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Gary Hamel, PhD '90: Inventing the Future of Management

10/25/2010 --

Strategy expert offers five reasons why management models must change, and five ways to change them.

ANN ARBOR, Mich. — Renowned author and management guru Gary Hamel, PhD '90, delivered a crash course on "Inventing the Future of Management" during the Ross School's annual Reunion Lecture in October. He urged Ross alumni, students, and faculty to embrace new ways of thinking about innovation and strategy to keep pace with accelerating change and solve society's problems.

Hamel, recently ranked the world's most influential business leader by The Wall Street Journal, shared observations popularized in his landmark bestsellers Leading the Revolution, Competing for the Future, and The Future of Management. He explained why management is such a critical invention in modern society — perhaps even more important than computers, automobiles, or the Internet.

"All those technologies only became available and affordable because someone bothered to invent management," Hamel said. "Our capacity to solve society's problems is limited by our ability to bring people together and do things of scale."

He argued that we must reinvent the technology of management if we want to keep up with the breakneck pace of change, and he outlined several ways to do it.

Five Reasons Management Models Must Change:

1. As change accelerates, so must the pace of strategic renewal.

The facts about the shifting nature of organizations are clear: Leadership is changing hands more often than ever. Today's earnings are an inadequate predictor of tomorrow's earnings. And the probability of any given organization ending up in financial crisis increases by the day.

"The world is becoming more turbulent faster than most organizations are becoming adaptable and resilient," Hamel said.

Most change in organizations only happens because of crisis, he noted.

"In almost every organization, deep change happens belatedly, infrequently, and impulsively," he said. "If you didn't know better, you'd think these sophisticated Fortune 500 companies had been benchmarking Zimbabwe because this is the way change happens in a poorly governed Third World dictatorship."

Hamel's first reason why management models must change is that change itself is inevitable and rapid, and it can't just be top-down.

"We've been talking about innovation for decades, but a good company will make sure innovation is everybody's work — the administrative assistants, the tech supporters, the warehouse staff," he said. "Everybody needs to be trained as a business innovator in order to keep pace with external forces of change."

2. We are now living in a creative economy where knowledge is a commodity.

Hamel argued we can now essentially buy knowledge — it's cheaply available all over the world — so any knowledge advantage a company may have quickly dissipates thanks to outsourcing, offshoring, supplier networks, industry consortia, benchmarking, and consultants.

"The traditionally valued worker qualities, like obedience, diligence, and skill, are human capabilities that have become commodities," he said. "I want people who come to work eager to innovate and create new knowledge: people who bring their creativity to work, learn from other industries, challenge conventional wisdom, and see their work as the way they make a difference in the world."

Hamel gave the oft-cited example of Apple as a company that has been "truly the most astounding innovator in 75 years." And though Apple is a relatively small company, it has essentially reinvented four industries: computer, music, retail, and mobile phone.

Because Apple values creativity above flat knowledge, Hamel argues that it's managed to claim more market share as a small company than anyone would have thought possible.

3. The goal of management should transcend simply hiring people "to serve."

According to the old model of management, the organization hired people to create products and profits. Now we must think about ways to establish a work environment that is "so compelling and worthwhile people will be willing to bring their gifts every day," Hamel said. People want to join a community as a way of making a difference, not join an organization to serve it.

4. Only 20 percent of people around the world feel engaged at their jobs.

Towers Watson, an HR consulting firm, measures employee engagement across the globe by asking, "Do you feel your ideas matter?" and, "Could you influence the strategy and direction of your organization?" Hamel reported that out of 90,000 employees questioned in a recent Towers Watson survey, in no country is the number of people engaged at work higher than 20 percent.

"If we're a convention of physicians looking at a chart that says out of 100 patients, we actually make 80 of them worse off, that would not be good," he said. "But this is not a moral issue. It's a performance issue in a creative economy. The way we manage our human resources undermines their resourcefulness."

5. There is a fundamental erosion of trust in corporations and institutions.

According to the same Towers Watson survey, only about a third of employees say they trust management and believe management cares about them.

"Many companies have a set of narcissistic, taken-for-granted beliefs about their rights," Hamel said. "But as a society, we're no longer comfortable with those beliefs. You see the furor that goes on when a corporation's child-labor practices come to light, or when we learn about a company's mortgage fraud."

Hamel believes corporations have to confront a harsh reality: Society can renegotiate the explicit contract it has with corporations, and it's doing so now.

"Corporations have to learn the lesson that every teenage driver has to learn: Drive responsibly or lose your license," Hamel said.

Five Ways to Change:

1. Understand that past management models don't have to be precedent.

In his lecture, Hamel highlighted one of the most interesting companies he's studied: W.L. Gore & Associates Inc., a global manufacturer of fluoropolymer technology (Goretex) that has never operated at a loss in its 50-year history.

"The first time I visited the company, people handed me their business cards and I noticed no one had titles," Hamel remembered. "I asked how people get to be in leadership roles and was told, 'You get to be a leader if your team asks you to lead them.'"

Other fundamental values of W.L. Gore dictate that no employee can ever command another employee. All commitments at the company are voluntary, and any employee can say no to any request.

Hamel said this company and others like it cause him to ask, "Is the legacy of management God-given law or just our inability to wrestle free from the arms of tradition?"

2. Aim higher.

"We need to be dissatisfied with best practices," said Hamel. "One thing I learned from [late Ross strategy professor] C.K. Prahalad is that life is too short to work on inconsequential problems. It's much better to aim high and miss."

He challenged the audience to consider some difficult questions: What are the fundamental innovation challenges of management? How do we dramatically increase levels of trust and do away with traditional levels of hierarchy? How do we build companies that feel like communities and not bureaucracies?

"If you just start with best practices, you're never going to be a leader," said Hamel.

3. Question what we already believe.

"Any innovation process that doesn't start by systematically deconstructing the things we already hold onto as dogma is almost bound to fail," Hamel said.

He cited various companies that believe it takes a crisis to provoke change.

"If you concentrate the authority for setting strategy and direction at the top of the organization in the hands of a few people, you give those few people the ability to hold hostage that organization's capacity to change," he said.

In general, the more concentrated authority is at the top of an organization, the less resilient and adaptable it is. The more organizations question traditional beliefs about management, the more they can grow and prosper, he noted.

4. Give people more freedom.

One belief Hamel urged leaders to question: Are freedom and discipline mutually exclusive?

"There's a sense that the moment you take the handcuffs off, rebellion will break out," he said. "But the way we control people in organizations undermines creativity and adaptability."

He offered the case of a Brazilian company with about 3,000 employees that eliminated all travel expense controls. The company allows employees to travel as much as they want and spend as much as they like. But since half of an employee's compensation depends on profitability, there's an incentive to be disciplined about travel spending.

"If you come back from a trip with a $5,000 order and had a bottle of Dom Pérignon, the only question you'll be asked is why you're drinking the cheap stuff," Hamel said. "But if you had a $20 bottle of wine and you didn't make any sales, next time you can bet you'll be drinking water."

5. Don't benchmark Fortune 500 companies.

"All Fortune 500 companies use the same management model," said Hamel. "That's why a CEO from one Fortune 500 company can move to another one in a completely different industry and still succeed."

But what we need to remember, Hamel said, is that change happens on the fringe. And right now, the Web is where that change is happening.

"The Web is the most adaptable, innovative, and engaging thing humans have ever created," he said. "And the most sobering thing is that it's almost antithetical to the way most companies think about management."

The main difference is the Web is "all periphery and very little center, whereas Fortune 500 companies are all center and no periphery."

Another important distinction: On the Web, power is earned through merit (a prolific Amazon reviewer might earn the top spot on a popular product's review board, for example). In Fortune 500 companies, power is assigned top-down, which Hamel said tends to "reduce genetic diversity."

"We have a generation for whom the Web is not a tool, but the operating system for their life," he said. "When that generation comes to work, they're coming with a set of expectations honed by the Web that will never change."

One of those expectations? It's your contributions that matter, not your credentials.

"They believe every idea should compete on equal footing, and there should be an absolute meritocracy of ideas where nobody gets an extra measure of credibility just because of experience," Hamel said. "Every hierarchy should be built bottom-up, and every leader should be someone others are truly willing to follow."

The winners over the next few years will be the companies that can evolve their management models faster than the competition in a way that encourages every single person to "bring the best of their gifts to work," Hamel said.

"I'm hoping it's people at Michigan and Ross that help lead the revolution," he said.

—Leah Sipher-Mann



For more information, contact:
Leah Sipher-Mann, (734) 936-8421, leahjsm@umich.edu