to make money for the shareholders. To this end, managers direct and control the workers. Work is coordinated by rules, plans and reports, i.e. bureaucracy. The overriding value is that of ever greater efficiency. Communications are top down and aimed at maintaining control. Work revolves around “the boss”. The firm’s principal focus is internal. Its principal dynamic is control with the objective of ever greater efficiency. For the next hundred years, these assumptions became the default mental model of management. As in science, managers and theorists sought to resolve the problems of management within these assumptions. Most managers and theorists have spent most (if not all) of their careers, accepting the prevailing paradigm and proceeding in a puzzle-solving mode within its assumptions. Even today, speakers and participants at supposedly revolutionary management conferences, such as Agile, Scrum or Lean, can be heard reciting many of the assumptions of Taylor’s paradigm. How anomalies were accommodated Nevertheless, as in science, various anomalies to the basic mental model of management became apparent: The need for more attention to the human dimension of work, particularly teams and collaboration. The need for innovation, as opposed to exploiting the existing business. The need for more attention to customers and marketing. The importance of values such as trust, transparency and sustainability The role of horizontal socially-based communications, as opposed to authority-infused vertical communications. The need for more attention to the environmental and social impact of the firm’s operations. These “anomalies” were accommodated by “grafting” them on to the prevailing mental model of management without basically changing it. Managers and theorists were to varying degrees aware that the adjustments were only partially compatible with the prevailing paradigm. As a result, in practice, managers tended to lurch backwards and forwards from paying more attention to the anomalies and then lurching back to the dominant mental model, particularly when it became apparent that attending to the anomalies endangered the firm’s efficiency or put in question the manager’s control. The most obvious example of this “lurching back and forth” is the attention paid to the human factor in the form of teams and collaboration. This dimension has been successively discovered—and then loudly rediscovered—by Mary Parker Follett in the 1920s, Elton Mayo and Chester Barnard in the 1930s, Abraham Maslow in the 1940s, Douglas McGregor in the 1960s, Peters and Waterman in the 1980s, Smith and Katzenbach in the 1990s and Richard Hackman in the 2000s. Throughout this period, managers would for a time embrace collaboration and teams, and then in a crisis, disband the teams and revert to the default model of managers: controlling individuals. A perception of continuous progress in management As in “normal science”, progress in management is perceived by journals such as Harvard Business Review primarily as the continuous accretion of knowledge, each discovery piled on the top of the other, without any fundamental review of the underlying assumptions. This is evident in HBR’s celebration of its 90-year history and the Management Century in its November 2012 issue. Management’s biggest anomaly: it doesn’t work The most important anomaly in the traditional management paradigm is that good management doesn’t work anymore. As Alan Murray wrote in the Wall Street Journal on August 20, 2010: “Clayton Christensen’s book, The Innovator’s Dilemma” … documents how market-leading companies have missed game-changing transformations in industry after industry—computers (mainframes to PCs), telephony (landline to mobile), photography (film to digital), stock markets (floor to online)—not because of “ bad” management, but because they followed the dictates of “good” management. They listened closely to their customers. They carefully studied market trends. They allocated capital to the innovations that promised the largest returns. And in the process, they missed disruptive innovations that opened up new customers and markets for lower-margin, blockbuster products. This qualitative assessment is confirmed by the magisterial study of Deloitte’s Center for the Edge which shows that the rates of return on assets and on invested capital for 20,000 US firms from 1965 to 2011 have been steadily failing for the last half century. The graphic shows that something has gone terribly wrong with the US private sector—the supposed engine of economic growth and the supposed creators of jobs. When the best firms have rates of return on assets or on invested capital of, on average, just over one percent, we have a management catastrophe on our hands. An ROA of just over one percent means that firms are dying faster and faster: the life expectancy of firms in the Fortune 500 is now less than fifteen years and declining rapidly. Why management doesn’t work any more The principal cause of the erosion in returns is the shift in power in the marketplace from seller to buyer. The gains in efficiency that firms made over the period have been more than consumed the erosion in margins. As a result of globalization and the Internet, customers and clients have more options and instant access to reliable information about those options. Hence firms that revolve around the boss with a dynamic of control and a principal goal of ever greater efficiency have been finding it more and more difficult to make money. Measures to make the firm more responsive to its environment by grafting components on to the existing paradigm haven’t worked very well. Increasingly desperate efforts to introduce teams and collaboration, encourage innovation, become more customer-centric and so on have made temporary improvements but they typically don’t endure, because they are at odds with the underlying assumptions of the default management model. Yet as in science, despite the anomalies, puzzle-solving within the existing mental model has continued and is indeed pursued with ever great tenacity, because successes generated by the paradigm in the 20th Century has encouraged the belief that there must be a way of a resolving the anomalies within the existing paradigm, even though enduring solutions are devilishly hard to find. At the same time, managers and writers find themselves also in a state of denial: the findings of the Shift Index are rarely cited by senior managers and have not been highlighted by Harvard Business Review. Instead the managers and business journals continue to proclaim that, and act as if, management is a success, despite reliable quantitative evidence that this is not the case. Meanwhile revolutionary management is emerging Meanwhile, largely below the radar, revolutionary management has been emerging for some decades in a fashion akin to the third phase in the progress of science. In this phase, as in science, some bold spirits, perceiving a conceptual crisis with the existing paradigm, have for several decades been exploring alternatives to the long-held, seemingly obvious, self-evident assumptions of the dominant mental model of management. They have re-examined the assumptions that goal of the firm is to make money for its shareholders, that managers control individuals, that work is coordinated by bureaucracy, that efficiency is the overriding value of the firm and that communication ions are top-down. These revolutionaries have asked, “What if we reconsidered these basic assumptions? What would that kind of organization look like? Could it make money?” The revolutionaries have examined the changes that are needed: changes in the goal of the organization, the role of managers, the way work is coordinated, the values of the firm and the changes in communications from vertical commands to horizontal conversations. When fully articulated and integrated, the changes amount to more than a minor tweak to the prevailing paradigm. They amount to a different ecosystem of management. I have described the elements of this different ecosystem elsewhere in this column. Firms implementing the new paradigm can be found in software, hardware, auto manufacture, clothing, industrial repairs, constructive houses and indeed in virtually every kind of business and organization. Prominent exemplars of the new paradigm include the Steve Jobs regime at Apple [AAPL], Amazon [AMZN] and Salesforce [CRM], although even these firms do not fully implement all the principles of the new paradigm. The change in the management paradigm has been long in the making. It is not some fad that was cooked up last night and that will evaporate tomorrow. It has been gathering momentum around the world for several decades. It has deep roots in Europe, in Asia, and in the Americas. There is now a whole body of knowledge about how this works and why this works. The shift entails a different way of treating people: a shift from a world in which people are manipulated as things (resources, eyeballs, demand) to a world in which people are interacted with as human beings. But even more important is the fact that the emerging paradigm makes more money. Humanist management thinking has been around for ninety years and it hasn’t really entered the mainstream because it is perceived to cost more money. What will drive the change towards the new paradigm is the exponential growth in profitability. The paradox of the new management paradigm is that although it doesn’t focus on making money, it ends up making a lot more money than those firms that do focus explicitly on making money. The new paradigm of management exemplifies the important principle of obliquity. The establishment defends the status quo Thus as in science, revolutionaries have developed this new conceptual framework of management that presents a way of reconciling the existing framework with the anomalies. As in science, the new rival paradigm initially had various gaps and anomalies of its own. The Agile Manifesto of 2001 thus can be seen as an example of an incomplete rival paradigm that needed further elaboration before it could become a viable alternative paradigm. As in science, the new paradigm has been greeted with strong resistance from the management establishment. As in science, the paradigm shift does not occur easily, despite the overwhelming evidence of the need for it. A tipping point for the management paradigm As in science, we are now in the period when adherents of competing paradigms pursue their different mental models. How long the period of conflict will last is hard to say precisely. On one hand, the fact that much of the work related to the new paradigm comes not from the prestigious leaders of the current management establishment but from some unexpected source, i.e. software engineers, is a constraint. On the other hand, the fact that the new paradigm is so much more profitable than the prevailing paradigm makes its triumph both inevitable and imminent. We may well be close to a tipping point. The anomalies in the existing paradigm are now so grotesque that it is only a matter of time before there is a shift to the new paradigm as a more productive way of getting things done in the world. Once most organizations, business journals and business schools agree that the new mental should replace the old paradigm, a paradigm shift will have occurred, even though some individual managers and writers will probably remain intransigent and continue to noisily defend the obsolete paradigm. The new paradigm will change the way managers look at the world, as well as the direction of future improvements in management. New questions will be asked of old data. Old studies will be seen in a new light. In due course, the textbooks will be rewritten. Business school courses will be revised. The paradigm shift in management will then be complete. Read also: The five surprises of radical management Scrum is a major management discovery The world’s dumbest idea: maximizing shareholder value The best-kept management secret on the planet The case against Agile: Ten perennial management objections ________________________ Steve Denning’s most recent book is: The Leader’s Guide to Radical Management (Jossey-Bass, 2010). Follow Steve Denning on Twitter @stevedenning (via Instapaper) Sent from my iPhone -- Centroids: The Center of the Radical Centrist Community <[email protected]> Google Group: http://groups.google.com/group/RadicalCentrism Radical Centrism website and blog: http://RadicalCentrism.org
