If a new economic paradigm is coming, Steve Denning will be
its prophet.
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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.
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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
