We are facing a change where traditional hierarchic, command & control based “machinery” models are replaced with “living organism” type of operations placing humanity and people at the center.
In this blog we give a short history review of how organizations have come into where they are today. We will also share some perspectives of the problems that organizations are currently facing because of the prevailing models.
During the first and second Industrial Revolution the productivity and GDP of the developed countries have risen almost exponentially. This happened because of technological progress, shift from rural work to industrial labor, mass production and automation. One key factor in the development of productivity was the new innovations in management. Frederick Winslow Taylor, an American mechanical engineer, was the pioneer in applying engineering principles into management. He summed up his principles in his 1911 book "The Principles of Scientific Management".
Scientific Management or "Taylorism" is a theory of management that carefully analyses and synthesizes workflows for achieving maximum economic efficiency and labor productivity. This theory requires high level of managerial control and leads into clear distinction of managers (planners) and workers (doers). "Efficiency Movement" initiated by Taylor has later on been followed by many theories (e.g. Fordism, Industrial engineering, Lean manufacturing, Six Sigma) and management thinkers (e.g. Henry Gannt, Max Weber, Henri Fayol).
All this work shifted the mankind to a new level with amazing productivity gains. It was perfectly fitted into the situation and circumstances in 19th and 20th century.
As a side note it is worth mentioning that Taylor was also an athlete who competed nationally on tennis and won the doubles 1881 in the United States National tennis championships tournament.
The pace of development and innovation in technology is constantly accelerating. Additionally, the circumstances around us have drastically changed. We often say to live in a VUCA (Volatility, Uncertainty, Complexity, Ambiguity) environment. When looking at the people around us we also see some big changes in their values, beliefs and mindsets. There are more and more articles in Social Media about "Why Your Millenials Are Leaving – How to Keep Them"
At the same time, more and more of our work has become knowledge based. It is requiring curiosity, learning, sharing, validating and working in teams as well as complex problem solving with strong cognitive & social skills. Efficiency of knowledge work is based on human mind and its emotions (e.g. fear, joy, inspiration, engagement, motivation, autonomy, safety, purpose, fulfillment, inclusion) which naturally is way different than efficiency of e.g. an assembly line (e.g. how many products produced, how many errors happened, how many people needed to produce) even if both might require people to do the work.
This change is even accelerating as the robots and AI are developed further and employed more. Cognitive neuroscientist Katri Saarikivi has stated that "Future work requires capabilities, where human beats the machine. Therefore the future of work is more human than many believe". This sets totally new requirements to the working environment and management. When the work is getting more and more demanding every day, Saarikivi believes that the collective intelligence is the best way to solve problems.
This significant change in the environment leads into a situation where the receipts and models we used to use earlier don't work anymore. Actually, the situation seems to be so alarming that the old models in many case area leading into catastrophic problems.
When Scientific Management type of operations where managers are planning and commanding in hierarchic top-down structures is exercised today, the vast majority of individuals are feeling more and more disengaged. The lack of motivation is a devastating side effect of the unequal distribution of power. Gary Hamel calls these survey results as "the shame of management".
Gallup's global survey of employee engagement
When being disengaged people are feeling higher level of fear (lacking psychological safety) that leads into passive behavior where mistakes are avoided. For a company this means lack of innovation and development and eventually leads into dissatisfied customers. Individuals are not able to live the fulfilled life at work and they stop caring and giving their full energy. Eventually they start looking for other options for their work and career. When the real purpose is missing and there is a lack of trust and psychological safety, people are feeling higher level of stress that in many cases leads into burnout type symptoms.
Even if the signals are clear, the direction of most organizations has not changed. Statistics are saying that during the period of 1984–2014 the relative growth of manager positions is double compared to other roles in organizations. This is basically saying that the organizations at large scale are getting more and more bureaucratic all the time. Probably one reason for this trend is the magnitude of change the paradigm shift requires (see more in previous blog).
Scientific Management was able to significantly lift the productivity for several decades. However, at the moment we can see productivity development stagnating in many parts of the globe. Annual productivity growth in France and Germany has been steadily declining from 4% close to 0% during the last 40 years. There are definitely several factors behind this trend, but many believe this has a lot to do with the management models. The single greatest challenge facing managers in the developed countries today, is to raise the productivity of knowledge and service workers.
Annual productivity growth rate trend line for Germany and France (OECD research)
At the same time, we have seen the average life span of S&P 500 companies to decrease from 60 to only 15 years! Earlier the big companies used to stay strong and dominate the operations. Now we have seen e.g. Enron, Kodak, Nokia, Lehmann Brothers and Blackberry struggling big time because of the bureaucracy burden in their operations. Hierarchical rigid models and operations are not adaptive for needed changes in the VUCA world. With the traditional hierarchic models the flow of information is not transparent and the companies fall into "Iceberg of Ignorance" situation where the top management acts with the 4% of information they have.
One thing to emphasize is that we are not criticizing Taylorism or Scientific Management models as such. They were brilliant and perfectly meeting the needs of that time. However, the challenge is that the management innovation globally seems to be too much stuck on those models while all the other areas of science and life around us have significantly changed and developed.
As a conclusion we can say that the way we manage organizations seems to be increasingly out of date and has severe consequences on individual, company and societal levels. People are more and more disappointed by the organizational life (e.g. games and politics leading to emptiness). Traditional receipts seem to be part of the problem, not solution.
With passion and humility,
Co-authors Jaakko Hartikainen & Mikko Virtanen
Our blog series:
No 1: Call for Paradigm Shift in Management
No 2: Magnitude of Change when Shifting Management Paradigm
No 3: Why do so many companies manage people like machines and why is it one of the biggest problems of our times?
No 4: How to drive paradigm level change? Our learnings and one crucial breakthrough innovation
No 5: Next we will share our interesting learnings and reflections from our visit in India
Jaakko Hartikainen is a senior business leader with broad experience in building next generation digital services, agile way of working and new business models. His passion is to place humanity at the heart of everything and build sustainable success for increasingly complex world by empowered people and teams.