title: TheNewManagement:DemocracyandEnterpriseAreTransformingOrganizations

author: Halal,WilliamE.publisher: BerrettKoehler

isbn10|asin: 1576750329printisbn13: 9781576750322ebookisbn13: 9781583764053

language: Englishsubject Management,Corporateculture.

publicationdate: 1996lcc: HD31.H22831996ebddc: 658

subject: Management,Corporateculture.

Pagei

Praisefromexecutives,scholars,students,andmedia

"TheNewManagementmayfinallyattractattentiontotheneedforfundamentalorganizationalchange.RussellAckoff,ProfessorEmeritus,TheWhartonSchool,

"TheNewManagementoffersaconceptualpaththroughtheneweconomicjungle."RaymondE.Miles,FormerDean,HaasSchoolofBusiness,UniversityofCalifornia,Berkeley

"TheNewManagementbelongsoneverybusinessbookshelf."HazelHenderson,authorofBuildingaWin-WinWorld

"TheNewManagementreadslikeanovel."CristinaTemboury,PresidentClinton'sExecutiveCouncil,MBAstudent

"TheNewManagementsolvesalltheproblemsIworkedwithforyears.It'sagreatbookthatstimulatedalotofthinkingonmypart."JohnH.Zimmerman,SeniorVicePresident,MCICommunicationsCorporation

"Anextraordinarywork,asynthesisofcutting-edgetrends.Itcanhelpeventhemostsophisticatedandexperiencedstudentsreorientandtransformtheirthinking."PaulaGordon,Professor,JohnsHopkinsUniversity

"TheNewManagementwillstretchtheimaginationsofleaders."Richard(Skip)LeFauve,Chairman,SaturnCorporation

"TheonlybookIhavereadthataddressesthemosteffectivemanagementideasandhowtheyareshapingthefuture."AnitaRoddick,FounderandCEO,TheBodyShop

"I'vebeenafanofHalal'sforalongtime,butwhenIreadTheNew

Management,Irantothebookstoreandboughttencopiestosendtofriends."JohnHoving,President,TheHovingGroup

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"Thiswatershedbookboldlyconfrontsthetraditional,archaicliteratureonorganizationsandbreathesintoitnewlifeintheformofdemocracyandenterprise.Itislongoverduetoelevatetheseidealstothechangeagentstheyare....Halal'svisionismostlikelythefutureoftheorganizationalworld."CHOICE:CurrentReviewsforAcademicLibraries

"Awelcomealternativetotheplethoraofbooksofferingmanagerslittlemorethanexhortations.TheNewManagementisamodelofhowtomanagethetwingoalsofprofitabilityandsocialresponsibility.Itnotonlyprovidesdatabutexplainsthemeaningbehindthedataaswell."EthicalManagement

"Halal'svisionchangedmywholeoutlookonmanagement.Ibegantodevelopmyownphilsophy,anchoredbyHalal'spremisesandsupplementedbyothergreatthinkerswhoexpandonhisinsights."ChristineSossaman,MBAstudent

"ProfessorHalal'selegantworkbringseverythingtogetherbygivingusaworkingframework."LuisdelPosso,MBAstudent

"Aclear,convincingprojectionoforganizationallifeinthenextdecadebasedonhundredsofexamples."ManagementReview

"Allmanagersinthepublicandprivatesectorsshouldreadthisbook."KevinKreutner,U.S.StateDepartment,MBAstudent

"TheNewManagementissorelyneededtohelpstudentsmakesenseofthechaosandquickfixesthatcharacterizeourtimes.Thisbookwillguideleadershipandmanagementintothe21stcentury."MichaelRay,GraduateSchoolofBusiness,StanfordUniversity

"WilliamHalalshowshowinstitutions,whetherpublicorprivate,mustrepositionthemselvesforthe21stcentury."StephenGoldsmith,MayorofIndianapolis

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TheNewManagementDemocracyandEnterpriseAreTransforming

Organizations

WilliamE.Halal

Copyright©1996,1998byWilliamE.HalalAllrightsreserved.Nopartofthispublicationmaybereproduced,distributed,ortransmittedinanyformorbyanymeans,includingphotocopying,recording,orotherelectronicormechanicalmethods,withoutthepriorwrittenpermissionofthepublisher,exceptinthecaseofbriefquotationsembodiedincriticalreviewsandcertainothernon-commercialusespermittedbycopyrightlaw.Forpermissionrequests,writetothepublisher,addressed"Attention:PermissionsCoordinator,"attheaddressbelow.

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Printedonacid-freeandrecycledpaperthatiscomposedof85%recoveredfiber,including15%postconsumerwaste.

LibraryofCongressCataloging-in-PublicationDataHalal,WilliamE.Thenewmanagement:democracyandenterprisearetransforming

organizations/WilliamE.Halal.p.cm.Includesbibliographicalreferencesandindex.ISBN1-881052-53-2(alk.paper)ISBN1-57675-032-9(Paperbackedition)1.Management.2.Corporateculture.I.Title.HD31.H22831996658dc2096-7027CIP

Thispaperbackeditioncontainsthecompletetextoftheoriginalhardcoveredition.

FirstHardcoverprinting:May1996

FirstPaperbackprinting:July1998

200100999810987654321

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DEDICATION

Tothoseunsungheroeswhokeepsocietiesworkingeverywherethemanagersofmodernorganizations.WhiletelevisionshowslikeER,LALaw,andNYPDBlueglorifydoctors,lawyers,police,andothermorepopularprofessions,millionsofmenandwomenbeartheresponsibil-ityofmanagingtoday'sinterlockingmazeofbusinesscorporations,governmentagencies,schools,hospitals,TVstations,newspapers,armies,andotherinstitutionsthatmakeupthesocialorder.Ihopethisbookcanhelpguidethesestewardsofourdailylivesastheirdemand-ingjobsspiraltonewheightsofcomplexity.

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CONTENTS

ForewordRaymondE.Miles

ix

Acknowledgments xiii

IntroductionFromCapitalismtoDemocraticEnterprise

xv

TheContradictionsbetweenCapitalandKnowledge

ANewFoundationBuiltonAmericanIdeals

TheComingParallelRevolutions

TheTechnologyRevolution:JusttheBeginningofUnstoppableChange

TheOrganizationalRevolution:ManagementfromtheBottom-upandtheOutside-in

TheLeadershipRevolution:RelinquishingtheIllusionofControl

Chapter1ManagementinTransition:BridgingThatDividebetweentheOldandtheNew

1

WhatReallyIstheNewManagement?

AForecastoftheNewManagementParadigm

ApplyingNewConceptstoaChangingWorld

PartOne:RedefiningtheFoundationofManagement 25

Chapter2FromHierarchytoEnterprise:InternalMarketsAretheNewFormofOrganizationStructure

27

RiseoftheEntrepreneurialOrganization

PrinciplesofInternalMarkets

TheFloweringofEnterprise

Pageviii

Chapter3FromProfittoDemocracy:CorporateCommunityIstheNewFormofOrganizationGovernance

55

TheEvolutionofEconomicCooperation

PrinciplesofCorporateCommunity

TheExtensionofDemocracy

Chapter4TheNewManagementSynthesis:UnitingInternalMarketsandCorporateCommunity

83

TheCreativeTensionBetweenMarketsandCommunity

GuidestoAchievingOrganizationalBalance

DrawingUnityoutofDiversity

PartTwo:BuildinganEntrepreneurialCommunity 103

Chapter5TheServingEnterprise:RelinquishingOurGriponSelf-Interest

105

FromSellingtoServing

PrinciplesoftheServingEnterprise

MakingtheClientaPartner

Chapter6KnowledgeEntrepreneurs:AWorkingContractofRightsandResponsibilities

131

RedefiningtheEmploymentRelationship

PrinciplesofKnowledgeWork

WorkLifeintheInformationAge

Chapter7IntelligentGrowth:BalancingEcologicalHealthandEconomicProgress

155

ReconcilingEconomicsandEnvironment

PrinciplesofEnvironmentalManagement

ThePowerofEconomicReality

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PartThree:LeadingintheNewEconomicOrder 177

Chapter8ContinuousChange:RootingtheOrganizationintoItsEnvironment

179

OldApproachestoaNewChallenge

PrinciplesofContinuousChange

ControlofLivingOrganizations

Chapter9InnerLeadership:HowtoHandletheComingPowerShift

201

TheChangingIllusionofPower

PrinciplesofInnerLeadership

MakingParticipationWork

Chapter10ManagingaUnifiedWorld:GlobalOrderoutofLocalInstitutions

227

TheDilemmaofCapitalismVersusCommunity

EconomicImperativesoftheInformationAge

TheEmergingShapeoftheNewEconomicOrder

ConclusionDrawingonthePowerofHeritage

255

Appendixes

ATheOrganizationExercise

263

BTheStakeholderMeeting

266

CCorporationsinTransitionStudy

269

Index 277

TheAuthor 283

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FOREWORDItisincreasinglyclearthatcurrentapproachestomanagingarenotgoingtoworkinthe21stcentury.Thegrowingpressuresofglobalcompetition,thespeedoftechnologicalchange,andthedemandsofsophisticatedcustomersforhigh-quality,efficientlyproducedcustomizedgoodsandservicesaremotivatingasearchforwhatWilliamHalalcalls"theNewManagement."

ProfessorHalal'sbookexploresthismoderndilemmaandprescribestwopremisestoguidemanagerstowardthedesignoforganizationscapableofrespondingtoanincreasinglycomplexandchallengingbusinessandsocialenvironment.Halal'sfirstpremiseisthatthehierarchical"command"economythatguidedtraditionalorganizationsfromthetopdownwillgivewaytoadisaggregated,"internalmarket"economyinwhichmyriadautonomousprofitcentersproduceaself-organizingformofcontrolthatoperatesfromthebottomup.Hissecondbuildingblockisthattheseinternalmarketswilloperatewithinabroadermanagementsystemthatisguidedbytheinformedinvolvementofnumerousstakeholdersagovernancesystemthathedefinesas"corporatecommunity,"asimpleformofeconomicdemocracy.

Thepremisethat21stcenturyorganizationswilldemandbroadeconomicempowermentoftheirmembersiswellsupported,andHalal'sprescriptionofinternalmarketsasthemechanismforthisempowermentiswellarguedandillustratedbyusefulcompanyexamples.Decentralizingthe

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decisionprocesstomeetdiverseandacceleratingdemandshaslogicalappeal,andInformationAgeprofitcenterswouldappeartohavewhattheyneedtomakegooddecisions:information,competence,andhardcriteria.

ThesecondcentralpremiseisfarmorecomplexandthusmorechallengingtobothHalalandhisreaders.Theneedforbroadeningtheconceptofdemocracytoproviderecognitionandvoiceforallmajorcorporatestakeholdersisclearlypresented.The''how"ofthisprocessisnotasdear.Halal,likemostofus,runsupagainstthefactthatoursociety,asthelateAaronWildavskylamented,doesnothaveastrongphilosophicalfoundationtoexplaincollaborativebehavior.Thatis,whilewehavelibertarianphilosophiesrationalizingthepositiveeffectsofindividualinitiativesandcollectivistphilosophiespositingthesocialgainsofsharedeffortsandrewards,wedonothaveaclear-cutlogicalsystemlayingoutthecostsandbenefitsofbehaviormotivatedsimultaneouslybypersonaldesiresandanawarenessofexternalobligations.

Thus,Halalisforcedtomakehisownarguments,toprovidehisowndefinitionsandsupplyhisownrationaleandconclusions.Ingeneral,thecaseisdearlyenoughmadeformyneeds,butthenIhavemadesimilarforaysinmyownwritings.Certainlynotallwillagreeandreadersmaydemandmoreprecision,moreevidence,moredebate.Indeed,ifthebookgeneratesthatdebate,itwillhavelargelysucceeded.Thegovernancemechanismsnecessaryfor21st-centuryorganizationswillalwaysbemorecomplexthanthoseofmostcurrentformsandwillturnonhardrealitieswithsoftdefinitionstrust,humancapital,empowerment,etc.Inthecreationofthesemechanisms,debateandinventionswillbeourmostusefulcompanions.

PartTwoofthebookprovidesbothHalalandhisreadersanotherchallenge.Inthissection,heseekstobuildconceptuallinkagesacross

thelegalandsocialcontractsconnectingthefirmtoitscustomers,itsemployees,anditsecologicalcommunity.Underlyingthisentiresectionisanargumentthatincludesbutgoesbeyondenlightenedself-interest.ThesweepofthisargumentissobroaditdefieseasytreatmentbutIbelieve,asdoesHalal,thattheseissuesarerelatedandmustbemanagedfromanintegratedperspective.InanInformationAgeorganization,fullresponsivenesstocustomerscanonlybeprovidedbylargelyself-managingorganizationmembersandthesocialcostsoftheenterprisemustbeaddressedbybothitsmembersanditsclients.

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InPartThree,Halalarguesthatinformed,empoweredorganizationalmembers,operatinginsystemsthatallowagile,efficientresponsestomarketforces,aretheessentialelementsofaneffective,decentralizedglobaleconomy.Thenotionthatleadershipisbestexercisedbyempoweringothers,whetherattheorganizational,national,orinternationallevelhasalwaysbeenchallenging,eventhoughitisafoundingassumptionofoursociety.Thissectiondoesnotputtheargumenttorest,asnotreatmentislikelyto,butitdoesremindusthatlevelsofeconomicinstitutionsandactivitiesarerapidlycompressingandthateveryeconomicdecisionisincreasinglyaglobalaction.

IhaveknowProfessorHalalsincehisdaysasadoctoralstudentintheHaasSchoolofBusinessattheUniversityofCaliforniaatBerkeley.Ashisearlierwritingshaveshown,hehasneverbeenafraidtoacceptthechallengeoftoughandcomplexissues.Inall,thisprovocativebookprovidesastrongstatementofthedemandsfacedbytoday'sandtomorrow'smanagersandoffersthemaconceptualpaththroughtheneweconomicandorganizationaljungle.Newpathsareseldomsmoothnorcompletelydear.IcommendProfessorHalalforbothhiscontributionsandhiscourage.Ibelievethereaderwilldothesame.

RAYMONDE.MILES

RaymondE.MilesistheTrefethenProfessorofOrganizationalBehaviorattheHaasSchoolofBusiness,UniversityofCaliforniaatBerkeley.ProfessorMileswasalsodeanoftheschoolfrom1983to1990.HismostrecentbookisFit,Failure,andtheHallofFame(NewYork:FreePress,1994).

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ACKNOWLEDGMENTSIt'salwaysimpossibletoacknowledgethemanypeoplewhoassistthebirthofabook,butafewstandout.Iamgratefultomypublisher,StevePiersanti,andthefollowingstaffmembersatBerrett-Koehlerfortheirhelpinguidingthismanuscriptfromitsgestationtoitsaudience:PatAnderson,BeverlyButterfield,RobinDonovan,KateFuller,SusanMalikowski,ElizabethSwenson,andDebbieUyeshiro.Ioweaparticulardebttothemanymanagersandscholarswhoseworkisdescribedthroughoutthesepages;thisbookbuildsontheircontributionsthatIhaveincorporatedintoaconceptualframework.ThefinishedmanuscriptwouldhavebeenfarlessreadablehaditnotbeenforCharlesDorris,mydevelopmentaleditor,andthemanypeoplewhoreviewedearlierdrafts;BarbaraShipkacarefullycritiquedtheentirebookandhelpedmetoseemyownbiases,whileRonaldSchmidt,SteveWallman,PaulMalone,andAnnLehmanprovidedgeneralsuggestionsandreviewedvariouschapters.MystudentsdeserverecognitionforassistingwiththesurveysreportedhereandforseriouslyconsideringmyearlythoughtsontheNewManagementwhentheywerehalf-bakedideas.SpecialthanksareextendedtomycolleaguesatGeorgeWashingtonUniversityforprovidinganintellectualhomethatsupportsthiswork.Iwanttoacknowledgethehelpofmygraduateassistant,MichaelKull,whoistherewhenIneedhim.Mydeepestaffectionisreservedformywifeandchildrenwhosesupportisalwaysindispensable.

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INTRODUCTIONFROMCAPITALISMTODEMOCRATICENTERPRISE:MINDINGTHEECONOMICIMPERATIVESOFKNOWLEDGEInlate1997,BernardEbbers,CEOofWorldCom,asmall,obscurefirminMississippi,announcedthathewasbuyingMCIfor$42billionofhiscompany'sstock.Itwasthelargesttakeoverinhistory.Howcouldthisunknownman,aformergymteacher,emergefromnowherewithnocapitaltoseizecontrolofthesecondlargesttelecommunicationscompanyinAmericaandgainimmediatedominanceovertheglobalcommunicationsmarket?

EbbersforgedthisempirewithlittlemorethanakeenunderstandingofhowajumbleofdiversecompaniescouldbeintegratedtodeliveracompletestreamofcommunicationservicesaroundtheworldataskthateludedAT&T,MCI,andforeigntelecomgiants.

1Becausehegraspedtheunderlyinginsightneededtocreatethissystem,allelsefollowed.

Countlessotherexamplesshowthattodayknowledgeisthemostpowerfulforceonearth,primarilyresponsibleforthecollapseofcommunism,therestructuringofeconomies,andtheunificationoftheworld.AfterdecadesofglibtalkabouttheInformationAge,companiesarebecoming"learningorganizations,"developingtheir"intellectualassets,"andhiring"chiefknowledgeofficers"becausewenowseethatknowledgeisthesourceofallproductivity,innovation,andcompetitiveadvantage.Itissuddenlyblindinglyclearthat

knowledgeisaboundlesssourceofinfinitepowerthatpromisestofloodtheworldwithcreativeprogress.BillGates

Pagexviii

toldagroupofCEOsthatinformationtechnologywill"fulfilltheirwildestdreams."

2

TheContradictionsbetweenCapitalandKnowledge

Theproblem,however,isthatthisvastdividebetweenalimitedpastandaboundlessfuturehasleftbusinessadriftinconfusiontheflavor-of-the-monthmanagementfadsyndromebecausewelackwhateconomistscallaworkable"theoryofthefirm"foraknowledge-basedeconomy.The"OldManagement"oftheIndustrialAgeisdyingbecauseitwasbasedoncapital-driveneconomics,andwenowknowthatenterpriseisnolongerpoweredprimarilybycapital.FormerShellexecutiveArieDeGeussays,"Thecriticalresourceisnowpeopleandtheknowledgetheypossess."3Thismeansthatmostcorporatepracticesoftodaynolongermakesensefortheworldweareentering.

Corporationscompriseeconomicsystemsthatareaslargeasentirenations,yetironicallyourmostadmiredcompaniesremaincommittedtoroughlythesametypeofcentrallycontrolledhierarchythatfailedintheSovieteconomy.Wehaveseenafewmarginalchanges,butthebulkofusefulknowledgeliesunusedamongemployeesatthebottomofthefirmandscatteredoutsideitswallsamongcustomers,suppliers,andothergroupswhilemostdecisionsaremadebyexecutivesatthetop.

Thisyawninggapbetweenpromiseandrealityismerelyahintoftheenormityoftheupheavalthatliesahead.Theentiresocialorderisbeinguprootedbythemovefromacapital-centeredpasttoaknowledge-centeredfutureevenwhileweremainconfusedaboutwhattodo,wherethisisgoing,andwhatitallmeans.Withoutatheoryofthefirmbasedonthelogicofknowledge,today'sstruggleforsurvival

willremainanendlessexerciseinbewilderingchangeandmanagementfads.

ANewFoundationBuiltonAmericanIdeals

Iwanttosuggestthatawell-establishedfoundationfora"NewManagement"oftheKnowledgeAgeisreadilyavailableifwewouldsimplylookintherightplace.America'sheritageofdemocracyandfreeenterprisecouldserveusexceedinglywellinthisnewfrontier.Unfortunately,wetendtorelegatetheseidealstopoliticalelectionsandcompetitionbetweenfirms.Butifmanagerscouldextendtheliberatingpowerofdemocracyandmarkets

Pagexix

insidebusinesscorporations,governmentagencies,andothersocialinstitutionsthatgovernthedailyflowofordinarylife,theirwidespreadusewouldhaveaprofoundimpact.

Thisisnotsomehopelesslyutopianquestbecause,asIintendtoillustrate,trendsaremovingrapidlyinthisdirection.

Tosurviveaworldofconstantchange,massivediversity,andintensecompetition,leadingcorporationsaredissolvingtheirrigidhierarchiesintofluidcollectionsofself-managedunitsthatuselocalknowledgetocarveoutsuccessfulmarketniches.AsIwillshowlater,thisbottom-upapproachshouldintimebringthepowerofenterprisetofruitionasorganizationsmeltintoachurningseaof"internalmarkets"offeringallofthecreativedynamismofexternalmarketscallit"thefloweringofenterprise."

Themovetodemocracyisequallyapparentinthewaycreativemanagersnowworkcloselywithtoughcompetitors,empoweredemployees,anddiscriminatingclients.Afteralonghistoryofconflict,collaborativeworkingrelationshavebecomeoneofthemostpowerfulforcesinbusinessbecausecompanieshavecometothehardrealizationthatthemutualsharingofknowledgewithotherpartiesisbeneficial.Somecompanies,suchasGMSaturn,areunitingtheirstakeholdersintocomplete"corporatecommunities"thinkofitas"theextensionofdemocracy."

Ifmanagerscouldtakeafreshlookattheserichbutmisunderstoodtrendsfromtheperspectiveofourtraditions,theemergingpatterncouldguideourwayaheadwithconfidence.Asthisbookwilldemonstrate,thepowerofdemocracyandenterprisepromisestotransforminstitutionsforanewera.

Whyshouldwebesurprised?ThisisthephilosophythatgavebirthtotheUnitedStatesandthathasbroughtdowndictatorshipafter

dictatorship.Freemarketsanddemocraticgovernancearethetwinpillarssupportingmoderncivilization.Theyareprovenmethodsthatwehavefoundmostusefulbecausetheyinvolveusallinmakingdecisionsthatgovernoursociety.

TheComingParallelRevolutions

Thisbookdescribesleading-edgeconceptsandpracticesderivedfrommycontinuingstudyofthesuccessfulexperiencesofprogressivecompanies.It'sastrategicplan,aguidebook,designedtohelpusfigureoutwherewearegoing.

Followmethroughthemanyexamples,surveys,forecasts,andmini-casestudiesI'veorganizedinthefollowingchaptersandyou'lllearnabout

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threeparallelrevolutionsthatmakeupthistransitiontoknowledge-basedorganizations.Thefigureonthefacingpagesketchesouttheflowofrevolutionaryadvancesalongthreemajorpaths:

1.theInformationRevolutionthatisdrivingthistransition

2.theresultingtransformationofbusiness,government,andotherinstitutions

3.thecreativenewformsofleadershipemergingtohandleallthischange

Notethatthesetrendsfollowarisingexponentialcurvethatischaracteristicofallchangetodaythetypical"Jcurve"depictedonthecoverofthisbook.Whetheritisthenumberofcomputersinuse,strategicalliances,ornewventures,thetrendlineiscurvingsharplyupward.

TheTechnologyRevolution:JusttheBeginningofUnstoppableChange

Thusfarwehaveseenonlythefirstrumblingsoftheinformationtechnology(IT)explosionthatisyettocome.Thesimplechangesareoverandthemostinnovative,wrenchinginnovationslieahead.Iconductaforecastoftechnologicaladvanceseverytwoyears,andthelateststudydetailedthearrivalofeighty-fiverevolutionarybreakthroughs.

4ThiswaveoftechnologicalchangeispoisedtocrashoversocietyduringthenextfewdecadesastherisingpowerofITfeedsbacktoimproveitself.Technologyisbasicallyknowledge,andthewidespreaduseofITisnowdrivingourunderstandingoftechnicalknowledgeateverfasterrates.Here'saroughtimetableofthreemajorbreakthroughs:

2003+/2years.Interactivemultimediashouldbeusedbypeopleeverywheretowork,shop,study,andconductallotheractivitieselectronicallyoverlife-sizedwallmonitors.Electroniccommerceisexpectedtoreach$12billionbytheyear2000alone.

2009+/3years.Smartmachines,robots,andsoftwareshouldbeabletointeractwithpeople,learnandreprogramthemselves,andtranslatelanguages.BillGatessaid,"Thefutureliesincomputersthattalk,listen,see,andlearn."

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2014+/4years.Opticalcomputersandstoragedevices(asdepictedintheSupermanmovies)shouldbeavailabletoprocesslimitlessinformationinanyform.AndrewGrove,CEOofIntel,said,"Computerpowerwillbepracticallyfreeandalmostinfinite."

Inshort,thisisjustthebeginningofhistoricchangesthatseemdestinedtoalterallaspectsoflife.TheIToftodayPCs,theInternet,cellularphoneswilllookprimitiveinadecadeorso.TheU.S.stockmarkethasadvancedroughly1000percentbetween1985and1998becauseAmericanssensetheeconomyisenteringaneraofalmostlimitlessprogress.

TheOrganizationalRevolution:ManagementfromtheBottom-upandtheOutside-in

TheheartofthisbookshowshowthetwoprinciplesofenterpriseanddemocracyformatheoryofthefirmbasedonthelawsofknowledgeTheNewManagement.Twohereticalapplicationsfollowfromthisphilosophicalfoundation:

·InternalMarkets.Complexityisbestmanagednotthroughplanningandcontrolbutbypermittingwidespreadentrepreneurialfreedomatthebottomoforganizations.

·CorporateCommunity.Economicstrengthflowsnotoutofpowerandfirmnessbutoutofthecollaborativeexchangeofknowledgeamongthecommunityofcorporatestakeholders.

Top-DownControlDestroystheBulkofCorporateWealth

Duringthe1990s,thedecadeofCapitalismTriumphant,wehaveconstantlyheardabouttheevilsofcentralplanningandauthoritariancontrol,butanybodyinbusinesswilltellyouthattheprevailingcorporatesystemremainsacentrallymanagedhierarchyadornedwithafewgentletouchesandgoodintentions.Despiteferventclaims

aboutempowerment,networking,teamwork,andotherhotmanagementconcepts,thishasalsobeenadecadeofharshdownsizing,top-downchange,andextravagantexecutivepay.

Forinstance,IBM'sLouisGerstnermayhavepulledBigBluebackfromthebrinkbutonlybyreinforcingfiercedisciplineandhierarchicalcontrol.IBMmanagersdescribedtheirnewbossthisway:"Hisbluntstylesent

Pagexxiii

tremorsthroughtheorganization."In1997,thevalueofIBM'sindividualdivisionstotalled$115billionwhiletheparentcompanywasvaluedat$65billion;themissing$50billionwasconsumedbycorporatebureaucracy.IBM'smanagersclaimthesoftwaredivisionalonewastes$200millioneachyeargettingheadquarter'sapprovalforits10,000softwareprojects.

5

MeanwhiletheshocktherapyapproachtorestructuringhasbecomeawayoflifeinAmericaeventhoughthismethodisnownotoriousforcreatingmeagereconomicgains,overburdenedstaffs,badlyservedclients,andalienatedemployees.In1998,forexample,GE'sJohnWelchwasplanningtocloseplants,selldivisions,cutwages,andlayoffthousands.

Thistop-downapproachmayworkintheshortterm,butlikepaintoverrottedtimbers,itmaskstheunderlyingweaknessandinvitescatastrophes,suchaswe'veseeninthedeclineofAT&T,Sears,GM,andmanyotherformercorporategiants.Top-downmanagementisnotgoingtowithstandthemassivechangesloomingaheadasrelentlesshypercompetitiondrivesopenafrontierofnewproducts,markets,andindustriesthatnobodyreallyunderstands.AndrewGroveofIntelputitbest:"TheInternetislikeatidalwave,andweareinkayaks."6

Downsizing,forinstance,seemstomakesensefromacapital-centeredview,buttheknowledgeheldbyemployeescomprises70percentofallcorporateassets!7Toputitmoresharply,theeconomicvalueofemployeeknowledgeexceedsbyfarallofthefinancialassets,capitalinvestment,patents,andotherresourcesofmostfirms.Firingpeopleisakintothrowingthebulkofcorporatewealthoutthewindow.

Downsizingcanbebestunderstoodasapalliative,ritualisticpractice,akintobloodlettinginprimitivemedicine,thatrevealsafarmoreseriousorganizationalillness.Corporationsshedworkersrepeatedlybecausetheysufferfromachronicinabilitytocreategrowthinaconfusingneweconomicfrontier.Instead,theydownsize.Itislikeabadhabit,providingtemporaryreliefbyreducinglaborcostswhileactuallydrainingenergyascompaniesloseskilledworkers,creativeideas,loyalty,andothervitalassets.

InternalMarketsReleaseKnowledgefromtheBottom

Thesolutionisafundamentallydifferentapproachthatharnessesthecreativetalentslyingdormantinaveragepeople.WhileFortune500dinosaursdownsizedbylayingoffthreemillionemployeesduringthe1990s,smaller

Pagexxiv

firmsandnewventuresupsizedbycreating21millionnewjobs.Thissalientfactshowsthatthekeytovitalizingorganizationsistobringtheliberatingpowerofsmallenterpriseinsideofbigbusiness.

Inshort,weneedtoshiftthelocusofpowerfromtoptobottom,tothinkofmanagementintermsofenterpriseratherthanhierarchy.Iknowthissoundsrevolutionary,butthisisarevolutionasdramaticastheIndustrialRevolution.WetendtoheartheInformationhalfofthephraseInformationRevolutionbutignoretheRevolutionhalf.TheideathatCommunismmightyieldtomarketsseemedpreposterousafewyearsago,butitdidhappen.Nowsimilarchangeisneededinbigcorporations''CorporatePerestroika."RobertShapiro,CEOofMonsanto,putitthisway,"Wehavetofigureouthowtoorganizeemployeeswithoutintrusivesystemsofcontrol.Peoplegivemoreiftheycontrolthemselves."

8

Thefollowingchaptersofferhundredsofexamplesdescribingthecleverformsofinternalenterprisebeingusedtosolveproblemsdirectly,creatively,andquickly.Pay-for-performanceplansarebeingexpandedtoformsmall,self-managedunitsthatareheldaccountableforresultsbutfreetochoosetheirworkers,leaders,strategies,workmethods,andgenerally"runtheirownbusiness."Lineandsupportunitsarebeingconvertedintoprofitcentersthatbuyandsellfromeachotherandfromoutsidethecompany,convertingformermonopoliesintocompetitivebusinessunits.MCI,Xerox,Johnson&Johnson,Hewlett-Packard,Motorola,Siemens,Lufthansa,andothercompanieshavedevelopedfullydecentralizedbottomupstructuresthatformcomplete"internalmarketeconomies."9ABB's4,500independentprofitcentersstandoutasamodel.

Itonlytakesalittleimaginationtoextendthesetrendstothepoint

wherethelogicoffreemarketsgovernscorporationsratherthanthelogicofhierarchy.Internalmarketshaveprofoundimplicationsforbusinessbecausetheyshiftthesourceofknowledge,initiative,andcontrolfromtoptobottom,therebyprovidingthesamebenefitsasexternalmarkets:betterdecisionsthroughpriceinformation,customerfocus,accountabilityforeconomicresults,andasmuchentrepreneurialfreedomaspossible.

Yes,marketsaremessy,buttheyarealsoburstingwithcreativeenergyroughlyliketheInternet,ourbestmodelofaself-organizingmarketsystem.NobodycouldpossiblycontroltheInternet'scomplexactivities,yetby

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allowingmillionsofpeopletopursuetheirowninterests,somehowthesystemgrowsandthrivesbeyondanythingwecouldimagine.

Inthefinalanalysis,onlyanewformofmanagementbasedonenterprisecanmeettheexplosivechallengeslyingdeadahead.Thehopethat"participation,""teamspirit,""inspiringleadership,"andothervagueideascancreatedynamicactionamongtensofthousandsofpeopleinthetypicalorganizationislittlemorethanpiouswishing.Anyonewhohasevermanagedknowsthatitisalmostimpossibletogetmorethantwentypeopletoagreeonanything.MayorSteveGoldsmithofIndianapolistoldmethathestruggledforyearstryingvariousmanagementmethods,butnothingworkedaswellasturninghisdepartmentsintoself-supportingunitscompetingwithoutsidecontractors.

Difficultissuesareinvolvedinthischange,ofcourse,andwewillexploretheminthefollowingchapters,aswellasmanyprogressivenewideas.Forexample,herearethreesimplebutboldactionsthathighlightsurefirewaystojumpstartyourorganization:

·Linkresourcestoperformance.Ratherthanusebudgetsandothercrudecontrolsthatareunrelatedtoresults,linkresourceallocationstoeconomicandsocialvaluecreatedbyunits.

·Allowunitstotalfreedom.Allowallunitsalmosttotaloperatingandstrategicfreedom,includingtherighttobuyandsellfrompartnersbothinsideoroutsidethefirm.

·Replacedownsizingwithself-sizing.Letunitshandletheirownstaffingratherthanimposelayoffs.Thatis,use"self-sizing"insteadofdownsizing.

Whywouldtough-mindedexecutivesyieldcontroloverthesecrucialmatters?Becausetheycantherebyleadanorganizationwhereeveryonesharestheresponsibilityforsuccess.

TheProfit-MotiveDestroysthePowerofSocialPurpose

ThisdoesnotmeanthatCEOsgiveuppowerorthatcorporationsarebalkanizedintowarringcamps.Theroleofexecutivesshiftstodesigningtheseself-managedsystemsandprovidingleadershiptounifydiverseinterestsintoastrategicwholetheconceptof"corporatecommunity."Saturn,

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TheBodyShop,IKEA,andscoresofenlightenedcompaniesdeveloptrustingrelationswithdients,sharepowerwithworkers,andcooperatewithsuppliers,whilealsomakingmoreprofitforinvestors.

It'simportanttostressthatthesecompaniesarenotsimply"doinggood."Theycreatevaluebypoolingknowledgeamongstakeholderstosolvemanagementproblems.Inotherwords,corporatecommunityiseconomicallyeffective.

Beyonditsmanybenefits,however,liesavastandmorepowerfulworldofmeaningandpurpose.Corporatecommunityisalsoessentialtohelpusfindourwaythroughaturbulentworldengulfedinanavalancheofexpandinginformation.Itisagreatparadoxthathavingsomuchmoredataoftenleavesusmoreconfusedbecauseofitssheerlimitlessness.Wearebeginningtounderstandthatinformationismeaninglessifitisnotguidedbyrelationships,values,andvisionallthosesubtlebutveryrealqualitieslyingbeyondknowledge.

Unfortunately,theseconceptsruncountertotheideologyofcapitalism.Thetraditionalideathatcorporationsowetheirallegiancetoshareholdersandprofitplacesmanagersinanunrealisticpositionwheretheyareopposedtotheinterestsofemployees,customers,andotherswhosesupportisessential.Employeepayandtraining,forinstance,areviewedassimplycoststobeavoided.Buttherealityisthatemployeewelfareandprofitabilityareperfectlycompatible.Companiesthatformemployeepartnershipsenjoyhugereturnsontheirinvestmentinlabor.

10

Considerhowthehealthcareindustryprovokedthepublic'swrathbycuttingpatientservicestoimproveprofits.Congresspassedlawsbanningsuchpractices,and2,000physicianscalledforchange

becauseHMOs(healthmaintenanceorganizations)are"destroyingthesoulofmedicine."11

Howdidagreatprofessiondedicatedtoservinghumanitygetintosuchamess?Inpursuingtoday'snotionofgoodbusiness,HMOslostsightoftheirsocialpurpose.It'sobviousthatwemustcontrolcostsandinvestorsmustberewarded;however,anybusinessmustalsoservesocietytosurvive.

Thisbusiness-societyconflicthaseveryoneconfused,wastingenergyratherthanworkingtogethertowardcommongoals.RobertHaas,CEOofLeviStrauss,explainedtheproblem."Peoplelookthroughthewrongendofthetelescope,asifprofitsdrivebusiness.Employeemorale,turnover,consumersatisfaction...that'swhatdrivesfinancialresults."12

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CorporateCommunityDrawsKnowledgefromOutsideGroups

IfAmericanexecutivescanlookbeyondthebottomline,theywillfindvastopportunitiesforprofitablebusinessflowingdirectlyfromjoiningwiththeinterestsoftheirstakeholders.

Inthehealthcareindustry,forinstance,progressiveHMOsareinvolvingallpartiesindecisionstoimprovehealthcarewhilereducingcosts.Typically,physicians,nurses,andotherstaffareorganizedintoself-managedpracticesthatareaccountableforperformancebutgivenwidefreedomandsupport.Educationprogramsassistpatientsinbettermanagingtheirownhealthandinpreventingillnessbyadoptinghealthierlifestyles.Andtokeepthesystemhonest,statesprovideaccesstomedicalperformancedatatoletmarketforceswork.Doctorsarenowoftenstunnedtoseepatientsshowupwithacutchofmedicalresearchreportsintheirhands.

Hereweseethepowerofknowledge-basedenterprise.ProgressiveHMOsareredefiningmedicineintoamoreeffectivesystemofcollaborativeproblemsolvingamongadministrators,medicalstaff,patients,theiremployers,andgovernmentcorporatecommunityinaction.ThisapproachallowedOxfordHealthPlanstodoubleinsizeeachyeartoserveonemillionmembers,

13Othercompaniesineveryindustrycouldmakeasimilartransformation.

Butdoesn'tthisapproachcompromisetheneedtomakemoney?Aknowledgeeconomyischangingtheoldassumptionthatprofitandsocialbenefitsareopposed.Unlikecapitalwithitsfixedlimits,knowledgeincreaseswhenshared,whichiswhycooperationhasnowbecomeefficient.Forinstance,today'swaveofstrategicalliancesisfueledbythepoolingoftechnology,marketaccess,andotherformsof

knowledgetoincreasevalueforallpartners.RaySmith,CEOofBellAtlantic,callsittheprincipleofloavesandfishes."Unlikerawmaterials,knowledgecan'tbeusedup.Themoreyoudispense,themoreyougenerate."14

Ifcooperationcanmultiplythevalueofallianceswithbusinesspartners,whyshouldn'titbeeffectiveforsocialallianceswithemployees,customers,andothergroups?Resultsreportedinthisbookfrommy"CorporationsinTransition"(CIT)surveyof426managersshowthatmorethan80percentunderstandtheneedtocollaboratewithstakeholders.

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AlthoughIlikethisideabecauseitresolvestheage-oldclashbetweenbusinessandsociety,Idonotarguethiscaseonmoralgrounds.Corporatecommunityisnotsocialresponsibilityorbusinessethicsit'soneofthefewremainingwaystosustaincompetitiveadvantage.

Inthefollowingpagesyouwillreaddetailedaccountsoffascinatingcompaniesandbusinessleaderswhohavepioneeredthisfrontier.Imaginehowthefollowingcreativebuttoughactionswouldelectrifyyourorganizationwithfreshknowledgefromtheoutsidepartiesyoudependontosucceed:

·DemocratizeCorporateGovernance.Inviteresponsible,well-informedrepresentativesofemployees,cients,andbusinesspartnerstoseatsontheboardofdirectorsandotherbodies.

·EvaluateFinancialandSocialPerformance.Developmeasuresofperformancethatreflectthecontributionsandbenefitsofallstakeholders,aswellastraditionalfinancialperformance.

·CollaborateamongStakeholders.Usethisdemocraticformofgovernanceandperformancemeasurestoengageallstakeholdersinjointproblemsolvingtoimprovetheoverallsystem.

Thesechangesarenotaluxurybutanecessityforanybusinessthathopestomeetthetestofsocialpurpose.Thedisordersofourtimerepresentavastfrontiercryingoutforanewtypeofenterprisethatcreatesvaluebyintegratingdifferentintereststoserveallneedsbetter.

TheLeadershipRevolution:RelinquishingtheIllusionofControl

IfIamright,organizationsareheadingtowardsomesortof"economicreversal"apassagefromhierarchytomarketsandfromconflicttocommunity.Weseemtoberoughlyhalfwaythroughthispassage,andtheprinciplesofaNewManagementarequietlygatheringmomentum.Explodingcomplexityisforcingdecentralized

controls,whilethebenefitsofcollaborationareattractingdiversepartiesintopocketsofsharedunderstanding.

Thewayaheadseemsclear.Tomanageorganizationsinanewerawhenordinarypeopleofferthemostvaluableresourceavailable,leaderswillhavetopushauthoritydowntothebottomandouttoallaffectedpartiesaNewManagementbasedonsharedleadershipfromthebottom-up

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andtheoutside-in.MyCITstudyshowsthatmanagersgenerallyunderstandthisshiftiscoming,andtheyexpectittoarrivebetweentheyears2000and2005.

Itiscertainlyneeded.Todayscreativedestructionoffreemarketsisuprootingtheoldsocialorder,withmountingpotentialforaseriouseconomicbacklash.TheincomegapbetweenthetopandbottomclassesintheUnitedStateshasreturnedtothelevelsseenpriortotheGreatCrashof'29,whileindicesofsocialwell-beinghavereachednewlows.

15Andmuchmoreturmoilliesaheadbecauseworldindustrializationislikelytoincreasetenfold.TheindustrializationofChinaalonewilltripletheuseofscarceresources,globalcompetition,socialdiversity,andpollution.GeorgeSoros,themostfamouscapitalistofourtime,calledtoday'smarketsystem"TheCapitalistThreat."

MovingthroughthePassage:LeadersAsGardeners

IsuspecttheonlywaythisconflictcanberesolvedisbymovingthroughthepassagebyharnessingthepotentialofaNewManagementbasedonthelawsofknowledge.Thekeyistoseethatcapitalismisdyingbutenterpriseanddemocracyarejustbeginningtoflower.Torealizethesepossibilities,however,leadershavetorelinquishtheillusionofcontroltoadoptamorehumblebutrealisticroleofnurturingratherthancommandingtheirorganizations.

Thenewscienceofcomplexityandchaostheoryshowsthatorganizationstodaymustbecomeshiftingclustersofself-controlledautonomousunits,alivingsuperorganismofcountlesssmallcellsthatconstantlyadapttoaturbulentworld.TheOldManagementwasgoodformechanisticbusiness,buttheNewManagementasksexecutivestogiveuptheiroldroleascaptainsofcommercetobecome"economic

gardeners"oforganicsystems.

Iexperiencedanexampleofthiscomingroleshiftwhenattendingafundraiseratmyson'shighschoolrecently.Theseusedtobeloud,hard-selleventsthatauctionedprizestothehighestbidder,leavingpeopledazedbutfeelingsortofloyalforattendingwhatwasbasicallyanunpleasantbash.Thistimewewereinvitedtoenjoyaquietdinnerwithafewotherparentsandteachersatsmalltables.Theresultwasameaningfuldialogueabouttheraisingofourchildrenandtheroleoftheschool.RatherthanleavetheeventwithaheadacheasIusuallydid,Ileftthisfundraiserwithadeeper

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appreciationfortheinstitutionIentrustmysonto.Andtheschoolbenefitednotonlyfromourheightenedsupportbutfromthemoregenerouscheckswewillinglywroteafteranenjoyableencounterthatleftusallfeelingconnected.

Itseemstomethatthisiswhatleadershavetocultivatetoday.Theglitzymarketing,brutaltreatmentofthrow-awayworkers,andalltheotherrelicsofamoreexuberantbutthoughtlesseconomicyouthmustyieldtoamaturitythatisquieterbutmorepowerful.Leadersmustfindawaytoserveunmetsocialneeds,developinformationsystemstosharpenourunderstanding,helpemployeesorganizeintoself-managedunits,andformcollaborativerelationshipstoresolvetheoldconflictsbetweenworkersandmanagers,sellersandbuyers,andalltheotherdivisionswecannolongerafford.

Leaderscan'tforcepeopletodoanyofthesecomplextasksanymorethangardenerscanforcenaturetoproducewhattheywant.Gardenershavetobeattentivetothesubtlesignsofneedintheirgardens.Theymustprovidetherightamountsofwater,light,andnutrientsandthenlovinglyallowplantstogrowastheyshould.Inotherwords,theymustletgo.ListentohowBobKuperman,CEOofChiat/Day,describedthisnewrole:

Basicallyourorganizationisnowalivingthingwithalifeallitsown.Managementcansupportitandguideit,butnotcontrolit.Ifyouletitdesignitself,ittakesoffandpeopleusetheirbestpossibleabilities.We'vegottomakethissucceedbecausetheoldwaydoesn'tworkanymore.

16

Heritage,Heresy,andtheLawsofKnowledge

Oneparticularlycrucial,symbolicactionwouldsignifythesethreerevolutions,helpusgraspthem,andliveuptothechallenge.Drawing

onourheritageasanationbornthroughrevolution,Americansshouldsummonupourtraditionalcouragetoproclaimamodernheresyoureconomicsystemshouldnolongerbethoughtofas"capitalism."

Capitalismisanoutmodedtypeofmarketsystemdedicatedtothepursuitofcapital,profit,andtheothermaterialfactorsthatworkedintheindustrialpast.Themainthingimpedingusatthispointissheerideology.Ifwewanttodrawontheenergyofthefuture,weshoulddefineoureco-

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nomicsystemintermsofthelawsofknowledgethatdefinethefuture.Economicsuccessisnolongerpoweredbycapitalbutbyfreeenterpriseanddemocraticcommunity.Isuggestamoreaccurate,fittingnameforoursystemwouldbe"DemocraticEnterprise."

Corporateexecutivesaretheprimarycandidatesforcreatingthissystembecausebusinessisthemostpowerfulinstitutioninsociety.Asystemofdemocraticenterprisewouldallowustomoreeasilynavigatethiseconomicpassage,andmanagerscouldthenshedtheiroldroleasthebadguystoassumetheirrightfulplaceastheheroeswhomakeaknowledgesocietywork.

WILLIAME.HALALWASHINGTON,D.C.JULY1998

Notes

1."Telecom'sCowboyRevolutionary,"BusinessWeek(October13,1997).

2.TheNewYorkTimes(May10,1997).

3.GeoffreyColvin,"TheChangingArtofBecomingUnbeatable,"Fortune(November24,1997).

4.WilliamE.Halal,"EmergingTechnologies,"TheFuturist(NovDec1997).

5."DefendingBigBlue,"Newsweek(September30,1996).BetsyMorris,"BigBlue,"Fortune(April14,1997).

6.Groveisquotedin"AConversationwiththeLordsofWintel,"Fortune(July8,1996).

7.ThomasStewart,"TryingtoGrasptheIntangible,"Fortune(October2,1996).

8.RobertShapiro,"GrowthThroughGlobalSustainability,"HarvardBusinessReview(JanuaryFebruary1997).

9.WilliamE.Halaletal.,InternalMarkets(NewYork:Wiley,1993).

10."LookWho'sPushingProductivity,"BusinessWeek(April7,1997).

11.DavidHilzenrath,"DoctorsLashOutAgainstProfitMotive,"WashingtonPost(December3,1997).

12.ShermanStratford,"Levi's,"Fortune(May12,1997).

13."Oxford'sEducation,"BusinessWeek(April8,1996).

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14.WilliamE.Halal(ed.),TheInfiniteResource(SanFrancisco:Jossey-Bass,1998).

15.1996IndexofSocialHealth(Tarrytown,NY:FordhamGradCenter,1996).

16.WilliamE.Halal,TheInfiniteResource(Jossey-Bass,1998).

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1ManagementinTransition:BridgingThatDividebetweentheOldandtheNewCivilizationtodayispoisedatthebrinkofagreatdividebetweenanoldwayoflifethatisdyingandanewwayoflifethatisstillbeingborn.BehindliesanIndustrialAgethatlavishedwealthonaworldthatwaspoorbutwhichalsoleftapollutedplanet,quarrelsomesocieties,andemptylives.AheadliesthemuchheraldedpromiseoftheInformationAgebutitsgrowingcontourscontinuetosurpriseandshockus.Whowouldhavethoughtthataglobaleconomywouldappearalmostovernight?ThattheSovietUnionwouldjustdisintegrate?ThattheUnitedStateswouldslipintodecline?

1

Therearemanywaystoexaminesuchcomplexissues,butbasicallytheseareproblemsofmanagingsocialinstitutions.Asaknowledgeeconomyspreadsaroundtheworld,thelargestprofessionalgrouptodayistherisingmanagerialclassthatguidesagrowinginfrastructureofcomplexorganizations.2Mostoftheworriesthatdominatethenewsemanatefromtheinteractionofcorporations,governments,schoolsanduniversities,hospitals,newsmedia,armies,andotherinstitutionsthatsupportmodemlife.PeterDruckerdescribeditthisway:"Becauseaknowledgesocietyisoneoforganizations,itscentralorganismanagement.Managementalonemakeseffectivealloftoday'sknowledge."3

Andaseventsacceleratetoproduceevermorecomplextechnologies,intensecompetition,andturbulent,constantchange,theagingfoundation

Page2

ofthisentireinstitutionalsystemisfailingeverywhere.WitnessantigovernmentsentimentintheUnitedStates,thecrisisinhealthcare,anddemandstoreformeducation.IBM,onceregardedasthebest-managedcorporationintheworld,recordedthebiggestbusinesslossinhistoryrecently,whichwassoonexceededbyGeneralMotors(GM).Confidenceininstitutionshasfallenfrom52percentin1966to22percentin1994,andnorecoveryisinsight.

4

Outofallthisconfusion,aworkablenewsocialordermustbeconstructedtomanagearadicallydifferentworld.ThisbookdescribestheorganizingprinciplesthatareemergingtomasterthischallengeTheNewManagementanditoffersguidesonhowmanagerscanleadtheiroldinstitutionsintothisnewera.

WhatReallyIstheNewManagement?

Mostpeoplehaveanintuitivegraspofmanagementbecauseweareraisedinaworldoforganizations,soatanearlyageweabsorbthebasicconceptsofworkinglife.That'swhymanagementeducationisoftendismissedas''commonsense."

Butitisexactlythiscommonlyunderstoodsense,or"paradigm,"thatistheproblem.Prevailingmanagementconceptswereconceivedforanindustrialpast,sotheyarenotusefulforavastlydifferenteconomybasedonknowledge.Thefoundingfathersofmanagementwouldbebaffledtohearmodernmanagerstalkof"networks,""telecommuting,"and"virtualorganizations."

TheEvolutionofManagement

TheclassictheoriesofHenriFayol,MaxWeber,andFrederickTaylordefinedthetraditionalviewof"mechanistic"organizationstomanage

thesimpleconditionsoftheIndustrialAge.Whatcouldbemorereasonableinan"ageofmachines"thantoconstructinstitutionsas"socialmachines"?Today,however,amorecomplexworlddescribedbythe"supertrends"inBox1.1hasmadethismodelobsolete.5

Theforcedrivingthistransformationistheinexorableincreaseincomputerpowerbyafactorofteneveryfewyears.FortypercentofAmericanhomesnowhavepersonalcomputers(PCs),andthenumberisgrowing30percentperyear.Theaveragehouseholdusescomputerstwiceas

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BOX1.1.GLOBALSUPERTRENDS.

AnInformationSociety.Sometimebetween2000and2010,today'sPCswillseemasprimitiveasaslideruleincomparisontoanewbreedoffarmoreconvenient,intelligentsystemsthatshouldincreasecomputingpowerroughlyamilliontimes.Smallportablecomputerswillbecomeindispensableassistantshelpingusmanage"smart"homes,offices,andautos,whilelargerparallelprocessorscontainingthousandsofchipswillprovidethemusclepowertocruisetheinformationsuperhighwaysofaplanetarysociety.Peoplewilltherebygainaccesstoawealthofknowledgeatthetouchofafinger:conversationswithanyoneacrosstheglobeonfullmotionvideo,dataonanytopic,librariesofbooksandperiodicals,currentnewsaroundtheworld,andacornucopiaofentertainment.

TechnicalMastery.TheInformationRevolutionexertsanenormousmultipliereffectasitadvancesourabilitytoacquireknowledge,theheartofscientificprogress.Theresultishistoricbreakthroughsinallfields.Asoneexample,biogeneticswillsoongainsuchcontroloverlifeprocessesthatanyconceivabletypeoforganismmaybecreated,justasphysicalsciencenowconfersthepowertocreatehydrogenbombsandexplorespace.

AUnifiedGlobe.Theelectrifyingforceofinformationtechnologyiswiringtheglobeintoasingle,unifiedwhole.JustaspeoplethoughttheideaofaUnitedStatesofEuropeandaNorthAmericanFreeTradeAgreementwereunthinkableafewyearsago,today'seconomicblocsarelikelytomergeinadecadeorso,producingopentradeamongmostnations,hugenewdevelopingmarkets,someformofcoherentglobalgovernance,andthefreemovementofcapital,information,andpeopleacrossborders.

TheEcologicalTransformation.TheriseofamiddleclassinAsia,SouthAmerica,andpossiblyAfricaisalmostcertaintoincreasethelevelofindustrializationdramatically,possiblytenfold,producingacommensuratestrainonanalreadydecayingecologicalsystem.TheindustrializationofChinaaloneshouldatleastdoubletheloadontheenvironment.Thus,presenttechnological,economic,andsocialsystemsmustinevitablybetransformedintosomeasyetunknownnewsystemthatisecologicallybenign.

SocialDiversity.Theinformationrevolutionseemstoinvariablyreleasekeenneedsforpersonalachievement,culturalidentity,andspiritualmeaning,drivingalmostuncontrollablediversity.ThatiswhytheworldiswrackedwithsocialconflagrationsintheMiddleEast,theformerCommunistbloc,andeventheUnitedStates;andtheproblemmaybecomemoreintense.

Source:WilliamE.Halal,"GlobalStrategicManagementinaNewWorldOrder,"BusinessHorizons(December1993).

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muchasitusesTV,andcomputersarealsoconnectingpeopletogetherthroughtheInternetandinformationserviceslikeAmericaOnline,CompuServe,TheMicrosoftNetwork,andProdigy.In1994,thefirstthree-dimensionalvirtualmeetingwasheldacrossthePacificbetweenteamsofJapaneseandAmericanswhoseimages"met"inavirtualconferenceroom.Oneparticipantdescribedtheexperiencethisway:"We'vebeendreamingofcyberspaceforalongtime.Hereitis,thewaypeoplereallyinteract."BillGatesclaimsallthesecapabilitieswillbeincommonusebytheyear2000.

6

Bytheendofthisdecade,then,averagepeopleshouldbeabletowork,vote,learn,shop,play,andconductalmostallotheraspectsoftheirliveselectronically,usingmultimediaPCsthatcombinetheintelligenceofasupercomputer,thecommunicationsofaportabletelephone,andthevividimagesofhigh-definitionTV.Thesetrendsforetellatransformationoftheentiresocialorder,andthebattletodefineanewsocialorderwillbewagedinthewaywedesignandmanageinstitutions.

ManagershavebeguntorestructuretheirorganizationsinrecentyearsasTotalQualityManagement(TQM),alliances,reengineering,self-directedteams,empowerment,community,andotherinnovationssuddenlyburstonthescene.ArecentissueofFortuneevenannounced"TheEndoftheJob,"7andKunheeLee,chairmanofSamsungCorporation,thelargestKoreanconglomerate,toldhismanagers,"Changeeverythingexceptyourwifeandkids."8Figure1.1outlinesthisrichbodyofemergingthought,showinghowtheintroductionofmajornewconceptshasprogressivelymovedthepracticeofmanagementtowardan"organic"focus.Theentriesarenotexhaustive,buttheyofferageneralguidetotherapidevolutionof

managementtoday.

Theneatconceptsofclassicalmanagementwerechallengedinthe1950swhenAbrahamMaslow,EltonMayo,andDouglasMcGregorshowedthatthefieldwasexpandingtoincludehumanandsocialfactors.Later,inthesixtiesandseventies,bolderinsightsbursttheboundariesoftheoldmanagementaltogether.ChesterBarnard,anexecutiveatAmericanTelephoneandTelegraph(AT&T),describedmanagementintermsofsocialsystems.PaulLawrenceandJayLorschdiscoveredthateffectiveorganizationsconsistofdiversepartsunitedintoacoherentwhole.WarrenBennisforesawtheneedtoreplaceauthoritariancontrolwithdemocracy.AndHenryMintzbergfoundthatmanagersareengagedinanaction-orientedflowofpeopleandinformationratherthansterileproblemsolving.9

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Figure1.1.TheAdvanceofManagementThought.

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Althoughthesewereradicalideasatthetime,theycannowbeunderstoodmoredearlyasthefirstwaveinafloodoforganicconceptsthatsweptthroughthe1980sand1990s.W.EdwardsDemmingandJ.M.Juranpioneeredthequalityrevolution.WilliamOuchi,TomPetersandRobertWaterman,andPeterVaillhelpedusseethatexcellentmanagersinstilledpurposeandmeaning.RayMilesandCharlesSnowshowedthatmodernorganizationsconsistedofnetworks.GiffordPinchotandRussellAckoffbroughtfreeenterpriseinsidethefirm.PeterSengeoutlinedtheprinciplesoforganizationallearning.TerrenceDeal,AllenKennedy,PeterFrostandhiscolleagues,LeeBolman,andMichaelRayrevealedhowinstitutionsformtheirownculturesandspiritualbeliefs.AndmybookTheNewCapitalismshowedthatallthischangeflowsfromtraditionalWesternidealsofenterpriseanddemocracy.

10

TheOldversustheNewManagement

Whileitiscearthatanewstreamofmanagementhasappeared,thereisgreatconfusionoverwhatthisNewManagementwillconsistofwhenitmatures.Aquickscanofthebusinessmediashowsabewilderingblurofnewmanagementideasextollingeverythingfrom"greedisgood"to"businessethics,"andanauthoritativesurveyrecentlyconcludedthatthereislittleagreementontoday'smanagementparadigm.11

Thisconfusionisparticularlyseverebecauseitoftenragesacrossagreatdivideseparatingthepastfromthefuture.Theeconomichistoryofourtimewilllikelybetoldasatuggingandpullingbetweentheoldversusthenew:powerversusparticipation,hierarchicalcontrolversusmarketfreedom,profitversussociety,growthversustheenvironment,andsoon.

Onthe"new"sideofthisdivide,manyproponentsofprogressivechangearecaughtupinarevolutionaryzealthatproclaimsthevirtuesof"empoweredpeople,"workingin"fluidstructures,"toserve"humanneeds''and"protecttheenvironment,"allenergizedby"spirituality."Theseareexcitingideas,buttheyoftenappearnaivetomanagerswhoarestrugglingtosurviveahardworld.ManagerswhorespondedtotheCITsurveyofferedthefollowingreactions:"Justbecauseanideaisolddoesnotmeanitisbad,"and"Therewillneverbeasubstituteforthedisciplineandaccountabilityoftheoldsystem."Oneexecutiveputitthisway,"Theimplicationthatwe'vecometoacrossroadsinbusinessmanagementisfull

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ofhotair....Weneedtoremember,follow,andreinforcethegoodoldideas...noonehasdiscoveredanynewsecretsofmanagement."

12

Onthis"old"halfofthedivide,it'struethatmanyexecutivesarestuckinoutdatedviews.ListentosometypicalcommentsfrommanagersintheCITsurvey:"Itisincredibletowitnessjusthowterrifiedseniormanagersareofchange.Theypaidtheirduesintheoldsystem,andnowtheyfeelarighttoprivilegeswithinthatsystem,"and''Somepeoplemustexerttotalcontrolovereveryaspectoftheirbusiness."Thesearevalidcriticisms;however,adherentstotheOldManagementraisecrucialobjectionsthattestnewideas,andtheirinfluencemaintainsahealthycontinuitywiththepast.Seriouschangeisgoingtorequiremorethanloftysentiments.

Forinstance,itisrefreshingtoseeattemptstoempoweremployeessweepacrosstheland,buttheseinnovationsoftenfailbecauseofunrealisticexpectations.WeirtonSteelexcitedthenationwhenitbecamethelargestemployeestockownershipplan(ESOP)inAmerica,yetnowthecompanyhasfallenonhardtimesandsoithasbeenforcedtotakedrasticmeasures,includingthesametypeoflayoffsoftenassociatedwith"heartlesscorporations."Weirton'sowner-workersarejustifiablyangry:"Howcanwebelaidoffifweownthecompany?"askedapuzzledshareholder.13

TheroadtoaNewManagementislitteredwiththeruinsofsuchnoblefailures,soitwouldbewisetoacknowledgetheircausehonestlyifwewanttoavoidthem.IntheWeirtonSteelcase,avidproponentsfailedtorecognizetheenduringtruththat"authoritymustbecommensuratewithresponsibility."Whileworkerswereenthusiasticabouttheirnewfoundpowers,theywereunpreparedtosufferlossesbecausetheydidnotrealizethatownershipincursthe

riskofcontrolaswellastherightofcontrol.ThesamefatalflawisdamagingemployeegovernanceinEurope.

Theseformsofworkerparticipationhavebeenabeaconforenlightenedmanagement,buttheyaccordedemployeesdominantcontrolovertheirenterpriseswithoutensuringthatthispowerwasusedresponsibly,allowingworkerstorewardthemselveswithoutcommensurategainsinperformance.Themostbrilliantmanagementinnovationscannotrepealtheironlawsofeconomicrealitythatrequireustolivewithinourmeans.ANewManagementcanofferpeoplethepowertocontroltheirlives,butitmustalsoholdthemaccountableforperformanceaswelljustastheOldManagementdid.

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Thereverseisalsotrue:demandstoimproveproductivitymeanlittleunlesstheyareaccompaniedbythepowertocontrolone'sworklife.Theuseofdownsizingandotherattemptstoreducecostsareoftendisappointingbecausetheyareusuallyimposedfromthetopdowninaratherarbitraryway,causingfear,stress,andresentmentatbeingtreatedunfairly.AtatimewhenCEOsroutinelyclaim"ouremployeesareourgreatestasset,"thisispreciselythewrongapproach.Top-downchangedisempowerspeopleandpreventslocalsolutionsthatareusuallysuperiorhallmarksoftheNewManagement.

Theseconfusingconflictsbetweenoutmodedpracticesanduntestedpromisesaretheprincipalobstacletoeconomicprogress.Wecan'tgobacktoapastthatnolongerworks,andyetweseemtobehavingdifficultyfindingsolidgroundtomoveahead.Howcanorganizationsbeproductivewhenmanagersseemconfusedoverwhattheyexpectfromtheiremployees?WillAmericancompanieslosetheproductmarketsofthefuturetoglobalcompetitorsastheydidbeforeinelectronicsandautomobiles?Mostimportantly,thefullimpactofthisupheavalwillhitwhenthenextwaveofinformationsystemsarrivesabouttheyear2000.WillwebereadytohandlethisenormousuntamedpoweroftheInformationRevolution?Thequestioncannolongerbeavoided:WhatreallyistheNewManagement?

TheNewFoundationofManagement:DemocracyandEnterprise

Ibelieveanewfoundationofmanagementisemergingthatcanbridgethisdividebetweentheoldandthenew.Notonlycanthisconflictberesolved,theNewManagementabsorbstheOldManagementintoabroader,morepowerfulframeworkthatmakessenseofalltheconcepts,problems,andinnovationsthatconfusemanagerstoday.Thekeytounderstandingthiscrucialresolutionistoseethatthetwocomplementaryprinciplesofdemocracyandenterprisearenowtransformingorganizationsintoabalancedwhole.

Managershavealwaysworkedinamarketeconomy,ofcourse,andweallliveinademocraticsociety,sowhatisreallynew?What'snewisthatthesepracticeshavebeennotablyabsentinorganizations.Therehasbeenpreciouslittleentrepreneurialfreedominsidecorporationsorgovernmentsbecausetheyweretraditionallymanagedascentrallyplannedhierarchies,

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andthemerethoughtofdemocracywasanathemainbusiness.EventheCatholicChurchacknowledgesthatitisnotdemocratic.

Butwithinthepastfewyears,thesetwoprincipleshavebeenbringingafreshnewvitalityintocorporatelife.Aswewillsee,today'smovementtowardsmallerbusinessunits,entrepreneurialfreedom,accountabilityforeconomicresults,andotherenterpriseprinciplesislikelytoculminateincomplete"internalmarkets."Likewise,asimilartrendtowardempowerment,participation,collaborativeworkingrelations,humanvalues,andotherdemocraticidealsshouldleadtoward"corporatecommunities."

Pleasenotethatthereisadifferencebetweentheconceptsof"enterprise"and"internalmarkets,"andbetween"democracy''and"corporatecommunity."

Thepoweroffreeenterpriseisintroducingsomeaspectsofmarketbehaviorinorganizations,butitishardtoenvisionhostiletakeoversofcorporatedivisions.Soorganizationsareunlikelytobecomecompletelyfreemarkets.ButasChapter2willshow,ifmanagersencouragethestartingofinternalventures,providethewideoperatingfreedomthatenterprisesneedtothrive,andrewardentrepreneursfortheirsuccess,theseconditionsconstitutewhatIcallan"internalmarket."

Likewise,theidealsofdemocracyaremovingintoorganizations,butthisisnotlikelytobealegalsystemofrepresentativegovernment.Webster'sdictionarydefines"democracy"asoriginatingfromtheLatindemos,meaning"thepeople."Inthisbroadersense,democracyisasystemofgovernancebasedontherightsofpeople.AswewillseeinChapter3,theapplicationofdemocracyinorganizationsusuallytakesthepracticalformofcollaborativeworkingrelationsthatformacorporatecommunity.

Thus,internalmarketsandcorporatecommunityaredefinedhereas"organizationalequivalentsofenterpriseanddemocracy."Thesetwoconceptstogetheroffersuchbreadthofunderstandingthattheyprovidemanagersaunified,practicalbodyofprinciples.Nosingleframeworkisabletoexplainallaspectsofmanagement,butIestimatethatmost,andpossiblyasmuchas70to90percent,oftoday'smanagementinnovationflowsfromthesetwokeyprinciples.

Ifthisviewisvalid,theunionofdemocraticandentrepreneurialprinciplesshouldresolvetheclashbetweentheOldandtheNewManagementnotedabove.Infact,itdoesexactlythat:"empoweredpeople"mustassume

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bothrightsandresponsibilities,"fluidstructures"requirefreedomandaccountability,"humanneeds"includethewelfareofsocialconstituenciesandprofitforinvestors,andspiritualityah,spirituality!

Spiritualityhasbecomeapowerfulnewentryinmanagementrecently,aswewillseelater.LawrencePerlman,CEOofCeridianCorporationsaid,"Ultimately,thecombinationofheadandheartwillbeacompetitiveadvantage."

14ButIthinkmuchofthisinterestismisleading.Someofmymostdisappointingexperienceshaveoccurredinorganizationsthatprofessspiritualvalues.Becausewetendtoequatespiritualitywith"goodness,"peopleoftenavoiddiscussingthehardnecessitiesofeconomiclifeconflict,poorperformance,andsoontherebyallowingsuchproblemstofesteruntiltheyexplode.Afterall,thehistoryofreligionaboundswithwar.TomPetersignitedacontroversywhenhesaid,''Ifindtheideaofspiritualityintheworkplaceappalling."15

ItseemstomethatspiritualityisdestinedtobecomepartoftheNewManagement,butitwillbemorebroadlyconceived.Aswewillseelater,thespiritisboththesourceofourhighestidealsandapracticaldisciplinethatleadersusetoresolveintensedifferencesamongdemandingclients,empoweredworkers,andtoughbusinesspartners.OurapproachtothespiritcannotbelimitedtotraditionaldogmanorNewAgemysticism.AsWaltWhitmantoldus,lifeisasacredwholethatencompassesall.Institutionsarenolessanintegralpartoflife,ablazewithendlessmeaningthatencompassesthemessy,disturbingrealitiesaswell.Thespiritthatanimateslifepermeatesalllife,notjustthoseaspectsweprefer.

AForecastoftheNewManagementParadigm

TheconceptscomprisingtheNewManagementparadigm,orsystem,

areoutlinedinTable1.1,incontrastwiththecorrespondingfeaturesoftheOldManagement.Ofcourse,wecan't"prove"wherethisrevolutionarytransitionwilllead.ByapproachingthetaskinasystematicwayusingtheresearchmethoddescribedintheIntroduction,however,Ithinkwecanprovideareasonablysoundforecastthatsketchesoutthenewsystem.

ThefollowingchaptersummariesexplaintheconceptsinTable1.1andtherebyprovideanoverviewofthebook.Asshown,thebookisdividedintothreeparts.PartOnelaysaconceptualfoundationbydescribinghowthetwocentralthemesofinternalmarketsandcorporatecommu-

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TABLE1.1.THETRANSITIONTOANEWMANAGEMENT.

ChapterFeatureIndustrialAge:TheOldManagement

InformationAge:TheNewManagement

2 Organizationstructure

Hierarchy InternalMarket

3 Goalsandgovernance

Profit CorporateCommunity

4 Managementsystem

Mechanistic Organic

5 Clientrelations

Selling ServingEnterprise

6 Workroles Employee KnowledgeEntrepreneur

7 Ecologicalinterface

UnboundedGrowth IntelligentGrowth

8 Strategyformation

Planning ContinuousChange

9 Guidanceandcontrol

Authority InnerLeadership

10 Worldsystem

TheOldCapitalismvs.TheOldSocialism

DemocraticEnterprise

nityformanewmanagementsystem.PartTwofocusesonbuildingthreestructuresthatconstitutetheheartofthissystem:theorganization'srelationshipswithitsclients,itsworkers,andtheenvironment.PartThreeexploreshowmodemmanagerscanleadthistypeoforganizationeffectivelyinaneraofconstantchange,empoweredpeople,andglobalmarkets.

EachofthesethreepartsisintroducedbyatablethatmorefullyoutlinesthelogicofthistransitionfromOldManagementconceptstotheircorrespondingNewManagementconcepts.Asthesetables1.2,1.3,and1.4show,themostprominentfeatureofthistransitionissynthesis,thecreativeintegrationofoldpracticesandnewtrendsin

theHegeliansense:theoldstatusquo(the"thesis"oftheOldManagement)iscombinedwithopposingevolutionaryforces(the"antithesis"ofchange)toproduceanewstatusquo(the"synthesis"oftheNewManagement).

ItisimportanttoobservethatwhatmanyconsidertheNewManagementactuallyconsistsoftheopposingforcesortrendsalone(theantithesis).Thislimitednatureofsomanyhotbutephemeralmanagementfadsexplains

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whytheoverhypedpromisesnotedearlieroftenearnthedisdainofmainstreammanagers.Oneexecutivecomplainedtomeof"NewAgebusinessbabble,"andanotherthought"theNewManagementinmanycasesisbusinessschoolclaptrap."

Toavoidthisproblem,theconceptslistedinTable1.1arefirmlyrootedineconomicreality.I'vecarefullyintegratedsuccessfulmanagementinnovationstoproduceablendoftheoryandpracticebasedontheworkofcreativeexecutives:leaderssuchasRichard(Skip)LeFauve,chairmanofGM-Satur,whoexpandedtheoldfocusonprofittoincludetheinterestsofworkers,clients,andotherstakeholders;AnitaRoddick,founderoftheBodyShop,whosetanewstandardforhigh-qualityproductsthatprovidegenuinevalueandprotecttheenvironment;andBertRoberts,CEOofMCI,whocreatedadynamicorganizationthatcontinuestooutperformAT&T.

Principlesareshowntoflowoutofhundredsofsuchexamples,illustratedwithanecdotes,cases,quotes,data,figures,andexercisestoprovideavivid,realisticunderstandingofhowcreativeleadersdesignandmanageorganizationstoday.WhilethebookfocusesonAmericanbusiness,italsocoversgovernmentandotherinstitutionswithinthecontextoftoday'sglobaleconomy.

TABLE1.2.PARTONE:REDEFININGTHEFOUNDATIONOFMANAGEMENT.

Chapter

TheOldManagement(thesis)

ForcesofChange(antithesis)

TheNewManagement(synthesis)

2 Organizationstructure:Hierarchy

Complexity,diversity,economicchange,globalcompetition,informationnetworks

InternalMarket:Smallenterprisescooperatingwithinalargeorganization

3 Goalsandgovernance:Profit

Human&socialvalues,stakeholderpower,cooperationbecomesefficient

CorporateCommunity:Coalitionofallstakeholderrights&responsibilities

4 Managementsystem:Mechanistic

Informationrevolution

OrganicOrganization:Creativetensionbetweeninternalmarketsandcorporatecommunity

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Chapter2FromHierarchytoEnterprise:InternalMarketsAretheNewFormofOrganizationStructure

Largecorporationsaredisbandingtheirformerhierarchies,butsurelytheremustbeanewmodelthatismoreprecisethan"flatstructures,""flexibleorganizations,""networks,"andotherpopularterms.

Justasformersocialistnationsaremovingtomarkets,sotooareleading-edgecorporationssuchasMCI,Hewlett-Packard(HP),andAseaBrownBovari(ABB)"internalmarkets."Internalmarketsbringthepoweroffreemarketsinsideorganizationsbydefiningallunitsassmallinternalenterprisesworkingtogetherwithinasupportivecorporateinfrastructure.

Thiscooperativeclusterofinternalenterprisesoffersthecreativityofsmallbusinessventuresandtheeconomicpoweroflargecorporations.Marketshavetheirdrawbacks,buttheyarespreadingthroughoutthenewsocialorderbecausetheyprovidethedynamicfoundationneededtomanagecomplexityandchange.

Chapter3FromProfittoDemocracy:CorporateCommunityIstheNewFormofOrganizationGovernance

Theconflictbetweenprofitandsocialwelfarehasbeenalong,bitterstrugglewagedcontinuouslyoverthesametiredground.Socialresponsibilityenjoyedpopularityinthe1970s,butbecameanemptypietywhentheReaganerarestoredafocusonprofit.Eitherviewaloneisunrealisticsincethebroaderrealityisthatbusinessisasocioeconomicinstitution.

Awholisticperspectiveisemergingasitbecomesclearthatanyorganizationisapoliticalsystemcomposedoffivemainconstituencies:investors,employees,customers,businesspartners,

andthepublic.Sincesuccesshingesonthesupportofallthesegroups,progressivefirmssuchasGM-Saturn,IKEA,andtheBodyShopstrivetocreateapoliticalcoalitionthatservesallinterestsbetter,includingmakingprofitsforinvestors.

Thiscanbeseenas"abetterwaytomakemoney,"buttheNewManagementpresentsamorepowerfulperspective.Theroleofbusinessisexpandingtoforma"corporatecommunity"composedofallstakeholders,withprofitbeingacriticalbutlimitedgoal.

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Chapter4TheNewManagementSynthesis:UnitingInternalMarketsandCorporateCommunity

ThethemesofinternalmarketsandcorporatecommunityareintegratedhereintoaconceptualfoundationfortheNewManagement.Itmayappearthattheseconceptsopposeoneanother.Marketsareassociatedwithconservativevaluesofenterprise,competition,andprofit,whilecommunityisthoughtofintermsofliberalvaluesofdemocracy,cooperation,andsocialwelfare.

Buttheseorientationsareessentialpartsofanysocialsystem.Westernsocietyhasalwaysstruggledtoreconcilemarketsandcommunity,whichiswhyfreeenterpriseanddemocracyarethetwopillarssupportingmoderncivilization.Ininstitutions,thisunionissymbolizedbythemetaphorofan"organizationtree":alivingorganismrootedintoitseconomicterrainbyinternalenterprisesandguidedbythesocialvaluesofitscommunity.

ExcellentmanagerscreatemorepowerfulorganizationsbasedonacreativetensionbetweenthesetwohalvesoftheNewManagement.Internalmarketsareneededtomasteradiversecomplexworld,yetthisdiversitymustbepulledtogetherintocorporatecommunitiesthatareeconomicallyproductiveandsociallyharmonious.

TABLE1.3.PARTTWO:BUILDINGANENTREPRENEURIALCOMMUNITY.

Chapter

TheOldManagement(thesis)

ForcesofChange(antithesis)

TheNewManagement(synthesis)

5 Clientrelations:Selling

Demandforvalue,qualityoflife,globalcompetition

ServingEnterprise:Workingrelationshipwithclientstoimprovequalityoflife

6 Workroles: Economicchange, KnowledgeEntrepreneur:

Employee needforproductivity,achievementvalues

Payforperformancecombinedwithfreedomofoperations

7 Ecologicalinterface:UnboundedGrowth

Ecologicalcrisis,globalindustrialization,appreciationofnature

IntelligentGrowth:Innovativeeconomicprogressthatisecologicallysound

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Chapter5TheServingEnterprise:RelinquishingOurGriponSelf-Interest

Oneoftheharshestfeaturesofpreviousbusinesspracticewasthesell-at-any-costmarketingthatturnedtelevisionintoaculturalwasteland,urgedshoddyproductsonagulliblepublic,andfailedtoserveagrowingneedforimprovingthequalityoflife.

Thischaptershowsthatglobalcompetition,demandingclients,andgrowingsocialproblemsaremovingmarketingawayfromsimplysellinggoodstowardacient-drivenfocusonimprovingthequalityoflife.Creativebusinessisbecominga"servingenterprise"thatusessophisticatedinformationsystemstounderstandsocialneeds,customizeproductsandservices,evaluateclientsatisfaction,andmakeadvertisingmoreuseful.

Theresultisaworkingpartnershipbetweenorganizationsandtheircustomersthatbenefitsbothparties.Ifmanagerscanrelinquishtheirimmediateself-interest,thedifficultproblemsthataboundtodaycanbeconvertedintolimitlessopportunities.

Chapter6KnowledgeEntrepreneurs:AWorkingContractofRightsandResponsibilities

Employeeempowermentisbecomingcommonnow,butglobalcompetitionhasforcedemployerstocutcostsandboostproductivity.EventheJapanesearelayingoffworkers.Suddenly,workingrelationsnolongerseemaspromisingastheyoncedid.

Suchconflictingtrendssignalahistoricshiftinwork.TheoldlifetimeemploymentsystemoftheIndustrialAgeisyieldingtoamoresharplyfocusedcontractualsystemthatlinksrewardstooutput.Anewbreedof"knowledgeentrepreneurs"isemerginginwhichteamsactasquasibusinesspartnerswiththecorporation,sharingboththerightsand

responsibilitiesofmanagement.

Someorganizationswillcontinuetoprovidetraditionalworkrelationships,butthesameforcesthataredrivingtheworldtomarketeconomiesareforcingemployeestoassumeentrepreneurialroles.Peoplewilltherebyhavetobecomemoreself-reliant,buttheywillalsogainthebenefitsentrepreneurshavealwaysenjoyed.

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Chapter7IntelligentGrowth:BalancingEcologicalHealthandEconomicProgress

Afterdecadesofconflictovereconomicgrowthversustheenvironment,theconceptof"sustainability"hasbeenwidelyaccepted.Buthowcansustainabilitybeattainedwhentheindustrializationoflessdevelopednationswillinevitablyincreasetheloadontheenvironmentbyafactoroffivetoten?

Wearenotlikelytoresolvethisissuebyinsistingoneitherapristineenvironmentoruncheckedgrowth.Aformof"intelligentgrowth"isappearingasbusinessacceptsthenecessityforahealthyenvironmentandturnsitsproblem-solvingskillstothisend.Progressivefirmsnowconsideracleanmanufacturingcyclefromproductdesigntodisposalasoundcompetitiveadvantage.

Ifenvironmentalists,governmentofficials,andbusinesspeoplecanresolvethedifficultproblemsinvolved,theindustrialworldcouldbetransformedintoaneweconomicsystemthatisabletoimprovethelivesoftenbillionpeoplewhilesafeguardingtheenvironment.Indeed,thereislittlechoice.

TABLE1.4.PARTTHREE:LEADINGINTHENEWECONOMICORDER.

Chapter

TheOldManagement(thesis)

ForcesofChange(antithesis)

TheNewManagement(synthesis)

8 Strategyformation:Planning

Turbulentenvironment,organicorganization

ContinuousChange:Organizationsintegratedwithforcesofchangeintheirsurroundings

9 Guidanceandcontrol:Authority

Powershift,riseofinformalorganization,

InnerLeadership:Resolutionofdifferencesbetweenleadersand

participation,riskanduncertainty

followers

10 Worldsystem:TheOldCapitalismvs.TheOldSocialism

Freeenterprise,democracy,globalization

DemocraticEnterprise:Globalnetworksofentrepreneurialcommunity

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Chapter8ContinuousChange:RootingtheOrganizationintoItsEnvironment

Strategicplanningfadedinthe1980swhencompaniesfoundthatitusuallyproducesbureaucracyratherthanactualchange.Theproblemisthatanytypeofplanningcoordinatedfromthetopwillincurthedisadvantagescommontoallcentralizedcontrols.

TheNewManagementcomprisesamorepowerfulformofstrategicchangethatharnessestheenergyofoutsideforces.Internalmarketsandcorporatecommunityintegrateorganizationsintotheirenvironment,allowingtheebbandflowofexternaleventstoproduce"continuouschange"throughouttheinstitution.

IndividualorganizationsmayfavordifferentaspectsoftheNewManagement.Butinanagewhentheonlyconstantischange,theorganic,fluid,messynatureoflivingsystemsmustprovidethecreativebehaviorneededtosurviveaturbulentworld.

Chapter9InnerLeadership:HowtoHandletheComingPowerShift

Participativeleadershiphasbecomeessentialnow,butitisleadingtoaprofoundshiftinpowerastheinformalorganizationrisestochallengeauthoritywithconflictingdemands.Howcanleadersmarshalthetalentsoftheirfollowerswhileavoidingthisdisintegrationintoacacophonyofdiverseinterests?

Goodleadersresolvethesechallengesbydrawingonthepoweroftheirpersonalintuition,insights,andspiritualawareness"innerleadership"thatactsfromtheinsideout.Theleaderwelcomesdisagreementsinaconstructivespirit,listenscarefullytocriticalopposition,acknowledgeshisorherownweaknesses,holdsfollowersresponsibleformeetingtheirgoals,andreliesoninnerwisdomtoguidetheorganizationthroughstressanduncertainty.

Whenleadersandfollowersarejoinedinsuchanintenseexistentialdialogue,moreusefulguidancecanbewroughtthatissteadfastandunerring.Thetruthusuallyemergesforalltosee,andleadersmaythenembraceitonbehalfoftheirfollowers.

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Chapter10ManagingaUnifiedWorld:GlobalOrderOutofLocalInstitutions

ThisconcludingchapterexaminesthemacroeconomicimplicationsoftheNewManagement.TheUnitedStatesissufferingfromalackofdirection,RussiaisfacingdoubtsaboutWestern-stylecapitalism,andsocialsupportisdisappearingaswelfarestatesareabandoned.Allthesedilemmasposethesamebasicproblem:howcanadecentralizedworldoffreemarketsprovidetheguidanceneededbytheWest,thesecuritydemandedbytheEast,andthesocialsupportpeoplerequireeverywhere?

TheNewManagementsuggestsamiddlegroundbetweengovernmentplanningandunguidedmarkets:alocalblendofenterpriseandcommunityatthegrassrootslevel.Wewillseethattherapidspreadofhugenewconsumermarketsaroundtheworldisencouragingrobustcompetition,albeitguidedbyalliancesamongbusinesspartners,employees,governments,andotherstakeholders.FortheWest,theresultmaybea"NewCapitalism"thatencouragescooperationamongautonomouseconomicactors.ThesameconceptofferstheEasta"NewSocialism"thatdrawsontheircohesiveculturestomanagefreemarketsinamoreorderlyandproductivemanner.

ThisillustratesthatthesameprinciplesoftheNewManagementapplytoalleconomiclevels.Whetheritisateamofknowledgeworkersmanagingitsownaffairs,acomplexorganizationguidedbyexecutives,oranationaleconomyledbygovernment,allrequireasimilarblendofenterpriseanddemocracy.

ApplyingNewConceptstoaChangingWorld

Let'sbrieflyreviewthelogicofthisintroductorychaptertoputthetransitiontoaNewManagementinperspective:

1.LiketheIndustrialRevolution,theInformationRevolutionistransformingbusiness,government,andotherinstitutions.

2.AwaveofinnovationisunderwaythatpromisestoreplacetheOldManagementwithaNewManagement.3.However,conflictsbetween"old"and"new,""left"and''right,"andsooncreateconfusionovertheNewManagementparadigm.

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4.Theconfusionisresolvedbyseeingthatdemocracyandenterprisearetransformingorganizationsintointernalmarketsguidedbycorporatecommunities.

ThistransitiontoaNewManagementissupportedbytheCITStudy.AsTable1.5shows,manyoftheseconceptswerewidelypracticedin1995,althoughsomearelaggingbecausetheyprovokeresistance.Thedataalsoshowthat83percentoftherespondentsthinktheNewManagementisneeded,74percentestimateitshouldenterthemainstreaminfivetotenyears,and78percentsaycompaniesthatdonotchangewillfailorsufferamarginalexistence.Listentohowtypicalmanagersviewtheprospects:"Thingsarechangingrapidlybutwestillhavealongwaytogo,""SomeareusingtheNewManagementnow,"''Ithinkit'salreadyenteredthemainstreamtovaryingdegrees,""Morecompanieswillmakethetransitionin19961998,"and"Ifwedon'tseechangessoon,businesswillloseeffectiveness."(Detailsofthisstudyarereportedinlaterchapters.)

TABLE1.5.APPLICATIONOFNEWMANAGEMENTCONCEPTS.(SAMPLE=426CORPORATEMANAGERS.)

Concept

NotPracticed(03)

PartiallyPracticed(46)

FullyPracticed(710)

Mean(010)

InternalMarkets 48% 17% 35% 4.3CorporateCommunity 19 13 68 6.9ServingEnterprise 24 17 59 6.4KnowledgeEntrepreneur 45 22 33 4.4IntelligentGrowth 37 24 39 4.9ContinuousChange 13 23 64 6.9InnerLeadership 11 23 66 7.1Source:WilliamE.Halal,CorporationsinTransition(anunpublishedstudyinprogress).Notethatdatainthefirstthreecolumns

("NotPracticed,"etc.)areaggregatedbycollapsingportionsofthequestionnairescaleasshown("03,"etc.).SeethequestionnaireinAppendixC.

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It'sobviousthatimplementingtheNewManagementwillprovedauntingbecausetheoppositiontoinstitutionalchangeisalwaysintense.Irecallthestruggleofgettingmanagerstoseriouslyconsidertheneedforchangeduringtheseventiesandeighties.EventheprospectofaKnowledgeRevolutionseemedoutlandishtomanycompetentpeople.Itwouldhavebeendifficulttoactthen,butboldleadershipcouldpossiblyhaveavoidedthefallofGM,IBM,andothergreatcompanies,thelossofAmericanmarketstoforeigncompetition,andtoday'sslideintosocialdecline.Couldasimilarcynicismdivertustoday?

It'salwayspossible,butunusuallypowerfulforcesareatworkbecauseaknowledge-basedworldintroducesneweconomicimperatives.Aswewillshowlater,democracyandenterprisehavenowbecomeeconomicallyefficient.Thisshiftinthelawsofeconomicsisoneofthepivotaleventsofourtime.Itmayseemabittheoretical,butthereisnostoppinganideawhosetimehasarrived.WehavejustwitnessedthepoweroftheInformationRevolutioninthefallofCommunism,thedeclineofbiggovernment,restructuringofcorporations,andotherhistoricchangesthatarecausedbasicallybythespreadingofinformationtechnology.

16

Whiletheconceptsinthisbookmaybeappealing,then,theyarealwaysarguedonthebasisofeconomicvaluebecausethatisthetestofgoodmanagement.Asinformationflowsaroundtheworldinstantaneously,italsomovescapital,knowledge,andlabortotheirpointofgreatestproductivity.17PeterDruckerpredictstheneweconomy"willinevitablybefarmorecompetitivethananythingyetknown."Even"NewAge"companiesareyieldingtheiraltruismtothenecessityofincreasingproductivity,cuttingprices,andimproving

marketing.ArnoldHiatt,formerCEOofStrideRiteShoes,says,"Thefirstactofsocialresponsibilityistomakemoney."18

Meetingthistestofeconomicrealitydoesnotmeanthatwemustslavishlyacceptbusinesspracticeswemaynotapproveof.Organizations,likefamiliesandsocieties,aresoinfinitelyrichthattheydefyanyoneapproachtounderstanding;eachischaracterizedbyaspecialblendofpeople,skills,andotherconditions.TheNewManagementoffersvalidprinciples,buttheymustbeinterpretedtosuittheuniqueneedsofeachindividualactingineachsituation.19Here'showmanagersintheCITsurveyexpressedit:"TheNewManagementmustvaryfordifferentorganizationsandhuman

Page21

resources,"and"Itdependsentirelyonthecompany,industry,thecompetitioninthefield,andthetypeofleadership."

IftheNewManagementrequiresustoembraceeverythinginaspiritofwholism,howcanwepossiblyfindourwaythroughsuchalimitlessrangeofpossibilities?Whatcriteriacanguideus?Ithinktheansweristhatmanagersshouldpracticetheirprofessioninthesamemannerallskilledpractitionershavetraditionallydone:bysystematicallydiscoveringwhatbestworksforthem.

Fromthisview,managementismuchlikescience.Scientistsproposeatheorytoexplainhowtheworldbehaves,theytestthetheoryagainstempiricalevidence,reviseitaccordingly,andcontinuethiscycletoperfectatheory'sexplanatorypower.Inlikemanner,goodmanagersapproachtheirprofessionwithamentalmodelorphilosophythatexplainshowtheirorganizationbehaves.Theytesttheconceptagainsttheoutcomeusingtrialanderror,andreviseittoimprovetheirmanagementabilities.Askanyseasonedmanagerandyouwillgetacarefullybuilt,detailedpersonalphilosophythathasbeenhonedtoperfectionoveryearsofhardexperience.

IconcludethatfaithintheconceptsofaNewManagementisessentialtocreateadifferentfuture,butitmustbebasedonhealthyskepticism.Inachanging,complexworldwherebewilderingnewideasareemergingconstantly,leadersmusttesttheirvisiontoavoidhalf-truthsorfantasy.Thereissimplynootherwaytoforgethehardnewunderstandingneededtodistinguishbetweenoutmodedpracticesofthepastandgrandioseclaimsforthefuture.

Aswe'veseen,theNewManagementfavorsneitherpowernorfreedom,profitnorsociety,materialgrowthnortheenvironment.Itisalltheseandmore,presentingmanagerswithanenormousresponsibilityforlearningtoactinthefaceofcomplexity,change,andsheermystery.Soitseemstomethatmanagerswillneed

everythingwecanourlayhandsonintheyearsahead,includingthoseideasinheritedfromourancestorsandthoseyettocome.

Notes

1.IrealizethatthecontentionthattheUnitedStatesisindeclinemaybecontroversial,butlaterchapterswillshowthat,althoughtheAmericaneconomyissuccessfulinmanyways,thenationasawholeisshowingserioussignsof

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decline.Forinstance,averagewagesrosesteadilythroughouttheindustrialpast,yettheyhavebeenflat,atbest,forthepasttwodecades.

2.TheU.S.BureauofLaborStatisticsreportsthat15.4millionpeopleweremanagersin1994,makingmanagersbyfarthelargestprofessionalgroup.Also,thestudyofmanagementnowenrollsthegreatestnumberofstudentsatcolleges.

3.PeterDrucker,TheNewRealities(NewYork:Harper&Row/Perennial,1989),p.223.PeterDrucker,"TheAgeofSocialTransformation,"AtlanticMonthly(November1994),p.72.

4.LouisHarris,"WhatintheWorldIsGoingoninThisNation?"VitalSpeechesoftheDay(August15,1994),pp.663666.WilliamE.Halal,"TheDeeperCauseofNationalDecline:AmericanInstitutionsNeedAmericanIdeals,"ByGeorge(November6,1992).

5.ThenewscienceofcomplexityisdescribedbyMitchellWaldropinComplexity:TheEmergingScienceattheEdgeofOrderandChaos(NewYork:Simon&Schuster,1992),andbyDavidFreedmanin"IsManagementStillaScience?"HarvardBusinessReview(NovemberDecember,1992)

6."HomeComputerSalesExplodeasPCsTurnintoAll-PurposeInformationAppliances,"BusinessWeek(November28,1994).BillRichards,"TestofVirtualRealitySpansthePacific,"WallStreetJournal(November16,1994).ElizabethCorcoran,"BillGatesHeadsHome,"WashingtonPost(November13,1994).

7.WilliamBridges,"TheEndoftheJob,"Fortune(September19,1994).

8.ThisstatementwasquotedtomebyKoreanmanagers.

9.AbrahamMaslow,"ATheoryofHumanMotivation,"

PsychologicalReview(1943),Vol.50,pp.370396.EltonMayo,TheSocialProblemsofanIndustrialCivilization(Cambridge,Mass.:HarvardUniversityPress,1945).DouglasMcGregor,TheHumanSideofEnterprise(NewYork:McGraw-Hill,1960).ChesterI.Barnard,TheFunctionsoftheExecutive(Cambridge,Mass.:HarvardUniversityPress,1968).WarrenBennis,BeyondBureaucracy(NewYork:McGraw-Hill,1966).PaulLawrenceandJayLorsch,"DifferentiationandIntegrationinComplexOrganizations,"HarvardBusinessReview(June1964).HenryMintzberg,"TheManager'sJob,"HarvardBusinessReview(JulyAugust1975).

10.W.EdwardsDeming,OutoftheCrisis(Cambridge,Mass.:MITPress,1986).J.M.Juran,JuranonLeadershipforQuality(London:CollierMacmillan,1989).WilliamOuchi,TheoryZ(Reading,Mass.:Addison-Wesley,1981).TomPetersandRobertWaterman,InSearchofExcellence(NewYork:Harper&Row,1982).

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PeterVaill,ManagingasaPerformingArt(SanFrancisco:JosseyBass,1991).GiffordPinchot,Intrapreneuring(NewYork:Harper&Row,1985).RussellAckoff,CreatingtheCorporateFuture(NewYork:Wiley,1981).RaymondMilesandCharlesSnow,Fit,Failure,andtheHallofFame(NewYork:FreePress,1994).PeterSenge,TheFifthDiscipline(NewYork:Doubleday,1990).TerrenceDealandAllenKennedy,CorporateCultures(Reading,Mass.:Addison-Wesley,1982).PeterFrostetal.,OrganizationalReality(SantaMonica,Calif.:Goodyear,1978).LeeBolmanandTerrenceDeal,ReframingOrganizations(SanFrancisco:JosseyBass,1991).MichaelRay,"TheEmergingNewParadigminBusiness,"inJohnRenesch(ed.),NewTraditionsinBusiness(SanFrancisco:Berrett-Koehler,1992).WilliamE.Halal,TheNewCapitalism(NewYork:Wiley,1986).

11.Forinstance,seeafinereviewofthisconfusionbyMarthaNichols,"DoesNewAgeBusinessHaveaMessageforManagers?"HarvardBusinessReview(MarchApril1994),andtheresponsesreportedin"LetterstotheEditor,"HarvardBusinessReview(MayJune1994),pp.144148.JeffreyPfeffer,"BarrierstotheAdvanceofOrganizationalScience,"TheAcademyofManagementReview(October1993),pp.599621.

12.Theexecutiveisquotedfrom"ChangingTimesintheAutomotiveIndustry,"AcademyofManagementExecutive(February1988).

13."WeirtonSteelWorkersAreFuriousThatTheirESOPCan'tSaveJobs,"BusinessWeek(September9,1991).RobertL.RoseandErleNorton,"ESOPFables,"WallStreetJournal(December5,1993).

14."CompaniesHittheRoadLessTravelled,"BusinessWeek(June5,1995).

15.SeeTheNewLeaders(SeptemberOctober1994).

16.WalterB.Wriston,TheTwilightofSovereignty:HowtheInformationRevolutionIsTransformingOurWorld(NewYork:Scribner,1992).

17.See"BorderlessFinance:FuelforGrowth,"inthespecialissueofBusinessWeektitled21stCenturyCapitalism,(1994),whichillustrateshowglobalmoneymarketsincreasinglygovernthemanagementofcorporationsandevengovernments.

18.UdayanGupta,"Cause-DrivenCompanies'NewCause:Profits,"WallStreetJournal(November8,1994).LeslieKaufman-Rosen,"BeingCrueltoBeKind,"BusinessWeek(October17,1994).

19.ThispointiswellmadebyGeorgeHarrar,"TheToolsofSuccess,"Enterprise(October1994),andAndrewSerwer,"LessonsfromAmerica'sFastestGrowingCompanies,"Fortune(August8,1994).

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PARTONEREDEFININGTHEFOUNDATIONOFMANAGEMENTLikethefoundationofabuilding,thefoundationofmanagementmustsupporttheentirestructurebyanchoringitsecurelytoitsenvironment.ThesethreechaptersofPartOneredefinetheconceptualfoundationofmodemmanagementtoanchortoday'sinstitutionsintheInformationAge.

Chapter2refutestheage-olduniversalassumptionthatorganizationsmustbecontrolledby"superiors"fromthetopdown.ThishierarchicalfoundationwasgoodforthesimpleconditionsoftheIndustrialAge,butanewfoundationbasedonenterpriseisemergingtocontaintheturbulenceofanInformationAge.Moderorganizationsmastercomplexitybyhavingentreprenuerialunitsmanagethemselvesfromthebottomup"internalmarkets."

Chapter3challengestheothermajorpillarthatbuttressedanindustrialsocietytheprofit-centeredfirm.TheInformationRevolutionisintroducinganewformofeconomicbehaviorinwhichcooperationhasbecomeproductive.Thisshiftineconomicrealityknitssocialandfinancialinterestsintoamorepowerfulsystemthatservesbothneedsbettera"corporatecommunity."

Chapter4integratesthesetwocentralconceptsintoaunified,organicwholethinkofitasan"organizationtree."Therootsofthis"tree"areinternalmarketsofsmallenterprisesdrawingnourishmentatthegrassrootsofeconomiclife.Anditsleavesarethediverseviewsofinvestors,workers,clients,businesspartners,andthepublic,whoorientthiscorporatecommunitytoservetheneedsofsociety.ThusthefoundationoftheNewManagementisasynthesisofdemocracy

andenterprise.

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2FromHierarchytoEnterprise:InternalMarketsAretheNewFormofOrganizationStructureIthasbecomeaclichétonotethatbusinessschoolsarenotoriousfortheirpoormanagement.Minewasnoexception.Anespeciallyirksomeproblemwasgettingthecopycentertoworkproperly.Professorsthriveonpaper,yetwecouldn'tseemtogetcopiesmadeinlessthanaweek.WeknewthatourlocalKinko'scouldgetthemdoneinaday,butwewouldhavetopay.Sincethecopycenterwasfree,wekeptusingitdespitebadservice.Infact,that'sonereasonwhytheservicewasbad:weoverusedthisfreegood,cloggingthesystem.Repeatedattemptstogetthecopycentertoimproveitsoperationsandthefacultytocurbtheirexcessiveusagehadlittleeffect.

Theproblemwasthatwewererelyingonahierarchicalassignmentoftasksthatweretoocomplexforthisapproach.Weneededgoodservice.Weneededfacultyaccountability.Weneededacopycentermanagerwhowasmotivatedtohelpus.Weneededachoiceofproviders.Inshort,weneededamarket.

Aftermuchargument,weaskedthecopycentermanager(let'scallhimArt)ifhewouldliketoturntheoperationinto"hisownbusiness."Hecouldstillusetheschool'scopiersandfacilitiestoservethefaculty'sneeds,

Note:EarlierversionsofthischapterappearedinmypublicationsInternalMarkets:BringingthePowerofFreeEnterpriseInsideYourOrganization(NewYork:Wiley,1993),TheNewPortableMBA(Wiley,1994),andTheAcademyofManagementExecutive(November1994).

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buthisincomewouldbebasedonapercentageoftheprofits.ThefacultywouldgethisbudgetandcoulduseittoeitherpatronizeArtorothercopycenters.Arthadanentrepreneurialstreak,sohewelcomedtheopportunity.

Well,everythingchangedwithindays.AfewpeoplewenttoKinko's,whichgotArtthinkingabouthowtoimproveoperations.Andhavingtopaynow,thefacultycarefullyconsideredwhethertheyreallyneededfiftycopiesoftheirlatesttome.Ourcopycenter'sservicesoonmatchedKinko's,Artbecameacelebratedhero,andtheproblemwassolvedbyaninternalmarket.

Thislittlestoryillustratesthatthemostfundamentalprobleminmanagementtodayisthebureaucracythatresultsalmostinvariablyfromlargehierarchies.Thehierarchicalmodeloforganizationbuiltcivilization,fromthepyramidsofancientEgypt,tothemedievalchurch,tomodernindustry.ItcontinuedtodominatetheIndustrialAgebecauseitwasgoodatmanagingroutinetasksperformedbyuneducatedworkers.

ButtheInformationAgeisreleasingsuchrevolutionaryforcesthattheworldisbecominganincomprehensiblemaze,therebyrenderingtoday'shierarchiesobsolete.

1WhenMaxWeberfirstdefinedthe"theoryofbureaucracy"basedonprinciplesofhierarchyatthestartoftheIndustrialAge,theconceptpromisedaUtopiaofefficiencyandorder.Todaythemostdamningthingonecansayaboutanorganizationistocallita"bureaucracy."Somehierarchywillalwaysbeneededbecausetheuniverseisnaturallyorganizedinahierarchicalfashion.Buttheformermanagementsysteminwhichdecisionsflowedfromthetopdownisnowhistory.

Thischaptershowshowtoday'swaveofrestructuringwithin"electronicorganizations"isleadingtoanorganicnetworkofself-managedinternalenterprisesthatoperatesmorelikeanintelligentmarketsystem.Wefirstexaminethelimitationsofpresentapproachestorestructuringandtheevolutionofmarketorganizations.Then,principlesforcreatinginternalmarketsaredescribedusingexamplesofprogressivecompanies.Weconcludebyexploringtheimplicationsofthisprofoundshiftfromhierarchytoenterprisethatmakesupone-halfofthenewmanagementfoundation.

RiseoftheEntrepreneurialOrganization

Today'sexplodingcomplexitychallengesourmostbasicassumptionsaboutmanagement.Hierarchyistoocumbersomeundertheseconditions,somoderneconomiesrequireorganicsystemscomposedofnumerous

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small,self-guidingenterprisesthatcanadapttotheirlocalenvironmentmoreeasilybyoperatingfromthebottomup.

2GerhardSchulmeyer,CEOofSiemens,putitbest:"It'snotimportantanymoretobebig...buttobefastandinnovative."3

LimitsofDownsizing,Reengineering,andNetworks

Companieshavebeenmovinginthisdirectionwithavengeanceascompetitiondriveslowercostsandfasterinnovation,aspowerfulnewinformationsystemsautomatejobsandstreamlineoperations,andbusinessprocessesarereengineeredintocross-functionalteams.ThesechangesallowedCEOstoeliminateroughlyone-thirdoftheiremployeesandlayersofmanagementduringthepastfewyears,producingflat,decentralizedorganizations.Thepressuretodownsizeissostrongthatithasbecomeawayoflife,evenwhenprofitsareup.ThechairmanofProcter&Gamblesaid,"Ourcompetitorsaregettingleanerandquicker,sowehavetorunfaster,"whileaXeroxmanageradded:"Iknowitsoundsheartlesswhenthecompany'smakingmoney,butit'sthenewreality."4

Thissameimperativeisbeingfeltabroad.InJapan,thetraditionalsystemoflifetimeemploymentispassingasJapanesecorporationsreducemanagementlevels,layoffworkers,andintroducemeritpay.Here'showaJapanesemanagersawthechange:"Theeraofwavingthecompanyflagtomotivatepeopleisover."5

Consideringtheenormousimpactofthesedifficultchanges,weshouldnotbesurprisedthatrestructuringhasbecomeverycontroversial.A1995surveyof1,800CEOsshowedthat94percentofcompanieshadimplementedvariousformsofrestructuring,buttheeconomicgainshaveprovenmeager.Roughlytwo-thirdsoftheseprogramshavefailedtoimproveproductivityorreducecosts.In

addition,tenmillionAmericanslosttheirjobsduringthepastdecade,forcingU.S.wagesdowntothepointwhereEuropeanandJapanesecompaniesnowopenplantsintheUnitedStatestotakeadvantageofAmerica'scheaplabor.Inorganizationsacrosstheland,employeeshavebecometraumatizedbythefearoflayoffsandareoverstressedfromdoingtheworkofothers.CEOsthemselvesknowthisisaproblem."Ifyoukeep[downsizing],youdestroymoraleandparalyzetheorganization,"saidtheCEOofScottPaper.JimStanford,CEOofPetro-Canada,putitbest:"Youcan'tshrinktogreatness."6

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Howdidintelligent,well-meaningpeoplegetintosuchamess?Thesearegenuineattemptstocreatehigh-performingorganizationstosurviveacomplexglobaleconomy.Butpresentrestructuringisineffectivebecauseitislargelyanextensionofthehierarchicalsystem.Mostrestructuringisarbitrarybecauseitoriginatesfromseniormanagerswhoareoftenoutoftouchwithoperations,slashingthestaffsofgoodandpoorunitsalike,anditisforcedonunwillingpeoplewhohavelittleinterestinitssuccess.Thepredictableresultisthatthedisadvantagesofhierarchyremain,whilemanagersfeelconfusedandguiltyforlayingofftheirco-workersattheverytimetheyarealsourgedtoempowerpeopleandtocollaborate.Here'showonemanagerexperiencedit:"Thisyear,Ihadtodownsizemyareaby25percent.It'semotionallydraining.IfindmyselfnotwantingtogotoworkbecauseI'llhavetopushmypeopletodomore.Butthey'renotgoingtocomplainbecausetheydon'twanttobethenext25percent."

7

Themostfeasiblesuccessortothehierarchycurrentlyistheconceptof"organizationalnetworks."Inthismodel,temporaryteamsusegroupwaretoformstrategicalliances,producingafluidnetworkthatcanmobilizetomeetchangingmarketneedsquickly.8Buttheconceptdoesnotgofarenough.

Thenetworkmodelisagooddescriptionofhoworganizationsshouldlook,butitdoesnottellushowtheyshouldworkineconomicterms.Howdoweknowwhetherteamscreatevalueordestroyit?Howmuchfreedomisallowed?Howisaccountabilityensured?Howareresourcesallocated?Whohastheauthoritytomakedecisions?Iftheanswerstothesequestionscomefromtopmanagement,weonceagainincurthedisadvantagesofhierarchy.Afterall,GMwasawash

inpowerfulalliancesevenasitflounderedinbureaucracy.Ifteamsarejustallowedtobe"flexible,"whatpreventsanarchy?TheInternetisagreatnetwork,butitishardlyawell-managedsystem.

Othermetaphorsthatpurporttoreplacethehierarchysufferfromthesamelimitation.Thereisthe"federal"systemoflooselyconnectedunits,the"pizza"or"circular"organization,the"horizontal"workplace,the"boundaryless''corporation,the"intelligent"or"learning"organization,fleet-footed"gazelles,"the"agile"company,the"starburst,""spider'sweb,""fishnet,"andsoon.Intheabsenceofsoundanswerstothequestions

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aboutvalues,accountability,andauthorityraisedearlier,however,theseremainfluidvariationsofhierarchyratherthantruebottom-upsystems.Theissueremains:howcananyorganizationbemanagedwithoutimpairinglocalautonomy?

Fundamentally,thisproblemwillresistsolutionaslongasweinstinctivelycontinuetothinkofmanagementwithinahierarchicalframework.Majorcorporationscompriseeconomicsystemsthatareaslargeandcomplexasnationaleconomies,yettheyarecommonlyviewedas"firms"tobemanagedbyexecutiveswhomoveresourcesaboutlikeaportfolioofinvestments,formglobalstrategies,restructuretheorganization,andsetfinancialtargets.HowdoesthisdifferfromthecentralplanningthatfailedintheCommunistbloc?Whywouldsuchcontrolbebadforanationaleconomybutgoodforacorporateeconomy?Cananyfixedstructureremainusefulforlonginaworldofconstantchange?

TheInternalMarketPerspective

Foryearsadramaticallydifferentconcepthasbeenquietlyemergingthatrealizestheidealofbottom-upsystems.

Figure2.1illustratestheevolutionoforganizationalstructurefromthehierarchy,tothematrix,andnowtonetworksofdecentralized,entreprenuerialunits.Today,progressiveorganizationshavebecomeclustersofsmallbusinessunitsthatbehaveasseparatefirmsintheirownright.Someglobalcorporations,suchasAseaBrownBovari(ABB),havethousandsofsuchprofitcenterswiththeirownproducts,clients,andcompetitors.Attimestheymaybuyandselltootherunitswithintheparentcorporation,competewithoneanother,andevenworkwithoutsidecompetitors.Thesametrendcanbeseenineffortstoreinventgovernment;forinstance,theconceptofparental"choice"isgainingacceptanceineducationtoforceschoolstocompeteforstudents.

9

Thesestructurescannotbeexplainedwithhierarchicalconcepts,andsoanentrepreneurialeconomicframeworkhasbeenproposedbyJayForrester,RussellAckoff,GiffordandElizabethPinchot,andmyselfthatviewsorganizationsasmarkets"internalmarkets."10Justasthepost-Communistblocisadoptingmarkets,sotooarelargecorporations.TomPetersurged:"Forcethemarketintoeverynookandcrannyofthefirm."

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Figure2.1.TheEvolutionofOrganizationalStructure.

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AsshowninBox2.1,internalmarketsaremetastructures,orprocesses,thattranscendordinarystructures.Unlikefixedhierarchiesorcentrallycoordinatednetworks,theyarecompleteinternalmarketeconomiesdesignedtoproducecontinual,rapidstructuralchange,justasexternalmarketsdo.Althoughonlyafewcompanieshaveimplementedthisideaasyet,Table2.1showsfairlywideacceptanceofsomekeyfeatures,andtheexamplesinBox2.2demonstratevariousapproachesthathavebeenused.

Peopleareinitiallyskepticalaboutinternalmarketsbecausetheideabreakssosharplyfromthehierarchy.Atfirstthenotionseemsfraughtwithconflict,anditiscertainlytruethatinternalmarketsincurthesamerisks,turmoil,andotherdrawbacksofanymarketsystem.Butthesedoubtsoccurpreciselybecausetheconceptrepresentsadramaticallydifferentformoflogic.Oncewegraspthecentralideathataninternalmarketreplicatesanexternalmarket,thebehaviorofsuchasystembecomesalmostself-evident.

Ashierarchicalcontrolsarereplacedbymarketforces,thereleaseofentrepreneurialenergyproducesroughlythesameself-organizing,creative

BOX2.1.PRINCIPLESOFINTERNALMARKETS.

1.TransformtheHierarchyintoInternalEnterpriseUnits."Internalenterprises"formthebuildingblocksofaninternalmarketsystem.Alllineandstaffunitsaretransformedintoenterprisesbynotonlybecomingaccountableforperformancebutalsogainingcontrolovertheiroperations,asanexternalenterprisedoes.Alliancesbetweeninternalenterpriseslinkcorporationstogetherintoaglobaleconomy.

2.CreateanEconomicInfrastructuretoGuideDecisions.Executivesdesignandregulatetheinfrastructureofthis

"organizationaleconomy,"justasgovernmentsmanagenationaleconomicsbyestablishingcommonsystemsforaccounting,communications,incentives,governingpolicies,anentrepreneurialculture,andthelike.Managementmayalsoencouragetheformationofvariousbusinessarrangementsthatexistinaneconomicsystem:venturecapitalfirms,consultants,distributors,andsoon.

3.ProvideLeadershiptoFosterCollaborativeSynergy.Aninternaleconomyismorethanalaissez-fairemarket,itisacommunityofentrepreneursthatfosterscollaborativesynergyintheformsofjointventures,sharingoftechnology,mutualproblem-solving,andsoon,amongbothinternalandexternalpartners.Corporateexecutivesprovidetheleadershiptoguidethisinternalmarketbyencouragingthedevelopmentofvariousstrategies.

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interplaythatmakesexternalmarketssoadvantageous.Experienceshowsthatsolutionstodifficultproblemsemergefarmorequicklyandalmostspontaneously,permittingarushofeconomicgrowththatcanrarelybeplannedbyeventhemostbrilliantmanagersofhierarchicalsystems.

Marketscanbechaotic,buttheyarespreadingaroundtheglobebecausetheyexcelovertheotheralternativecentralplanningwhetherincommunistgovernmentsorcapitalistcorporations.Inbothnationsandorganizations,plannedeconomiesaretoocumbersometocopewithacomplexnewera,whilefreeenterpriseeitherinternalorexternaloffersaneconomicphilosophyabletoproduceadaptivechangerapidlyandefficiently.

TABLE2.1.ADOPTIONOFINTERNALMARKETPRACTICES.(SAMPLE=426CORPORATEMANAGERS.)

Practice

NotPracticed(03)

PartiallyPracticed(46)

FullyPracticed(710)

Mean(010)

Lineunitsaretreatedassemiautonomousenterprisesthathavecontrolovertheirownoperationsandkeepmostoftheirrevenue. 38% 20% 42% 4.9Staffandsupportunits(HRD,Legal,IS,etc.)aretreatedasprofitcentersthatobtainrevenuebysellingtheirservicestootherunits. 73 8 19 2.5Lineunitsaregenerallyallowedtobuyproductsandservicesfromanyorganization,insideoroutsidethecompany. 37 18 45 5.2Staffandsupportunitsaregenerallyallowedtoselltheirservicestoanyorganization,insideoroutsidethecompany. 62 12 26 3.3

Apartfromproprietarysecrets,employeeshaveaccesstocentralinformationsystemsthatcontainallavailablecompanyinformation. 30 24 46 5.6Means 48% 17% 35% 4.3Source:WilliamE.Halal,CorporationsinTransition(anunpublishedstudyinprogress).Notethatdatainthefirstthreecolumns("NotPracticed,"etc.)areaggregatedbycollapsingportionsofthequestionnairescaleasshown("03,"etc.).SeethequestionnaireinAppendixC.

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BOX2.2.EXEMPLARSOFINTERNALMARKETS.

MCIhasbecomethesecondlargestcommunicationscompanyintheU.S.bydesigninganentrepreneurialorganizationinwhichnewventuresarestartedbyanyone,resourcesareallocatedtorewardperformance,andunitscompetewithoneanother.

Johnson&Johnson's168separatelycharteredcompaniesformtheirownstrategies,relationshipswithsuppliersandclients,andotherbusinessaffairs.CEORalphLarsensaysthesystem"providesasenseofownershipthatyousimplycannotgetanyotherway."

MotorolausesautonomousunitsthatcompetewithoneanothertoproducethemostsuccessfulproductsinAmerica.Onemanagersaid:"ThefactthatImayconflictwithanothermanager'sturfistoughbeans.Thingswillsortthemselvesoutinthemarket."

CypressSemiconductordefineseachbusinessunitasaseparatecorporation,andsupportunitsfrommanufacturingsubsidiariestotestingcentersselltheirservicestolineunits.TheCEO,T.J.Rodgers,says"We'vegottenridofsocialismintheorganization."

Merck&CompanyhasbeenratedthetopFortune500companybecauseresearcherspooltheireffortsinprojectstheychoose,mergingtalentsandresourcesintoanewteam.TheCEOsaid:"Everybodyheregravitatesaroundahotproject.It'slikealiveorganism."

ClarkEquipmentsurvivedChapter11byrequiringallbusinessunitsincludingastaffof500peopletobecomeself-supportingenterprises.Withinmonthsstaffdecreasedby400positions,costswerereducedacrossthecompany,andsalesmovedupward.

Alcoarevitalizedabureaucracybyconvertingallunitsinto

suppliersorclientsthatwerefreetoconductbusinesswithoutsidecompetitors.Thisdoseofeconomicrealitydoubledproductivity,andsupportgroupsbroughtinoutsidebusiness.

Xeroxistransformingitselffromafunctionalhierarchyintoaninternalmarketcomposedofnineindependentbusinessunits,eachincludingdozensofself-managedteams.Teamsandbusinessunitsareheldaccountableforperformanceandrewardedwithbonuses.

KochIndustrieshasgrownfromasmallfirmtooneofthelargestprivatecorporationsintheworldasaresultofitssystemof"market-basedmanagement."TheCEO,CharlesKoch,definesallcorporatefunctionsintermsofmarketequivalents.

Matsushitaallowsitsresearchlabs,productgroups,andsalesunitstochoosetheinternal"businesspartners"theyprefertoworkwith.Theresultisintenseinternalcompetitiontodevelopsuccessfulproducts.

SemcohasthrivedintheturbulenteconomyofBrazilbyformingdozensofinternalenterprises,whichitcalls"satellites."TheCEO,RicardoSemler,says,"Semcohasabandonedtraditionalbusinesspractices[to]thedisciplineofourowncommunitymarketplace."

Source:WilliamE.Halaletal.,InternalMarkets(NewYork:Wiley,1993).

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PrinciplesofInternalMarkets

ThethreecentralprinciplesshowninBox2.1aredescribedbelowmorefully,illustratedbytheexperiencesofcompaniesmycolleaguesandIhavestudiedandworkedwith.

TransformtheHierarchyintoInternalEnterpriseUnits

Ratherthanthinkofunitsas"divisions,""departments,"andotherhierarchicalconcepts,thelogicofinternalmarketstransformsline,staff,andallotherunitsintotheirentrepreneurialequivalentsan"internalenterprise,"orwhatthePinchotscallan''intraprise."Thischangemayrequirecreativereengineeringofexistingstructures,butitisusuallyfeasibleifanexternalorinternalclientcanbeidentified,andthatisalmostalwayspossible,aswewillshow.AnAT&Tmanagertoldme:"Welinkinternalsupplierswithinternalandexternalcustomers."

Unitsareconvertedintointraprisesbyacceptingcontrolsonperformanceinreturnforfreedomofoperations.Hewlett-Packardisfamousforitsentrepreneurialsystem,whichholdsunitsaccountableforresultsbutgivesthemwideoperatinglatitude.AsoneHPexecutivedescribedit,"Thefinancialcontrolsareverytight,whatislooseishow[people]meetthosegoals."Thissharplyfocusedunderstandingenhancesbothcontrolandfreedomtoprovidetwomajorstrengths:

1.Allunitsareaccountableforresults.

2.Creativeentrepreneurshipisencouraged.

Thereiswideagreementthatperformanceshouldbeevaluatedusingcustomersatisfaction,productquality,andothermeasurestoensurearealisticbalancethatavoidsoveremphasizingshort-termprofit.Managersarethenheldaccountablethroughincentivepay,stock

plans,budgetallocations,oroutrightdismissal.Theidealarrangementistotreateachunitasasmall,separatecompany,freetomanageitsownoperationsandresources.Itisimportanttoallowallunitsthefreedomtoconductbusinesstransactionsbothinsideandoutsidethefirm.Withoutthatfreedom,managersaresubjecttothebureaucracyofcentralcontrols,aboutthesamewaytheSovietsovercontrolledtheireconomy.

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Althoughthedecentralizationoflineunitsiswellknown,Box2.3showshowtheconceptisbeingappliedtostaffunits,manufacturingfacilities,informationsystem(IS)departments,researchanddevelopment(R&D),marketinganddistribution,employeeworkteams,startingnewventures,government,andeventheCEO'soffice.Thisremindsusofthekeyprincipleforcreatinginternalmarkets:allmarketfunctionsshouldideallybereplicatedwithinorganizations.RaymondSmith,CEOofBellAtlantic,describedthelogic:

Wearedeterminedtorevolutionizestaffsupport,toconvertabureaucraticroadblockintoanentrepreneurialforce.Staffstendtogrowandproduceservicesthatmaybeneitherwantednorrequired.Idecidedtoplacethecontrolofdiscretionarystaffinthehandsofthosewhowerepayingforthem...lineunits....Themostimportantthingisthatspendingforsupportactivitiesisnowcontrolledbyclients."

11

Figure2.2illustratestheinternalmarketthatresultsfrom"privatizing"anorganizationwithproduct,functional,andgeographicstructures.Theheartofthesystemconsistsofnewventuresspunoffbyproductdivisionstobecomeindependentbusinessunitsthatdevelopproductsorservices.Functionalsupportunitsareprofitcentersthatselltheirassistancetootherunitsorexternalbusinesses.Geographicareasarealsoprofitcenters,distributingthefulllineofproductsandservicestoclientsintheirregion.Thenetworkofbusinessrelationshipsformedbytheintersectionoftheseproduct,functional,andregionalunitsconstitutestheinternalmarketeconomy.

Fromthisview,theorganizationisnolongerapyramidofpowerbutawebofchangingbusinessrelationshipsheldtogetherbyclustersofinternalenterpriseasinanymarket.Thissystemmayappearradicallydifferent,butitsimplyrepresentsanextensionofthetrendthatbegan

decadesagowhenlargecorporationsdecentralizedintoautonomousproductdivisions.

CreateanEconomicInfrastructuretoGuideDecisions

Withoperationalmattersrelegatedtointernalenterprises,executivesfocusondesigninganinfrastructureofperformancemeasures,financialincentives,communicationsystems,anentrepreneurialculture,andothercorporatewideframeworks.Thisinfrastucturethenallowsmarketforcestoguide

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BOX2.3.CONVERTINGHIERARCHICALFUNCTIONSINTOENTERPRISES.

SupportUnits.IBMconverteditsHRunitintoabusiness,"WorkforceSolutions,"whichsellsitsservicestoIBMunitsandothercompanies.TheU.S.GovernmentisbreakingupthemonopolyoftheGeneralServicesAdministrationandtheGovernmentPrintingOfficebyallowingagenciestopatronizeothersuppliers.

Manufacturing.Manycompaniestreattheirmanufacturingunitsas"internaljobshops"thatproducegoodsforinternalandexternalclients.Amanagersaid:"Manufacturingisbecomingaservicefunction,makingproductsfordifferentcompanies."

InformationSystems.CompaniessuchasBrown-ForemanandSunocoallowuserstochoosebetweenthecompany'sinformationsystems(IS)officeandoutsidecompetitors.TheU.S.Governmentisforming"informationutilities"thatchargeinternalclientsforcomputertime,electronicmail,andotherISservices.

ResearchandDevelopment.BellLabs,PhillipsElectronics,andEssoCanadaareconvertingtheirR&Ddepartmentsintoprofitcentersthatsellresearchservices.Insteadofrelyingonthedebatableallocationofresourcesfromthetop,thevalueofresearchisdeterminedbythewillingnessofprofit-centermanagerstopay.

Marketing,Logistics,andService.Theseunitscanbereorganizedinto"internaldistributorships"thathandlethefulllineofacompany'sproductsforagivenregion.Johnson&Johnsonestablishedcommoncustomerunitsthatprovideallsalesanddistributionservicestoretailers.

WorkTeams.Marketprinciplescanbecarriedtothegrassrootsbyorganizingworkersintoself-managedprofitcenters.Apaper-makingcompanyhelpedloggersformteamsthatwerepaidfortheamountoftimbertheyproduced,therebyeliminatingjobclasses,performanceevaluations,andforemen.Loggersbecamekeenlymotivatedbecausetheycould"runtheirownbusiness,"andtheyearnedmore,whilemanagementgainedhigherproductivityandloweroverhead.

NewVentures.Scoresofcompanieshavesetupventurecapitalsystemsthatwelcomebusinessproposalsfromanyemployeetostartanewventure,whichisthennursedtolifeasifina"businessincubator."Manystatesnowallowteachers,parents,andadministratorstoform"charterschools."

TheCEO'sOffice.ClarkEquipmentredefinedtheCEO'sofficeasaprofitcenterinwhichrevenuewasderivedfromassetsinvestedinbusinessunits(similartoaventurecapitalfirm),andfromaportionofsales(likea"tax"bythe"corporategovernment").Likeanyprofitcenter,theCEOmustthenkeepthecostschargedtomanagersdownandthevaluetheyreceiveuptoaddvaluetothese''clients."

Government.City,state,andfederalbureaucraciesarebecomingenterprises.MayorSteveGoldsmithofIndianapolistellsmethatyearsofTQMandreengineeringhadlittleimpactonreiningincosts.Uponout-sourcingfunctionsandallowingcitydepartmentstocompetewiththeirexternalcounterparts,coststypicallydroppedbyhalformore.

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Figure2.2.ExampleofanInternalMarketOrganization.

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decisionsinsteadofrelyingonadministrativefiat.Thebehaviorofthismarketsystemisthenregulated,monitoredforweaknessesandfailures,andcorrectivechangesaremadetoimproveitsperformance.

WhenAlcoamovedtoaninternalmarketeconomy,itsmanagerssoonrealizedthatdecisionspreviouslyhadbeenbasedonfaultyestimatesofcostsandrevenues.Likemanycorporations,thefinancesofoperatingunitswerepooledintolargerdivisions,absorbedbycorporateoverhead,andotherwisenotidentifiedaccuratelyforindividualunits.Uponconvertingallunitsintoautonomousenterpriseswiththeirownprofitandlossstatements,thenewfoundawarenessofactualcostsandrevenuesimmediatelyaltereddecisionsinmorerealisticdirections.AT&Trealizedthesamebenefitswhenitslargegroupsweredividedintofortyorsoprofitcenterstohighlighttheirindividualperformance."Theeffectwasstaggering,"saidJamesMeehan,theCFO.

Astrikingexampleofthepowerofincentivestochangebehaviorcanbeseenwhenconvertingstaffunitsintoprofitcenters.Inthetypicalorganization,ISservicesareprovidedfreetolineunits,withthepredictableresultthatpeoplewasteresourcescarelessly.Storiesaboundoflineunitsdemandingmultiplecopiesofhugecomputerprintoutsthatareneverread,ofoverseasofficesequippedwithinternationalphoneslinesusedbyclerkstocallhomeeveryday.ButwhenpresentedwithmonthlybillsbytheISdepartment,thereisamarkedchangeinattitude,causinglinemanagerstoselectlesscostlysystemsthatoftenprovidebetterserviceaswell.

12Conversely,givinglineunitsthefreedomtochooseamongcompetingISsourcescausestheseinternalsupplierstoshapeupequallyfast.

Thereisalsoaneedtoinstillthesubtlenormsofasocialsystem.MCIhaslearnedthataninternalmarketmustbeaugmentedbyanentrepreneurialculturethatstressestakinginitiative,embracingchange,andsupportingemployees.TheMCIcultureconstitutesacommonlyunderstood,informalmanagementsystemthatguideshumanbehavioreffectively.Sincethissystemexistsinthemindsofpeopleratherthanincumbersomewrittenpolicies,itisfarmoreflexiblebecauseitisasharedidea.MCIemployeesandthecompanyareoneandthesame,allowingquickagreementonanewproduct,organizationalchange,andothercomplexundertakings.

Theimpactofthesevariousaspectsofinfrastructureillustratesthecrucialneedtodesignorganizationsascomplex,interactingsystems.AsJay

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ForresterandPeterSengepointout,managerstodaymustbecomeorganizationaldesigners,inadditiontooperators,bycreatinganewclassofadaptive,high-performing,intelligentorganizations.

13

ProvideLeadershiptoFosterCollaborativeSynergy

Thismodelofentrepreneurialmanagementraisestoughquestionsabouttheroleofexecutivesandtheverynatureofcorporations.Ifanorganizationisnolongerafixed,centrallycontrolledstructure,butafluidtangleofautonomousunitsgoingtheirownway,whatgivesitanidentitythatmakesitmorethanthesumofitsparts?Whatisbestfortheindividualunitsandfortheorganizationasawhole?Howdoesthisarrayofbusinessunitsdifferfromanordinarymarketeconomy?Whyshouldtheyremaintogetheratall?Inshort,whattrulyisamoderncorporation,andhowshoulditbemanaged?

CEOsmaygiveupmuchoftheirformalauthorityinamarketsystem,buttheyleadbyensuringaccountability,resolvingconflict,encouragingcooperation,formingalliances,providinginspiration,andotherformsofstrategicguidancethatshapethissystemintoamoreproductivecommunity.OneofHewlett-Packard'sgreatstrengthsisthatitsexecutivesguidebypersuasiveleadershipratherthanfiat.TheCEO,LewisPlatt,said,"InHP,youreallycan'torderpeopletodoanything.Myjobistoencouragepeopletoworktogether,toexperiment."14

MCIprovidesagoodexampleinwhichcorporateexecutivesworkhardtoturncontentiousissuesintoadvantageoussolutions.Topmanagementunderstandsthattheautonomyofoperatingmanagersmustremaininviolate,soexecutivesavoidimposingdecisions.Yetthecompany'sentrepreneurialstanceoftenprovokesheated

controversyoverriskyventures.Anewproductconcept,likeMCI'sFriends&Family,maybeproposedbysales,engineering,oranyothergroup,andisthenthesubjectofadebateoverthemeritsoftheidea.Ratherthansquelchthisconflict,MCIexecutivesembraceitasastimulantfortough,creativeargument.Byprovidinganacceptableformofconstructiveexchangeamongdiverseviewpoints,asolidcourseofactionusuallyemergesthatallcansupportwithconfidence.

Johnson&Johnson(J&J)encouragescoalitionsofbusinessunitsthatserveeveryonebetter.J&J's166separatecompaniesretaintheirfierceautonomybecauseit"providesasenseofownershipthatyousimplycannotget

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anyotherway,"saystheCEO,RalphLarsen.Butthecompany'sbigclients,Wal-Mart,Kmart,andotherretailers,wanttoavoidbeingbombardedbysalescallsfromdozensofJ&Junits.TheCEO'ssolutionwastourgehisoperatingmanagerstopoolsucheffortsinto"customersupportcenters"thatoperateasinternaldistributorshipstocoordinatesales,logistics,andserviceforeachmajorretailer.

Theseexamplesillustratetheresolutionoftwoopposingsetsofdifficultdemands.Modernexecutivesmustpermitoperatingmanagersentrepreneurialfreedomtogaintheircommitment,creativity,andflexibility.Yettheymustalsoavoiddisruptiveconflict,needlessduplication,andunnecessaryrisk.Amarketcanprovidethiscombinationoffreedomandcontrol,butnotbyremainingalaissez-fairesystem.Leadershipisessentialtoreconciletheseopposingdemandsintoasynergisticcorporatecommunitythataddsnetvaluetoitsinternalenterprises.

Indeed,withoutthecreationofnetvaluethereislittletojustifyunitingbusinessunitsintoalargerparentorganization.ThebreakupofAT&Tintothreeseparatecompaniesduring1995illustratesalackofthissynergy.Hierarchicalorganizationsmaycontainunitsthatdestroyvalue,butthisisnotapparentbecausetheinternaleconomicbehaviorofthesystemismaskedbyitsbureaucraticstructure.Aninternalmarketstripsawaythebureaucracybyregardingeachunitasanenterprise,settingthestageformorerealisticmanagement.

Thus,aninternalmarketisnotsimplyalaissez-faireeconomy,butaguidedeconomy,avehicleforreachingcommongoalsthatismoreeffectivethaneitheralaissez-fairemarketoranauthoritarianhierarchy.Astheseprinciplesshow,corporateexecutivesguideaninternalmarketbydesigninganeconomicinfrastructure,settingpoliciestoregulatethesystem,resolvingcriticalissues,sharingvaluableknowledge,andencouragingcooperativestrategies.These

benefitscreatethesynergythataddsvaluewhichoutsideenterprisescannotmatchworkingalone.

TheFloweringofEnterprise

Surveyingtheevolutionoforganizationalstructure,themovefromhierarchytoenterpriseconstitutesoneofthemostprofoundchangesinmanagement.Theoldpyramidhasnowbecomeadecentralizednetworkof

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semiautonomousunitslooselycoordinatedbyvestigesoftheoldchainofcommand.Iestimatethatthedevelopmentofcompleteinternalmarketsystemsislikelytoformthenextmajorphaseinthisprocess,enteringthemainstreamoverthenextdecadeorsoastheInformationAgematures.

Ifthisestimateholds,theideaofhierarchymaysoonseemasarchaicasthedivinerightofkings.Mostorganizationswillthenbeself-organizingclustersofroamingintrapreneurswhoworktogetherovercommunicationnetworks,creatingaseamlessglobaleconomyinwhichpower,initiative,andcontrolflowfromthebottomupthefloweringofenterprise.

Notethatamarketstructuredoesnotensureeffectivemanagement,butitisanessentialstartingpoint.Talentedpeople,inspiringleadership,cleverstrategy,andotherfactorsarealsonecessary,ofcourse.Butthesearesecondarycauses.TheRussiansarehighlyeducated,talentedpeoplewithawealthofresources,yettheireconomywastrappedinanarchaicsystemfordecades.

Asimilarproblemfacesmanagersincapitalistsocietiestoday.Capable,well-intentionedpeopleworkingincorporations,governments,andotherinstitutionsaretrappedinoutmodedhierarchicalstructures.Thisimpendingshifttoamarketformoforganizationpresentsroughlythesamechallengesandopportunitiesposedbytherestructuringofsocialisteconomies.Whataretheimplicationsofthisprofoundlydifferentphilosophy?

TheAdvantagesandDisadvantages

Naturally,internalmarketsincurthesamedisorder,risk,andgeneralturmoilofexternalmarkets,buttheyalsopermitsomecompellingadvantages.AsshowninTable2.2,theorganization'senvironmentdetermineswhichapproachisbest,whichthenfixesthetypeof

accountability,motivationalsystem,andcultureneeded,aswellasthecorrespondingadvantagesanddisadvantages.

Economistsarguethathierarchiesaresuperiorbecausemarketsproducetransactioncostsinsearchingforalternatives,managingfinancialtransactions,andsoon.ButtheInformationRevolutionisreducingtransactioncosts,andanycostincreasescanbeoffsetbydecreasedoverheadandgainsininnovation.WesternAirlineseliminatedfivehundredmanagementjobs,andtheresultingdecreaseinbureaucracysavedhugecostsand

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TABLE2.2.CONTROLVERSUSFREEDOM.HierarchicalControl

MarketFreedom

Environment: Stable,simple Turbulent,complexAccountability:Supervision PerformanceMotivation: Security Reward,challengeCulture: Efficiency EnterpriseDisadvantages:Bureaucracy Disorder,riskAdvantages: Order,equity Clientfocus,innovation,adaptive

change

improvedperformance.StudiesbyThomasMaloneatMITshowthatdecreasinginformationtechnologycosts"shouldleadtoashiftfrom[management]decisions...totheuseofmarkets."

15

Manythinkthatmarketsincreaseconflictasunitspursuedifferentgoalsandcompeteforresources.Myexperienceshowsthatmarketsystemscanresolvetheabundantconflictthatpersistsnow.PeterDruckerobservedthatconflictwithincorporationsismoreintensethanconflictbetweencorporations,largelybecausedecisionsareoftenimposedarbitrarilyandthechoicesareminimal,ifany;sorelationsareusuallyfraughtwithtensionandmisunderstanding.Inamarket,however,decisionsareclearlydefined,voluntary,andselectedfromarangeofoptions,providingarationalbasisforsoundworkingrelationshipsthatcanreplaceofficepoliticswithopenlyreachedagreements.

Eventhetroublesomeaspectsofinternalmarketscanactuallyrepresentusefulorganizationaladjustments.Isamanagerinafreemarketorganizationunabletostaffhisunit?Intheoutsideworldthismeansthatworkingconditionsarepoor.Aresomeunitssuffering

losses?Amarketwouldletthemfailbecausetheydonotproducevalue.Dodifferencesinincomeexist?Wageinequalitiescanmotivategoodperformance,andtheyurgepoorworkerstoshapeup.Thus,whatappearstobedisorderinamarketisoftenvitalinformationabouteconomicrealitythatshouldbeheeded.

Althoughmarketsaresuperiorundermostconditionstoday,itisimportanttoemphasizethattherearenoperfectorganizationaldesigns,

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andthereareinfinitewaystoorganizeamarketsystem.AsTable2.2suggests,thecreativedestructionofmarketsmayunleashreservoirsofenergy,butthisenergycanturnintoanarchyifnotguidedintousefulpaths.Conversely,hierarchicalcontrolmayavoidthisdisorder,butitalsoinhibitscreativefreedom.

Weshouldholdnoillusionthatsomeuniversalstructurecanbeappliedinanall-encompassingway.Internalmarketsarenopanacea.Theyarenotusefulinmilitaryoperations,spacelaunches,andothersituationsrequiringclosecoordinationofthousandsofpeopleandintricateplans,norinroutineoperationsfacingarelativelysimple,stableenvironment.

The"OrganizationExercise"inAppendixAcanhelpmanagersexperiencethesedifferences.Whenconductingtwosetsoftasksofvaryingcomplexity,groupsalmostinvariablydevelopahierarchicalstructureforthesimpletaskandanetworkstructureforthecomplextask.Youcantherebyvividlyappreciatethereasonsforthesetwodifferentstructuresandhowtheywouldworkandfeel.

Thus,organizationswillhavetotradeoffthecostsandgainsofeachapproach.Theprudentexecutivewillcombinevaryingdegreesofhierarchicalcontrolandmarketfreedomtofindthemixthatbestsuitshisorherorganization.

LivingwithMarketSystems

Thedrawbacksofenterpriseseemespeciallyseverenowasmergers,bankruptcies,layoffs,andotherchangesareincreasingunemployment,endingcorporateloyalty,andgenerallymakingworklifemoretraumatic.Ifinternalmarketsintroducemoreofthesame,howwillwetolerateworkinginmarketorganizations?

Theseturbulentchangesareunavoidablebecausetheworldisinthethroesofmassiveeconomicrestructuringthatexertstwomajor

demands:accountabilityforperformanceinordertosurvive,andcreativeentrepreneurshiptoadapttochaoticchangethetwomajorstrengthsofinternalmarkets.Thisexplainsthenewrolenowemergingforindividualsinafastmoving,temporarysociety.Whereasitmadesenseforpeopletofunctionasemployeesinahierarchicaleconomy,aninternalmarketsystemrequirespeopletoassumetheroleofentrepreneurs.

Thus,theformerpaternalisticemploymentrelationshipinwhich

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peoplewerepaidforholdingapositionisyieldingtoa"self-employed"roleinwhichpeopleareofferedanopportunity.Theold"workethic"isbecomingan''enterpriseethic"thatvaluesthefreedomandself-reliance,aswellastherewardsandrisks,thatformthecomplementaryrightsandresponsibilitiesofentrepreneurship(aswewillseeinChapter6).Infact,thesearetherolespreferredbythemajorityofbusinesspeopletoday.

16

Iforganizationscanmakethisadjustment,wemayfindthataninternalmarketislessharsh.Bydecentralizingresponsibilitytosmall,self-managedunits,thedemandsofaturbulenteconomycouldbebetterresolvedthroughvoluntarylayoffs,growingthebusiness,toleratinglowerrewards,orotherlocalsolutions.Self-managementtherebypermitsconstant,smalladjustmentstotheebbandflowofmarketforces,avoidingthelargeperiodiccrashesthatnowresultfromhavingexecutivesbearthisunreasonableburdenalone.

Forinstance,amarketorganizationcanhelpmakedownsizing,reengineering,andotherformsofrestructuringmoresuccessful.Justasanyexternalbusinesscanmanageitsaffairsbetterwithoutgovernmentinterference,theseapproachesarelikelytoworkbestiftheyoriginatevoluntarilyfromautonomousunitsthatareaccountableforservingtheirclients.Managerswhotreatunitsasinternalenterpriseswillalmostinvariablyimproveoperationsbeyondtheirexpectations.RalphLarsen,CEOofJ&J,says:"ManagerscomeupwithbettersolutionsandsettougherstandardsforthemselvesthanIwouldimpose."17Inplaceofforceddownsizing,then,thisbottom-upapproachproducesself-initiatedrightsizingthroughouttheorganization"self-sizing.

Likewise,studiesshowthattwo-thirdsofTQMprogramsfailbecause

theyareimposedfromthetopdown.18TheprinciplesofTQMarevaluable,buttheyarenotlikelytobeeffectivewithoutfirstcreatingakeensenseofresponsibilityforsometeamtoserveitsclientsagain,aninternalenterprise.Thereissimplynosubstituteforthededication,ingenuity,and,yes,eventhemadzealotryofentrepreneurscommittedtotheirbusiness.

Finally,marketscanhelpmanageorganizationalnetworks.Inahierarchicalstructure,topmanagerscontrolalliancestoensurethattheyareeconomicallysound,butthisistime-consumingandunderminesoperatingmanagers.Inamarketorganization,however,unitmanagershandlealliancesbecausethatisthewayeverydayrelationshipsaremanaged.For

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instance,Coming,oneoftheleadingcompaniesinformingalliances,currentlyhasfiftyorsojointventuresamongitssemiautonomousproductdivisions,foreignsubsidiaries,andbusinesspartnersaroundtheworld.

19

Corporateexecutivesmayprovideadviceandsupport,buttheycouldnotpossiblycontroltheexplosionofnetworkingthatliesahead.AproliferationofR&Dconsortia,supplier-manufacturer-distributorlinkages,networkingamong"virtual"corporations,jointventuresamongcompetitors,andbusiness-governmentpartnershipsarerapidlyconnectingallcorporations,governments,anduniversitiestogetherinadensesocialinfrastructure,asdepictedonthecoverofthisbook.20Internalmarketswillfacilitatetheoperationofthisglobalnetwork.

Themostusefulrolefortopmanagementistoformacollaborativecorporatecommunitythathelpsamelioratetheturmoilofaturbulentworld,aswewillseeinthenextchapter.Itwouldalsobeusefultodevelopaworkingenvironmenthospitabletocreativepeople,emulatingthehundredsofbusinessincubatorsthathavesprunguptonurturenewventures.OneofIBM'smostsuccessfulactionswastheIndependentBusinessUnitconceptthatcreatedthePCinayearandahalf.GM'snewelectriccarprojectisspearheadedbyanautonomousteamoftwohundredpeople.

Ourviewsmaychangeasorganizationsevolve,butinternalmarketsystemsseemthelogicalconclusionofcurrentrestructuringefforts.Bydesigningorganizationsasself-managedclustersofinternalenterprises,downsizing,reengineering,TQM,networks,andotherrestructuringpracticesarelikelytobecomemoreeffective.

CorporatePerestroika

Themajorconclusionsaboutorganizationalstructurepresentedinthischaptercanbesummarizedasfollows:

1.Aseconomiesbecomemorecomplex,theymustbemanagedby"organic"systemsoperatingfromthebottomup.

2.Presentrestructuringconceptsarelimitedbecausetheyarelargelymodificationsofthetop-downhierarchy.

3.Adifferentperspectivebasedonprinciplesofenterpriseisevolvingtocreatecomplete"internalmarketeconomies"thataredesignedandmanagedroughlylike"extemalmarketeconomies."

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4.Internalmarketsarenotappropriateinallcases,buttheyarebestformostorganizationstodaybecausetheyofferthedynamicqualitiesneededtonavigateacomplexworld.

Transformingorganizationsintomarketsystemsisformidablebecauseitinvolvesaprofoundsocialupheaval;itcouldbethoughtofas"CorporatePerestroika,"somewhatlikethestrugglefacingthepost-socialisticbloc.Experiencesofcompaniesthathavemadethistransitionoffersomeguidelines,asshowninBox2.4.TheCEOdescribedhowABBcreatedthesystemdescribedinBox2.5:"Wetookourbestpeopleandgavethemsixweekstodesigntherestructuring.WecalledittheManhattanProject."

21

BOX2.4.GUIDESTOREORGANIZINGINTOMARKETSYSTEMS.

Thefollowingguidelineswerederivedbyexaminingtheexperiencesofcompaniesthathavesuccessfullytransitionedtointernalmarketsystems:

·Learnabouttheconceptofinternalmarketstogainasolidgraspofthepossibilitiesandtheproblemsinvolved.

·Startsmallinsomelimitedpartoftheorganizationwithwilling,enterprisingvolunteerswhowillseetheeffortthrough.

·Providethoroughtraininginthebusinessskillsneededtosucceedinamarketenvironment.

·Planthechangecollectivelyandsketchoutarealisticvisionofhowitwillwork.

·Preparepeoplebyshapinganentrepreneurialculture.

·Mostimportantly,givethereorganizationtoppriority.

Manyothercorporationsaremovinginthissamedirection.Inthelate1980swhencomputercompanieshadbecomebloated,Hewlett-PackardrestructuredtoavoidthebureaucracythatswampedIBM(seeBox2.6)."Wehadtoodamnmanycommittees.Ifwedidn'tfixthings,we'dbeinthesameshapeasIBMistoday,"saidDavidPackard.HPdismantledunneededcontrolstorenewitsbeliefthateachdivisionshouldbeaself-managedenterprise.FormerCEOJohnYoungendorsedthedevelopmentofradicalnewproductssuchasHP'sfirstdesktopprinterthatcompetedwiththecompany'sexistingproductswhichwouldhavebeenheresyatIBM.

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TodaytheLaserJetlineaccountsfor40percentofHP'ssales.HPwasvaluedatone-tenthofIBMin1990;throughthisskillfulblendofenterpriseandsupport,HPisnowworthroughlyasmuchasIBM.

Althoughcorporationsareusingmarketmechanisms,managersdonotyetgenerallyunderstandthebroaderconceptofaninternalmarketeconomy.Table2.1showsthatmostcorporationsdonotallowprofitcentersadequatefreedom,theyimposelimitsonoutsourcing,andtheirsupportunitsarerarelyprofitcenters.Theresultisthat,throughoutlargecompanies,businessunitsstrainagainstcorporatebureaucraciesthatburdenoperationswithexcessiveoverheadandmonopolypower.

22ManagersintheCITsurveyreported:"Wecan'tuseoutsidesourcesifaproductorserviceisavailableinside,"and"Iknowofnocompanywherestaffunitsarenothingbutprofitdrains;theyarethemostsacredofcows."Sothereisalongwaytogobeforewerealizethepotentialofinternalmarkets.

Inthefinalanalysis,amarketformoforganizationseemsalmostinevitablebecauseitofferstheonlywayofadaptingtoanageofconstant,rapidchange.Insteadofrelyingontheheroicbutriskyjudgmentofexecutivestomovetheorganizationinsomewholesaledirection,theunitsofaninternalmarketfeeltheirwayalonglikethecellsofasuperorganismpossessingalifeofitsown,producingaconstantstreamofadaptivechange.Touseaphrasefromchaostheory,thecentraladvantageofaninternalmarketsystemisthatit"createsspontaneousorderoutofchaos."

Theknowledgesocietylyingdeadaheadwillpresentmorecomplexintricaciesthanwecanimagine,andmuchlesscontrol.Thisunpredictablenatureofthemodernworldcanbemanagedonlybya

localformofintelligencethatguidesaveragepeopletomeetcomplexitywhereitbeginsatthegrassroots.Informationtechnologywillprovidethecommunicationforthissystem,andmarketswillprovidetheeconomicfoundation.

Manywillthinkthischallengeistooenormous,butthatisexactlywhatweoncethoughtabouttheprospectofchangingtheSovietUnion.ThemovetomarketorganizationsseemslikelytorollonbecauseinternalmarketsofferthesamepowerfuladvantagesthatinspiredtheoverthrowofCommunism:opportunitiesforpersonalachievement,liberationfromauthority,accountabilityforperformance,entrepreneurialinitiative,creativeinnovation,highqualityandservice,easeofhandlingcomplexity,fastreactiontime,andflexibilityforchange.ImagineCorporateAmerica's

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BOX2.5.ABB'SINTERNALMARKETFORAGLOBALCORPORATION.

PercyBarnavik,theCEOofAseaBrownBovari(ABB)corporation,hasbeendescribedas"movingmoreaggressivelythananyCEOtobuildthenewmodelofcompetitiveenterprise."Hedescribedhisfirm'sstructureasfollows:

AConfederationofEntrepreneurs:"Weareafederationofnationalcompanies...acollectionoflocalbusinesseswithintenseglobalcoordination."

MultidimensionalStructure:"AlongonedimensionABBisstructuredintofiftybusinessareasoperatingworldwide.Alongsidethisstructureare1,200localcompaniesthatdotheworkofbusinessareasindifferentcountries."

Decentralization:"Ouroperationsaredividedinto4,500profitcenterswithanaverageoffiftyemployees.Weareferventbelieversindecentralization.Peoplecanaspiretomeaningfulcareerladdersinunitssmallenoughtobecommittedto."

SupportUnitsasProfitCenters:"Youcangointoanycentralizedcorporationandcutitsheadquartersstaffby90percent.Youspinoff30percentintofree-standingservicecentersthatperformrealworkandchargeforit.Youdecentralize30percentintolineorganizations.Then30percentdisappearsthroughreductions."

InternalEnterprises:"Ourmanagersneedwell-definedresponsibilities,clearaccountability,andmaximumdegreesoffreedom.Idon'texpectthemtodothingsthathurttheirbusinessbutaregoodforABB.That'snotnatural.Wealwayscreateseparatelegalentitiestoallowrealbalancesheetswithrealcashflowanddividends.Managersinheritresultsyeartoyearthrough

changesinequity."

AStrategicInformationSystemThatUnitestheFirm:"WehaveaglueoftransparentreportingthroughamanagementinformationsystemcalledAbacus."

EmployeeEntrepreneurs:"Idon'tsitlikeagodfather,allocatingjobs.WhatIguaranteeisthateverymemberofthefederationhasafairshotattheopportunities."

FacilitatingLeadership:"Realcommunicationtakestime,andtopmanagersmustbewillingtomeetwith...thecompanyCEOsinanopen,honestdialogue."

Source:WilliamTaylor,"TheLogicofGlobalBusiness,"HarvardBusinessReview(MarchApril1991).

creativemanagers,engineers,andworkersbeingturnedfreetolaunchmyriadventures,allguidedbytopmanagementteamsthatprovideasupportiveinfrastructureandinspiringleadership.Yes,manyoftheseventureswouldfail,butmanymorewouldthrivetocreateanewbreedofdynamic,self-organizinginstitutions.

Managerscouldrealizeallthesebenefitsbyharnessingtheabundant

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BOX2.6.HEWLETT-PACKARD'SINTERNALMARKETSYSTEM.

Hewlett-PackardhasbecomethesecondlargestAmericancomputermakerbycreatinganentrepreneurialorganizationthatallowsittoconstantlyleadintechnologicalinnovation.HP'sprofitsgrowatanannualrateof30percent.Althoughmanagementmaynotthinkoftheirorganizationasaninternalmarket,itcontainsmostelementsofthemarketmodel.

DecentralizedStructure.Thecompany's96,000employeesareorganizedintosmall,global,cross-functionalunitsthatneverexceed1,500people,creatingadecentralized,constantlychangingstructurethatproducesthousandsofproducts.

InternalEnterprises.Eachunitisanenterprisethat"ownsitsbusiness."Unitsplantheirownstrategy,workwiththeirsuppliersandcustomers,reinvesttheirprofitsintheunit,andhavetheirownfinancialstatements."Ourprofit-and-lossstatementislikeanyothersmallcompany's,"saidoneunitmanager.

InternalCompetition.Unitsareaccordedalmostcompletefreedomtomanagetheiraffairsastheyfeelisbest,includingcompetingagainstotherHPunitsanddoingbusinesswithHPcompetitors.Forinstance,theHPlaserprintercompeteswiththeink-jetprinter,andanotherunitchosetobuymillionsofchipsfromacompetitorbecausethepricewaslowerthanHP's.Saidonemanager,"Wedon'tfeelanallegiancetoanyotherpartofHP.Wefeelanallegiancetoourcustomer."

InternalCooperation.Unitsalsocooperatewhenitisusefulbyofferingthebenefitsoftheirexperience,sharingtechnology,organizingjointventures,andsoon."I'veneverseenanyonesaynoifyouaskforhelp,"saidawomanmanager.

FacilitatingLeadership.Corporateexecutivesavoidmakingoperatingdecisionsthatintrudeonunitautonomy,butfocusinsteadonfacilitatingcooperativerelationships,offeringadvice,holdingunitsaccountable,andprovidingleadership."ThebestIcandoisbringpeopletogetherandhopetheymate,"saidLewisPlatt,theCEO.

Source:AlanDeutschman,"HowHPContinuestoGrowandGrow,"Fortune(May2,1994).

entrepreneurialtalentnowlanguishingbeneaththelayersoftoday'sbureaucracies.Thefirststepistorecognizethatorganizationsmustbedesignedandmanagedasmarketeconomiesintheirownright.

Notes

1.AsummaryofthechangesunderwayisprovidedbyWilliamE.Halal,"GlobalStrategicManagementinaNewWorldOrder,"BusinessHorizons(December1993).

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2.SeeMargaretWheatley,LeadershipandtheNewScience(SanFrancisco:Berrett-Koehler,1992).

3."PuttingtheByteBackintoSiemensNixdorf,"BusinessWeek(November14,1994).

4.FrankSwoboda,"TheCaseforCorporateDownsizingGoesGlobal,"WashingtonPost(April9,1995).MattMurray,"AmidRecordProfits,CompaniesContinuetoLayOffEmployees,"WallStreetJournal(May4,1995).

5."Japan,WrackedbyRecession,TakesStockofItsMethods,"WallStreetJournal(September29,1993).

6.RonaldHenkoff,"GettingBeyondDownsizing,"Fortune(January10,1994).RahulJacob,"TQM:MorethanaDyingFad?"Fortune(October18,1993).JoannS.Liblin,"Don'tStopCuttingStaff,''WallStreetJournal(September27,1994).

7.Reportedin"RethinkingWork,"BusinessWeek(October17,1994).

8.ThenetworkperspectiveisbestrepresentedbyRaymondMilesandCharlesSnow,Fit,Failure,andtheHallofFame(NewYork:FreePress,1994),andJessicaLipnackandJeffreyStamps,TheAgeoftheNetwork(EssexJunction,Vt.:OliverWight/Omneo,1994).

9.DavidOsborneandTedGaebler,ReinventingGovernment(Reading,Mass.:Addison-Wesley,1992).

10.JayForrester,"ANewCorporateDesign,"IndustrialManagementReview(Fall1965),pp.517;RussellAckoff,CreatingtheCorporateFuture(NewYork:Wiley,1981);GiffordandElizabethPinchot,TheEndofBureaucracyandtheRiseoftheIntelligentOrganization(SanFrancisco:Berrett-Koehler,1994);WilliamE.Halaletal.,InternalMarkets:BringingthePowerofFreeEnterpriseINSIDEYourOrganization(NewYork:Wiley,1993).

11.RosabethMossKanter,"ChampioningChange:AnInterviewwithBellAtlantic'sCEORaymondSmith,"HarvardBusinessReview(JanuaryFebruary1991).

12.SeeWilliamE.Halal,Fee-For-ServiceinISDepartments(AreportoftheInternationalDataCorporation,1992).

13.SeeHalaletal.,InternalMarkets,Chapters3and5.

14.AlanDeutschman,"HPContinuestoGrow,"Fortune(May2,1994).

15.SeeOliverWilliamson,MarketsandHierarchies(NewYork:FreePress,1975).TheWesternexampleisfromDavidClutterback,"TheWhittlingAwayofMiddleManagement,"InternationalManagement(November1982),pp.1016.

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ThomasMaloneetal.,"TheLogicofElectronicMarkets,"HarvardBusinessReview(MayJune1989).

16.PaulLeinbergerandBruceTucker,TheNewIndividualists(NewYork:Harper-Collins,1992).JohnKotter,TheNewRules:HowtoSucceedinToday'sCorporateWorld(NewYork:FreePress,1995).

17.BrianO'Reilly,"J&JIsonaRoll,"Fortune(December26,1994).

18.R.Krishnanetal.,"InSearchofQualityImprovement,"AcademyofManagementExecutive,7,(4)(1993).

19.JordanLewis,PartnershipsforProfit(NewYork:FreePress,1990).

20."LearningfromJapan:HowaFewU.S.GiantsAreTryingtoCreateHomegrownKeiretsu,"BusinessWeek(January27,1992).RosabethMossKanter,"Pooling,Allying,andLinkingAcrossCompanies,"TheAcademyofManagementExecutive(August1989).

21.WilliamTaylor,"TheLogicofGlobalBusiness,"HarvardBusinessReview(MarchApril1991).

22.Foragoodanalysisofthisproblem,seeCraigCantoni,CorporateDandelions(NewYork:Amacom,1993).

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3FromProfittoDemocracy:CorporateCommunityIstheNewFormofOrganizationGovernanceAdivisionmanagerofalargecorporationIknow(Steve)wasstrugglingwithachronicdilemma.Hewasunderpressurefromseniormanagementtoincreasehisunit'sprofits,butallattemptsfailed.Raisingpricesandcuttingcornerstolowercostsmerelyirritatedhisclientsastheybegantofeelgouged.Makinggreaterdemandsofemployeesbackfiredbecausetheyfeltoverworked.Andnegotiatingtoughtermswithsuppliersandcreditorsalsoprovokedresistance.AfterdiscussingtheproblematlengthwithSteve,Isuggestedthathemightbefocusingtooexclusivelyonprofitabilityanygoalcanbecomeelusiveifonetriestoohard.

Theideaseemedtocatchhisinterest,settingoffaseriousreexaminationofhisgoalsandworkingrelations.AfewmonthslaterSteve'sdivisionwasabsolutelyhummingwithenergy.Hehadredefinedhisunitasa"cooperativeenterprise"jointlymanagedbyhimself,hisemployees,suppliers,andevenhisclients.Thiswastheresultofmuchserioussoul-searchingandfrankdiscussion,leadingtotherealizationthatthebestwaytogainthesupportofpeoplewastoengagetheirinterests.

NowSteve'semployeesweredesigningandmanagingtheirownoperations,andtheywereeagertotakeontheseresponsibilitiesbecausethey

Note:PortionsofthischapterareadaptedfromChapter6ofmyearlierwork,TheNewCapitalism(NewYork:Wiley,1986).

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receivedagenerousshareofthedivision'sprofits.Thedivision'sclientsbecamefaithfulpatronsaftervisitingSteve'sstafftodescribetheirspecialneedsandtoworkoutproblems.Asimilarrelationshipwasdevelopedwithsuppliers.

Theoutcome:Steve'sdivisionreacheditshigherprofitgoals,butitdidsobyfocusingontheneedsofitsconstituents.Stevealsofeltdelightedatthenewspiritofhisorganization.Ratherthanthedemandingbosshehadbeen,hecouldenjoyworkingwiththesepeopleinaconstructiveway.

Humannatureisnotturningaltruistic,butprogressivemanagerslikeStevearecreatinganewformofcorporategovernancethatunifiesthegoalsofallparties.ThischapterdescribesthedemocratichalfoftheNewManagementthatfocusesonintegratinganenterpriseintoaharmoniouswholeacorporatecommunity.

1SecretaryofLaborRobertReichobservesthatatellingsignofgoodmanagementisthatemployeesspeakofthecompanyintermsof"us"and"we"ratherthan''them"and"they."

Thefollowingpagesoutlinethelimitationsoftheoldprofit-centeredmodelofbusinessandthesocialresponsibilitymodel.Thenweexaminetheevolutionofcorporategoverancetowardcollaborationamongallstakeholdersofthefirm.Thismovefromprofittodemocracyimpliescreatingacoalitionofinvestors,employees,customers,businesspartners,andthepublic,therebyformingacorporatecommunitythatservesallinterestsbetter.

Iconcludethateconomicsislikelytobeelevatedtoincludeabroaderconcernforsocialandhumanvalues.Thisshouldnotharmthefinancialgoalsofbusinessbecausetheyarecompatiblewithsocialgoals.Infact,thepursuitofbothgoalsmaybea"betterwaytomake

money."FromtheviewoftheNewManagement,however,theconceptofcorporatecommunitycouldprovesoeffectivethattheprofit-centeredsystemoncethoughttobeintrinsictothemarketplacemaysoonbecomeanartifactoftheindustrialpast.

TheEvolutionofEconomicCooperation

Theissueofcorporategoverancehasalwaysbeencontentiousbecauseofbasicassumptionsabouteconomicbehavior.Throughoutindustrialization,businesswasusuallyconsideredazero-sumgameinwhichonepartygainedatthelosstoanother.Thisconflictismostapparentinthecontinu-

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ingcontroversyoverwhethercompaniesshouldfocusonmakingmoneyorservingsociety.Butwiththeonsetofaknowledgeeconomy,allthathaschanged.Astoday'srushtoalliancesdemonstrates,cooperationhasnowbecomeefficient.

2

LimitsoftheProfitMotive

Theprofitmotiveissodeeplyingrainedinpresenteconomiesthatmostofuscannotimaginehowbusinesscouldbeconductedotherwise.AskanaverageAmericanifbusinessshouldfocusonprofit,andyouwillprobablygetablankstareatsuchadumbquestion.Indeed,youarelikelytohearanadorationofwealthbecausemostAmericansholdoutthehopeofstrikingitrichthemselves.MakingmoneyispartoftheAmericandream.

Ingeneral,Americanshavefaithinthecapitalisttheorythatprofitisthedrivingforceofeconomicprogress.Theprofitmotiveshouldmotivatebusinesstosatisfycustomerneeds,employworkerseffectively,usescarceresourcesefficiently,andotherwiseservesociety.Theproblem,ofcourse,isthatthemessyrealitiesofeconomiclifedonotfitthistheoryverywell.

Amajorcauseofthisproblemisthatinthezealouspursuitofmoney,managersareoftenencouragedtodisregardsocialconsequences.Aswecancommonlyobserve,manycompaniesmakelavishprofitsevenastheylayoffworkers,evadetaxes,pollutetheenvironment,andcauseothersocialdisorders.AstudybyAmitaiEtzionifoundthat62percentoftheFortune500companieshadbeeninvolvedinillegalpracticesoverthelasttenyears.3Otherstudiesestimatethecostofpricefixing,pollution,bribes,workinjuries,productdefects,andotherwhite-collarcrimetototalseveralhundredbillionsdollarsper

year,amajorportionoftheU.S.grossdomesticproduct(GDP).4

Let'sbeclearaboutwhatisgoingonhere.Thecauseisnotprimarilyattributableto"greed,"asweoftenhear,becausemostbusinessmanagersaremoral,dedicatedprofessionalstryingtodoadifficultjobasbesttheycan.Rather,theproblemissystemic.AsshowninFigure3.1,theprofit-centeredmodelisbasedonanideologicalsystemthatfocusesonservingtheinterestsofthoseowningcapitalshareholders.Inthisview,theinterestsofemployees,customers,thepublic,andotherstakeholdersarenotreallygoalsofthefirm,butsimplyameanstomakingmoney.

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Figure3.1.TheEvolutionofCorporateCommunity.

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Capitalismhasgreatvirtues,andmanycompaniesbehaveadmirably,asweshallsoonsee.However,ifthegoalofenterpriseisdefinedasprofitmaking,theinterestsofbusinessareopposedtotheinterestsofsociety.Anyphilosophydevotedto"taking"contradictsthevaluesofalmostallreligions,whichadvocate"giving"toserveothers.TheReverendBillyGrahamputitthisway:"ThebiggestproblemfacingAmericaisthemoralsituation,thescandalsinbusinessandWallStreet.''

LimitsofSocialResponsibility

Inanattempttoremedythisproblem,aboutthreedecadesagoAmericanbusinesssincerelytriedtoadopttheconceptof"corporatesocialresponsibility"(CSR),asalsoshowninFigure3.1.Corporationsvoluntarilycreatedprogramstoimprovethetreatmentoftheirsocialconstituencies,andtheyevenattemptedtomeasurethisprogressusing"socialaudits."

5

Buttheideabecameanemptypietybecauseitfocusedon"doinggood"whileignoringtheneedtoincreaseproductivity,salesrevenue,andprofits.Asimilarfateislikelytobefalltoday'ssuccessortoCSRtherisingpopularinterestinbusinessethics.

Theseconceptshavebeenusefulineducatingbusinesspeopleabouttheirsocialobligations.However,socialresponsibilityisalimitedideabecauseitgoestotheoppositeextremebyadvocatingsocialservicewhileignoringeconomicrealities.

TheConflictbetweenBusinessandSociety

Thiscontinualconflictbetweenprofitandthesocialwelfarehasleftsocietiesbereftofwhateconomistscallaworkable"theoryofthe

firm."AsIrvingKristolputit,"Corporationsarehighlyvulnerabletocriticismsoftheirgoverningstructurebecausethereisnopoliticaltheorytolegitimateit."6

Theproblemalsoextendsintosocialinstitutions,withseriousconsequences.Theroleofnewsmediaiscrucialinaknowledgesociety,yetmediaempiresarecontrolledtoservefinancialinterests.AfterCBSwasboughtbyLawrenceTischin1987,hefiredsixhundrednewspeopletoimproveprofits.YetstarslikeDanRatherwerebeingpaidseveralmilliondollarseach,aboutasmuchasthesavingsfromthelayoffs.Thistypeoflogicraisespuzzlingquestions.

IsDanRatherreallyworthmorethanhundredsofhiscolleagues?

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CBSwasalreadyveryprofitable,andthelayoffsharmedCBSnewscoverage.WhyisincreasingthewealthofTischmoreimportantthanthelivesofhisemployees,andmoreimportantthanservingthepublicbetter?Here'showatypicalworkerseesit,"Itdoesn'tmakesense.Youcanseethemcuttingpeopletogetoutofabindbutjusttomakemoreprofit?Idon'tgetit."

7

Itwasevenharmfulfromstrictlyfinancialconsiderations.CBS'sviewerratingsdeclined,profitsplunged68percent,majorexecutiveswentelsewhere,andaffiliatesswitchedtoothernetworks.(DavidLettermanquippedonhisnightshow,"You'rewatchingCBS,thenetworkthatasksthequestion:'Hey,wheredideverybodygo?'")Asaresult,CBSwassoldtoWestinghousefor$6billion,whileABCwassoldtoDisneyforalmost$20billion.8

Thesameproblemoccursinorganizedsports.Askanyfanorcityofficialandtheywillconfirmthatbaseball,football,andothersportsarequasi-publicinstitutionsofenormoussymbolicimportancetotheircommunities.Citiesinvestbillionsofdollarsinbuildingstadiums,fansprovideloyalsupportandbuyexpensiveseasontickets,highschoolsandcollegesinvestyearsintrainingtheplayers,andthemediaprovidelucrativeTVcontracts.

Yetthesegroupshavenorights.Ownerscanmoveteamstoothercitiesatwill.Theysetthepriceofadmissionandfranchisestovendors.Theydraftyoungplayersinaformofservitude,andenjoyexclusiverightstocontrolplayintheircity.Theresultisthatthisbelovedpublicfunctionisaccordedthestatusofamonopolyunderthesolecontrolofowners.

Itshouldbenosurprisethatastreamofdisturbingincidentsflows

fromthisuncheckedpower.Thebaseballstrikeof1994soangeredfansthatsomeorganizedtonegotiatewiththeowners,and25percentboycottedthegamewhenplayresumedin1995;lowattendancewillcausetheownerstolose$400millionin1995.9WhentheowneroftheWashingtonRedskinsthreatenedtomovetheteamtoanotherlocation,aprominentWashingtonianhadthisreaction:"TheRedskinsaren'tonlyabusinessforthisregion;theyareaunifyinginstitutionformostofuswholiveandworkhere...acentralforceinbringingpride,cooperation,andasenseofonenesstothemetropolitanarea."10

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Althoughsomemanagersmaytrytobalanceprofitandthesesocialinterests,theyareconstantlyswampedwithfinancialdata,scrutinybyWallStreetanalysts,andthethreatoftakeover.Thesepowerfulforcescrowdoutsocialconcernsandtheirsheerinertiaresistschange.That'swhynoblemottoessuchas"Ourcustomerscomefirst"and"Ouremployeesareourmostvaluableasset"areusuallymereplatitudes.Inanagewhenitiscommonlyunderstoodthatknowledge,satisfiedcustomers,andacommittedworkforcearecriticaltoeconomicsuccess,onecanonlymarvelthatwecontinuetotreatcorporationsaschatteltobe"owned"byinvestors.

Whyhavesmart,proudcitizensofthemostpowerfulnationonEarthvoluntarilyyieldedthepowertocontrolthemajorinstitutionsoftheirsociety?BecausemoneyholdsthestatusofareigningtheologyinAmerica.Itisasacredcowthatcannotbequestioned,adogmathatblindsustoamorecomplexreality.Profitmaking,therightsofownership,andothercanonsofcapitalistideologyconstitutethedefactoreligionthatgovernsourfadingIndustrialAgesystem,roughlythewaymedievalChristianitygovernedtheagrariansocietiesoftheMiddleAges.

Medievalcivilizationwasdominatedbythechurch:massiveGothiccathedralsprovidedthefocusofcitylife;dailytaskswerecenteredaroundtherhythmsofmassandprayer;andsocietywasguidedbyahierarchyofpriests,abbots,andbishops.Today,civilizationisnolessdominatedbycapital:massivecorporateofficesbuildingshavereplacedthecathedrals;leveragedbuyouts,hostiletakeovers,andarcanederivativeshavereplacedthereligiousrituals;andthechurch'shierarchyhasgivenwaytoahierarchyofaccountants,securitydealers,andfinanciers.

11

TheRiseofStakeholderPower

Withinthepastfewyears,however,powerfultrendsincorporategovernancesuggestthatseriouschangeisunderway.

Fordecades,controloflargecorporationsresidedalmostsolelywiththeCEO,whilethecorporateboardandstockholdersprovidedafigleafshieldingoureyesfromthisnakeddisplayofunilateralpower.FewbelievedthatthetypicalboardofdirectorswasmuchmorethanasocialgatheringoftheCEO'sassociates,andtheannualstockholdermeetingwaswidelyridiculedasafarce.Onlyasmallportionofshareholdersattended;they

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wereunorganized,poorlyinformed,andusuallypreoccupiedwithtrivialcomplaintsthatseemedmainlyintendedtohumblecorporateexecutives."It'stheonlyforumthatmakesCongresslookgoodbycomparison,"notedRobertMonks,amajorinstitutionalinvestor.

Butnowstockholders,employees,andotherstakeholdersaresteadilygainingpower.

Institutionalshareholderspensionfunds,mutualfunds,insurancecompanies,banksownthemajorityofstockatmanylargecorporations.TheCaliforniaPublicEmployeesRetirementSystem(CALPERS),oneofthelargestpensionfunds,beganusingitsuntestedpowerin1990toinfluencepoorlymanagedcorporations,whichbroughtaboutthefallofCEOsatGM,IBM,Sears,AmericanExpress,andothertroubledfirms.Today,mostlargecorporationsregularlymeetwiththeirinstitutionalinvestors.

12Thisrelationshiphasbeenshowntoimprovefinancialperformance,solargeinvestorshavebecomepermanentplayersinthemanagementoflargecorporations.13

Anothernewforceincorporategovernanceistherisingpowerofemployees,aswewillseeinChapter6.Employeestockownershipplans(ESOPs)control12percentofallcorporatestock,andemployeessitontheboardsofthreehundredlargecorporations.Atsomelargecompanies,suchasUnitedAirlines,workersownamajorityofshares.Further,theESOPmovementisgrowing10percentperyear.

Womenarealsobecomingmoreinfluentialincorporategovernance,therebyintroducinganewsetof"feminine"valuesthatstressamorehumane,community-orientedformofmanagement.Womensitonmostcorporateboards,andone-quarterofallnewcorporatedirectors

arenowwomen.Thenumberofbusinessesownedbywomenisgrowingmorerapidlythanthoseownedbymen.

Othersocialconstituencieshavealsogainedinfluenceinrecentyears.Aswewillseeinlaterchapters,almostallcompaniesnowstrivetobuildtrustinglong-termrelationswiththeircustomers;theyworkcloselywiththeirsuppliersanddistributors,theyaredevelopingpartnershipswithgovernment,andtheyvoluntarilyprotecttheenvironment.

Finally,thelegalbarriersarebeingeliminated.Americanlawoncepresumedthatstockholderswerethesolebeneficiariesofthecorporation,butthisischanging."Whatrightdoessomeonewhoownsthestockforanhourhavetodecideacompany'sfate?"askedAndrewSigler,chairmanof

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ChampionInternational."That'sthelaw,andit'swrong."Atlastcount,thirtystateshaveadoptedstatutesthatrecognizetheinterestsofcorporatesocialconstituencies,andtheconceptisspreadingtomostotherstates.

14

Thesetrendshaveacceleratedthemovementtowardabroaderformofgovernance.In1992,fiftycompanies,includingLevi-Strauss,theBodyShop,Stride-Rite,Reebok,andLotus,formedtheBusinessforSocialResponsibility(BSR)alliance,andayearlatermembershipleapedtoeighthundredcompanies.ThisisonlythemostvisibleexampleofabroadermovementthatincludestheWorldBusinessAcademy,theSocialVentureNetwork,andmanyothergroupsofprogressivebusinessmanagersandscholars.15

Unliketheoldformofsocialresponsibility,today'smovementadmitstheneedforfinancialgain."Weareheretogetpeopletorecognizethatthereisalinkbetweenprofitableperformanceandresponsiblecorporatepractices,"saidMichaelLevett,formerpresidentofBSR.16In1984,investorsconcernedwithsocialcriteria(ethicaltreatmentofemployees,productsafety,environment,etc.)owned$40billionofcorporatestock,whilein1990thatsumpassed$500billion.17

Whatallthesetrendsshareincommonisthatstakeholderswhopreviouslyremainedpassivearenowdemandingtobeheard."There'sapopulistwindblowingthroughthiscountry,"saidRalphWhitworth,presidentoftheUnitedShareholdersAssociation."Weseelesswillingnesstoacceptthestatusquo,whetherit'sinCongressorinacorporation."

Howaremanagersgoingtohandlethisrevolutionofthestakeholders?Byredefiningabroader,moreeffectiveroleas"stewards"ofthis

emergingcorporatecommunity.

TheStakeholderModeloftheCorporation

Thisneedcanbebetterunderstoodifwelookatthestakeholdermodel.AsshowninFigure3.1,thismodelviewsthecorporationasasocioeconomicsystemcomposedofvariousconstituencies:employees,customers,associatedfirms(suppliers,etc.),thepublicanditsgovernmentrepresentatives,andinvestors.Pleasenotethatthismodeldiffersfromthesocialresponsibilitymodelinthatstakeholdershaveobligationstothefirmaswellasrights.Thisviewhaslongprevailedamongsomecompanies,suchasthosediscussedinBoxes3.1and3.2.Nowtheideaisbecomingwidelyaccepted

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BOX3.1.IKEA.

Sweden'sIKEAhasrecentlybecometheworld'slargesthomefurnishingscompanybyformingcollaborativerelationshipswithitscustomers,suppliers,andemployees.In1993,thecompanyhadonehundredretailoutletsaroundtheworld;itwasgrowingata15percentannualrate,anditsprofitmarginof8to10percentwassohighthatallcapitalwasobtainedinternally.

ActiveCustomers.IKEAhasdefinedan"active"roleforitsclientsthatbenefitsboththemandthecompany.Strollers,freechildcare,andrestaurantsareprovidedtoencourageparentstobringtheirchildren.Customersaregivencatalogues,tapemeasures,pens,notepaper,anddetailedinformationtohelpthemmakeinformedpurchases.High-qualitySwedishfurniturecanbepurchasedat20to50percentbelowcompetitivepricesifbuyersarewillingtoassembleitinahourortwo.Anythingcanbereturnedatanytime.

Supplier-Coproducers.IKEAfurniturecomponentsareproducedbyaglobalnetworkoftwothousandsupplierslocatedinmorethanfiftylow-costcountriesaroundtheworld;fivehundredsuppliersarefromEasternEurope.IKEAstaffsupportsuppliersbyleasingequipment,locatingpartnersandmaterials,andprovidingproductionadvice.Theresultislow-cost,high-qualityproduction,coordinatedtomeetcomplex,changingmarketdemandsinatimelyfashion,whilealsocreatingbusinessopportunitiesinundevelopednations.

Source:RichardNormannandRafaelRamirez,"DesigningInteractiveStrategy,"HarvardBusinessReview(JulyAugust1993).

becausemanagersrealizethatthesuccessoftheirenterprisedependsongainingthesupportofthesegroups.

Thisessentialroleofsocialinterestsisclarifiedbymystudies,whichestimatetheresourceflowsbetweenstakeholders.Thereturn-on-resourcesmodelanddatainTables3.1and3.2showthatallstakeholdersinvestfinancialandsocialresources,theyincurcosts,andexpectgains,justasinvestorsdo.Theseresourcesconstitutetheir"stake"intheorganization,whichissospecificthatitcanbecomparedquiteaccuratelytocapitalinvestments.

Thesedatarevealhowseriouslylimitedisthetraditionalviewofthefirmthatfocusesonfinancialaspectsalone.ThetotalfiguresatthebottomofTable3.2aregreaterthanthefinancialsumsshownforinvestorsbyroughlyafactoroften.Thus,socialconcerns,whichareusuallyregardedas

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BOX3.2.EXEMPLARSOFCORPORATECOMMUNITY.

Hewlett-Packardhasbecomeamajorforceinthecomputerindustrybyusingitsstatedmission:"Profitisnottheproperendandaimofmanagementitiswhatmakesalloftheproperendsandaimspossible....Ourmaintaskistodesign,develop,andmanufacturethefinestelectronicequipmentfortheadvancementofhumanity."

IBMcontinuestofollowaphilosophythatthefounder,JamesWatson,Sr.,statedintermsofthefollowinggoals:"obligationstostockholders,""respectfor[employees],""servicetoourcustomers,""fairdealtooursuppliers,''and"corporatecitizenshipincommunityaffairs."

Johnson&JohnsonsurvivedtheTylenolpoisoningcrisisandotherchallengesbecauseofacompanywide"credo"thatstates:"Ourfirstresponsibilityistothedoctors,nurses,patients,mothers,andallotherswhouseourproductsandservices."

NCRCorporationdefinesitsmissionas"creatingvalueforalltheconstituencieswithastakeinthecompany:consumers,NCRpeople,suppliers,communities,andinvestors.Whileitmayappearthatthevariousstakeholderswillhaveconflictingdemands,thepointsofconflictarefewandthepointsofcommoninterestsaremany."

MerckCorporation'sfounder,GeorgeW.Merck,definedthemissionofthecompanyintermsofservice:"Wetrytoneverforgetthatmedicineisforpeople.Itisnotforprofits.Theprofitsfollow,andifwerememberthat,theyneverfailtoappear."

Japanesecorporationshavetraditionallypracticedahumanformofmanagement.AkioMorita,thefounderofSony,and

KonoshukeMatsushita,thefounderofMatsushitaElectronics,amongotherJapaneseCEOs,describethetypicalJapanesephilosophy:"Profitshouldnotbetheprimarygoalofbusiness.Therealpurposeoftheenterpriseistocontributetosocietyinreturnforusingitsresources."

Source:WilliamE.Halal,TheNewCapitalism(NewYork:Wiley,1986).

"economicexternalities,"arefargreaterthanfinancialconsiderationsbecausetheycompriseavastbutmoresubtleworldofhumanandsocialrealitiesthathaseludedtheOldManagement.

18HicksWaldron,chairmanofAvonProducts,describedthisreality:

Wehave40,000employees,1.3millionsalesrepresentatives,alargenumberofsuppliers,customers,andcommunitiesaroundtheworld.Theyhavemuchdeeperandmoreimportantstakesinourcompanythanourshareholders.19

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Thedataalsoshowthatallpartiesbenefit.Businessdoesnotsimplyredistributeresources,asinazero-sumgame,butisinherentlyaproductiveinstitutionthatcreatesvalueforallitsconstituencies.Althoughthegainsofvariousstakeholdersmayconflictintheshortterm,theyarecompatibleinthelongterm.Thisisconfirmedbyvariousstudiesandcommonexamples,whichshowthatbusinesscreatesjobs,educatespeople,paystaxes,andmore.

20

Forexample,theBodyShopisasociallyorientedcorporation,yetitisalsoveryprofitable.Thedifferenceisthatprofitsareputinperspectiveas

TABLE3.1.THERETURN-ON-RESOURCESMODEL.ConstituentGroup

ResourcesInvested(R)

BenefitsProvided(B)

CostsIncurred(C)

ReturnonResources[(BC)/R]

Investors Equity/debtcapital

Dividends/interests,capitalgians

Capitallosses Returnoninvestment

Employees Upbringing,education,training,health

Wages&benefits,training,jobsatisfaction

Disabilities,meals&travel,jobdissatisfaction

Returnonhumanresources

Customers Purchasesprice,searchcosts

Utility(consumersurplus)

Productdamages,depreciation,maintenance

Returnonpurchases

Thepublic Publicassets

Taxes,contributions

Governmentservices,environmentaldamage

Returnonpublicassets

Associatedfirms

Assetsofassociated

Salesofassociatedfirms

Expensesofassociated

Returnsonassociated

firms firms assetsTotalcorporation

Totalresources

Totalbenefits Totalcosts Overallreturnonresources

Note:Thismodelwasusedtoconductacomputersimulationofcorporatebehavior,whichproducedtheresultsdisplayedinTable3.2.Forfurtherdetailsofthisresearch,seeWilliamE.Halal,"AReturn-on-ResourcesModelofCorporatePerformance,"CaliforniaManagementReview(Spring1977),andTheNewCapitalism(NewYork:Wiley,1986),Ch.6.

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onegoalamongmany."Profitsarejollygood,"saidAnitaRoddick."Buttheyareameanstoalargergoal."TheBodyShophasbuiltplantsinpoorareas,fundedenvironmentalprojects,andmadeothereffortstocombinebothsocialandeconomicgoals."Now,that'swhatyoudowithprofits!"saidRoddick.

21

Thisanalysisleadstoaprecisetheoreticaldescriptionofthenatureofthefirm.Corporatemanagersaredependentonstakeholdersbecausetheeconomicroleofthefirmistocombineaseffectivelyaspossibletheuniqueresourceseachstakeholdercontributes:theriskcapitalofinvestors;thetalents,trainingandeffortsofemployees;thecontinuedpatronageofcustomers;thecapabilitiesofbusinesspartners;andtheeconomicinfrastructureprovidedbygovernment.Theneedforcapitalisessential,ofcourse,butthecontributionsofotherstakeholdersarenolessessential.Becausecompaniesaresocioeconomicsystems,thesefunctionsareallasessentialasthediverseorgansofabody.

Thus,managersshouldactasstewardsengagedina"socialcontract"todrawtogetherthismixofresourcesandtransformitintofinancialandsocialwealth,whichtheycanthendistributeamongstakeholderstorewardtheircontributions.Theclosertheintegrationintoacohesivecommunity,thegreaterthewealth.

Thegoodnews,then,isthattheredoesnotseemtobeaconflictbetweenprofitandsocialwelfare,aswewillseemorefullyinthenext

TABLE3.2.ANNUALRETURN-ON-RESOURCESSTATEMENT.(INTHOUSANDSOFDOLLARS)

ConsituentResourcesInvested

BenefitsProvided

CostsIncurred

NetReturn

ReturnonResources[(B

Group (R) (B) (C) (B-C) C)/R]Investors $9,993 $583 $234 $349 3.5%Employees 36,520 1,691 57 1,634 4.5Customers 10,533 4,066 2,249 1,817 17.3Thepublic 2,536 338 375 37 1.5Associatedfirms

507 314 312 2 .4

Totalcorporation

$60,089 $6,992 $3,227$3,765 6.3%

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chapter.Yes,stakeholdershavedifferentintereststhatflowfromtheiruniquerolesinthecorporatecommunity,buttheseinterestscanbereconciledIFtheyareorganizedtocreateamoresuccessfulenterprise.Allpartiescouldtherebybenefit,includinginvestors.Thus,amoreeffectivegoalforbusinesswouldbetoservethepublicwelfarerepresentedbyallstakeholders.HenryFordsaidthesamedecadesago:"Peoplebelievethattheonlypurposeofindustryisprofit.Theyarewrong.Itspurposeisthegeneralwelfare."

TheComingEconomicCopernicanRevolution

Letmesuggestananalogythathelpsputthesedifferentviewsofcorporategovernanceinperspective.

Theprofit-centeredmodelofbusinessiscomparabletotheEarth-centeredmodeloftheuniverse.LikethecentralroleonceattributedtotheEarth,profithasbeenratherarbitrarilyselectedasthecenteroftoday'seconomicuniversebecausethatistheviewweinheritedfromanIndustrialAgewhencapitalwastheprimaryfactorofproduction.Thesocialinterestsofstakeholderswereplacedinsuccessivelydistantorbitsasbeingoflesserimportance,eventhoughtheymayinfactbeashugeastheSun.

Incontrast,thesocialresponsibilitymodelgoestoanotherextremebypositinganeconomicuniversethatrevolvesaboutsocialinterestsbutignoresfinancialrealities.ThisisroughlyequivalenttoasolarsystemthatrevolvesaboutMars,Saturn,orVenusratherthantheEarth.

Ithinkthisanalogyclarifiesthedebatethatcontinuestoconfuseallofus.AdherentsoftheOldManagementwhoinsistontheprofit-centeredmodelareroughlycomparabletothosewhobelievedinanEarth-centereduniverse,whileadvocatesofasocialresponsibilitymodelcanbeseenas"prophets"or"revolutionaries"whoproclaimthattheuniverserevolvesaboutotherplanets.

Thestakeholdermodelreconcilesthisconfusionbyshowingthatallsuchinterestsareequallyimportant.Shareholderwealth,employeewelfare,customersatisfaction,thepublicgood,andothercorporateinterestsallrevolveaboutacommoneconomicgoalthatisascentraltosocietyastheSunistooursolarsystemservingthehumanneedsofallthesediversemembersofthecorporatecommunity.

Ifthiscomparisonisvalid,ithighlightsthechallengefacingmanagers,

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scholars,andothersinvolvedindevelopingaNewManagement.JustasthestudiesofCopernicuscausedastronomers,philosophers,andtheologianstoacceptaradicallydifferenttheoryoftheuniverse,thedatainthischapterindicatetheneedforaneconomicequivalentoftheCopernicanRevolution.

PrinciplesofCorporateCommunity

Theoriesanddatacanhelpusseeadifferentreality,buthowcansuchadramaticallydifferentviewbetranslatedintopracticalguides?Basedonstudiesandtheexperienceofprogressivecompanies,threecentralprincipleshavebeenfounduseful:communityspirit,performanceevaluation,andstewardship.

CreateaSpiritofCommunity

Likeanyothercommunity,ahumanenterprisemustbecreatedbyleaders"stewards"whoinstillavisionofthecorporationasacommunityunitedbycommonlycherishedvaluesandprinciples.

22Becausepeopleinadvancednationstodayarehungryforthissenseofbelonging,thereisarisingtideofinterest.

ThebestexampleisofferedinBoxes3.3and3.4,wherethecloseparallelbetweenGM-Saturn'sphilosophyandthestakeholdermodelcanbeseen.Richard"Skip"LeFauve,thechairmanofSaturn,describedhisgoalthisway:"Peoplehavebeenanunderutilizedassetinthisindustry.Saturn'smissionistochangethatbycreatingnewrelationshipswiththeUnitedAutoWorkers,dealers,andsuppliers.Saturnismorethanacar,it'sanidea,awholenewwayofworkingwithourcustomersandwithoneanother."

Tohavesuchidealsacceptedasaworkingpartofday-to-daylife,however,stakeholdersmustdiscuss,modify,andaffirmthesevalues,

ortheywillremainaloftysetofplatitudes.Levi-Strausshastakentheleadinshapingacorporateculturethatactuallybehavesasanethicalcommunity.ManagementdraftedastatementoutliningthevaluesLevi-Straussaspiresto,andsixthousandofthecompany'sthirty-sixthousandemployeesprovidedsuggestionsonreplanningcorporatepractices.23AsimilarprocesswasusedbyJohnson&Johnsonsomeyearsago.

Althoughthisbroaderformofgovernancehasadvantages,institutionalrolesarealwaysdefinedbypersonalbeliefs.Therealityisthatmanypeoplefeelkeenlythatbusinessshouldbeastrictlyprofit-makingaffair,and

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BOX3.3.THESATURNDIVISIONOFGENERALMOTORS.

TheSaturndivisionwascreatedtodevelopprogressivemanagementmethods.Thecompany'sadvertisingcampaignsaysitall:"Adifferentkindofcompany.Adifferentkindofcar."AlthoughSaturnhasnotyetrecoveredits$5billioninvestment,itisanunusualsuccessbymostcriteria.ThedemandforSaturncarsissogreatthatasecondplantisplanned,anddistributorshipsarebeingsetupabroad.GMplanstomakeSaturnthefirstofitselectricvehiclesandtointroduceamid-sizecar.Saturnownersareamongthemostsatisfiedintheindustry,qualityisnearperfect,dealersalesaretwicetheindustryaverage,andtheentireorganizationisenergizedbyunusuallyhighcommitmentandmorale.Saturnrepresentsahistoricbreakthroughbecauseitprovidesahighlyvisibleillustrationofhowacorporatecommunitycanproduceoutstandingresults.

CustomerSatisfaction.Thesuperbdesign,quality,andserviceprovidedtoSaturnownershasattractedalargeandgrowingnumberoffaithfulpatrons.SaturnhasearnedthispatronagebymakinginexpensiveautosthatmatchJapanesequality,byusingasoftsalesapproachthatavoidspressuringbuyers,andbycontinuedattentiontoservingtheneedsofSaturnownersthroughoutthelifeofthecar.

EmployeeCommitment.Saturncreatedcollaborativelabor-managementrelationsinanindustrynotedforunionconflict.Workersareorganizedintoself-managedteamsthatcontrolallaspectsoftheirjobs,theyparticipateinallmajordecisionsandshareinthecompany'sfinancialsuccess.In1993whenthecompanyearneditsfirstprofits,all8,000employeesreceivedbonuses.Aunionmembersaid"WearethefutureoftheAmericancarindustry."

Distributor-Partners.Saturn'sdistributorsobtainanexclusiveterritorytoavoidcompetingwithotherSaturndealers.Moreover,theyareassistedindeveloping"electronicshowrooms"thatuseinteractivemultimediatoinformcustomersaboutthecar,andtheyofferfixedpricestoavoidhagglingandpressure.FranchisesarerenewedbasedonperformanceandservicedeliveredtoSaturnbuyers.

Supplier-Partners.ThesamecollaborativerelationshipisextendedtoSaturnsuppliers.Inchoosinganadvertisingagencytohandleits$100millionaccount,aSaturncommitteeofmanagers,workers,unionleaders,anddealersspenttimedevelopingatrustingrelationshipwithwhatitcallsits"communicationspartners."Theagency'scompensationistiedtoSaturn'ssalesperformance.

OtherOrganizationsWantto"Saturnize."TheSaturnconceptofmanagementisbeingadoptedbyotherGMdivisionsandotherautomakers,schoolsareusingitsphilosophy,andpoliticianssuggestitshouldbeadoptedbytheU.S.Congressandtheentirenation.

Source:"HereComesSaturn,"BusinessWeek(April9,1990).GabriellaStern,"SaturnIsDeemedSuccessfulEnoughtoExpand,"WallStreetJournal(April18,1995).

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BOX3.4.SATURNPHILOSOPHY.

WE,THESATURNTEAM,INCONCERTWITHTHEUAWANDGENERALMOTORS,

BELIEVETHATMEETINGTHENEEDSOF:CUSTOMERS·SATURNMEMBERS·SUPPLIERS·

DEALERS·NEIGHBORSISFUNDAMENTALTOFULFILLINGOURMISSION.

TOMEETOURCUSTOMERS'NEEDS:

·Ourproductsandservicesmustbeworldleadersinvalueandsatisfaction.

TOMEETOURMEMBERS'NEEDS:

·Wewillcreateasenseofbelonginginanenvironmentofmutualtrust,respect,anddignity.

·Webelievethatallpeoplewanttobeinvolvedindecisionsthataffectthem,careabouttheirjobsandeachother,takeprideinthemselvesandintheircontributionsandwanttoshareinthesuccessoftheirefforts.

·Wewilldevelopthetools,trainingandeducationforeachmember,recognizingindividualskillsandknowledge.

·Webelievethatcreative,motivated,responsibleteammemberswhounderstandthatchangeiscriticaltosuccessareSaturn'smostimportantasset.

TOMEETOURSUPPLIERS'ANDDEALERS'NEEDS:

·Wewillstrivetocreaterealpartnershipswiththem.

·Wewillbeopenandfairinourdealings,reflectingtrust,respectandtheirimportancetoSaturn.

·WewantdealersandsupplierstofeelownershipinSaturn'smissionandphilosophyastheirown.

TOMEETTHENEEDSOFOURNEIGHBORS,THECOMMUNITIESINWHICHWELIVEANDOPERATE:

·Wewillbegoodcitizens,protecttheenvironmentandconservenaturalresources.

·Wewillseektocooperatewithgovernmentatalllevelsandstrivetobesensitive,openandcandidinallourpublicstatements.

BYCONTINUOUSLYOPERATINGACCORDINGTOTHISPHILOSOPHY,WEWILLFULFILLOURMISSION.

ReproducedbypermissionoftheSaturnCorporation.

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alltheevidenceintheworldisnotlikelytoswaythem.Itisalsotruethatahuman-centeredformofbusinessmaynotbeusefulinsomeindustries,anditmaynotbeacceptableforsomenationalcultures.

Forexample,managerssurveyedintheCITstudyexpressedawiderangeofopiniononthispoint,usuallyinstrong,emotionalterms.Amajorityconfirmedtheimportanceofservingallinterests:"Ourgoalistoserveallgroupsequally,""Thetrickisbalancinginterests.Howelsecouldoneoperate?"Butsomebelieveintheprimacyofclients:"Ourprimarygoalistomakesuretheclientissatisfied,"and"Theunderlyingreasonforalloureffortsistoprovidethebestproductpossibleandtoexceedtheexpectationsofourcustomers.''Andafewstronglyaffirmthetraditionalview:"Profit,profit,profitforshareholders."

Theseconsiderationsremindusthatchanginginstitutionalgoalsisunchartedterritory.Subtleissuesofpersonalvaluesandpoliticalideologyareinvolved,whicharepoorlyunderstood,andthereislimitedknowledgeoftheeffectsoneconomicproductivityandsociety.Ausefulwaytoexplorethisdomainistogatherusefulinformation,whichleadstothenexttopic.

EvaluateStakeholderPerformance

Anoldmanagementaxiomholdsthatonecannotmanagewhatisnotmeasured,andsoevaluatingthebenefitsandcostsexperiencedbystakeholdersisneededtoguidedecisions.Otherwise,howcanmanagersknowhowwellgroupsarebenefiting?Whichgroupsarereceivingpreferentialtreatmentandwhicharebeingslighted?Wherearetheproblemareas?Whatlevelofbenefitisjustifiedatwhatcost?Andsoonforothercomplexissues.

Corporationshavedevelopedsystemsfordoingthisinspecificareas(suchasevaluatingthemanagementofemployeesandcustomers),

whichwewillsurveyinlaterchapters.Somebroadframeworkshavebeenusedtoprovideasystematicevaluationofallstakeholders,butfeworganizationshaveattemptedambitiousprojectsofthistype.

24Box3.5showsthemainsystemsofthistype.Aprominentadvanceisthatthe1995Fortunelistof"America'sMost-AdmiredCompanies"washeavilyweightedbyhowwellmanagersservetheircustomers,treattheirworkers,andbehaveresponsiblytotheircommunities,inadditiontomeasuresofprofitability.

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BOX3.5.STAKEHOLDEREVALUATIONSYSTEMS.

Inadditiontothereturn-on-resourcesmodeldescribedinthisbook,thefollowingsystemshavebeenusedtoevaluatecorporateperformanceintermsofthebenefitsreceivedbyvariousstakeholders.

Fortune500companieshavebeenevaluatedbyFortunemagazinesince1982intermsofvariousmeasuresthatreflectthebenefitsrealizedbyshareholders,employees,customers,andcommunities.

Stakeholderratingsareopinionsurveysobtainedfromcorporatestakeholders.ProfessorRobertHaysdevelopedamethodforsurveyingoverallcorporateperformanceusingratingsfromemployees,clients,thelocalcommunity,andgovernmentofficials.

Socialauditsorsocialreportshavebeenperformedbymanycorporationstoitemizetheprogramsandbenefitsdeliveredtovarioussocialconstituencies.Forinstance,theAmericanCouncilofLifeInsurancehaspublishedsuchreportsforroughlyfourhundredinsurancecompaniessince1972.

100BestCompaniestoWorkFor(publishedbyRandomHousesince1984)isahandbookcoauthoredbyRobertLeveringandMiltonMoskowitzthatratescompaniesintermsoftheiremployeebenefitsandothersocialperformancefactors.

ThebalancedscorecardsystemwasdevelopedbyprofessorsRobertKaplanandDavidNortontotranslatecorporatestrategyintomeasuresofoverallperformancetostakeholders:providingservicetocustomers,developingskilledandmotivatedemployees,andearningattractiveshareholderreturns.ThesystemhasbeenappliedbyRockwater,AppleComputer,andAdvanced

MicroDevices.

StakeholderinfluencehasbeenevaluatedbyprofessorGrantSavageandhiscolleaguesasaframeworkforassessingtheextenttowhichvariousstakeholderscanposeastrategicthreattoacorporationorofferstrategicadvantagesthroughcooperation.

Thebestwaytounderstandstakeholderevaluationsystemsistoseethemasanextensionoffinancialmeasures.Socialdataareusedtomanagesocialperformance,justasfinancialdataareusedtomanagefinancialperformance.Bothtypesofinformationcanhelpmanagersunderstandtheattitudesofvariousstakeholders,forecasttrends,identifycriticalissues,andproposestrategiestoresolveproblems.Estimatingcomplexsocialfactorsisdifficult,ofcourse,butwhatwethinkofas"hard"datapresentmuchthe

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sameproblem.Accountantsknowthatarbitraryassumptionsunderliestatementsofprofitandloss,andeconomistshaveequallytroublingquestionsaboutmeasuresliketheGDP.

Inthefinalanalysis,managersmustconstantlymakedecisionsthatguidetheiractionsinsuchmatters,andtheavailabilityofsound,comprehensiveinformationsystemsofthistypecanonlyhelpbyreplacingignorancewithknowledge.Ifafractionoftheenormouscostsnowdevotedtofinancialmeasurementwereappliedtosocialmeasurements,wewouldhaveapowerfultoolformanagingthecommunityofcorporateinterests.

ProvideCorporateStewardship

Aninspiringvisionandsoundinformationareuseful,butultimatelymanagershavetoputtheseintousewithgroupsofstakeholderswhomaydisagreevehemently.Thisisdifficultterrainforanyleader,butitisespeciallywrenchingforcorporatemanagerswhoaremiredinaperennialroleconflictoverprofitversussocialwelfare.

Thislackofawell-defined,defensibleroleisagreatdilemmafortoday'slargecadreofyoungprofessionalmanagerswhoarestrugglingtosortoutconfusingissuesbetweentheirjobsandtheirideals.Ifamanagerisatrueprofessional,whoistheclienttobeserved?Onlytheinvestor,bymakingmoney?Theboss,byfollowingorders?Howcanmanagersgaintheallegianceofsubordinatesifemployeesaresecondarytoprofit?Whatdoestheprofessionalmanagerdowhentheinterestsofemployees,customers,andothergroupsconflictwithmakingmoney?Thesetoughissueshavebeenmadeworsebecausethemythoftheprofitmotiveplacesmanagersinanimpossiblesituationwheretheirdutiesareopposedtothestakeholdergroupsonwhomtheyaredependent.

Thestakeholdermodel,however,definesafarmoreconstructive,

legitimaterolethatprovidesmanagersastrongsenseofprofessionalidentity.Fromthisview,managersare"servantleaders,"orstewards,responsibleforservingthecollectivewelfareoftheconstituenciesthatmakeuptheirorganizations.

25Theyusetheirspecialexpertisetohelpthiscommunitycollaboratefortheirmutualbenefit,andtheyareaccountabletothesegroups,justasphysiciansandattorneysareaccountabletotheirclients.CEOGeorgeFishersetaboldchallengeforthemanagersatKodakbytyinghisannualcompensationtoperformancemeasuresthatareweightedby50

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percentforstockholders,30percentforcustomers,and20percentforemployees.

26

Role-playinga"stakeholdermeeting"canhelppeopleunderstandhowtomanagethesecomplexinterrelationships.Thisexercise,containedinAppendixB,asksfivetotenpeopletosimulateacompanymeetingtowhichrepresentativesofallstakeholdergroupshavebeeninvited.Theimpactcanbeprofoundbecausetheabstractideaofthecorporationasanextendedsocioeconomiccommunitycomesvividlytolife,offeringrichopportunitiesforexploringtheroleofcorporatestewardship.

Rememberthatstewardshipisnotintendedto"dogood"inthesenseofperformingphilanthropicdeedsthatgivethingstoothers,whichiswhyconceptssuchassocialresponsibilityandbusinessethicshavehadlimitedeffect.Soundstakeholdermanagementisapragmatic,two-waysetofcollaborativeworkingrelationshipsbetweenthecorporatecommunityanditsmembersthatbenefitstheenterpriseasawhole.Becausevaluecanbedistributedonlytotheextentithasbeencreated,theroleofcorporatestewardsistoensureamatchbetweencontributionsandrewards.Theestablishmentofthisreciprocitybetweenwhatonecreatesandreceivesisfundamentaltothehealthofanycommunity.

Alargebodyofresearchshowsthatorganizationsdefineandenforcesubtlenormstosetanappropriatebalancebetweenthebenefitseachindividualorgroupreceivesversusthecontributionstheymake.Ifsomegroupisslighted,theycorrectthisimbalancebywithholdingcontributionstoreestablishequity.ThissenseofequityissopreciseandsostrongthatoneidealisticCEOtriedasysteminwhichemployeescouldsimplyaskthepaymastertogivethemanysumfor

theirregularpay.Itseemedtobeanoutrageousideathatwouldbewildlyabused,butitactuallyworkedprettywell.Veryfewpeopleaskedformorethansmallincreases,andalmostallrealizedtheywerefairlypaidbyaconsiderateemployer.

ThesepowerfulnormsofequitymeanthatmanagerscannotusuallyobtainmorefromtheirconstituentsthantheyconsidertobereasonableManagersmustearntheircontributionsbyprovidingcorrespondingbenefits.Methodsforevaluatingstakeholderperformanceareusefultoguidethegive-and-takebargainingneededtoreachagreement.Buttomakesuchcomplex,trustingrelationshipswork,anewbreedofmanagerisneededwhocanprovideskillfulleadership.AswewillseeinChapter9,goodleaderstoday

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inspireotherstoshareresponsibilityfortheenterpriseTheylistentoreallyheardifferentpointsofview,buildbridgesbetweenconflictinginterests,andaregenerallyskilledinthepoliticalartofformingcoalitions.

DatafromtheCITsurvey(seeTable3.3)indicatethatthistypeofcollaborationisoccurringtosomeextent.Themajorityofmanagerstodaycooperatewithstakeholdersandtrytoservetheirinterests,butathirddonotevaluatestakeholderperformanceandalmosthalfdonotseatstakeholdersontheirboards.OnemanagerintheCITsurveyhighlightedtheproblem:"Ourboardiscomprisedofninewhite,affluent,maleswithnofemalesorminorities."

Ifitmakessensetocooperatewithstakeholders,thelogicalconclusionwouldbetomeetwiththemperiodically.Forinstance,ifmanagersreallywanttoservetheircustomersbetter,whyhaveresponsibleclientsandconsumeradvocatesremainedsoconspicuouslyabsentfromcorporateboards?WhenLouisGerstnerreplacedJohnAkersasCEOofIBMin1993andwasexploringwaystorevitalizeBigBlue,aprominentanalystadvisedthefollowing:"IfGerstnerissincere,heshouldcreateanewboardmadeupofIBMcustomers,suppliers,partners,employees...anewkindofIBMthatcouldn'thelpbutbemoreresponsivebecausethepeopleinchargerepresentthecompany'sfuture...andclearlysignalthatbusinessasusualisdeadatIBM."

27

Thissameconceptcanbeusedthroughouttheorganization.RussellAckoffhasproposedanambitiousformofdecentralizedcorporategovernanceinwhichlower-levelboardssetpolicyforeachproductdivisionormajorproject.Membershipontheseminiboardscanincludestakeholders,supportpersonnel,higherandlowerlevel

groups,andsoon.AtHewlett-Packard,forinstance,eachmajorprojectisgovernedbyacrossfunctionalboard,andmanyothercorporationsuseboardstogovernindividualdivisions.28

TheExtensionofDemocracy

Theevidencewehavesurveyedleadstothefollowingconclusions:

1.Corporationslackaworkabletheoryofgovernancebecausetheprofitandsocialresponsibilitymodelsignoretherealitythatbusinessisbothaneconomicandasocialinstitution.

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TABLE3.3.ADOPTIONOFCORPORATECOMMUNITYPRACTICES.(SAMPLE=426CORPORATEMANAGERS.)

Practice

NotPracticed(03)

PartiallyPracticed(46)

FullyPracticed(710)

Mean(010)

Thecompanystrivestomaintaincooperativeworkingrelationshipswithimportantstakeholders(forinstance,investors,employees,customers,suppliers,distributors,thelocalcommunity,andpossiblyothergroups). 5% 10% 85% 8.1Thecompany'sprimarygoalistoservetheinterestsofimportantstakeholders,includingmakingmoneyforinvestors. 5 7 88 8.3Inadditiontoitsprofitability,acorporation'sperformanceisevaluatedbyaformalsystemthatassesseshowwellimportantstakeholdersareserved. 29 20 51 5.8Theboardofdirectorsincludesemployeesandotherimportantstakeholders. 41 14 45 5.0Means 19% 13% 68% 6.8Source:WilliamE.Halal,CorporationsinTransition(anunpublishedstudyinprogress).Notethatdatainthethreecolumns("NotPracticed,"etc.)areaggregatedbycollapsingportionsofthequestionnaire

scaleasshown("03,"etc.).SeethequestionnaireinAppendixC.

2.Thestakeholdermodelresolvesthisconflictbytreatingallcorporateinterestsasequallyimportantconstituenciesthatreceivebenefitsinreturnfortheircontributions.

3.Collaborationwithcorporatestakeholdersisoccurringnowasinvestors,workers,women,clients,thepublic,andotherinterestsgainincreasingpowerandbecausemanagersneedtheirsupport.

4.Acorporatecommunityofstakeholdersoffersthepossibilityofincreasingboththebenefitstosocialconstituenciesandprofitsforinvestors.

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Somecautionarypointsshouldbenoted.Thismorecomplexsystemofgovernancecouldbecomeunwieldy,time-consuming,andemotionallydisruptiveifmanagersareunabletohandlethepoliticaltensionsthatareinevitable;aswewillseeinthenextchapter,corporatecommunitymaybeinspiredbyouridealofdemocracy,butmanagersarelikelytoavoidthisproblembyusinganinformalsystemratherthansomeformofrepresentativegovernment.Itisalsotruethatthepracticeofhumanenterpriseisnotlikelytobecomeuniversalsinceitmaynotbeappropriateinsomeindustriesnordesiredbysomepeople.Instead,itmaybecomeestablishedonlyinlarge,quasi-publicinstitutions,suchastheFortune500companies,andamonganavantgardeofprogressivebusinessleaders.Eveninthesecasestherewillalwaysbeoccasionsofdoubtfulethicalbehavior.DowCorningwaslaudedforitsmodelcodeofethics,butthisfailedtoavoidthecrisisthateruptedoverthedangersofitssiliconebreastimplants.

Theselimitationsnotwithstanding,thetransitiontocorporatecommunityshouldproveawatershedineconomics.Drivenbytheliberatingpowerofinformation,thebenefitsofcooperation,andtherisingaspirationsofmodernpeople,democraticidealsarebeingextendedintodailylifetoformapowerfulnewmodelofbusinessthatisincreasinglyproductiveandsociallybeneficial.

29

Thishistoricchangeshouldalsohelpresolveothernaggingproblemsthathavelongresistedsolution.Inflationcouldbebettercontrolledbecauseaunifiedcorporatecommunitywouldspurproductivitywhilealsoconstrainingwageandpricedemands.Growthmaybedirectedinmorefruitfulavenuesasunmetsocialneedsarebetterunderstoodandrespondedtomoredirectly.Hostiletakeoversmaybecomeathingofthepast,sincethefirmwouldnotbesimplychatteltobeboughtand

soldbutacommunitygovernedbyitsconstituencies.Governmentregulationcouldbeminimizedbecausebusinesscouldbecomearelativelyself-regulatedsystem,reducingtheneedforexternalsafeguards.Theconceptwillnotbelimitedtobusiness,butshouldchangegovernmentandothersocialinstitutionsaswell.30

Thosewhofavortraditionalviewsshouldnotethatthisconceptdoesnotclashwiththeprofit-centeredmodel.Infact,thestakeholdermodelisalogicalextensionofWesternideals.AsIstressedintheIntroductionofthisbook,theNewManagementdoesnotrefutetheOldManagementbutgoesbeyondittoprovidemorepowerfulideasthatabsorbtheirolderver-

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sions.Einstein'sreformulationofphysicsdidnotprovethatNewtonwaswrong;itwassimplyaspecialcaseofEinstein'smoregeneraltheory.Likewise,thehumanenterprisedoesnotimplythatprofitisbad;ratheritisaspecialcaseofthegeneralconceptthatbusinessshouldservemultiplegoals,oneofwhichisprofit.Corporatecommunitycanbethoughtofasabetterwaytomakemoney,possiblyevenmoremoney.

BeyondthisrationaleoftheOldManagement,however,thisNewManagementviewholdsthepromiseofresolvingthebusiness-societyconflictthathasplaguedcapitalismfortwocenturies.DanielBellcalledit"theculturalcontradictionsofcapitalism"thatdestructiveclashbetweenthehardnecessityofsurvivalinamarketeconomyandtheidealsofhumancooperationandsocialwelfarethatweaspiretoinademocraticsociety.

Inanagetornapartbyconflict,corporatecommunitymayproveourmainbulwarkagainstcivildecay.Becausebusinessisthemostpowerfulinstitutioninmodernsociety,managerscouldtakeagreatstepforwardinhumanaffairsbydevelopingthisbadlyneededabilitytocooperateforthebenefitofeveryone.

Notes

1.Forafinerecentsurveyofviewsoncorporatecommunity,seeKazimierzGozdz,CommunityBuilding(SanFrancisco:Sterling&Stone,1995).

2.TheclassicworkonthistopicisbyRobertAxelrod,TheEvolutionofCooperation(NewYork:BasicBooks,1984).

3.AmitaiEtzioni,"ShadyCorporatePractices,"NewYorkTimes(November15,1985).

4.MarkGreenandJohnFBerry,"CorporateCrime,"atwo-part

reportappearinginTheNation(June8and15,1985).

5.WilliamE.Halal,TheNewCapitalism(NewYork:Wiley,1986),Ch.6.

6.IrvingKristol,"'Reforming'CorporateGovernance,"WallStreetJournal(May12,1978).

7.MattMurray,"AmidRecordProfits,CompaniesContinuetoLayOffEmployees,"WallStreetJournal(May4,1995).

8.ElizabethJensen,"CBS'sTischIsFaulted,"WallStreetJournal(May22,1995).

9."KevinMcManus,"BaseballFans:StrikeToo,"WashingtonPost(October9,1994).AllenSanderson,"BreakUpBaseball,"WashingtonPost(December9,1994).

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10.SterlingTucker,"TheRedskins:MorethanJustaBusiness,"WashingtonPost(July24,1992).

11.ThispointisnicelymadebyJamesRobertson,FutureWealth(NewYork:BootstrapPress,1990),p.93.

12."AnInsideLookatCALPERS'BoardroomReportCard,"BusinessWeek(October17,1994).

13.SeethespecialissueofBusinessWeek,RelationshipInvesting(March15,1993).

14.StevenM.H.Wallman,"TheProperInterpretationofCorporateConstituencyStatutes,"StetsonLawReview(1991),Vol.XXI,pp.163196.

15.AcentralsourceofinformationontheprogressivebusinessmovementisTheNewLeaders,aperiodicalpublishedbyJohnReneschinSanFrancisco,California.

16.KaraSwisher,"GettingDowntotheBusinessofBeingSociallyResponsible,"WashingtonPost(November22,1993).

17.Fromascientificview,onemightquestionwhichiscauseandwhichiseffect.Dohuman-orientedfirmsperformbetter,orisitthatbetter-performingfirmscanaffordtobehuman?Itseemslikelythatbotharetruebecausecauseandeffectarecircular.Ahumanorientationimprovesperformance,whichthenprovidestheresourcestocarrythisapproachfurther,andsoon.SeeTroySegal,"PuttingYourCashWhereYourConsciousIs,"BusinessWeek(December24,1990).

18.SeverynBruyn,TheSocialEconomy(NewYork:Wiley,1977).

19.Thespecialissueoncorporatecontrol,BusinessWeek(May18,1987).

20.SeeThomasDonaldsonandLeeE.Preston,"TheStakeholderTheoryoftheCorporation:Concepts,Evidence,Implications,"AcademyofManagementReview(1994).

21.JamesO'Toole,"GoGood,DoWell,"CaliforniaManagementReview(Spring1991).

22.AmitaiEtzioni,TheSpiritofCommunity(NewYork:Crown,1993);JuanitaBrown,"CorporationasCommunity,"inJohnRenesch(ed.),NewTraditionsinBusiness(SanFrancisco:Berrett-Koehler,1992).

23.RussellMitchell,"ManagingbyValues,"BusinessWeek(August1,1994).

24.Socialevaluationsusingacomprehensivesystemofrigorousmeasurements,suchasdollarequivalents,havebeenconductedbyClarkAbtAssociatesandAtlanticRichfieldCompany.SeeHalal,TheNewCapitalism,p.218.

25.RobertGreenleaf,ServantLeadership(NewYork:PaulistPress,1977),andPeterBlock,Stewardship(SanFrancisco:Berrett-Koehler,1993).

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26."TyingExecutivePaytoSocialResponsibility,"BusinessEthics(September/October1995).

27.MichaelSchrage,"ToReshapeIBM,GerstnerShouldWorkfromtheBoardroomDown,"WashingtonPost(April2,1993).

28.RussellAckoff,TheDemocraticCorporation(NewYork:OxfordUniversityPress,1994);ChristineFerguson,"Hewlett-Packard'sOtherBoard,"WallStreetJournal(February26,1990).

29.FrancisMooreLappéandPaulMartinDuBois,TheQuickeningofAmerica:RebuildingOurNation,RemakingOurLives(SanFrancisco:Jossey-Bass,1994).PatBarrentine(ed.),WhentheCanaryStopsSinging:Women'sPerspectivesonTransformingBusiness(SanFrancisco:Berrett-Koehler,1994).

30.Forinstance,hospitals,banks,andpublicagenciesareadoptingsimilarconceptswithgreatsuccess.SeeNancyNichols,"ProfitswithaPurpose,"HarvardBusinessReview(NovemberDecember1992);PeterJohnson,"HowIturnedaCriticalPublicintoUsefulConsultants,"HarvardBusinessReview(JanuaryFebruary1993),RonaldGrzywinski;"TheNewOld-FashionedBanking,"HarvardBusinessReview(MayJune1991),andRonaldTaub,CommunityCapitalism(Cambridge,Mass.:HarvardBusinessSchoolPress,1994).

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4TheNewManagementSynthesis:UnitingInternalMarketsandCorporateCommunityThetwopreviouschaptersshowedthatthefoundationoftheNewManagementisbeingbuiltbyextendingenterpriseanddemocracyintoorganizations.Justafewyearsago,thetypicallargecorporationwasanauthoritarian,top-downstructurethatbehavednottoodifferentlyfromthecentrallyplannedeconomiesofCommunistnations.Buttoday'slargeorganizationsaredisaggregatingintolooselyconnectedclustersofautonomousbusinessunitsthatform''internalmarkets."Andtogainthesupportoftheirstakeholders,managersareforming"corporatecommunities"thatunifyfinancialandsocialinterests.

Whilethesetwomajortrendsareunmistakable,theyalsoelicitverystrong,differentreactionsfrompeople.

Ifindthat"liberals"tendtoconsidertheideaofinternalmarketsunimaginablydisruptive.Ispoketoagroupofsociologistswhomadeitclearthattheythoughtthiswasthe"laststraw"intrusionofcapitalismintopersonalspheresoflife.Folkswiththisorientationseemtodislikethemessy,competitivenatureofenterprise.Theideaofcorporatecommunityisusuallyfinewiththem,however,becauseitfavorshumanvalues.

Thosewitha"conservative"bentusuallyhavetheoppositereaction.Theylovetheentrepreneurialfreedomofinternalmarkets,butabhorthethoughtthatacorporatecommunitywoulddetractfromtheprofitgoalofbusiness.

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Thismuchisfairlypredictable,butifoneprobesabitdeeperitalsoseemsthatpeoplehavedoubtsaboutthesefirststrongreactions.Liberalsmayliketheideaofcommunity,buttheywanttobefreeofthecontrolsthatcommunityauthoritiesmustimpose.Ihaveheardfiercedenunciationsofauthorityfromtheverypeoplewholovethethoughtofcorporatedemocracy.Andconservativesmayfavormarkets,butthedirtysecretofcapitalismisthatmostbusinesspeopledisliketoughcompetition.Thatgreatcapitalist,J.P.Morgan,putitbest:"Businessmenhatecompetition.Aman'scompetitorholdsdownhisprofits,threatenshismarkets,andjeopardizesthefutureofhisfamily."

1

Thisambivalenceatbothendsofthepoliticalspectrumnicelyillustratesthecreativetensionbetweenthesetwoverydifferentconcepts.Peopletendtofavoreithermarketsorcommunity,andtheyseemtobeopposedtoeachanother.Butthetwoarereallycompatible.Likeenterpriseanddemocracyinsociety,internalmarketsprovidethecreativity,productivity,andfreedompeopleneedtomanagetheircomplexjobsinlargeorganizations,whilecorporatecommunityprovidesthesocialcohesivenessneededtomakemarketsworkharmoniously.Bothliberalsandconservativesusuallyconsiderthisnewcombinationamorereasonablesystemformanagingmoderninstitutionsthantheoldhierarchy.MarketsandcommunityformindispensablehalvesoftheNewManagementfoundation.

ThischapterfirstshowshowtheInformationRevolutionunleashespowerfuleconomicforcesthatpullorganizationsinthesetwoopposingdirections:complexitydemandsentrepreneurialfreedom,whileaknowledgeeconomyrequiresproductivecollaboration.ThenIshowthatthesesamerevolutionaryforcesalsoleadtoa"New

ManagementSynthesis"thatunitesthiscreativetensionintoamorepowerfulorganization.TheNewManagementusesinternalmarketstorootorganizationsintotheeconomywhileacorporatecommunityorientsittosociety.Iliketothinkoftheorganicsystemthatresultsasan"organizationtree."Weconcludethatachievingthissynthesisallowsmanagerstoharnessunusualpowerbydrawingtoday'sexplodingdiversityintoaproductivewholeaneconomicsystemof"DemocraticEnterprise."

TheCreativeTensionbetweenMarketsandCommunity

Organizationsarelikeallorganismsinthattheirsurvivalhingesonadaptingtoenvironmentalchange.Today,thetideofthatstruggleisturningas

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theexplodingcomplexityoftheInformationAgeforcestheneedformarketsandcommunitywithinorganizations.

AComplexEnvironmentDemandsEntrepreneurialFreedom

Thisshiftinourviewoftheworldissostrikingthatanewfieldofsciencehasemergeddevotedtothestudyofcomplexityandchaos.

2Whereoncemanagersthoughttheirworkwasamenabletoanalysisandcontrol,nowtheyflounderinanunpredictablefluxofwhatthegreateconomistSchumpetercalled"creativedestruction."

Entireindustriesarebeingtransformed,asintheconvergenceofthecomputer,communication,andentertainmentfields.Roughlyhalfofalljobsarebeingeliminatedbyautomation,leavingmassesofworkersfloatingintemporarypositions.Consumermarketsaresplinteringintoanendlessassortmentofuniqueculturalsubgroupsfromeco-feministstoRushLimbaughfans.Andgetreadyformorecompetitionamongutilitiesthatwillmaketoday'sbruisingbattlesbetweenAT&T,MCI,andSprintseemmild;allofthe"BabyBells"arelikelytoenterthefray,andafreemarketenergysystemisevolvinginwhichuserschooseamongcompetingpowersuppliers.3

Naturally,thisupheavalhasledtoareshufflingofeconomicstructures.U.S.corporationscompletedmorethan42,000mergersandacquisitionsbetween1976and1993,andlargeorganizations,suchasIBM,aredisaggregatingintodecentralizedunits,whichinturnformallianceswithotherfirms.Theeffectshavebeendynamic.Forinstance,theundisputedAmericanleadincomputersisadirectresultoftheseflourishingbusinessalliancesamongsmallenterprisesthatconstantlyrealigntalent,knowledge,andresourcesintoproductivenewcombinations.

Meanwhile,theconstantadvanceofinformationsystemsis

encouragingevenmorerestructuringbymakingiteasierandmoreefficient.TheInternet,forexample,hasbecomefamousforcreativechange,butthisisjustthebeginningofanenormousexplosioninelectronicinteractionasopen-systemarchitecturesmakesalltypesofhardwareandsoftwarecompatible.WemaysoonseethedeclineofMicrosoft'smonopolyinPCoperatingsystems,justasIBM'smonopolyofmainframesendedearlier.

Theconclusion:allthiselectrifyingcommunicationacrossshiftingeconomicmarketsisshort-circuitingtheoldchainofcommand.AswewillseeinChapter6,therapidgrowthofteleworkingisproducingchangingassembliesofpeopleandenterprisesthatconstantlyformandreformon

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thegridofglobalcyberspacetocutacrosshierarchieseverywhere.

4Business-Weekdescribedtheresultas"electroniccorporationsmadeupofindividualsandgroupsscatteredallovertheworld."WheretheIndustrialAgeproducedfirmsorganizedby"verticalintegration,"theInformationAgeiscreating"virtualintegration."5JohnHagel,apartneratMcKinsey&Company,putitthisway:

AsthecostsofusingITsystemsfall,we'regoingtoseeawidespreaddisintegrationofU.S.businessandtheemergenceofverydifferentcorporateentities.6

Chapter2showedthatthishistoricdismantlingofhierarchiescanonlybemanagedeffectivelybyviewingmodernorganizationsasinternalmarketsystems.Corporationsandgovernmentsarebecomingaggregationsofsmallautonomousunitsthatcoalesceintonear-perfectglobalmarketsthefloweringofenterprise.

AKnowledgeEconomyMakesCooperationEfficient

Wetendtofocusonthis"markethalf"oftheNewManagementbecauseitismostobvious,butthe"communityhalf"comprisesanequallycompellingcounterforcethatreceiveslessattention.Competitionmaybeincreasingbetweenenterprises,butcooperationisincreasingwithinenterprises.

Butwhataboutthetraditional"tough"approachtobusiness?Whywouldcenturiesofself-interestedbehaviorchange?BecausetheInformationRevolutionisoverthrowingthissystemassurelyastheIndustrialRevolutionoverthrewthemedievaleconomicsystem.Justastheassemblylineshiftedthecriticalfactorofproductionfromlabortocapital,todaythecomputerisshiftingthecriticalfactorofproductionfromcapitaltoknowledge.Knowledgeisdifferentfromcapitalbecausethemarginalcostofduplicatingitistrivialandits

valueincreaseswhenshared,whichmakescollaborationadvantageoustoallparties.Thisneweconomicrealityisleadingtothedramaticrealizationthatcooperationwithallstakeholdersisnowefficientinmoderneconomies.7

Theresultisthattheoldprofit-centeredsystemisinadequatetocopewithtoday'sworld.Thegreatneedsfacingmodernmanagersnolongerrevolvearoundcapitalbutconcernavastandgrowingrealmofmoresubtlesocialfactorsthatareincreasinglyimportantinaknowledge-basedeconomy.Here'showPeterDruckerdefinedthenewroleofeconomics:

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FormalknowledgemaycometooccupytheplaceinaKnowledgeSocietywhich...propertyandincomehaveoccupied[during]theAgeofCapitalism.

8

Thedecliningpowerofcapitalwasdemonstratedduringthe1980swhenGeneralMotorsinvested$70billioninnewtechnologytocombattheJapaneseinvasionofitsmarkets.GMcouldhavesimplyboughtToyotaandHondawiththissumofmoney.Yetthecompanycontinueditsslideintodecline,whichwassignifiedin1989whentheHondaAccordreplacedtheChevroletasAmerica'smostpopularcar.GM'stotalworthhasnowfallenfromroughly$50billionto$20billion,soabout$100billionofvaluehasbeenlost.

SuchincidentsillustratethatthepowerofcapitalaloneisinsignificantwhencomparedwiththepowerthatJapanesecompetitorswieldedduringthe1980spowerthatoriginatedbycultivatingharmoniousworkingrelationswithemployees,customers,suppliers,distributors,andgovernment.9CharlesHandynoted:"Whentheassetsofanenterpriseareprimarilyitspeople,itistimetorethinkwhatitmeanstosaythat[shareholders]caninanysensibleway'own'thecorporation."10

Peoplemayfinditdifficulttoaccepttheuseofdemocraticprinciplesinorganizations,butthatwastheoriginalintention.DuringtheAmericanRevolution,ThomasJefferson,JamesMadison,andotherfoundingfathersenvisionedtheapplicationofdemocracytoworklife.AlbertGallatin,SecretaryoftheTreasuryunderJefferson,said,"Thedemocraticprincipleonwhichthisnationwasfoundedshouldnotberestrictedtopoliticsbutshouldbeappliedtoindustryaswell."11

AsChapter3showed,thatgoalmaynowberealizedasbusinessevolvestowardaquasi-democraticformofgovernance,acorporate

community.Progressivefirmsareinventingwaystoservetheirclients,sharepowerwithworkers,cooperatewithbusinessassociates,formpartnershipswithgovernment,andprotecttheenvironmenttheextensionofdemocracy.

TheOrganizationTree

Eitherinternalmarketsorcorporatecommunitybythemselves,however,leadtoseriousdistortions.Competitionaloneisdestructive,whilecooperationaloneisstifling.Profitaloneunderminesstakeholdersupport,butsocialresponsibilityaloneundermineseconomicsurvival.Forinstance,as

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marketforcesacceleratethecompetitionforwealthtoday,disturbingquestionsarebeingraisedaboutthelossofcommunityinmodernlife:Arewedestinedtosufferdog-eat-dogcompetition?Isself-interestfeasibleinanagewhenpeoplearestrugglingtoresolvesystemicproblems,suchastoday'scrisisoftheenvironmentalcommons?

Somanagersmuststrikeabalancebetweenthesetwopowerfulsetsofforcesthatpullorganizationsandmodemsocietiesinopposingdirections.Themarketplacefosterscompetition,afocusonprofit,individualism,diversity,andconstantlyshiftingrelationswhilecommunityencouragescooperation,socialwelfare,unity,equity,andcommitment.ThispolarityiswhatLawrenceandLorschcalled"differentiationandintegration."

12Ithasalwaysexistedinnations,organizations,andothersocialsystems,butnowitislikelytoreachnewheightsascompetitivepressuresdemandhigherperformanceofmorecomplexorganizations.

Resolvingthistensionbetweenadecentralizedentrepreneurialsystemandacohesivecorporatecommunitywillbenoeasytask.ButtheInformationRevolutionisnotonlyheighteningthetensionbetweenthesetwoopposingneeds,italsoprovidesacreativesparkthatunifiesthemintoamorepowerfulwhole.ManagementintheInformationAgeseemstobemarkedbysynthesis.

InChapter1,oldmanagementpracticesabsorbedtheforcesofchangetoproduceanewmanagement.SynthesisisalsoseeninthefoundationoftheNewManagement:internalmarketsintegratesmallenterprisesintoamoredynamicorganization,andcorporatecommunityunifiesstakeholdersintoapowerfuleconomiccoalition.Box4.1summarizeshowthisNewManagementSynthesisisspreadingthroughoutmanagement:itfirstunifiestheprinciplesof

democracyandenterprise,whichthendoesthesamefortheOldandNewManagements,andthenforleft-andright-wingpolitics.

ThisevolutionofanewbreedoforganizationsthatisbothentrepreneurialandcollaborativecanbegraspedmoreeasilywithametaphorthatIfinduseful.Thetwoconceptsofinternalmarketsandcorporatecommunitycanbethoughtofasformingan"organizationtree"(seeFigure4.1).

Atthebottomlevelwheredailyoperationstakeplace,internalmarketsconnecttheorganizationtothegrassrootsoftheeconomy,therebyprovidingrevenue,information,andothernutrientsthatfeedthetree.Note

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BOX4.1.MAJORDIMENSIONSOFTHENEWMANAGEMENTSYNTHESIS.

DemocracyandEnterprise.TheNewManagementcarriestheidealsofdemocracyandfreeenterprisetotheirlogicalconclusionbyincorporatingthemintoeverydaylife.Thesetwoprincipleshaveusuallybeenconsideredincompatible,whichiswhywehaveisolatedtheminseparatecompartments.Enterprisehasbeenrelegatedtomarkets,whiledemocracyhasbeenrestrictedtopolitics.Today,theimperativesofinformationtechnologyareextendingthemintoallspheresoflifeandintegratingthemintoacoherentwhole.Marketsarespreadingtomanagecomplexity,whiledemocracyisequallyessentialtounifythisdiversityintoharmoniouscommunities.

OldandNew.Atanintellectuallevel,thissynthesisofenterpriseanddemocracyconstitutesaneweconomicparadigmforaknowledge-basedeconomicsystem.Likeallparadigmshifts,however,theNewManagementdoesnotrefuteenduringtruthsinheritedfromthepastbutoffersabroaderframeworkthatabsorbsthemasaspecialcase.Thatis,theoldapproachisnotconsidered"wrong"or"bad"butlimited,whilethenewapproachisneither"right"nor''good"butmorepowerful.Forexample,progressivefirmscollaboratewithstakeholderstocreateabroaderformofgovernancethatservesallsocialinterests,andtheyalsomakemoremoney.

LeftandRight.AcentralimplicationoftheNewManagementparadigmisthatitresolvestheperennialconflictbetweenleft-andright-wingideologies.Oneofthebiggestobstaclestoprogressivechangeisthatliberalsdemandgovernmentprogramstoservesociety,whileconservativesinsistonself-reliance.TheNewManagementintegratesbothofthesetraditionsintoamore

powerfulsocialcontract.Forinstance,thecollaborativemodelofcorporategovernancenotedabovesuggestscorporationscouldbecomesself-regulatingenterprisesystemsgovernedbytheconstituenciestheyaffect,relievinggovernmentofmuchofitsregulatoryrole.

thatafewlargedivisionswouldonlyconstituteatree'staproots,soitisessentialthattheorganizationbedispersedintoafinenetworkofsmallinternalenterprises,somewhatlikeanetworkofsmallfeederroots.

Atthetopwherepolicymakersestablishthecorporatemission,collaborativegovernanceamongstakeholdersexposestheorganizationtothelightofdiversevaluesthatfuelgrowthandguideittoserveausefulroleinsociety.Large,powerfultreesamassenormousenergyfromahugecanopyofleaves.Sothegreatertherangeofdiverseinterests,thegreatertheamountandbalanceofthismotivatingenergyavailabletodriveanorganization.

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Figure4.1.TheOrganizationTree.

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Thetrunkandmajorlimbsofthetreewouldthenrepresentmanagement'srole.Managerscreatetheorganizationalstructure,communicationchannels,andfinancialsystemsthatsupportinternalenterprisesandstakeholders,connectthemtogether,andcoordinatetheirfunctions.Managersalsoactascatalystsforstrategicactionbyprovidingtheenergizingguidanceofleadership,roughlythewayphotosynthesiscombinessunlighthittingleavesandmoisturefromthesoiltoproducegrowth.

Weshouldnotpressthismetaphortoofarbecauseallmetaphorsbreakdownatsomepoint.Forinstance,theneatdichotomybetween"economy"and"society"isnotquiteaccurate.Inreality,socialinterestspenetrateintoeconomicaffairsasvariousstakeholdersexerttheirinfluenceindailyoperations,andsomecompaniesmakeapracticeofinvitingstakeholderparticipationatdivisionlevelsaswellasatthecorporateboardlevel.Thismoreelaboratesystemsuggeststheimageoforganizationsascomplexorganismsthatgrow"fractals"ofthesamestructureatlowerlevels.

13

Buttheorganizationtreeisgenerallyausefulimagetohelpusunderstandtoday'stransitionfromthepyramidtoanorganicorganization.14Concentriccircles,invertedpyramids,networks,andotherpopularsymbolsareuseful,buttheymorecloselyrecallthemachineparadigm.Onlyalivingorganismliketheubiquitoustreecancapturetheorganicessenceofmodemorganizations:theirabilitytoexhibitalifealltheirown,toderivepowerfromtheirenvironment,torespondandgrowtochangingconditions.

GuidestoAchievingOrganizationalBalance

Itisnotgenerallyknownthatthiscomplementarybalancebetweenthe

forcesofenterpriseandcommunityisaconstantthemeinmanagement,anditisconfirmedbyalargebodyofevidencethatsuggestsusefulguidesformanagers.

SupportingEvidencefortheNewManagementSynthesis

Awealthofresearchstudiesconsistentlydemonstratethattwomajorfactorscorrelatewitheffectivemanagement.Onefactorisusuallydefinedas"taskfacilitation,""concernforwork,""initiatingstructure,"orothertermsthatroughlycorrespondtowhatIhavecalledenterprise.Theotheris"groupsupport,""concernforpeople,''"consideration,"orotherconceptsthataresynonymouswithcommunity.Thesetwofactorsrepresentauniversal

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polaritybetween"hard"and"soft"science,''male"and"female"orientations,theChineseyinandyang,andotherenduringdichotomies.Theevidencefurthershowsthatwhileeitherfactoraloneimprovesorganizationalperformance,thecombinationofthetwoisfarmoreeffective.

15

Thissameconclusionisreflectedinaplethoraofexpertopinions.RussellAckoffconcursthatablendofinternalmarketeconomiesandcorporatedemocracyisbadlyneededtoday.SumantraGhoshalandChristopherBartlettclaimthatprogressivecorporationsnowfocusondevelopingflexible,entrepreneurialorganizationsdirectedtoservinghumangoals.DatafromtheCITstudyshowastrongcorrelationbetweenmanagers'scoresforinternalmarketsandcorporatecommunity.16

ExamplesofBalance

Togetabetterfeelfortheorganizationtreeinaction,let'sexaminehowthissynthesisrunsthroughtheremainingchaptersofthisbook.

Modernmarketingstrivesforeconomicsuccessbutthisisbestdonethroughatrustingclientrelationshipthatdeliversgenuinevalue.Knowledgeworkersmustbeallowedwidefreedomtodotheirjobs-yettheymustalsobeaccountableforperformance.Environmentalsustainabilityrequirescorporationstobecomeecologicallybenignwhichwouldpermitthehugeincreasesineconomicgrowthneededbydevelopingnations.Strategicchangemustbeeconomicallysoundtosucceedbutitmustalsobesupportedbysocialinterests.Participationdrawsontheideasofaleaderaswellastheviewsofactivefollowers.TheInformationRevolutionunleashesnewforcesthatareunifyingtheglobebuttheyalsodisperseglobalinstitutions

intopocketsoflocalcommunity.

Theseexamplesillustratethekindofbalancethatsomeofourbestcorporationshaveperfectedbygrowinglarge,robustorganizationtrees.WesawinChapter2thatHewlett-Packardisanimbleconfederationofsmall,autonomousbusinessunitsyetwealsosawinChapter3thatithasasystemofdemocraticgovernancethatembracesallinterestsinitscorporatecommunity.AT&Thasdecentralizedalldivisionsintofiftyorsoprofit-centersbuttheyareevaluatedandrewardedusingequallyweightedmeasuresofprofitability,customersatisfaction,andemployeemorale.Motorolahasbecomeoneofthemostadmiredcorporationsintheworldbycreatinganentrepreneurialsystemofcompetingunitswhichareallunifiedabout

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commongoalsofservingclientswithflawlessproductsandhelpingworkersusetheirtalentstosucceed.

AvoidingExtremes

Tomaintainbalance,itmightnotbewisetoformpermanentrelationswithanyparticulargroupofstakeholders.Thefactisthatdemocraticgovernancecanrestrictmanagement'sautonomytosomeextent.Itisacommitment,justasamarriageormergerisacommitment.That'swhymanydynamiccompanies,suchasNikeandDell,maintainallianceswithdifferentpartners,whointurndothesame.Thesecompaniesneedthemutualbenefitsofcooperation,yettheymustalsoavoidbecomingtoodependentonanyonesetofpartnersbymaintainingtheoptionofswitchingtoothers.

Thus,itmaybebesttokeepstakeholderrelationshipssincerebutprovisionalsoallegiancecanbemovedtomoreappropriatepartnersifnecessary.Thatexplainswhytheconceptofcorporatecommunitydoesnotnecessarilyimplyallofthefeaturesweusuallyassociatewith"democracy,"asnotedinChapter1.Forinstance,itisunlikelythatwewillseethecorporationbecomearepresentativedemocracycomposedofsomefixednumberofdirectorsappointedbyeachstakeholderconstituency.Rather,powerfulbutreasonablyagreeablestakeholdersshouldbechosenbymanagerstoformapoliticalcoalitionthatcanworktogethereffectively.Thecorporationmaybecomeacommunity,butthiswilllikelybeafluidcommunityoffrequentlychanging,selectedmembers.

Wecouldsaythatmanagersmaynotcommitthemselvesto"marrying"stakeholdersbutsimply"goingsteady."Afterall,treesdroptheirleaveseveryfallandgrowanewsetinthespring.

Thereverseisalsotrue:organizationscannotbesolooselyconnectedthattheyareindistinguishablefromtheexternalmarketplace.Ifan

internalmarketpermitsexcessivefreedom,itisnotanorganizationatall,sotherewouldbenoreasonforitsexistence.Ratherthanatree,then,itbecomesmoreofaweedpatch.Asthegrowthofvirtualrelationshipsopensupunheardoffreedom,maintainingastrongsenseofcorporatecommunitywillbeaformidablechallenge.Leaderswillbetestedtoformaproductivesenseofpurposethatdistinguishestheirorganizationfromothersanddrawspeopletowardtheattractionsitoffers.

Balancedorganizationscreateastrong"infrastructure"oflimbsand

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connectingvesselstoachievethisintegrationofmarketsandcommunity,aswesawinChapter2.Theirmanagersformpoliciesthatguidemembers'behavior,designfinancialincentivesystemsthatrewardcontributions,createapowerfulinformationsystemtoshareknowledge,andcultivateacorporateculturethatunifiestheentireorganizationwithsharedvalues.

However,manyorganizationsandnationssufferseverelimitationsbecausetheytendtofavoroneoftheseorientations;therootsandbranchesaretoomismatchedtosupportoneanother.

17Americansarenotoriousfordemandingtheirrightsandfreedomsasindividuals,buttheyhaveadifficulttimesubordinatingthisfreedomtoformcohesivecommunities.Ontheotherhand,Japaneseculturestressescooperativeworkingrelationsandsocialharmony,butitisnotverygoodattoleratingindividualfreedom.PerhapsthegreatestchallengefacingAmericanmanagersistoinstillasenseofcommunityandself-responsibilityininstitutions.Conversely,Japanesemanagersfacethedifficulttaskoflooseningsocialbondssomewhattopermitmorefluid,individualfreedom.

AMiniCaseStudy:TheVirtualUniversity

Universitiespridethemselvesonbeingdemocratic"communitiesofscholars"withflexiblesystemsthatforma"marketplaceofideas,"yetmyexperienceisthatthisislargelyamyth.Therealityisthatfacultycommitteeshavebecomesoovergrownandpreoccupiedwithdetailedrulesthattheyaretooentangledtomove,leavingadministratorsfreetomakemajordecisions.Asaresult,departmentbudgetsareallocatedalmostsolelybythepresidentaccordingtosomearcaneformulafromthedimpastthatnowmakesnosense.Thearbitrarynatureofthissystemisseeninthefactthatthereisusuallynorelationshipbetween

departmentperformanceandfunding.

Thus,halfofthetypicaluniversityisembitteredbecausetheyfeeldeprivedwhilesupportingothers,whilethehalfbeingsubsidizedfeelcomplacent.Neitherhalfismotivatedbythesystem,andtheirentrepreneurialtalentsareconstrainedbythisacademicbureaucracy.Theresultisthatuniversitiesdonotverydoselyresembletheirprofessedidealofanentrepreneurialintellectualcommunitybecausetheorganizationtreehasbeenengulfedbyimpenetrable,strangulatingivy.

Academicsprefernottogetinvolvedinresourceissuesbecauseofanethicthatclaimsscholarsshouldremainalooffrommoney.But,infact,

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mostprofessorsaredeeplyconcernedbecausefundsarescarceinmostuniversities,whichcommonlyleadstointensebickeringovercourseloads,researchfunds,salaries,graduateassistants,andahostofotherpettyfinancialmatters.Nowthatcorporations,governments,healthcaresystems,andeventhepost-Communistblocarerestructuring,perhapsthisinstitutioncanfinallyreconsideritsoldsystem.

Thereisaconsensusthatthe"virtualuniversity"willarriveabouttheyear2000,anditsabilitytotransmitknowledgeanywhereshouldintroduceintenseglobalcompetitionamongacademics.Themostprominentneedistomakedepartmentsself-supporting,entrepreneurialunitsbyrequiringthemtooperatewithsomeagreed-uponportionoftherevenuetheygenerate.Theyshouldthenbeleftalmostcompletelyfreetomanagetheirownaffairs.Budgetscouldbemodifiedtoreflectmeasuresofacademicexcellence,research,publication,communityservice,oranyotherfactorsthattheuniversitycommunityagreesonasitscommongoals.But,whateverthecriteria,resourcesmustbeallocatedinaccordancewithsomecommonlysharedstandardofperformancetoensurethatcriticalsenseofequitythatisessentialfortheformationofagenuinespiritofcommunity.

Withallofitsrootsandleavesingoodworkingorder,thisoldorganizationtreecouldblossomagaininthefertilesoilandlightofaknowledgeage.

DrawingUnityoutofDiversity

ItisusefultoseethatthissynthesisoftheNewManagementissimplypartofthefargreatersynthesisthatisnowintegratingtheglobe.Themostsignificantforceforchangetodayistheinexorableadvanceofcommunicationnetworksthatseemsdestinedtowiretheplanetintoa

centralnervoussystemforaunifiedworld.

AnAgeofSynthesisIsatHand

Thepowerofsynthesisisclearlyvisibleintheastonishingmovementtosteadilyexpandtoday'seconomicblocsintosomeformofglobaleconomicsystem.Theveryideaofaglobaleconomywasinconceivablejustafewyearsago,yetitisnowauniversallyacceptedicon,repeatedeverywhereasatenetoffaithintheprospectthataunifiedworldisimminent.

Thus,adramaticallydifferentperspectiveisemergingbasedonthe

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principleofwholism,theintegrationofallviews,systems,peopleeverythingintoasinglecoherentwhole.

18Iknowthismaysoundfar-fetched,butsodidthenotionsthattheEarthisroundandthatitrevolvesaroundtheSun.Nowwearefacinguptotherealitythatalllifeisconnected:societytonature,citizentonation,mindtobody,persontoperson,humantoanimal,nationtonation,andsoon.VaclavHavel,presidentoftheCzechRepublic,notedthatAmerica'sDeclarationofIndependencemustbeaugmentedbyanew"DeclarationofInterdependence":

Weenjoytheachievementsofmoderncivilization,yetourexperienceseemschaotic,disconnected,confusing.Wedonotknowwhattodowithourselves,weunderstandourliveslessandless.WhatismissingisanawarenessofbeinganchoredinthemiracleoftheEarth,themiracleoftheuniverse.19

AsHavelsuggests,civilizationseemstohavereachedacriticalpointatwhichnothinglessthananewcosmologyisneeded,acosmologythatplacesthehumanexperienceinabroadercontext.Progressivethoughtnowrecognizesthatalllifeisunitedbyitsessentiallyspiritualnature.20Regardlessofwhetheroneisdevotedtomanagingabusiness,workinginpolitics,orcreatingart,thesepathsinvariablyconvergeontranscendentidealsthatmotivateallbehavior.

Thinkofthoseexistentialmomentsinyourownlife,suchasadeathinthefamilyorthebirthofachild,agreatfailureoragreatbreakthroughinone'sworkorpersonallife.Attimesliketheselifetranscendsourfrailhumanpowers,andmostpeoplefindthemselvesfacetofacewiththoseultimateissuesofmeaningandpurposethatconcernusall.Speakingformyself,Ihavecometoseethatthisspiritualdomainistheprimarysourceofmyenergy,motivation,andideas.Likeallofus,Istrivetosucceedinmywork,tocareformy

family,andtoachieveothersuchmundanegoals.ButIalsorealizethatmyabilitytodothesethingsisadirectresultofmystateofmind,ofmysenseofawarenessthatflowsfromsomepoorlyunderstoodworldofthespirit.Idonotreallyknowwhatitisorwhereitcomesfrom,butIhavelittledoubtthatitisthemostpowerfulforceintheuniverse.Spiritpervadeseverything.SpiritISwholism.

Thisintegratingnatureofthespirithelpsusseethattheunifyingpowerofinformationnotedaboveismerepreludetotheevengreateruni-

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fyingpowerofthespiritthatissoontocome.AswewillseeinChapter6,theInformationAgeisalmostcertaintomatureandfadeintothepastinadecadeortwo,justastheAgrarianandIndustrialphaseshavedone.Andbeyondtheadvanceofknowledge,wearelikelytodiscovera"SpiritualAge,"inwhichpeoplewillstrivetoharnessthatvastbutsubtlepowerthatlieseverpresent,everywhere.Thisremindsmeofthepropheticvisioninthatcommonprayerweoftentakeforgranted:"ThyKingdomcome,thywillbedone,onEarthasitisinHeaven."

Iconcludefromthisevidencethatan"AgeofSynthesis"isathand.Whileotheranalyststodayseeparadox,

21ifwecanlookbeyondtheseemingincongruitiesbetweendemocracyandenterprise,leftandright,smallandbig,localandglobal,amongothers,weshouldbeheartenedtoobservethattheworldismovinginexorablytowardaunifyingwholeness.TheIndustrialAgewascharacterizedbytheneedforanalysistherationaldisaggregationoflargeproblemsintotheirconstituentparts,whichthennecessitatedhierarchicalstructurestocoordinatethosediverseparts.ButtheInformationAgeischaracterizedbytheoppositeneedthesynthesisofdisparatenations,socialdiversity,andotherfragmentedsubsystemsintoabalanced,integral,functioningwhole.

Thisprocessofunificationdoesnotproceedoutofhumankind'sgoodnessorotherutopianmotives,butsimplyasacountervailingforcethatkeepstoday'sspiralingcomplexityintact.Differentiationbalancesintegrationinallsystems.MargaretWheatley,inherpioneeringstudyofthe"NewScience,"describesauniverseinwhichatoms,organisms,andsocialsystemsareunifiedbyfieldsofenergy,information,andthought.22

Muchlikesynthesisinthephysicaldomain,synthesisintheeconomicdomainoffersboldnewprospects.Inphysics,theunionofelementsinachemicalreactionorinanuclearreactorreleasesvastamountsofphysicalenergy.Whyshouldtheeconomicworldbehavedifferently?Weareabouttoobservehowtheunionofeconomicdifferencesreleasesanuntappedreservoirofeconomicenergy.Itmayevenbethattheunionofgreatereconomicdifferencesproducesequallygreaterlevelsofenergy.Ifthisisso,thegrowingdiversitythatisnowthesourceofconflictamongindividualsandnationsmayproveanassetastheInformationRevolutionunitestheenormousculturaldifferencesthatnowposeoneofthegreatestbarrierstohumanprogress.

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TheUnifyingPrinciple:EPluribusUnum

Findingtheleadershiptoguideustowardthisdifficultsynthesiswillbeahugechallengebecauseimbalancesaboundininstitutions,andtheproblemislikelytobecomemoresevere.

Manyentrepreneursandtechnophilesaresocaptivatedbytherevolutionarypossibilitiesofinformationsystemsthattheyyearntocreateacompletelydecentralizedworldthatglorifiesindividualfreedom.Onesaid,"Cyberspacerepresentsthetriumphoftheindividualagainstdehumanizinginstitutions.Corporationswilleitherradicallydecentralizetograntemployeesunheard-ofautonomyorcrumblealtogether.Governmenthasno...future."

23Attheotherextreme,therealsoexistsalargecontingentofpeoplewhofavorstrongcommunitybonds,governmentcontrols,andthelike.PresidentBillClintonandhiswifeseemtoexemplythisorientation,thoughtheytryhardtoprofessbeing"neo-democrats."

Ioftenthinkthatwomenmanagersmayprovecrucialtothischallenge.Manystudiessuggestthatwomenareusuallymorebalancedandopentonewideasthanmenare.Womenseemtobesuperbentrepreneurs,yettheyalsoappreciatetheneedtounifyorganizationsintosupportivecommunities.Thatmaybewhywomen-ownedbusinessesnowemploy35percentmorepeoplethantheentireFortune500,aregrowingmorerapidlythanotherfirms,andhaveahighersuccessrate.

Further,womenmaybemoreforcefulinbringingaboutchangebecausetheyaredissatisfiedwithcurrentmanagementpractices.Afterstrugglingtosucceedformanyyears,femaleexecutivesnowrealizethatthepresentsystemisineffective,undulystressful,andemptyofmeaning.24Mystrongimpressionisthatwomenareleadingtheway

towardadramaticallydifferentvisionofmanagement.Theyareshowingusthatsomethingfundamentalisseriouslylackingininstitutionstodaytherecognitionthatpeopleareessentiallyspiritualbeingswithneedsformeaning,purpose,fulfillment,belonging,andalloftheotheridealsreligionshavealwaystriedtoinstill.Theyarealsosayingthatwehaveignoredthisrealitynotonlytothedetrimentofourpersonallivesandsocietybutalsotothedetrimentofinstitutionsthemselves.

Anincreasingnumberofmenarealsodiscoveringthiscrucialinnerworldofthesoul,thespirit,thepsyche,orwhateveronechoosestocallit.25

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Butwomenseemfartheroutinfrontbecauseoftheirbiologicalroleasmothers,theirspecialtalentsandinterestinrelatedemotionalareas,andpossiblybecausetheyhavebeenplacedhistoricallyas"outsiders,"challengingthemalestatusquo.

Idonotintendthistomeanthatwomenwillbeoursalvation,becausemen,racialminorities,andallothergroupshaveequallyimportantrolestoplay.Infact,today'sexplosionofdiversityinmodernworkforcesislikelytobeakeyfactordrivingthischange.Amarketformoforganizationwillbeessentialtoaccommodatethisgrowingdiversity;andsomeformofdemocraticgovernancewillbeneededtointegratesuchdifferences.

IhavearguedthattheAmericanheritageofdemocracyandenterprisecanguidethecreationofaNewManagement,andnowwecanseethatanotherpartofthisheritagecanalsoguidetheintegrationofthesetwoprinciples.CurrencyoftheUnitedStatesbearsthemottoEPluribusUnum,meaning"Unityoutofdiversity,"toremindusofthatuniqueAmericanspirit.Americanshaveimmigratedfromcountriesthroughouttheglobe,andthusrepresentawealthofracialandculturaldifferencesunitedmainlybytheidealsofAmericansociety.Wemaylooklike"mongrels,"withourhodgepodgeofmixedcolorsandtraits,butthisdiversityisexactlythesourceofAmerica'sunusualstrength.

LiketheUnitedStates,institutionsinaglobaleconomywillderivetheirstrengthfromthesameidealsofenterpriseanddemocracy.Tooperateeffectivelyacrossthewildlydifferentnationsoftheworld,managerswillhavetoencouragearichdiversityamongtheirconstituents,andtheywillhavetounifythisdiversityintoastrongcorporatecommunity.

TheComingofDemocraticEnterprise

Let'sreviewthelogicthatleadstothisconclusionthatmodern

organizationsmustmaintainabalancebetweeninternalmarketsandcorporatecommunity:

1.TheInformationRevolutionisheighteningorganizationaltensionsastheneedforenterpriseandcommunityincreasinglypullsmanagersinopposingdirections.

2.ButtheInformationRevolutionisalsoleadingtoan"AgeofSynthesis"thatwillunifytheseopposingforcesintomorepowerfulorganizationalsystems.

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3.Managersmustbalancethiscreativetensiontokeeporganizationsdynamicyetunified.

Asthisshiftingof"conceptualplates"beneaththesurfaceofawarenessdislodgesthepillarsofclassicaleconomictheory,amorepowerfulperspectiveof"socioeconomics"isemergingbasedonbothenterpriseandcommunity,andcompetitionandcooperation.

26Whilecooperationmaynowbeessential,risingglobalcompetitionwillalsorequireustolookafterourownwelfare.Theunavoidablefactisthatacomplexeconomyisevolvinginwhichpeoplemustoftenbothcompeteandcooperatetogether.GM,Ford,andChryslercompeteferociouslywithToyota,Fiat,andRenaultwhiletheyalsoworktogetheraspartnerswiththesesameadversaries.Tomanagethistension,acultureisneededthathandlescompetitioninaconstructivewaythatallowspeopletocooperateaswell.

Thisdynamicunionbetweencommunityandmarketsleadstotheinterestingconclusionthatknowledgesocietiesmaynolongerbe"capitalist."PeterDruckercalledtheemergingsystemofpoliticaleconomya"post-capitalistsociety."27Economiesarelikelytobedesignedtoservehumaninterestsaswellasthoseofcapital,buttheywillnotbe"socialist"becausebusinesswillstillbegovernedbyfreemarkets.Infact,marketsystemsshouldenjoyfargreaterentrepreneurialfreedomandvigorthanbefore.

AswewillseeinChapter10,theneweconomicsystemnowemergingisademocraticformoffreeenterprisethatgoesbeyondcapitalismandsocialismaltogether.Itcouldbethoughtofasablendofdemocracyandenterprisethatdrawsonthebestfeaturesofbothideologiesasystemof"DemocraticEnterprise."

Notes

1.QuotedfromEdwardCarr,TheNewSociety(Boston:BeaconPress,1957),p.25.

2.Onthenewscienceofcomplexity,seeMitchellWaldrop,Complexity:TheEmergingScienceattheEdgeofOrderandChaos(NewYork:Simon&Schuster,1992),andDavidFreedman,"IsManagementStillaScience?"HarvardBusinessReview(NovemberDecember,1992).

3.TimFerguson,"CaliforniaToyswithLiveWires,"WallStreetJournal(March21,1995).

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4.SeeWilliamE.Halal,"TheInformationTechnologyRevolution,"TechnologyForecasting&SocialChange(August1993),Vol.44,pp.6986.

5.WilliamDavidowandMichaelMalone,TheVirtualCorporation(NewYork:HarperBusiness,1992)."ThePortableExecutive,"BusinessWeek(October10,1988).

6.ThomasA.Stewart,"BoomTimeontheNewFrontier,"Fortune(Autumn,1993).

7.RobertAxelrod,TheEvolutionofCooperation(NewYork:BasicBooks,1984).

8.PeterDrucker,"TheAgeofSocialTransformation,"AtlanticMonthly(November1994).

9.RobertOzaki,HumanCapitalism:TheJapaneseSystemasaWorldModel(Tokyo:KodanshaInternational,1991).

10.CarlaRapaport,"CharlesHandySeestheFuture,"Fortune(October31,1994).

11.MiltonDerber,TheAmericanIdeaofIndustrialDemocracy(Chicago:UniversityofIllinoisPress,1970),pp.6,89,374.

12.PaulLawrenceandJayLorsch,"DifferentiationandIntegrationinComplexOrganizations,"HarvardBusinessReview(June1964).

13.SeeMargaretWheatley,LeadershipandtheNewScience(SanFrancisco:Berrett-Koehler,1992),p.132.

14.Forananalysisoforganizationalimages,seeGarethMorgan,ImagesofOrganization(NewburyPark,CA:Sage,1986).

15.ThisconclusionwasmostnotablyreachedintheclassicstudybyE.A.Fleischmanetal.,LeadershipandSupervisioninIndustry

(Columbus:OhioStateUniversityPress,1955).

16.RussellAckoff,TheDemocraticCorporation(NewYork:OxfordUniversityPress,1994).SumantraGhoshalandChristopherBartlett,"ChangingtheRoleofTopManagement:BeyondSystemstoPeople,"HarvardBusinessReview(MayJune1995).

17.GertHofstede,Culture'sConsequences(NewburyPark,Calif.:Sage,1980).

18.WillisHarman,GlobalMindChange(Indianapolis:KnowledgeSystems,1988).

19.AsreportedbyWilliamRaspberry,"Havel'sMessageof'ForgottenAwareness,"WashingtonPost(July6,1994),andBruceShenitz,"MoreThanOurselves,"Newsweek(July18,1994).

20.Forinstance,seeHarman,GlobalMindChange.

21.Forinstance,CharlesHandy,TheAgeofParadox(Cambridge,Mass.:Harvard

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UniversityPress,1994),andJohnNaisbitt,GlobalParadox(NewYork:Morrow,1994),claimthatparadoxisthemostcharacteristicfeatureofourtime.

22.Wheatley,LeadershipandtheNewScience,p.68.

23.CharlesMcCoy,''VisionaryorCyberspaceCadet,"WashingtonPost(November14,1994),Technologysection,p.R20.

24.BetsyMorris,"FedUp:ExecutiveWomenConfrontMidlifeCrisis,"Fortune(September18,1995).

25.Foragoodtreatmentofthisfundamentalissue,seeThomasMoore,CareoftheSoul(NewYork:HarperCollins,1992).

26.Forprominentworks,seeAmitaiEtzioni,TheMoralDimension:TowardaNewEconomics(NewYork:FreePress,1988).

27.PeterDrucker,Post-CapitalistSociety(NewYork:Harper&Row,1992).

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PARTTWOBUILDINGANENTREPRENEURIALCOMMUNITYThispartofTheNewManagementprovidesdetailedblueprintsforbuildinganorganizationonthefoundationsofenterpriseanddemocracy.

Chapter5addressestheriseofintenseglobalcompetitionfordemandingclientswhostrivetoimprovetheirqualityoflife.Weconcludethata"servingenterprise"isneededthatusestechnologytocustomizeproductsandservices,thathelpsemployeesimprovequality,andthatmakescustomerspartnersinthecreationofvalue.

Chapter6focusesontheotherorganizationalplayerwhohasmovedtocenterstagetheknowledgeworker.Today'seconomicupheavaliscreatinganewemploymentrelationshipinwhichteamsofknowledgeworkersuseinformationsystemstomanagetheirownsmallinternalenterpriseandarerewardedforperformance.

Chapter7resolvestheconflictingneedstoprotectafragileenvironmentwhileraisingthelivingstandardsofbillionsofpeople.Leadingcorporationsnowregardsoundecologicalmanagementasacompetitiveadvantage,andsotheyareusingtheirbusinessskillstocreateaneconomicsystemthatisenvironmentallybenign.

ThesethreechaptersshowthattheNewManagementfoundationcanhelpmanagersperformtheirthreemajorresponsibilitiesbetter:internalmarketsandcorporatecommunityserveclientsmoreeffectivelyandprofitably;theyorganizeknowledgeworkersintoaflexible,high-performinglaborforce;andtheysafeguardtheenvironmentwhilepermittingvastincreasesineconomicgrowth.

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5TheServingEnterprise:RelinquishingOurGriponSelf-InterestGreatbattlesarebeingjoinedinthemarketplacetodaytodecidewhichorganizationswillsurviveanonslaughtofcreativedestruction.Asrivalsfromaroundtheworldvietomeetgrowingdemandsforsuperiorvalueandservice,oldallegiancestofamouscorporationsofthepastarebeingoverthrowndaily.SearswasreplacedbyWal-MartasAmerica'sdominantretailer,theAT&TmonopolywasshatteredbyMCI,RCAhasbeeneclipsedbySony,GMChevroletsmustnowcompetewithHondasandToyotas,andevenIBMisfightingforitslifeagainstMicrosoftandIntel.

Despitebusinessattemptstowintheheartsandmindsofficklebuyers,however,excellenceremainsanexceptioninAmerica.Surveysfindthatroughlyhalfthepublicthinksthevaluetheyreceiveispoortofair,andathirdthinksitisbadandgettingworse.Swappinghorrorstoriesaboutterribleserviceandshoddyproductsremainsapopulartopicofconversation.

1

Atellingincidenthighlightstheproblem.OnrecentatriptoRussia,IhadtoflyontheRussianairline,Aeroflot.Althoughconcernedaboutputtingmyselfinthehandsofaforeignflightcrewflyingoutdatedaircraftinalandwherenothingworks,IwaspleasantlysurprisedtofindthatRussianflightswerebetterbecausetheydepartedandarrivedpunctually.Uponreturninghome,however,myAmericanflightsweresolatethatterminalswerefilledwithiratepassengers,hopelesslywatchingtheirconnectingflights,meetings,waitingfriends,andother

carefullymade

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plansdisintegrate.TheDepartmentofTransportationreportsthat25percentofUnitedStatesflightsarelate.AirtravelintheUnitedStateshasbecomearecurringnightmare,aspassengersstrugglethroughabewilderingmazeofprices,connectinghubs,frequentdelays,andlostbaggage.

2

Andwhataretheairlinesdoingtosolvetheproblem?Theairlineindustryseemsmoreconcernedwithpromotingfrequent-flyerprogramstodiscouragecustomersfromswitchingtocompetitors.Therearenonetbenefitsbecausethefortunatesoulswhopatronizethesystemlongenoughtoreceivefreeflightsareinfactbeingsubsidizedthroughtheinflatedfarespaidbyotherpatronsandtravelexpensespaidbytheirownemployers.TheIRSestimatesthatemployerslose$4.5billioninexcessiveairfareeveryyearbecauseemployeestakeunnecessarybusinessflightstoearnfrequent-flyercredits.Airlinesthemselvesloseanother$2billionasfreetripsdisplacepayingcustomers,inadditiontothecostofmaintainingthiscomplexsystem.3Andbecauseallmajorairlinesofferthesameprogramsnow,anycompetitiveadvantagehasbeenlost.Inbusinessterms,novalueisadded.

Despitethefactthatalmostnoonebenefits,thepracticeisspreadingtohotelchains,carrentalcompanies,andcreditcardcompaniesbecausebusinesscannotresistseducingbuyerswiththeillusionofgettingsomethingfree.Thissystemmaysooncollapselikeachainletter,theway"GreenStamps"didafewdecadesago.In1994,thebacklogof"miles"creditedtofrequent-flyersrosesohighthatairlinesincreasedthenumberneededtogetafreeflightby30percent.Employersareorganizingtoeliminatethesystem,andpassengersaresuingairlinesfordiscountingtheirearnedmiles.4

Theurgentneedtoattractclientsisunderstandabletoanyonewhohaseverbornetheresponsibilitytomakeabusinesssucceed.Butfrequent-flyerprogramsareasymptomofhowtheOldManagementoftentriesgimmickstogetclientsratherthanseriouslyimproveserviceandvalue.Incontrast,SouthwestAirlineshasbecomethemostprofitablefirmintheindustrybyforsakingfrillsforthethingsthatcount:keepingfaresbelowthecompetition,maintainingpunctualschedules,offeringdirectflights,andencouragingemployeestohelppassengers.OneharriedbusinessmanwasrunningtocatchhisSouthwestflightastheplanepulledawayfromthegate;uponseeingtheanguishedlookontheman'sface,thepilotreturnedtopickhimup."Itbrokeeveryruleinthebook,"saidaSouthwestman-

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ager,"Butwecongratulatedthepilotonajobwelldone."

5NowotherairlinesareemulatingSouthwest.

Ifitcanbedone,whyaregoodserviceandgenuinevaluesorarethattheyarecelebratedasheroic?Whymustcustomersstrugglewithpoorlymadeproducts?Storeswhereyoucannotfindahelpfulclerk?Afailingeducationalsystem?Costlyhealthcare?Governmentbureaucracy?Ontheothersideofthecounter,whydomanagerstoleratesuchdismalperformance?Whatcantheydotoregainthepublic'strust?Andhowintheworldcansellersfigureoutwhatbuyersreallywant?

Thischapterdrawsoninsightsintotoday'schangingsocialneedsandexamplesofexcellencetoidentifytheprinciplesofcreativemarketinginanInformationAge.Wewillseethatmodernmanagersarechallengedtofocusontheneedsoftheirclientsratherthanthefirmresultinginthe"servingenterprise."Byformingatrustingrelationshipwithcustomers,theNewManagementcanbemoreprofitablewhilealsoservingthegenuineneedsofthesestakeholderswhoarecentralmembersofthecorporatecommunity.

FromSellingtoServing

Thecruxoftheprobleminmarketingtodayisanoutmodedfocuson"selling."Whileitseemedperfectlyreasonableatonetime,nowthispreoccupationwiththeinterestsoftheenterpriseisoutmodedbecauseitexcludestheinterestsofclients.TheodoreLeavittcallsit"marketingmyopia."

TheWastefulNoiseofAdvertising

Theproblemisillustratedbytoday'sbarrageofadvertisements.TheaverageAmericanisbombardedby30,000adseachdayfromTV,

newspapers,andjunkmail,allpromotingyetanothercontrivedbargain.TwentymillionAmericanhomesareinvadedduringdinnereacheveningby300,000telemarketers.Andadsarenowappearinginschools,onshoppingcarts,andineveryconceivablenookandcrannyoflife.6ThesocialeffectsofTVadvertisingaresodisturbingthatparentsconsiderTVan"enemy"theymustfighttoraisehealthychildren(seeBox5.1).Inoururgencytosell,wehavereducedthemiracleoftelevisiontoasewerofcommercialismthatsetsasqualidmoraltoneforthenation.

Theironyisthatthisstampedetoseizethebuyers'attentionislargelyineffectual;eachmessageaddstotheburgeoningmazeofadvertisingnoise,

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BOX5.1.MEDIAANDSOCIALVALUES.

Advertisements,purchasedbycorporations,accountfor80percentoftheincomeofnewspapersandalloftheincomefortelevisionnetworks.Sincethesecorporatesponsorsarethepayingclients,ratherthanthepublic,theirneedsinfluencenewsandentertainmentitselfinsubtleways.Oneeditorofamajordailyacknowledged:"Weshouldstopkiddingourselvesthatweareinthenewspaperbusinessandadmitthatweareintheadvertisingbusiness."Becauseofthisinfluence,TVtendstopandertocommontastestojustifythehugecostsofadtime,floodinghomeswithviolence,sex,andconsumption.TheAmericanPsychologicalAssociationestimatesthattheaveragechildwitnesses8,000murdersand100,000otheractsofviolencebyagetwelve.TheDirectoroftheCenteronAggressionResearchatSyracuseUniversitysummeduptheeffectofthispowerfulmediumonsociety:"Hundredsofstudiesallpointtothisconclusion:televisionviolencebegetsreal-worldviolence."

Sources:RichardHarwood,"NoAlternativetoaMarket,"WashingtonPost(December12,1992);ChrisWelles,"HelloSweetheart,GetMeAdvertising,"BusinessWeek(March3,1993);WilliamRaspberry,"CuttheAct,"WashingtonPost(January28,1994).

turningallthiscostlycommunicationintoanindistinguishableblurthatdeadensthesenses.Peoplehavebeensooverhypedthattheyeitherignoreit,refusetobelieveit,orjustplaindislikeit.Recentstudiesfindthatonlyasmallpercentageofadvertisingrecoversitscosts,andeventheseareeffectiveonlyforamatterofmonths.Promotionsdoevenworsebecausetheyencouragecompetitorstoretaliateandtheylowerthecompany'simage.

7

Special"sales"areaparticularproblem.Atonetime,asalereallymeantaspecialsituationthatofferedunusualvalue.Nowthepracticehasbeenoverusedtothepointthatitisalmostimpossibletosellproductsatregularpricesbecausepeopleexpectdiscounts.Thus,thepublicbecomesconfusedoverwhatconstitutesafairprice,theydistrusttheseller,andmerchantswastetimeandmoneyonthesefutileexercises.MontgomeryWardspent120workdaysfillingout15,000rainchecksforonesaleitemthathadrunoutofstock.Thecompany'sCEOacknowledgedthatthisapproach"erodesyourcredibility."8ListentohowthepresidentoftheNationalAutoDealersAssociationviewstheproblemintheautoindustry:

Thepublicistiredofon-again,off-againrebateprogramsthatconfusedealersandbuyers.Achildcanfigureoutthattheconsumer

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paysthebill.Soendthephonyrebateandlowinterest-rates,establishasingle,no-nonsensepriceandtrysomethingrevolutionary:buildgood,reliablecars.

9

Fromaneconomicview,thissell-at-any-costapproachissimplytoocrudetosolvethecomplexjobofservinganexplodingarrayofhighlydifferentiated,subtlesocialneeds.Becausebuyersarelefttofindtheirwaythroughmisleadingclaims,Americansmakesuboptimalpurchasesthatwasteanestimated$1trillionoutofa$4trillioneconomyeveryyear.10Thepredictableresultisthatpeoplethenlookelsewhereforbettervalue.

"Selling"alsocreatesanadversarialrelationshipwiththebuyer.Iamstruckbythecommonassumptionthattheclientisnotapartoftheorganization,sothewelfareofthisimpersonalfigureisnotofconcern.Managerssetthetoneforthisviewiftheirmaingoalismakingmoney,andthismessageisthenconveyedtotheirorganization.That'swhyclerksoftentreatcustomersasanirritatinginconvenience.11AmanagerintheCITstudysaid,"Ourphilosophyseemstobe'bill,bill,bill,sowecangrowrich,rich,rich,'"andanotheradmitted,"Ourclientshateus."

ConsumerismIstheOtherSideofSelling

WhileAmericansarecriticalofshoddygoodsandpoorservice,theyalsoencouragethesellingenterprisebyrespondingsoeagerlytothelureofquickmaterialgratification.Americansspend300percentmoretimeshoppingthanEuropeans,andtheyconsumeroughlytwiceasmuchenergyandresources.12Allthisconsumerismtakeseffort,sopeopleareoverworked,overwrought,andoverweightfrompursuinghigherlevelsofconsumptionthatareunrelatedtopersonalhappiness.13Thus,consumerismistheothersideofselling.They

supportoneanother.

The"selling/consumerismsyndrome"isnotsolelythefaultofmanagersorthepublic.Toalargeextent,thisoutmodedwayoflifepersistsasresidualinertiafromthedyingforcesthatpropelledtheIndustrialAge:massproductionofsimpleconsumergoods,abusinessfocusonprofitthatexcludesthepublicwelfare,athrowawayculture,exploitationofwhatseemedalimitlessenvironment,andtheuseofmediatostimulatedemand.

Mostattemptstoimprovequalityandservicearepalliativefixesbecausetheyfailtoaddresstoday'seconomictransitionourchanging

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assumptionsabouttheneedsofsociety,thegoalsoftheenterprise,anditsrelationshipwithclients.

TheRisingDemandforValueandQualityofLife

Considertheaveragefamily.Typically,bothhusbandandwifeworktoday,solifeisastruggletocleanandmaintaintheirhome,totakecareoftwocars,afewTVsandVCRs,severaltelephones,ahomecomputerortwo,andkitchenappliances.Thentheymustsomehowattendtolaundryanddrycleaning,shopforgroceries,buyclothesanditemsforthehome,preparemeals,entertain,jugglecomplexfinances,andfigureouttheirtaxes.Simplyfindingaffordablechildcarethatcanbetrustedisanenormouschallenge,letaloneputtingkidsthroughcollege.Tocopewiththesedemands,manypeopleareturningtheircarsintomobilelivingandworkingunits,equippedwithcellularphones,faxmachines,portablePCs,andevenmicrowaveovens.

Theseneedsarebeingenshrinedinanewsetofsocialmoresthatfocusonhandlingstressandusingtimeproductively.Peopletodayoftencompetewithoneanotherovertheirdemandingresponsibilitiesthe"busierthanthou"syndrome.Thisisnotlimitedtotheharriedmiddleclass.Someofthewealthiest,mostdistinguishedpeopleintheworldBillGates,WarrenBuffett,andPresidentClintonworksohardthattheyhavetobeforcedtotakevacations;theywearordinaryclothesanddrivetheirowncars.

14ThorsteinVeblen'sethicof"conspicuousconsumption"mayhavedescribedtheIndustrialAge,buttheInformationAgeiscreatinganewethicthatcouldbecalled"anxiousachievement."

Notonlyaresocialneedsmorecomplex,peoplearefarmorediscriminatingbecausetheyarebettereducatedandtheyhaveaccesstoawealthofproductinformation.Caughtbetweenstagnating

incomesandrisingcosts,buyerslookoverworldwidecompetitorstoselecthigh-qualityproducts,competitivepricesstrippedofunneededfrillsorfancybrandnames,andthoughtfulservice.15Here'showFortuneputit:"Thecustomerisn'tkinganymore.Thecustomerisadictator.Insteadofchoosingfromwhatyouhavetooffer,thenewconsumertellsyouwhathewants."16

Somepeoplewillcontinuetoseekmaterialextravagance,ofcourse,sincethatisoneofthecelebratedfeaturesofAmericanlife,andeveryonewillwanttoridethenewinformationsuperhighways.Butasurveyof2,000

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Americansfoundthat"three-fourthssaythey'vefilledmostifnotalloftheirmaterialneeds."Otherpollsshowthat70percentofAmericanswouldliketoleadsimpler,moresatisfyinglives.

17Peopleincreasinglyyearnforrelieffromstress,financialsecurity,lesscrimeandviolence,recreation,cleanairandwater,meaningfulsocialrelations,andothercomplexsocialneedsthatarenowthegoalsofhumanprogress.Thus,themissionofbusinesstodaymustbenothinglessthantoraisethequalityoflife.

ReversingtheBuyer-SellerRelationship

Advertisingandothermarketingtoolswillremainimportant,ofcourse,buttherearemanywaystoattractclients.Justasmanagersnowunderstandtheymustcreatea"learningorganization"tostayapaceofchange,theyalsoneedtocreatea"servingorganization"thatsatisfiessocialneedsmoreeffectively.

PaulHawken,anauthorandbusinessman,identifiedthischangeasthereversalofthatold"centrifugal"marketing,whichpushedproductsoutoffactoriesintothehandsofpassivecustomers.Initsplace,a"centripetal"roleisemergingthatdrawsadeeperunderstandingoftheclient'sneedsandproblemsintothefirm.18JohnScully,formerCEOofAppleComputer,putitthisway:

Itusedtobethatmarketingdrovethings.Butmarketingisreallyamass-production-basedconcept.It'saboutcreatingsomethingthatyoucanpushouttothewholeworld.Today,everythingisbeingcustomized,soit'sreallybeingdrivenbytheotherside,bythecustomer.19

Wal-Mart'shumblingdefeatofKmarttellsitall.In1987,Kmartdominatedthediscountmarketwithits2,223stores,bringinginannualsalesof$26billion.Confidentinitsstrength,Kmartfocuseditsstrategyontraditionalmarketing,usingnationalTVcampaigns

featuringglamorouswomentobolsterits"image."

Meanwhile,Wal-Marthadhalfasmanystoresandwasalmostunknown.Butinsteadofadvertising,thecompanydevelopeditsnow-famouslogisticssystem.Asatellitenetworkwasestablishedtomonitorsalesnationwide,analyzethesedatatodeterminewhichproductsshouldbeorderedforeachstore,andautomaticallyreplenishinventoriesbysend-

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ingordersto4,000supplierswhowereconnectedtoWal-Martthroughcomputersystems.Wal-Martwastherebyabletooptimizethechoiceofgoodsstockedateachstore,minimizetransportationandinventorycosts,andpassthesesavingsonindeepdiscounts.Threeyearslater,Wal-MartsurpassedKmartwithsalesof$33billion.SamWalton,thearchitectofWal-Mart'ssuccess,knewinhisbonesthatAmericanswerehungryforvalueandservice,andheprovidedit.

20

PrinciplesoftheServingEnterprise

Tomeetthischallenge,creativeentrepreneursarereorientingallphasesinthelifecycleofaproductorservice:high-techmarketing,truthfuladvertising,clientparticipation,empoweredemployeesfocusedonquality,accountabilityforcustomersatisfaction,andinvolvedleadership.

High-TechMarketing

AstheInformationRevolutiondrivesthepowerofITupanditscostdown,anewformofhigh-techmarketingisemergingtotransformbuyer-sellerrelations.AsBox5.2shows,electronicshoppingservices,computerizedsalessystems,automatedproductdesign,andmuch,muchmorepromisetoreducedistributioncosts,makeshoppingconvenient,andallowpeopletomakewiserpurchases.Theprospectsaresoenormousthattheycannotbeaddressedfullyhere,butafewexamplesillustratethepossibilities.

Two-thirdsofU.S.companiesoperatedtoll-freeinformationlinesin1993,andthisnetworkisspreadingoverseasasforeignmanufacturersuseittotapintotheAmericanmarketplaceandviceversa.TheGEAnswerCenter,forinstance,receivesthreemillioncallseachyear

frompeopleaskingaboutproducts,seekingadvice,makingcomplaints,requestingrepairs,andotherinformationthatisthenanalyzedformarketingpurposes.21

ITalsoiscreatingfarmoreefficientdistributionchannels.Ontheinputend,sellersaregainingaccesstounprecedentedamountsofvaluableinformationthatallowthemtounderstandtheirdiversemarketsandpinpointthesaleofproductstomeethighlyspecializedneeds"nichemarketing."Ontheoutputend,buyersaregaininganequallyvaluablesourceofinformationthatevaluatesvariousproductstoallowbetterchoices"precisionshopping."

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BOX5.2.EXEMPLARSOFHIGH-TECHMARKETING.

ThefollowingcompaniesareexemplarsofhowpowerfulITsystemscanbeusedtodeliversophisticatedproductsandservicesthatservediversesocialneedseffectively.

CanonComputerSystemsistypicalofthemanycompaniesthatuselargedatabasestoanalyzecustomers'needsandcustomizemarketingprograms.Itrecentlytargetedpotentialbuyersofanewcolorprintersoaccuratelyfromits1.3millioncustomersthatresponseratestodirectmailapproachedanunheardof50percent.

ProgressiveInsuranceprovidesitsclaimrepresentativesanair-conditionedvanequippedasaportableofficesothattheycanworkatthesceneofanaccident.Thecompanynowsettles80percentofitsclaimswithinoneday.''Thisisgreat,comingrightouthereandtakingcharge,"saidapolicyholderwhowasinanautoaccident.

MusicWriterisahigh-techdistributorofsheetmusic.Ratherthanstockthousandsofdifferentsongsinmusicstores,itsetsupacomputerizedkioskthatsimplyprintsoutanyrequest.

HallmarkCardshasinstalledcomputerizedkiosksinstoresthatallowcustomerstodesigntheirowncards.

AndersonWindowsdevelopedamultimediasystem,"WindowofKnowledge,"thatallowssalespeopleandcustomerstodesigncustomizedwindows,generatepricequotes,andsenddetailedinstructionstothefactory.Saleshaverisenandmistakesvanished.

Astra/Merckequippeditssalesstaffwithlaptopcomputersthataccessaknowledgebasemaintainedbythecompanytohelpphysicianssolvecomplexpatientproblems.Saidonephysician:"It'sdistinctive.They'resupportingusnow.There'snoselling."

SchwabCorporationoffersinvestorsasoftwaresystemtheycanusetoobtainsecuritiesprices,buyandsell,anddomostotherfunctionsperformedbyabrokeratdiscountedfees.Schwab'sassetshaveskyrocketedas800,000newaccountshavebeenopened,andthecompany'sownstockhasrisenfivefold.

AucNetisasatelliteauctionsystemusedtosellusedcarswholesaleinJapan.DealersuseaPCtoexaminephotosanddetailedinformationoncarsofferedforsale,andthenmakebids.Becausethemarkethasbeenextendedtocoveranentirenation,thelargernumberofbuyersallowssellerstocommandhigherprices.

Source:"TheBestWaytoReachYourBuyers,"Fortune(specialissue,Autumn/Winter,1993).

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Notonlyaredistributionchannelsbecomingsmarter,buttheyarealsobecomingshorterasmiddlemenareeliminated.DellComputerbecameapowerfulcompetitortoIBMwhenMichaelDellrealizedhecouldsellPCsthroughthemail"just-in-timeretailing."

22Withouttheneedformanufacturingshops,warehouses,retailstores,andsalespeople,thecostofaDellcomputerdrasticallyundercutIBMtolaunchthePCcloneindustry.23

AttheadvancedendoftheITspectrum,interactivevideoshoppingshouldenterthemainstreaminthelate1990s.24Evennow,theHomeShoppingNetworkoffersthewaresofNordstrom,Bloomingdale's,J.C.Penney,andotherretailchainsto60millionhomesthatmadeupa$3billionmarketasof1993.25TVshows,newspapers,andothermediamaysoonincludeinteractiveadvertisementsthatcarrytheshopperintoa"virtualstore"whereproductscanbeexamined,pricesdetermined,andordersplaced.Peapod,anelectronicgroceryservice,allowsclientstocreatea"virtualsupermarket"customizedtotheiruniqueneedsbysettingupstandardshoppinglistsforreorderingandcomparingpricesatalllocalstores.

Truthful,UsefulCustomerRelations

Itmayappearhopelesslynaiveintoday'sworldofhard-selling,glitzyads,butmanyfinecompaniesowetheirlastingsuccesstotheoppositeapproach:advertisingandcustomerrelationsthattellthetruth.L.L.Bean,HersheyFoods,Toyota,Johnson&Johnson,andcountlessotherexamplesofhighlysuccessfulorganizationsdemonstratethatbusinesscanbeconductedhonorably,anditisusuallymoreprofitable.

In1993Saturnhadtorecallallthecarsithadeversold.Ratherthanprofferingthetypicalevasionsandhalf-truthsthatarenormalinthe

autoindustry,Saturnimmediatelyannouncedthefulldetailsoftheproblemanditsproposedsolution.Thepresidentofthecompany,Richard(Skip)LeFauve,appearedontelevisiontopersonallyexplainthesituation,apologize,andtellcustomerstocontacttheirdealertoarrangeafreeretrofit,orthecompanywouldcallthem.ThiscandidapproachturnedapotentialdisasterintoproofofSaturn'sclaimtoanewformofmanagement,andtherebyincreasedpublic'strustinthecompany.(SeeBox5.3.)

Saturn,Nordstrom,Toys"R"Us,Wal-Mart,Procter&Gamble(P&G),

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andothercompaniesexemplifytheuseof"everydaylowprices"insteadofcontrivedsalesorpromotions.AP&Gmanagersaid:"Wewantourbrandstobeagoodvalueeverytimetheyareboughtratherthanabargaineverynowandthen.Ourcustomersappreciatethat";andaContinentalAirlinesmanagersaid:''Customersareallunderthesameconstraintsofpriceandtime,whichiswhysimplicityandconsistencyhavegreatappeal."

26

Pursuingapolicyoftruthfulclientrelationsisnotsimplyamoralissuebutamorepowerfulformofmarketing.Honestybuildslastingpatronagebasedontheconfidencethatthecompanyiscommittedtoprovidingvalue.AsshowninBox5.4,theBodyShophasenjoyedremarkablegrowth,

BOX5.3.GM-SATURNONSERVINGCAROWNERS.

Saturnhasusedinnovativemanagementtocreatethehighestqualitycarsandthehighestbuyersatisfactionlevelsintheautoindustry.

ASoftApproachtoCarSales.Saturn's"soft"salesapproachavoidsthetraditional"hard"salesjobofhagglingovercarprices.Pricesareestablishedatafairbutcomfortablemarginoverinvoicebythemanufacturer.DealersarecarefullyselectedandgivenanexclusiveterritorysothattheydonothavetocompetewithotherSaturndealers.Salespeopleavoidpressuringcustomersbutfocusonprovidinginformationandhelp.Asaresult,customersatisfactionamongSaturnbuyersranksabovethatofMercedesandLincolnbuyers.

EmpoweredWorkerTeams.ThegreatdemandforSaturncarsis

attributedtothehigh-qualityproductionmethodsthataremadepossiblebyaparticipativemanagementstyle.Workersareorganizedintoteamsoftenpeoplewhocontrolallaspectsoftheirjobs:workingwithsuppliers,selectingco-workers,settingtheirownworkschedules,performingtheirownqualityinspections,andevenadvisingontheselectionofsuppliers,dealerships,andadvertisingagencies.Employeecompensationisbasedonqualityandotherfactorsthatensurecustomersatisfaction.

ACompany-CustomerRelationship.Anunusuallycandidapproachtohandlingproductdefects,sales,andotherrelationswithcarbuyershasmadeSaturnownersthemostloyalrepeatpurchasersintheindustry.

SpreadingoftheSaturnSalesApproach.TheSaturnconceptofmarketinghasproventobesuchafreshandwelcomedchangethatGMdivisionsaretryingitsmethods,andFordandChryslerareemulatingthesingle-pricesalessystem.

Sources:"Saturn:Labor'sLoveLost?"BusinessWeek(February8,1993);"Saturn,"BusinessWeek(August17,1992).

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eventhoughitdoesnoadvertising;itdoesnotevenhaveamarketingdepartment.Byofferinghealthful,inexpensivecosmeticswhileprotectingnature,thecompanyhasignitedaroaringdemandamongsatisfiedcustomerswhothendothemarketingforthefirmbytellingtheirfriends.PaulHawkendescribedthemeritsoftruthfulcustomerrelations:

Thereisonemistakenoentrepreneurcanaffordtomakemisleadingcustomers.Theystopbuying.Inthetawdryworldofbraggadocios,thetruthringswithclarity.Itchangesthesignal-to-noiseratio.Thenoiseisthe$95billionspentonadvertising.Thesignalisthecleartoneofhonestythatcomesthroughascompellinglyasthesirenofanambulance.

27

ClientParticipation

Studieshavelongshownthatmostsuccessfulnewproductsaredevelopedinresponsetosuggestionsbycustomers.Ratherthanstudyingpeople'sneedsthroughmarketsurveys,progressivefirmsactivelyinvolvetheirclientsinthedesignprocess."Ithinkthecurrentnotionofmarketresearchisgoingtobecompletelyoverturned,"saidthevicepresidentofamarketingfirm.28Thisisespeciallytrueforthenewproductmarketsandcustomersthatmakeupthefrontieroftheemergingknowledgesociety."Youcan'tmarketresearchsomethingthatdoesn'texist,"saidPeterDrucker.

Companiesareusingthisconceptinnumerouswaystoachieveexcellence.GE,forexample,asksitsdesignengineerstoworkwithcustomersindefininganidealappliance.Hewlett-Packardinvitesbuyersofitsproductstogivepresentationstoengineersandmanagers,pointingoutproblemstheyencounterandsuggestingimprovements.Fisher-Pricecreatedanurseryinitscorporateheadquarterswhereparentscanbringchildrentotryoutnewtoys;the

waitinglistrunsintothethousands.(SeeBox5.5formoreexamples.)

Thisisjustatrickleofwhatmaybecomeafloodof"do-it-yourself"marketing,asbuyersshuntheservicesofbuildingcontractors,repairpeople,retailers,andothertraditionalproviders.HomeDepotoffersrepairclinicsthatallowcustomerstocreatevaluebyreplacingcontractors.Estimatessuggestthattheamountofworkdevotedtohomeprojectsisequivalentto40percentoftheGDP.TheCEOofPriceClubexplainedwhyhis

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BOX5.4.THEBODYSHOPONMARKETING.

ThemarketingaspectsoftheBodyShopexemplifytheNewManagementbyprovidinggenuinevalue,honestdealings,andconcernforhuman,social,andenvironmentalwell-being.

NaturalValue.TheBodyShophaschallengedthefoundationsofanindustrythatexploitedtheglamourfantasiesofwomen.Ratherthansellexpensivechemicalcosmeticsofdubiousworthindesignerbottles,BodyShopcosmeticsarewholesome,naturalproductsintendedtopromotetheinherentbeautyofahealthy,well-caredforbody,andtheyarepackagedininexpensive,refillablecontainers.

NoAdvertising.Contrarytoacceptedpractice,theBodyShopconductsnoadvertising,andhasnomarketingdepartmentbecauseitdoesnottryto"sell"intheordinarysense.Rather,itprovideseducationalinformationinpamphletsandpostersatitsstores,andreliesonwordofmouthamongsatisfiedpatronstospreadthemessage.Storepersonneldonotpushproductsbutareavailableforadviceandassistance.Inshort,theBodyShop'sphilosophyistoeducateratherthansell.Thisapproachhasincreasedsales50percentperyearandthecompanyhasexpandedto1,400shopsinforty-sixnations.

Leadership.TheenergizingforcethatguidesthisenterpriseisAnitaRoddick,thefounderandCEO,whounderstandsthatwomenneedamorereasonableapproachtocosmetics.Herphilosophy,"Peoplewantcompaniestheycanbelievein,"hasbeensosuccessfulthattheBodyShoparousestheenthusiasm,loyalty,andcommitmentofpoliticalmovements.WhenoperationsweretobeextendedtotheUnitedStates,2,500peopleappliedforfranchises.

Source:BoBurlingham,"ThisWomanHasChangedBusinessForever,"Inc.(June1990),andpersonalcorrespondencewithAnitaRoddick.

no-frillsbulksalesaresosuccessful:"[Allcompanies]saytheyprovidegreatservice,butself-serviceisthebestkindofservice."

29

Thereisalsoaneedtoinvolveclientsatthepolicylevelbycreatingconsumeradvisorypanelsoftypicalcustomerswhoadviseorganizations.Amorepowerfulapproachistoappointclientsorconsumeradvocatestothecorporateboard,anditispuzzlingwhymorecorporationshavenotdoneso.Ifwereallyhopetomanageorganizationstoserveclients,whatbetterplacetostart?

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BOX5.5.EXEMPLARSOFCLIENTPARTICIPATION.

HermanMillerhasdesignteamsworkatclients'officestounderstandtheirfurnitureneedsandproduceprototypestotestonsite,therebyspeedingdevelopmenttime,reducingcost,andincreasingclientsatisfaction.Onemanagersaid,"Webringcustomersinattheverybeginningtobecomepartnersindesign."

Black&Deckerassignedadesignteamtoworkwithfiftytypical"do-it-yourself"homeownersaroundtheirhomes,workshops,andonshoppingtripstolearnwhattheywantedintools.Thisfreshunderstandingproducedanaward-winningproductline,"Quantum,"withinterchangeablepowersources,newsafetyfeatures,freemaintenancecheck-ups,andatoll-freehotlineforadvice.

Hondavideotapedcustomerstestingnewcarsandhadlineworkerscall4,700Hondaownerstogettheircriticismandsuggestions.TheresultswereusedtomakethousandsofchangesoverthepastfewyearsthatmadeHondathetop-sellingautoinAmerica.

Westinghousehasdevelopedsuchacloseworkingrelationshipwiththepublicutilitiesitservesthatsomemanagersexchangebusinessplansandengageinjointreviewsofeachother'soperations."Weworkwiththeutilitiesinpartnershiparrangementstoshareourresponsibilities,"saidaWestinghouseprogrammanager.

BaxterLaboratoriesprovideson-siteinventorymanagementofmedicalsuppliesforhospitals,sharinginbothlossesandgains."Thisgoesbeyondloyalty,"saidaBaxterexecutive."WeshareacommonP&L.Youbothmakemoneybykeepingcostsdown."

GeneralElectricformscross-companyteamsofitsownemployeesandthoseofitsclientstohandletoughtechnicalproblems,evensendingteamstotrainingprogramstogether."Workingasasingleentityenhancedcommunications,"saidaGEvicepresident.

Sources:"TheToughNewCustomer,"Fortune(Autumn/Winter1993);RahulJacob,"WhySomeCustomersAreMoreEqualthanOthers,"Fortune(September19,1994).

Theusualobjectionisthatconsumeradvocatesarelikelytobecritical,whichwoulddisrupttheharmonyoftheboard.Butperhapsthis"harmony"shouldbedisturbedtourgeunresponsivefirmsintoaction.Ourcriticsarethepeopleweshouldpayclosestattentiontobecausetheyarekeenlyawareofourweaknesses.That'swhytheyinfuriateussomuch.Asoundenterpriselistenscarefullytocriticismbecauseitisvaluablefeedbackandasourceofenergythatdrivescreativechange.Mostpeoplearereluctant

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tocomplain,sobravemanagershirefirmslike"FeedbackPlus,"whouseprofessionalshopperstoevaluatehowwelltheircustomersaretreated."Storesthatscorehighonourshoppingservicehavethebestsales,"claimsavicepresidentofFeedbackPlus.

30

Butitispossibletobecometooclosetocustomers.Peopleoftenlacktheimaginationtoenvisionmajorchangesinlifestyles,leadingcompaniestomimicpresenttrendsratherthanradicallycarveoutthemarketsofthefuture.Themicrowaveoven,minivan,fax,andVCRsallboredprospectivecustomersuntiltheywereavailable.Conversely,customersinsistedtheyweremadabouttheNewCoke,picturephones,andotherproductsthatfizzled.Soitisessentialtokeepthebuyer-sellerrelationshipinperspective.Client-drivenmarketingismorethansimplydoingwhateverclientssay;itisatwo-wayexchangeinwhichcompaniesmustmaintainfaithintheirjudgmentabouthowtobestservenewneeds.31

Thepossibilitiesareendless,buttheyareallvariationsonacentralprincipleofthenewmarketingphilosophy:companiesaremorelikelytodesignuseful,economicallysuccessfulproductsbymakingtheclientanactivepartnerintheenterprise.

TheQuality-and-ServiceRevolution

TQMhasassumedmythicalproportionsbecauseitispartofa"quality-and-servicerevolution"thatismovingfrombusinesstogovernmentandallotherinstitutions.Contrarytotheprevailingpriorbeliefthatqualityis"nicebutcostly,"soundmanagementreducescostsbybuildingqualityintosuperiordesigns,therebyeliminatingtheneedforrework,avoidingcustomerreturnsandlostbusiness,andpermittingeconomiesofscale.

Qualityisoftenshroudedincomplexterms,butthekeyfactorsaredisarminglysimple.WesawinChapter2howcrucialenterpriseistomakingTQMwork.HomeDepot(Box5.6)andSaturnshowhowsuccessfulfirmsformself-directedteamschargedwiththeresponsibilityofservingclientsthroughcontinuousimprovementprocesses.

Beyondtoday'sstruggletoimprovequality,acornucopiaofnear-perfectcustomizedgoodsshouldsoonflowoutofautomatedfactories,aswewillseeinthenextchapter.Agoodexampleofthis"masscustomization"isthewayDellComputerbuilds90percentofitsPCstoorderanddeliversthemintwodays.32

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BOX5.6.HOMEDEPOT.

Thischainofaboutfourhundredlumber-hardware-home-supplystoreswaspaidtheultimatecomplimentbytheCEOofWal-Mart:"They'rerunningthebestretailorganizationinAmericatoday."HomeDepot'searningshavegrownanaverageof43percentoverthepasttenyears,highestintheFortuneService500,andreturnoninvestmentaveraged46percentperyear.Here'swhy:

CustomerValueandService.Ratherthansalesorpromotions,customersareofferedeverydaylowpricesthatconsistentlyunderpricetheircompetitors,andserviceisoutstanding.TheCEOdescribeshisphilosophythisway:"Everycustomerhastobetreatedlikeyourmother,father,sister,orbrother."Aclientsaid,"I'veneverhadsuchapositiveserviceexperience."

EvaluationofClientSatisfaction.Intensiveevaluationsofclientneedsandsatisfactionareobtainedfrom5,000interviewsannually.Inresponsetotheseanalyses,thecompanystartedfreeclinicsthatteachcustomersplumbingandconstruction.

EmployeeSupport.Shoppersareassistedinsolvingproblemsbyemployeeswhoaretrainedinproductknowledgeandhomerepairs,andwhoareinstructedtospendtimehelpingpeopleinacourteousmanner.Toensurethislevelofservice,payissetwellabovethemarketrates,employeesareofferedcompanystockatadiscount,andmanagerscanearnbonusesof50percent.

Leadership.AllofthisisinspiredanddirectedbytheleadershipofCEOBernardMarcusandpresidentArthurBlank,whoareconstantlyavailableatstores.ThetwoholdacompanywidemeetingeverySunday,"BreakfastwithBernieandArthur,"thatisbroadcastoverclosed-circuitTVtoall45,000employees.HomeDepot'ssevenoutsidedirectorsareeachrequiredtovisittwelve

storesperquarter.

Sources:"BeyondQualityandValue,"Fortune(Autumn/Winter1993);"TheManWhoWalkedOutonRossPerot,"Forbes(November22,1993).

EmployeeRewardsLinkedtoClientSatisfaction

Itisalsonecessarytomeasurehowwellthesegoalsareaccomplished.Salesandprofitareimportant,buttheyfocusontheneedsoftheorganizationratherthantheneedsoftheclient.Financialperformanceistheresultofclientsatisfaction,sotheprimaryfocusshouldbeonevaluatingthiscrucialfactor.

33OnemanagerintheCITsurveyexpresseditwell:"Customerfeedbackisthekeytosoundbusiness;revenuesarealaggingindicator."Searswasthesubjectofnationalscornin1992becauseworkersinitsautorepair

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shops,underpressuretoincreasesales,weregougingclients;nowthecompanyisusingclientsatisfactionevaluations.

McDonald'sandL.L.Beanuseperiodicsurveystoevaluatecustomersatisfaction.MarriottandWesternUnionmakeunannouncedinspectionsofoutlets.GiantFoodsandAvishaveemployeesandexecutivespatronizetheirstoresincognitotoobservehowtheyaretreated.Fordinvitescarownerstomeetengineersanddealerstodiscussproblemswiththeircars.StateFarmandToyotameasurecustomer"loyalty"and"retentionrates."

34

Anoldmanagementaxiomthatholdsthatorganizationsgetwhattheyreward,soitisalsoessentialtobaseemployeepayatleastpartlyonevaluationsofclientsatisfaction.GTE'ssystemallocates35percentofemployeeandmanagerpayinaccordancewithclientsatisfactionratings.Xeroxbases30percentonclientsurveys.Chryslerhasbeguntopaybonusestoitsdealerswithhighclientsatisfactionscores.35

Assomeoftheseexamplessuggest,itisbesttorewardanentireteamorbusinessunit,ratherthanindividuals.Grouprewardsareeasiertomanageandtheypromoteunitcohesion.WewillsaymoreaboutthemanagementofteamsinChapter6.

InvolvedLeadership

Organizationsthatdeliverproductsoflastingvaluewithgenuineserviceareusuallyblessedwiththeleadershipneededtobringaservingenterprisetolife.Onlyexecutivescanprovidethevisionandpersonalexamplethatfocusesalargeorganizationonservingitsclients.HomeDepotwouldnotbethesamewithoutBernardMarcusandArthurBlank.TheBodyShopisinspiredbyAnitaRoddick.SamWaltoncreatedWal-Mart.

Xeroxexecutivesspendonedayeachmonthtakingcomplaintsfromcustomers.ThepresidentofHyattHotelsoccasionallyworksasabellhop.SkipLeFauveinvitedall700,000Saturnownerstoattendabarbecueatitsplant;28,000peopleshowedup,makingitthe"Woodstock"oftheautoindustry."It'sagoodwaytosaythankyouandfosteracloserrelationship,"saidSaturn'smarketingmanager.

Harley-Davidsonhasorganized700HarleyOwnersGroups(HOGClubs)thatholdanannualrally;thehighlightoccurswhenthecompany'sCEO,RichTeerlink,roarsinonhisowngleamingtop-of-the-lineHarley.WhenTeerlinkfirststartedthisapproach,thecompanywasalmostbankrupt.

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Thestockhassincegonefrom$1.20pershareto$26,andbuyershavetowaityearstogetaHarley.

HerbKelleher,theCEOofSouthwestAirlines,isaclowninggeniuswhosetssuchafriendlytonewithclientsthatSouthwestpersonneloftenjokemercilesslywithpassengers.OneflightheardthisannouncementoverthePAsystem:"Goodmorningladiesandgentlemen.Ifyouwishtosmoke,pleasegotoourloungeonthewingwhereyoucanenjoyourfeaturefilm,GonewiththeWind."

36

AsmallOregonrestaurantchainhighlightstheimportanceofleadershipbyillustratingalloftheprinciplesdiscussedinthischapter.Afterstrugglingtoimproveservice,theCEOestablishedapolicythatallpatronsmustenjoyapleasantdiningexperience.JustasAvisclaims"WeTryHarder"andFederalExpresspromises"Absolutely,Positively,Overnight,"thiscompany'sprimarygoalwas"YourEnjoymentGuaranteed.Always."AstheCEOputit,"Mycompanyexiststomakeotherpeoplehappy."

Hethenchangedoperationstoensurethatthisguaranteewasfulfilled.Employeesweretoldtodoanythingnecessarytosatisfyacustomerofferfreedrinks,meals,orspecialattentionandtheyweretrainedtodosoeffectively.Customersatisfactionwasevaluatedusingamonthlyphonesurveyandbymeasuringthenumberofcomplaints,andthetotalcostofresolvingthemwastallied.Thecompanyfoundthatmanycustomershadbeenunhappybutreluctanttocomplain,sotheyhadsimplyvotedwiththeirfeetandgoneelsewhere.Underthenewguarantee,thecostsofcorrectingcomplaintsrose,makingtheproblemsthatwereformerlyhiddenvisible.

Wheremostmanagerswouldbeaghastatseeingcostsrise,thisCEO

recognizedthatsuchcostsaresymptomsofdeeperproblems,andassucharevaluableinformation.AstheCEOsaid:"Everydollarpaidoutisasignalthatthecompanymustchange."Asthesesystemfailureswerefoundandcorrected,costsdroppedtomodestlevels,clientsbecamedelightedattheservice,employeestookpleasureintheirworkandwerebetterpaid,salesincreased,andprofitsdoubled.37

MakingtheClientaPartner

Butwhyshouldwegothroughallthistrouble,cost,risk,andpersonaldiscomforttosatisfydemandingpeople?L.L.Beanworkedhardtobecome

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customer-focusedandwasrewardedbyawaveofmerchandisereturnsvaluedat$82million.Let'sfaceit.Manyclientsareimpossibletosatisfyatall,muchlessataprofit.TheCEOofSouthwestAirlineswritestocustomerswhoabuseemployees,askingthemtoflyonanotherairline.

It'salsohardtochangethehabitsofpeoplewhohaveraisedthenarcissisticpursuitofself-interesttoanartform.AdmonitionstoserveclientshavetofighttheinfluenceofanAmericanculturethaturgesemployeesto"LookOutforNo1."Therealityisthatgenuineservicerequiresdisciplineandhardwork.Afieldofstudyhasemergedtounderstandtherigorsof"emotionallabor"performedbyservicepersonnel,andanindustryhassprunguptotrainemployeesindealingwithquarrelsomepeople.Flightattendantsmustbefriendly,nursesareexpectedtoshowsympathy,andteachersmustbesupportive,evenwhentheymayfeelupset.

38

Andhowcanemployeespleasecustomerswhentheymuststruggleagainstbureaucracy,authoritariansupervisors,andothercommonmanagementproblemsthathinderserviceandquality?TheservingenterpriseisapartoftheNewManagement,soitisnecessarytochangetheentiremanagementsystem,asotherchapterswillshow.

SeeingProblemsasOpportunities

Thereislittlechoicebuttoovercomesuchobjectionsbecausetheynowconflictwithreality.Managershavebeentoldendlesslythattheymustbeprimarilyconcernedwithsellingandfinancialgoals,yetthatbeliefisbeingchallengedasanewbreedofclients,complexsocialproblems,andglobalcompetitorsdemandashifttoservingtheneedsoftheclient.Table5.1showsthattheseconceptsarenowwidely

practiced.

Eachlostcustomertakestwotothreeothersawayaftercomplainingtoanaverageofninefriends,anditcostsfivetimesasmuchtorecruitanewcustomerastoretainanexistingone.39Eachlostclientcostsanautomaker$400,000overalifetimeandagrocerystore$25,000everyfiveyears.Improvingthecustomerretentionrateby2percentwilltypicallyincreaseprofits10percent.Drivenbysucheconomicrealities,anexecutivedescribedthereaction:"It'snotlikewesathereandsaid,'Let'schangethewaywesell.'Wehadnochoice."40

Thisenlightenedformofmarketingalsooffersimportantlong-term

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TABLE5.1.ADOPTIONOFSERVING-ENTERPRISEPRACTICES.(SAMPLE=426CORPORATEMANAGERS.)

Practice

NotPracticed(03)

PartiallyPracticed(46)

FullyPracticed(710)

Mean(010)

Inadditiontosaleslevels,customersatisfactionisevaluatedbysurveysandinterviews,monitoringcomplaints,andotherformalsystems. 17% 15% 68% 7.1Theviewsofcustomersaresolicitedbypreoductdesigners,managers,orotherpersonnelwhenmakingdecisionsaboutproductsandservices. 13 20 67 7.0Customerscanuseatoll-freelineforinformationandtohaveproblemscorrected. 31 7 62 6.1Advertisingisdesignedtoprovideusefulinformationratherthaninflatedclaims. 12 15 73 7.3Asignificantportionofoperatingmanagers'payisbasedoncustomersatisfaction. 46 26 28 4.1Means 24% 17% 59% 6.4Source:WilliamE.Halal,CorporationsinTransition(anunpublishedstudyinprogress).Notethatdatainthefirstthreecolumns("NotPracticed,"etc.)areaggregatedbycollapsingportionsofthequestionnairescaleasshown("03,"etc.).SeethequestionnaireinAppendixC.

benefits.Aworkingpartnershipwithclientsbetterpositionstheorganizationtounderstandcomplexnewsocialneedsinordertoconverttheseproblemsintobusinessopportunities.

Theautoindustry,forinstance,couldenterafreshcycleofgrowthby

findingabetterwaytosatisfythepublic'stravelneeds.TheJapanesemadegreatinroadsintoAmericanmarketsbyrealizingthatacarismorethanastylishpieceofmachinery.Rather,theyviewedacarasatransportationsysteminvolvingfuelefficiency,maintenance,safety,andinsuranceallofwhichhavebecomevitallyimportanttocarowners.Anaverageautocostabout$17,000in1993,buttheseadditionalfactorscostanother$40,000overatypicalproductlifeoftenyears,makingtheownershipofanautomobileamajorinvestmentofroughly$60,000.

41

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Theamountofmoneyspentonautorepairandmaintenancealoneisaboutasgreatasthatspentonthepurchaseofnewvehicles.Roughlytwo-thirdsofthissumiswastedbecauseofimproperdiagnosis,poorworkmanship,andfraud.

42Businesspeopleshouldseethatthisproblemisactuallyanopportunitycryingoutforasolution.Bylearninghowtomaintainautosbetter,dealerscouldsavecustomersthousandsofdollarsperyearwhileminimizingthetimeandaggravationinvolvedincarownershipcreatingavirginmarketthatroughlyequalstheentirenewcarmarket.Similaropportunitiesarepossibleinreducingthefuel,safety,andinsurancecostsofthissystem.

AsHamelandPrahaladpointout,allindustriesmustredefinetheirmissiontomeettheneedsoftomorrow.43Swedennowproduces95percentofitshomesinfactories,andtheJapanesearemovingtowardautomatedconstructionofhigh-qualityhousingmodulesthatcanbeassembledquicklyintoaninfinitevarietyofpleasing,inexpensivehomes.WilltheAmericanbuildingindustrysufferareplayoftheJapaneseinvasionofU.S.automarkets?Whichcompanieswilldevelopthefirstreasonablypriced,convenienttelecomputer?Automaticlanguagetranslation?Mechanicalheartsandothervitalorgans?Personaltutoringsystems?Opticalcomputers?Andanendlessarrayofotherrevolutionarynewproductsthatwillmaketoday'smicrowaveovensandPCslookprimitive?

Otherinstitutionswillbeforcedtosurmountsimilarchallengesintheyearsahead.Medicinemustmovebeyondcuringillnesstodevelopconvenient,inexpensivewaystohelpeachindividualfindahealthystyleofliving.EducationmustuseITtomakelearningacontinualpartofeverydaylifeinafast-pacedtechnologicalage.Andgovernmentmustregulatethisentiresysteminawaythatassists

peoplewhileminimizingtaxesandregulations.Thesegoalsconstituteavastfrontierofprogresspreciselybecausetheworldisswampedwithsomanydifficultsocialproblemsthatcanbeconvertedintoopportunities.AfewyearsagoInoticedasmallsigninashopwindowthatquietlyannouncedthesecretofsoundbusinessthatsuccessfulentrepreneurshavealwaysknown:

Businesssuccessisnotforthegreedy.Onthecontrary,lastingsuccessresultsfromgivingmoreandchargingless.Thepossibilitiesareinfinite.

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YieldingSelf-Interest

Thisdiscussionofmodernmarketingleadstofourmainconclusions:

1.Aglobaleconomyoffiercecompetitionanddemandingclientsrequiresthatcustomers'interestsbecomeparamount.

2.Appealsthrough''selling"havebecomelargelyineffectualbecausetheymerelyaddtothenoiseofadvertising.

3.Managersmustcreatea"servingenterprise"thatusesinformationtechnologyandinvolvedemployeestoformaworkingpartnershipwithclientsthatservestheirgenuineneeds.

4.Thisconceptofaservingenterprisecanhelpmanagersreorienttheirorganizationssoastoconverttoday'ssocialproblemsintoprofitableopportunitiesforimprovingthequalityoflife.

Althougheconomicshasbeencalled"thedismalscience"becauseithasgenerallyassumedscarcity,economiclifecanbeabundantwhenapproachedwithfaithinthecreativenatureofabountifulworld.Thekeytothispivotalchangeistoseethataservingenterprisecombinesthetwopowerfulforcesofinternalmarketsandcorporatecommunity,aswenotedinChapter4.Inventivemanagersorganizeoperationsintoentrepreneurialteamsthatserveclientsbetter,therebyunitingfinancialandsocialgoals.Bygivingthoughtfulconsiderationtoothers,itmaybereturnedtousmanyfold."Castyourbreaduponthewaters,"astheBibleexpressedit.

Puttingthewelfareofclientsforemostdoesnotmeanmanagersandemployeesmustbecomeself-sacrificingmartyrs,althoughtheydohavetogiveofthemselves.AswestressedinChapter3,theideaistodevelopaworkingrelationshipbasedonmutualrightsandresponsibilities.Likeanypartnership,bothpartnershavetogive,includingtheclient.PartoftheNewManagementwouldbetohelp

clientslearnhowtousetheproductorservicewisely,toholdreasonableexpectations,andseekresolutionofproblemsbeforewithdrawingpatronageorpressingalawsuit.

Individualsandorganizationsmusthandletheseissuesintheirownways,andmanywilloptforconventionalmethods.Despitethegrowthofasoftsalesapproach,forinstance,somecardealerscontinuetothriveon

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overstatedadsandsalespressure.Thefactisthatmanybuyersarereluctanttogiveupthethrillofhagglingoverprices.

44WeareremindedagainthattheNewManagementcannotbeusedasdoctrineifithopestomeetthediverseneedsfacingorganizations.

Becauseadiversityofapproachesispossible,toughchoicesmustbemadethathingeonourpersonalvaluesandwillingnesstochange.Dowereallyhavetoacceptthischallengeofyieldingourself-interest?IknowthatIhavetroublesubjugatingmyinterests.Ifitistruethatservingothersismoreeffective,whatpreventsusfromdoingit?Whatwouldwegiveup?Whatwouldwegain?Whatwillhappenifwedonotchange?

ImustadmitthatIdonothavegoodanswerstothesequestions,butIdoknowthatthetrendsnotedabovearegoingtoseverelytestusallduringthedifficultyearsahead.

Notes

1."Pul-eeze!WillSomebodyHelpMe?"Time(February2,1987).AmandaBennett,"MakingtheGradewiththeCustomer,"WallStreetJournal(November12,1990).

2."IsHerbKelleherAmerica'sBestCEO?"Fortune(May2,1994).

3.RexTohetal.,"Frequent-FlierGames:TheProblemofEmployeeAbuse,"TheExecutive(February1993).

4."15FirmsTargetWorkers'Frequent-FlyerAwards,"WashingtonPost(May9,1994)."FrequentFlyerChangesRilePassengers,"WashingtonPost(February2,1995).ForagoodanalysisseeJeffBlyskal,''TheFrequentFlyerFallacy,"Worth(May1994).

5."20CompaniesonaRoll,"Fortune(Autumn/Winter1995).

6.DonOldenburg,"Don'tJustHangUp,"WashingtonPost(January14,1993).

7.MagidM.AbrahamandLeonardM.Lodish,"GettingtheMostOutofAdvertisingandPromotion,"HarvardBusinessReview(MayJune1990),pp.5060;JohnPhilipJones,"TheDoubleJeopardyofSalesPromotions,"HarvardBusinessReview(SeptemberOctober1990).

8.PaulFarhi,"TheEverlastingSale,"WashingtonPost(June20,1993).FrancineSchwadel,"The'Sale'IsFadingasaRetailingTactic,"WallStreetJournal(March1,1989).

9.In"LetterstotheEditor,"BusinessWeek(July3,1989).

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10.JamesH.Snider,"ConsumersintheInformationAge,"TheFuturist(JanuaryFebruary1993).

11.Asurveyof260marketingexecutivesfoundthat"profitability"wasratedastheirhighestpriority,"quality"wasthird,"bettercommunicationswithcustomers"wasfifth,and"customersatisfaction"wasnotmentioned.''MarketingPriorities,"ResearchBulletinNo.205(NewYork:TheConferenceBoard,1987).

12.SeeJamesPattersonandPeterKim,TheDayAmericaToldtheTruth:WhatPeopleReallyBelieveAboutEverythingThatReallyMatters(EnglewoodCliffs,N.J.:Prentice-Hall,1992).

13.JulietSchor,TheOverworkedAmerican:TheUnexpectedDeclineofLeisure(NewYork:BasicBooks,1992).

14.RichardTodd,"Po'BoysonParade,"Worth(September1993).

15.SeethespecialissueValueMarketing,BusinessWeek(November11,1991).

16.MeettheNewConsumer,specialissueofFortune(Autumn/Winter1993),pp.67.

17."MostConsumersShunLuxuries,"WallStreetJournal(September19,1989).DuaneElgin,VoluntarySimplicity(NewYork:Morrow,1993).

18.PaulHawken,"TruthorConsequences,"Inc.(August1987).

19.QuotedfromRichKarlgaard,"AnInterviewwithJohnScully,"Forbes(December1992).

20.ChristinaDuffandBobOrtega,"HowWal-MartOutdidaOnce-ToutedKmart,"WallStreetJournal(March21,1995).

21.ConferenceBoardMonthlyBriefings(February1987).

22.GretchenMorgenson,"TheFalloftheMall,"Forbes(May24,1993).

23.AliceLaPlante,"It'sWiredWillyLoman,"ForbesASAP(June1994).

24.PatriciaSellers,"TheBestWaytoReachYourBuyers,"Fortune(Autumn/Winter1993).

25."RetailingWillNeverBetheSame,"BusinessWeek(July26,1993).

26.PatriciaSellers,"KeepingtheCustomersYouAlreadyHave,"andRahulJacob,"BeyondQuality&Value,"bothinFortune(Autumn/Winter1993).

27.Hawken,"TruthorConsequences."

28.MichaelSchrage,"CustomersMayBeYourBestCollaborators,"WallStreetJournal(February27,1989);"The'Bloodbath'inMarketResearch,"BusinessWeek(February11,1991).

29.RonaldHenkoff,"WhyEveryRed-BloodedConsumerOwnsaTruck,"Fortune(May29,1995).

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30.KevinHelliker,"Smile:ThatCrankyShopperMayBeaStoreSpy,"WallStreetJournal(November30,1994).

31.JustinMartin,"IgnoreYourCustomer,"Fortune(May1,1995).

32.B.JosephPineetal.,"MakingMassCustomizationWork,"HarvardBusinessReview(SeptemberOctober1993).

33.Thereiscontroversyoverthispoint.Someauthoritiesclaimthatclientsatisfactiondoesnotcorrelatewellwithretention,soitimportanttodistinguishclientsatisfactionfromloyalty.SeeFrederickReichheld,"Loyalty-BasedManagement,"HarvardBusinessReview(MarchApril1993),andLeonardBerryetal.,"ImprovingServiceQuality,"AcademyofManagementExecutive(May1994).

34."KingCustomer,"BusinessWeek(March12,1990).RahulJacob,"WhySomeCustomersAreMoreEqualthanOthers,"Fortune(September19,1994).

35.Theseexamplesarenotedin"SmartSelling,"BusinessWeek(August3,1992);"KingCustomer,"BusinessWeek(March12,1990).

36.KennethLabich,"IsHerbKelleherAmerica'sBestCEO?"Fortune(May2,1994).

37.TimothyW.Firnstahl,"MyEmployeesAreMyServiceGuarantee,"HarvardBusinessReview(JulyAugust1989).

38.SeeArlieHochschild,TheManagedHeart(LosAngeles:UniversityofCaliforniaPress,1983),andBlakeAshforthandRonaldHumphrey,"EmotionalLaborinServiceRoles,"AcademyofManagementReview(January1993),pp.88115.

39.J.C.Szabo,"Service=Survival,"Nation'sBusiness(March1989).

40."SmartSelling,"BusinessWeek(August3,1992),p.47.Emily

Thornton,"RevolutioninJapaneseRetailing,"Fortune(February7,1994).

41.Halal,TheNewCapitalism(NewYork:Wiley,1986),Ch.3.

42.SeeHalal,TheNewCapitalism,Ch.3.

43.GaryHamelandC.K.Prahalad,CompetingfortheFuture(Cambridge,Mass.:HarvardBusinessSchoolPress,1994).

44.DouglasLavin,"Youwannadeal?"WallStreetJournal(July8,1994).

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6KnowledgeEntrepreneurs:AWorkingContractofRightsandResponsibilitiesNotlongago,worklifewasaprettystraightforwardaffair.Youfoundajob,didwhatyouweretold,andwerepaidasalary.Butrecentlythissystembegancomingapart.Layoffshaveshatteredthebondsofemployee-employerloyalty.Wageshavebeenfallingfortwodecades.Unionmembershiphasdroppedtoafractionofitsformerlevels.Andone-thirdofthelaborforcehasbecomelostina"contingent"statusofpart-timeortemporarywork.

Atthesametime,otherchangeshavebegunintroducingmoreenlightenedworkpractices.Employeesareencouragedtoparticipateinmajordecisions.Manynowowntheircompanies.Theyenjoybroaderrightstocontroltheirwork.Thelaborforceisbecomingdiverse.Andmostjobsarefarmoreinterestingthantheyoncewere.

Thesecrosscurrentsintheemploymentrelationshipflowoutofaturbulentpassageinourconceptofwork.Thepaternalisticsysteminwhich"bosses"supervised"employees"inrunningthemachineryofanIndustrialAgeisyieldingtoacomplexworldofknowledgeworkwheremoreisaskedofus.Organizationstodayneedtheintellect,involvement,andcreativeideasofeveryonewhoworksinthem.Theconfusingchangesnotedabovearesearchingstepstowardredefiningworklife.

Thischaptersketchesouttheworkrolesmostpeoplewilloccupyinadecadeorso.Inaworldgovernedbyknowledge,change,andcomplexity,

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peoplewillincreasinglyworkinaself-directedcapacitytosolveintellectualproblems.Mostworkerswillbepartofaself-managedteamthatcollaborateswithotherteamsandorganizations,alloperatingfreelyovertheglobalgridofinformationnetworks.AsIoutlinedinChapter2,managerswillhavetoorganizethesepeopleintoInformationAgeequivalentsoftheentrepreneurknowledgeentrepreneurswhoenjoythefreedomandrewardsofbeingself-employed,whilealsobearingtheresponsibilitiesandrisksthatareinvolved.

RedefiningtheEmploymentRelationship

Thistransitionposesdauntingconflictsaspeoplearewrestledoutoftheiroldroles,butitalsopromisestorealizethehumanpotentialthathaslaindormantthroughouthistory.Forinstance,knowledgeworkersmustbetreatedasself-employedprofessionalsbecausetheirworkisinherentlycomplex,innovative,andrequiresdeeppersonalinvolvement,soitcannotbe"supervised."That'swhyallprofessionsinvariablydevelopanethicofself-control.

TheLabor-ManagementConflictIntensifies

Theseadjustmentsarenotgoingtobemadebysimply"empoweringpeople"insomevaguesense.Howdoesone"empower"100,000employeesofatypicalFortune500companytojoininmajordecisions?Cananygrouplargerthanafewhundredpeoplereachconsensusquicklyenoughtosurvive,orwoulditresembletheU.S.Congress?EventhefamedMondragonsystemofSpainsufferedabreakdownasaresultofgrowingbureaucracy.

Considertheconceptofemployeestockownershipplans(ESOPs),whichisoftenconsideredthewaytosalvation.ESOPsarespreadingthroughtheairlineindustrybecausetheyofferemployeesprideofownership,apartialdefenseagainsthostiletakeovers,taxdeductions,

andotheradvantages.In1985EasternAirlinesbecamethefirstlargeAmericancompanytobeemployee-owned,andfouremployeesgainedseatsontheboardofdirectors.IvividlyrecalltheexcitementofseeingEasternpilots,flightattendants,andticketagentsappearinginTVcommercialsannouncingthesuperiorserviceontheirairline.Yetseverelabor-managementconflictsoonledthisgreatairlinetobankruptcy.

1Aworkerexpressedthe

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yawninggapbetweenpromiseandreality:"Iworkedherebefore[theESOP]andIworkedhereafterward.Idon'tseeanychange.Thingsgoonexactlyasbefore."

ThisisachronicprobleminESOPs.Theevidenceshowsthatemployeeownershipitselfisrarelyadvantageous;rather,itistheself-managementthatESOPsallowinsmallfirmsthatismostuseful.However,anysysteminvolvingmorethanafewhundredmembersissimplytoobigforopendecision-makingamongallconcerned.Alargemeetingcouldholdeveryone,butgroupsofmorethantwentytofiftypeoplecanrarelyworktogetherwell,andsoaformalmanagementhierarchyofsometypeisunavoidable.Also,resourcesarealwaysscarce,whichleadstotheeconomicrealityofmakingtoughdecisionsthatwillnotpleaseallparties.AswesawinChapter3,amorefundamentalproblemisthatemployeesrepresentbutonestakeholder,soESOPscannotprovidethebroadergovernanceneededtoformacorporatecommunity.ThatmayexplainwhythepatternofemployeeownershipinAmericahasbeenlimitedtoaminorityofstockinalmostallcorporationswhereitisused.

Thelistofsuchobstaclestoahumanworkplaceislong,usuallyleadingESOPsbacktotheverysystemtheyweredesignedtoavoid.ItwillbeinterestingtoseeifthefateofEasternAirlinesisvisitedonthenewestbigESOP,UnitedAirlines.

Mostoftheotherinnovationsinemployeerelationshaveexperiencedsimilardisappointments.ScholarssuchasAbrahamMaslow,DouglasMcGregor,andRensisLikertdemonstratedthevirtuesofparticipativemanagementinthe1950s,yetverylittlechangeduntilthe1990s,andsomeofthisisquestionable.Thedemoralizingeffectsofdownsizing,TQM,andreengineeringaresonotorioustheyareusuallyconsideredtobeeuphemismsfor"layoffs";oneofthehottesttrainingseminarsformanagersin1995was"HowtoFireEmployees."

2

TheseproblemsmayescalatebecauseadvancednationssuchastheUnitedStatesarepassingthroughachronicallydepressedphaseofeconomicdevelopment.Thereareminorhighsandlows,ofcourse,causedbythenormalfour-yearbusinesscycle.Butsuperimposedovertheseshorttermoscillationsisthetroughofasixty-yearKondratieffcyclethatshouldcontinuethroughoutthe1990s.TheGreatDepressionwascausedbythe

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previoustroughthatoccurredinthe1930s.AndglobalcompetitionisintensifyingasLatinAmerica,Asia,andotherdevelopingnationsthatpaytheirworkers$1perhourtakeworkawayfrommodernlaborforcesthatcost$20perhour.Notonlyarejobsgoingtolow-wagecountries,theirworkersarecominghere.Justasaglobaleconomynowallowscapitaltoseekitshighestreturnsaroundtheworld,poorpeoplefromEasternEurope,China,Mexico,andotherdevelopingnationsareflowingacrossborderssearchingforhigherwages.

3

Thus,relentlesslaborcompetitionislikelytoproducefurthereconomicpressuresonemployment.Knowledgeworkersmayremainlargelyimmunetothesepressuresbecausetheirvaluableskillsareinshortsupply.Butunskilledworkerswhomustcompeteinaglobalmarketforblue-andwhite-collarjobswillsufferincreasingdemandsforlowwagesandhighproductivity.4

Thesepressuresaregrowingatatimewhenworkersneedhigherincomes.Becausethecostoflivinghassoared,surveysshowthat75percentofcollegestudentsareprimarilyinterestedin"beingwell-offfinancially."5Littlewonderwhenthepriceofamiddle-classhomeinNewYork,Paris,orTokyostartsathalfamilliondollars.Itdoesnottakelongtodiscoverthatonecannotaffordareasonablycomfortablelifestylewithanincomeoflessthan$50,000peryear.

Thisreviewofemploymentrelationsdoesnotdisputetheimportantprogressthathasbeenmade.Employeeshavegainedmanybenefits,andemployershavegainedincreasedresponsibilityforperformance.Itdoes,however,cautionmanagersagainstlettingoverlyoptimisticintentionsandunreasonableexpectationsturnintodisappointingfailures.Thelabor-managementconflictthatpersistedthroughoutindustrializationremainsalivetoday.Bothpartiesremainstuckinan

adversarialposturebecausewelackaninstitutionalsystemforsortingoutthiscomplexrelationship.

RiseoftheKnowledgeWorkforce

InroughlythesamewaytheGreatDepressionpreparedthegroundfortheboomingserviceeconomythatflourishedbetweenthe1950sandthe1980s,today'srecessionshouldleadtoarobustknowledgeeconomystartingduringthedecadeof20002010.Thepainfulsymptomsofeconomicdeclinehighemployeeturnover,lowwages,andrestructuringareunfor-

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tunatepreludesintheprocessof"creativedestruction"thatclearstheeconomiclandscapeforthiscomingburstofgrowth.

Thefirstpriorityistoputtheindustrialpastbehindbyautomatingasmuchroutineworkaspossible.Manypeopleresistautomationbecauseiteliminatesjobs,andothersfeartechnologygenerally.Automationiscertainlytraumatic,butbetterjobsarecreatedbyopeningupnewfrontiers.That'swhythehistorictrendcontinuallymovesinthisdirection,asshowninFigure6.1.

Blue-collarworkhasdeclinedfromitshighpoint,whenhalfofthelaborforceworkedinfactories,toroughly20percentin1995.Automationshouldcontinuetothepointwhere10percentorlessoftheworkforcewillperformblue-collarworkinadecadeortwo,justasagriculture,whichonceclaimedtwo-thirdsofallworkers,nowemploysonly3percentoftheworkforce.TheServiceEconomybeganabout1950,whenthenumberofwhite-collarworkersfirstexceededthenumberofblue-collarworkers.Aswelearntousepowerfulnewinformationtechnologiesbetter,officeautomationshouldalsodecreasethenumberofwhite-collarworkersfromitspresent40percenttoabout20to30percentoverthenextdecadeortwo.Theremaining60to70percentorsooftheworkforcemaythenbecomposedofknowledgeworkers:skilledmanufacturingteams,informationsystemdesigners,managers,professionals,educators,scientists,andthelike.

6

Thisprocessrepresentsanaturalcycleineconomicdevelopmentthatisdisruptive,tobesure.Nonetheless,workisslowlybutinexorablymovingfromphysicallabor,tosocialrelations,tocreatingknowledge,therebyboostingproductivity,livingstandards,andthequalityoflifetounprecedentedlevels.

Someeconomistscontendthatserviceworkissoinherentlypersonalthatitcannotbeautomated.ButATMs,electronicshopping,computerizedcommunications,educationaltelevision,andotheradvancesareprovingotherwise.AT&Tusedcomputersystemstoreduceitsforceofphoneoperatorsfrom250,000in1956to50,000today,andthenumberisstillfalling.7Imaginetheimpactonuniversitieswhencoursesfeaturing"star"professorscanbebroadcastaroundtheglobe.AsFigure6.1alsosuggests,thisprocessshouldintimeleadtoafocusonthe"mental/spiritual"domain,aswenotedinChapter4,butthatisanotherstory.

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Figure6.1.TheEvolutionofWork.

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PrinciplesofKnowledgeWork

Naturally,knowledgeworkwilldramaticallychangeorganizations.Americanbusinessinvested$1trillioninofficeautomationduringthe1980s,butsawlittlegainbecausethetechnologywassimplylaidoveroutmodedorganizationstructures.PaulStrassmann,whowaschiefinformationofficeratXeroxandattheU.S.DepartmentofDefense(DoD),noted:"ForthirtyyearsAmericabroughtincomputerstospeedupthekindofworkthatjustaccentuatesbureaucracy."

Thepayoffbeganinthe1990sasmanagerslearnedhowtoredesignorganizations.

8Althoughscholarsandconsultantshavestruggledtodefinetheemergingprinciplesofwork,Iammostimpressedbytheremarkablepragmatismanddiversityallaboutus,asillustratedinBox6.1.Itistrulyamazingtosee,timeandtimeagain,howthemyriadvariationspeoplecandevisealmostdefyanymodel.AlthoughtheconceptsofferedherereflecttheNewManagementthemesofinternalmarketsandcorporatecommunity,theyaregeneralguidesratherthanfirmprinciples.

UseInformationSystemstoCreateSmallSelf-ManagedUnits

Thefocusisonbreakinglargeorganizationsdownintosmall,self-managedunits.Thelargemanufacturingplantisgivingwaytosmall"focusedfactories"thatproduceavarietyofsmallproductsorsubassembliesoflargeproducts(suchasautos).Thesameconceptisbreakinglargewhite-collarorganizationsintosmallofficesthatprovidesomewell-definedservice.Thismovefromeconomiesofscaletosmall,autonomousunitsminimizesbureaucracy,encouragesunitcohesion,andpermitsflexibilityforchange.

Intelligentinformationsystemsthenintegratealloperationsintoaworkingwhole.Withinfactories,computer-integratedmanufacturing(CIM),usesdistributednetworksofpowerfulPCstoassistallphasesofwork,fromcomputer-aidedproductdesign(CAD),tomanufacturing(CAM),toinventorycontrol,todistribution.Inoffices,localareanetworks(LANs)orgroupwaresystemsaredoingthesame,allowingpeopleto"telework"fromanylocation.TheresultwasnicelysummedupbyRamchandranJaikumar:"Thebehemothisgone.Theefficientfactoryisnowanaggregationofsmallcellsofelectronicallylinkedandcontrolledflexiblemanufacturingsystems."9

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BOX6.1.EXEMPLARSOFKNOWLEDGEWORK.

IBM,Motorola,GE,andHewlett-Packardhavedevelopedassemblyplantsthatuseteamsofskilledworkerstoproducedozensofdifferentproductssimultaneously.Theseoperationsarecoordinatedbycomputersystemsthatreceiveorderselectronically;theythenspecifyallpartsneededtoassembleeachunit,transportthepartstoanassemblyline,assistlineworkersintheiroperations,andshipfinishedgoods,oftenwithinhoursofreceivingtheorder."Ourvisionissimultaneousmanufacturing,"saidonemanager."Tomakeproductsevenasthecustomertalks.We'regettingclose."

AetnaLife&Casualtyploddedalongfordecadesprocessingpolicyapplicationsthroughthehandsofsixtydifferentstaffs.AfterredesigningthesystemsothatoneemployeeperformsallstepsusingaPC,thenumberofemployeesdroppedfrom3,000to700andcustomersgettheirpolicyintwodaysinsteadofthirty.

Lockheedcreatedafocusedfactorytofabricateaircraftparts.Automatedmachinerywasrearrangedintoanintegrated,self-containedunit,reducingmovementfrom2,500feetbeforethechangetonomorethan150feetafterward,andallowingasmallteamtomanagetheentirefacility.Thetimeneededtodesignandmanufacturingpartsdroppedfromfifty-twodaystotwodays.

NationalBicycleCompanyusesanassemblylineoperatedbycomputerizedrobotstoproduce11,231,862variationsofbicycles,eachdesignedtomeetacustomer'sspecifications,at10percentabovenormalcosts.Thesalesmanagerdescribetheirgoal:"Ourideawastomakeaseparatemodelforeverycustomer."

CoorsBrewingopenedanewfacilitythathandlestwicetheoutputofitsotherplantsbyusinganintegratedinformationsystemto

coordinatealloperationsofits350workersfromthefrontofficetotheshopfloor.Ithasbecomethelowest-cost,safest,mostproductivebreweryintheindustry.

TravelersInsurancehasautomatedtwo-thirdsofitsofficework,sothebulkofemployeesarenolongerclerksbutprofessionalnurseswhosuperviseaccounts.Theyusemedicaldatabasesandexpertsystemstodeterminewhetherasecondorthirdopinionisneededinanygivencase,questionunreasonablecostsorprocedures,andcoordinatebetweenclientsandmedicalstaff.Ultimately,thecompanyexpectstohavetwothousandnursesworkinginthiscapacity.

BoeingusednineIBMmainframes,aCraysupercomputer,and1,500workstationstobuildamassiveinteractivecomputernetworkthatcoordinatesthedesign,testing,andconstructionofitsnew777aircraftinthreedimensions.LikeagiantCAD/CAMsystem,itcanaccessalldetailsofthreemillionparts,operatethematwill,andcheckallinterfaces.Thesystemreducedthetimerequiredtobuildtheplaneby90percentandproducedunheardofaccuracy.

Sources:"RethinkingWork,"BusinessWeek(October17,1994);"TheDigitalFactory,"Fortune(November14,1994);TheProductivityPayoff,''Fortune(June27,1994).

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Eachunitisthenmanagedbyaself-directedteamofknowledgeworkerswhoaregivenalmosttotalcontrolfromproductdesign,tomanufacturing,tosales,toservice,todisposal.Computerizationpermitssuchflexibilitythatproductscanbecustomizedtosuitindividualneeds;thuscloseliaisonwiththeclientinitiatesthemanufacturingcyclebyspecifyingproductdesign.Suppliersanddistributorscanbeintegratedintooperationsusingon-linecomputersystemstoautomaticallymovemerchandise.Andecologicalconcernsincreasinglyrequirepriorplanningduringproductdesignandmanufacturing.

Teamsareheldaccountablebyallocatingbudgets,pay,bonuses,andotherresourcesinproportiontoperformance,andtheyarethenallowedtoruntheiraffairsastheythinkbest.Theytypicallychoosetheirco-workersandleaders,selecttheiroperatingsystemsandtools,andworkwithsuppliersandotherunits,usuallydoingabetterjobthanformallyappointedsupervisors.Self-directedteamsareparticularlygoodatdiscipliningtheirownmembers."Sometimeswehavetotellourco-workerswhoaren'tcarryingtheirloadthatthisishurtingus,"saidonewoman.

Althougheveryunitshouldideallybemanagedbyaself-directedteam,goodteamscannotbemuchlargerthanabouttwentypeople.Largerunitsmaybebrokendownintoseveralteamsthatassumeresponsibilityforsomemorelimitedfunction.And,obviously,teamsmustcoordinatetheirworkwithotherteamstocreateacoherent,collaborativeorganization.

TheNewEmploymentContract

ThesechangespresentaHerculeanchallenge,ofcourse,becausetheyrequirenewconceptstoredefinetheemploymentrelationship.Note,forinstance,thattherehasbeennomentionofthetraditional"job"inthisdiscussion.In1994,Fortunemagazineannounced"TheEndof

theJob":

Thejobisvanishinglikeaspeciesthathasoutliveditstime....Theconditionsthatcreatedjobsmassproductionandthelargeorganizationaredisappearing.[Managers]willhavetorethinkalmosteverythingtheydo.

10

Alongwiththemovetoself-managedteams,organizationsaremovingawayfromtheoldconceptof"pay-for-position,"inwhichworkersweretraditionallypaidforfulfillingspecifiedduties:arrivingatworkpunctually,

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beingcooperativewithothers,andotherbehaviorscoveredinthetypicalannualperformanceevaluation.Thissystemmaintainedasenseoforderliness,butithadlittletodowithproductivity,anditwashighlysubjective.Itisnowbeingreplacedbyamorebusiness-likearrangementinwhichemployeesaresimplypaidfortheoutputtheyproduce"pay-for-performance."Roughlythree-quartersofAmericanworkplacesnowusesometypeof"variablepaysystem":incentiverates,meritbonuses,profitsharing,andotherplans.''Performancepayisgrowinglikewildfire,"saidoneexecutive.

11

Thesetrendsappeartobemovingtowarda"newemploymentcontract"thatlinksemployeerightswithresponsibilities.Thisisthesame"participativemanagement"thatwasadvocatedfordecades,butwenowseethatitwouldbeunworkablewithoutunifyingthesetwofunctionsintoabalancedsystem.Ifemployeesenjoyfreedomintheirwork,goodpay,andotherrightswithoutbeingaccountableforresults,theorganizationmaynotsurvive;converselyiftheybeartheburdenofresponsibilitieswithoutcommensuratepowersandbenefits,theywillbeneitherwillingnorabletocarryouttheirduties.

WeshouldnotethatthenewemploymentcontractembodiesthesamelogicthatformsthefoundationforinternalmarketstructuresdiscussedinChapter2:workersarepaidanagreed-uponsumforanagreed-uponresult,andtheyarefreetoperformtheirworkastheyseefit.Thiscanbethoughtofasanextensionofaninternalmarketsystem.Whereinternalmarketsconcernthestructureofenterpriseswithinanorganization,theemploymentcontractconcernsthestructureofteamswithinenterprises,somewhatlikean"internallabormarket."

Thenewemploymentcontractoffersthesameadvantagesasdo

internalmarketsystems:organizationsareassuredofperformance,workersenjoyopportunitiestoearnandcontroltheirwork,thesystemlendsitselftocomplexityandchange,andsoon.Butitincursthedisadvantagesofmarketsystemsaswell:thelevelofdisorderishigher,thereisariskofoccasionalfailures,andsoon.

Manythoughtfulpeopleinsistthatworksystemsbasedonfinancialincentivesareinherentlyflawedbecauseonlyself-initiatedworkmotivatedbypersonalgoalscanbeeffectiveandelevating.InplainEnglish,thisviewholdsthatmoneydoesnotmotivate,norshouldit.Thislogicisappealing,butitfliesinthefaceofcommonexperienceandtheopinionsofalmostallbusinessexecutives.Thefallacyinthisviewcomesfromseeingmoneyand

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higher-orderinterestsasmutuallyexclusive.Awealthofresearchevidenceshowstheyarebothnecessary.

12

Motivationsurveysconsistentlyshowthatmoneyalonewouldcauseseriousdisenchantmentwithwork,asthecriticscontend,butthesurestwaytodevastateanorganizationistonotpaypeopleequitably.Thenewemploymentcontractresolvesthemoneyissuebyensuringthatpeoplearepaidfairlyfortheircontributions,anditthenencouragesthemtochannelalltheirtalentsintothecreativemanagementoftheirwork.Whatmorecouldoneaskfor?

Myriadvariationsinworkpracticesandpaysystemsexistthatmaygrowevenmorediverse,astheexamplesinBox6.2illustrate.Somepeoplelikeincentiveplans,whileothersprefersalaries.Someplansfocusonindividuals,othersonteams,andstillothersoncompanywideplans;manyorganizationsuseallthreelevelsofincentives.Thedifficultyofmanagingthousandsofindividualarrangementsisoneofthefactorsthatmakeself-managedteamssoattractive.Teamsarealsousefulbecausetheybuildcohesion,whereasindividualpay-for-performancesystemsoftenflounderbecausetheyareseenasforcingpeopletocompeteforalimitedpooloffunds.

Inschools,forinstance,meritpayfacesanuphillfightbecauseindividualperformanceevaluationspitteachersagainsttheircolleagues.Abettersolutionwouldbetouniteallteachers,administrators,andparentsintoasingleself-managedenterprisethatservesstudentsbetter,therebyattractingmoreresourcestobesharedequitablyamongmembersoftheteam.

Whateverthepaysystemandtheorganization,thecentralideaistoensureasenseofequitybetweenthecontributionseachindividual

makesversustherewardstheyreceive,asnotedinChapter3.Sinceequityissuchacrucialbutsubjectivematter,theoptimalpaysystemcanonlybedeterminedbythepeopleinvolved.Box6.2showsthatawidevarietyofsystemscanbeperfectlyworkable.

Itisimportanttonotethattheconceptofself-managedteamslendsitselftovariousotherarrangements,asshowninChapter2.Teamsmaybeinternalconsultantsservinginternalandexternalclients,theycanbeexternalbusinessgroupsservinginternalclients,andmembersofteamsmayalsobeinterchanged.Becauseteamsareself-managed,theycanorganizetheirworkstyletoincludejobsharing,rotationofassignments,using

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BOX6.2.EXEMPLARSOFPAY-FOR-PERFORMANCE.

SpringfieldManufacturingeducatesemployeesonallphasesofmanagement,givesthemaccesstofinancialinformation,encouragesteamstomakedecisionsfortheirunits,andprovidesstockownershipandprofit-sharingplans."Whenanemployeejoinsthiscompany,"saysJackStack,president,"Wemakeitclearthathis/herjobisnottoturnmetaloranswerthephone,itistoboostprofits."

NucorSteeliswidelyregardedas"theclosestthingtoaperfectcompanyinthesteelindustry."Minimillsarerunbyteamsoftechnicianswhohavealmostcompletecontroloveralloperationsandreceivebonusesthatcandoubletheirincomes.In1994,JohnDoherty,whoheadstheNucormillinNorfolk,Nebraska,earnedanadditional$80,000incashand$40,000instock."We'rerunningourownbusinesses,andwe'dbetterperform,"heobserved.

Theautoindustryintroducedprofit-sharingbonusesin1984.Sincethen,GM,Ford,andChryslerhavepaidhundredsofmillionofdollarseachyearto600,000employees,averagingabout$750each.In1994,Chryslerpaiditsemployeesanaveragebonusof$4,000.

AT&Tbasestheincomesof80,000middlemanagersand30,000technicalpeopleonprofitsatthreelevels:teams,businessunits,andthecompanyasawhole.Teammemberscanreceive5to10percentbonusesfortheirteam'sperformance,businessunitmanagerscanreceiveanadditional10percent,andallmanagersreceiveanother7.5percentifthecompanyhitsitsperformancetargets.

GeneralMillsfixesmanagementsalariesbelowindustrystandards

andthenrewardsmanagersforexcellentperformance.Forinstance,theYoplaityogurtteamdidsowellthatahalf-dozenmanagerscollectedanadditional$30,000to$50,000inbonusmoney.Theproductmanagerexplained:"Ifyoudoagreatjob,yougetabiggerreward."

MarshallIndustriesreplacedanincentivesystemwithfixedsalariesandacompanywidebonus.Nowsalesareupandpeoplepreferthepredictability.Thestarsalespersongaveupher$400,000paycheckforlessthanhalfthatsum,butissatisfiedbecausetheplanislessstressful."AtfirstIthought,'God,doIreallywanttodothis?'Butyoucan'tputadollarvalueonthebenefitsIhave."

Munger,Tolles&Olsen,aLosAngeleslawfirm,asksallfifty-threepartnerstorateeachother'sperformanceeveryyear,andtheaveragesarepostedinrankorder.Thecompensationcommitteereviewsthedata,talkstoeachpartner,andallocatespaythatcanvaryasmuchasfivetimesthelowestsum."Thestandardbywhichweassesseachotheriswellunderstood,"saidonepartner.

Sources:ShawnTully,"YourPaycheckGetsExciting,"Fortune(November1,1993);JacylnFierman,"ThePerilousWorldofFairPay,"Fortune(June13,1994).

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temporaryworkers,oranyotherarrangementstheyprefer.Itisthenaneasysteptovisualizeanorganizationasachangingassemblyofteamsandindividuals,heldtogetherbyinformationnetworks,commonvalues,andotheraspectsofinfrastructure,therebycomposinga"virtualorganization."

Insuchproteanorganizations,thechallengewillbetostrikeabalancebetweentheadvantagesofcreativeflexibilityandthedifficultyofunitingpeoplewhoareworkingincyberspace,asnotedinChapter4.Bothareessential,andtheneedfortheseopposingqualitiesislikelytogrow.Tumultuouschangewilldemandcontinualadaptation,yetdiverseeconomicactorsworkingaroundtheglobemustremainintegratedintoacoherentwhole.

Thisfundamentaltransitiontoknowledge-basedworkissovastinitsimplicationsthatweprobablycannotreallyanticipatewhereitwilllead.Butthenewemploymentcontractseemsareasonabledirection,anditfitsinnicelywithotherimportantfacetsofworktoday,towhichwenowturnourattention.

Teleworking

AsChapter1showed,thedrivetomakeITsystemscheap,powerful,andconvenientisproducingarevolutioninworkthatwillenterthemainstreamsoon.RoughlyfortymillionAmericanswereengagedinvariousformsofteleworkingin1994,andthatnumberisgrowing50percentperyearasthecostofevermorepowerfulinformationsystemsdropsbyafactorofteneveryfewyears.

13

Peoplewillalwaysneedpersonalcontact,andthereareproblemsworkinginan"electroniccottage,"tobesure.Butteleworkingoffersconvenientwaystoaugmentface-to-facemeetingsasinformation

systemsbecomeuser-friendlyandinexpensive.Ratherthanpermanentemployeesworking9to5withinthesamebuilding,then,thismodeof"electronicallymediatedwork"willtranscendpreviousrestrictionsoftimeandplace.Inaworldofsuchvastpossibilities,theideaofhavingemployeesdutifullyreporttotheirsupervisorbecomespositivelyquaint.Underthenewemploymentcontract,however,thingslookmorereasonable.Withaccountabilityestablished,teamscanuseITcapabilitiestoworkwhereverandwhenevertheythinkbest.Box6.3describessignsofspeedingtrafficalongtheinformationsuperhighway.

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BOX6.3.GROWTHOFTELEWORKING.

DecreasingITCosts.ITcostsaredroppingbyafactorofteneveryfewyears,makingfarwiderusagefeasible.Ateleconferencingsystemthatcost$1millionin1982couldbeboughtforabout$50,000in1994,andtransmissiontimehasgonefrom$2,000perhourto$100.Thecoming"telecomputer,"whichwillcombinethefunctionsoftoday'sPC,TV,andtelephone,islikelytosellforroughly$1,000orpossiblylessbyabouttheyear2000.

Telecommuting.NinemillionAmericansweretelecommutingfulltimein1994,butthenumberleapsto40millionifpart-timetelecommutersandself-employedpeopleareincluded.BellAtlantichasits16,000managerstelecommutingatleastpart-time,andplanstoaddits50,000employees.Thefederalgovernmentisincreasingitsprogramfrom3,000to60,000employeeswhoareexpectedtobetelecommutingby1997.CompaniessuchasChiat/Dayareturningtheirofficesintomeetingroomsforoccasionalgatheringsbecauseeveryoneusesportablecomputerstoworktogetherfromtheirhomesandinthefield.Roughly60percentofallofficeproductsaresoldtolawyers,stockbrokers,andotherentrepreneurialpeoplewhoworkathome,whiletraveling,andfromotherlocations."Thinkofanyjob,andsomeone'sdoingitfromhome,"saidtheeditorofHomeOfficeComputing.

Teleconferencing.Variousformsofteleconferencingaregrowingat40to60percentperyear,andthiscommunicationmethodshouldbecommonlyusedbeforetheyear2000.CompaniessuchasBoeing,3M,andHewlett-Packarduseinteractiveteleconferencingacrossseveralorganizations,reducingthetimerequiredtocompleteatypicalprojectby90percent.Asof1994,

therewereabout30millionPCsintheUnitedStates,wiredtogetherby6,000localnetworksthatareoperatedby300typesofgroupware,suchasLotusNotes.Internetisexpectedtohave100millionusersaroundtheworldbythelate1990s.Theinstallationoftelecommunicationandfiberopticnetworksisgrowingat50percentperyeartoconnectallelectronicsystemsintoonegreat.digitalsoup.

AllFunctions.ITusenowcoverstheentirespanofbusinessandsocialactivity:electronicbanking,shopping,education,publishing,medicine,andotherfunctionsarebeingaddedtothislistdaily.SmallruraltownslikeAurora,Nebraska,haveaccesstotheinformationsuperhighwaythroughfiberopticcablesthatpermitvideoconferencing."We'reanothersuburbofChicagonow,"boaststhemayor.Thus,allformsofsocialinteractioncan,inprinciple,bereplacedbyelectronicequivalents.

Sources:WilliamHalal,"Teleworking"(Washington,D.C.:InformationStrategiesGroupReport,1992);"TheInformationTechnologyRevolution,"TechnologicalForecastingandSocialChange(August1993).

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Workingathomenowbecomesafeasibleoption.Atonetime,ahomeofficewasanembarrassmentbecauseitimpliedthelackofaregularjob,butnowithasbecometrendy.Pickupanymagazineandyouwillseephotosoflavishhomeofficesequippedwiththelatestinformationsystems,beckoningthehigh-pressuredexecutivetounwindinatranquilsettingandreleasethecreativeintellectualwithin."ThebiggestbenefitisthatIcanmaintainafullschedulewhilealsobeinginvolvedinmyfamily,"saidoneconsultant.

Buttherearecosts."Youcan'tleavebecauseit'salwaysthere,"saidasaleswoman.Employeesworkingathomeoftenworrythattheyarenotnoticedbeingproductive,andsupervisorsgetuneasynotbeingabletosupervise.AmanageratBellAtlanticsayssometelecommutersare"afraidtogotothebathroomforfearofmissingaphonecallfromtheoffice."

Thisdoesnotmeanthatwewillbecomehermitsslavingawayaloneinourhomes.Thegrowthofelectroniccommunicationsisunlikelytoreplacedirectinteractionbecausepeoplewillalwaysseekopportunitiesforcontactwithothersatwork,atschool,andinothersettings.However,informationsystemswillbecomeaviablealternativetotherealthingasITgrowsmoreconvenient,sowewillusethesesystemstoaugmentpersonalcontacts.Travelisbecomingevermoretimeconsuming,environmentallydamaging,wastefulofenergy,andhectic;allthisincreasesincentivestouseITpartofthetimewhilemaintainingsocialrelationsthroughoccasionaldirectcontact.

Asurveyconductedin1987foundthat56percentofrespondentswouldcontinuetogototheofficeeverydayifgiventhechoiceofworkingathomeelectronically,36percentwouldsplittheirtimebetweenhomeandoffice,andonly7percentwouldworkathomeexclusively.

14RecentstudiesIhaveconductedshowasimilarmixofacceptance,butwithasomewhatstrongerleaningmoretowardcombiningofficeandhomework.

Thisisthedirectionprofessionalgroupsaremovingin,particularlysalespeople,consultants,andotherswhomustworkinthefield.In1993CompaqComputerautomateditsroutinesalesworkbyofferingclientstoll-freeinformationlinesforinquiries,andthenshifteditsentiresalesforceintohomeofficestomakethemmoreeffectiveastravelingconsultants.Eachsalespersonwasprovidedstate-of-the-artITsystems(high-

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poweredPCnotebook,fax,copier,cellularphone,accesstocentralizedaccountlistings)andotherneededsupport.Revenuesdoubledwhilethesalesforcedroppedbyone-third.IBMismakingsimilarchanges.SomanymanagersarenowroutinelyconnectedtotheirofficesusingportableITsystemswhiletravelingthattheyhavebeendefinedasanewbreedof"perpetualmotionexecutive.

15

Plansarealsounderwaytoachieveahappycompromisebetweenworkingattheofficeandworkingathome.Employerswanttosparetheirpeoplelongtripstoofficesinurbancenters,yetmanagersoftenfeeluncomfortableallowingemployeestoworkathome.Onesolutionisthe"teleworkcenter"asatelliteofficecontainingITequipmentthatenablesemployeestoworkintheirneighborhoods.TheU.S.governmentestablishedsuchcentersaroundtheWashington,D.C.,area,andPacificBellhasbeenoperatingcentersinCaliforniaforyears.16SimilarcentersarebeingexperimentedwithinEuropeancountriesandJapan.Ifthistrendcontinues,theconflictbetweenworkingathomeandworkingattheofficecouldberesolvedbyanintermediatesolutionworkinginasatelliteofficenearhome.

ContingencyWork

Arelatedtrendinvolvesthemanypeoplewhoarejoiningthe"contingentworkforce"ofpart-timeemployees,temporaries,andothermarginalgroups.Thecontingencyworkforcecomprisedone-thirdofAmericanworkersin1994andisgrowingsorapidlyitshouldincluderoughlyhalfby2000."Atremendousshifttocontingencyworkisunderway,"observedaneconomist.17

Thisisnotatemporarysolutiontothelackofregularjobs,butamajorshifttoanindependent,morematuremodeof"self-

employment."Contingencyworkersarebecomingtrueknowledgeentrepreneurswhotakechargeoftheircareersbypackagingthemselvesasself-employedcontractorsabletomovefromcompanytocompany,consultantsworkingforvariousfirms,andindividualsstartingtheirownbusinesses.18About20percentofallprofessionalsnowworkas"temps,"includinglawyers,doctors,andevenexecutives."ThetemporaryexecutiveisnowapermanentfixtureinAmericancorporatelife,"claimedanexecutiverecruiter.19

Self-employmentisattractivetomanypeopleanditprovidesimpor-

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tantprofessionalservicestolargeorganizations.Manyindividualspreferthefreedom,challenge,rewards,andexcitementofbeingonone'sown.Afterall,whatbetterwaytofullysatisfythosehigher-orderlongings?Despitethelowpayandbenefitsofmarginalcontinencyworkers,studiesfindtheaveragepayofself-employedpeopleis40percenthigherthanthatoftheiremployedcounterparts.

Andcompanieslikeworkingwithsmallsuppliersbecausetheyminimizecostsandbureaucracyandareusuallymorecompetent.AT&Tbuysgoodsandservicesfrom100,000smallcompanies."Smallfirmshaveanadvantage,"saidAT&Tsdirectorofprocurement.Anentireinfrastructureofhomeequipment,professionalassociations,andotherservicesisspringinguptosupportsmallentrepreneurs.Onefirmcalled"HQInc."leasesofficespace,secretarialservices,meetingrooms,andanythingelsefledglingCEOsmightneedat152locations."Weprovideinstantcredibilityforstartups,"saidthepresidentofHQinNewYorkCity.

20

ITalsoencouragesaneasy-flowingexchangeofpeoplebetweenthesetwosectors.Largecompaniesareincreasinglytrollingthroughinformationservicestofindsmallsuppliers,andviceversa.AcompanyrepresentativedescribedhisexperiencefindingspecializedconsultantsovertheInternet:"Icangetfiftyresponsesinafewminutes."Telecommutingathomeoftenleadstotakingtheleapintostartingone'sownbusinessand,conversely,sellingone'sservicestoalargecompanyoftenleadstoaregularjob.

Ausefulwaytograspthisupheavalinworkistoseethatemploymenthasnowspreadoutalongacontinuum.Atoneendisthetraditionalfulltimejob,whileattheotherendistheself-employedentrepreneur.Thenewemploymentcontractliesatthemiddleofthiscontinuum,

offeringalooseassociationwiththeemployerbutalsotheautonomyoftheentrepreneur,somethinglike"in-sourcing"ratherthan"out-sourcing."Inthisstrategicposition,itactsasagatekeeper,allowingthespeedypassageofemployeestoandfrotosuittheirneedsaswellasthoseoforganizations.Withthedeathofcompanyloyaltytoworkers,employerscannolongeroffersecureemployment,buttheycanassistpeopleinmovingalongthiscontinuum.21

Whatwillitfeelliketoworkthisway?Box6.4presentsahypotheticalscenariothatprojectscurrenttrendsintotheyear2000toconveythefeelandflavorofatypicalknowledgeworker'sdailylife.VeraPaceisamemberofa

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BOX6.4.WORK2000:ADAYINTHEWORKLIFEOFVERAPACE,ASIANREPRESENTATIVE,BIOTRONICS,INC.

Verawasawakenedbythepersistentbeepofherpersonalassistant,Vera-2,lyingonthenighttable.SheaskedwhoitwasandheardAzmiIbrahim'sundulatingvoiceannouncingthathehadaseriousproblematthebioplantinSarawak."TheMalayUnionofPipefittershasstruckthefactory,andnothingisgettingdone,"hewailed."TheyareoffendedatbeingforcedtoworkonaMoslemholiday."

SheaskedAzmitoarrangeameetingwiththeunionleadersat10:00A.M.overthehotel'svideoconferencingsystem,andshestartedpreparingfortheday.Veraaskedherassistant,Vera-2,torescheduleherbreakfastmeetingwithHenriLatourforlunchinsteadandtotransmittheBiotronicsproposalforhimtolookoverinthemeantime."ThisprojectwiththeFrenchisagreatopportunitytoentertheThaimarket,"shemused.

Atteno'clockpromptly,AzmiwaspatchedthroughwhileVerasatatthedeskinherroomattheHongKongHilton."GoodmorningMs.Pace,"heintonedformally.Lookingupatthewallmonitor,VeraattributedhisunusuallydiplomaticmoodtothethreeunionleadersseatedwithhimattheBiotronicsplantinSarawak,Malaysia."PleaseallowmetointroduceMisterSeriAnwar,chiefoftheMalayPipeFittersUnion,andhisassociates,"hesaidwhilebowingslightly.

AlthoughAzmispokegoodEnglish,thethreeunionleadersreliedontheautomatictranslationsystemtoconverttheirMalay."BlessedbeAllah,"theysaidingreetingtoVera,whoreturnedthesalutationinEnglish,asshehadlearnedtodo.

"MisterAnwar,"Veracontinued,"pleaseexplainthecauseofyour

unhappinessandIwilldowhatIcan."Afteranhourofdiscussion,itwasagreedtoreleasetheworkforceforthethree-dayholidaywithhalfpayandtojointlyplanaschedulethatwouldavoidMoslemtraditionsinthefuture.Veraandtheunionchiefthensignedtheelectronicagreementonthescreenusingpenentrysystemsatbothendsofthevideoconference.Whenthegood-byeswereautomaticallytranslatedfromEnglishtoMalayandfromMalaybackintoEnglish,thescreendimmed.

VerastillhadanhourbeforemeetingwithHenri,soshecalledupherNewYorkofficetotellherteam,thePlantDevelopmentUnitofBiotronics,abouttheincident.Hercolleagueswereout,soshetoldVera-2tolocatethemandtotransmitabriefreportoftheunionagreementculledfromthevideoconferencethemachinehadbeenmonitoring.Shethenmadeafewcallstosortoutplansforfiveotherprojectsherteamwasworkingon,suchasthejointventurewithHenriLatourofCompanieBiogenetiqueOrientaleinFrance.Finally,shecalledheryoungstersinPortlandtomakesuretheywereusingtheirnewIBMPersonalTutortogooverthelessonsassignedbytheirteacher.Sureenough,theyhadbeengoofingoffonVirtualReality.

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teamthatdevelopsbiofactoriesforitsparentcompany,Biotronics,andforotherorganizationsaswell.Ifyouhavetroubleimaginingyourselfinthissetting,thinkofpeoplelivingamerehundredyearsago.Whatwouldtheyhavethoughttowitnesstoday'sworldofTV,jetflight,andsupermarkets?TheworldofVeraPacemaybeequallyunsettling,butitwillbenolessrealverysoon.

WorkLifeintheInformationAge

Thisrestructuringofworklifeisnotwithoutitsproblems.Newtechnologiesmustautomateoldprocesses,workmustbereorganizedintoself-containedclustersofactivitiesperformedbyteams,performancegoalsandincentiveplansmustbedefined,andorganizationalarchitecturesneedtobeestablishedtosupportthissystem.Thesocialproblemsofself-managementcanbeespeciallyknotty.JonHart,presidentofOverlyManufacturing,summeduphowheexperiencedthechange:"It'slikePandora'sbox.Youopenupthedoorandeverythingcomesout."

Someunionleadersclaimthatteamworkamountstoasystemof"managementbystress,"intendedtopushworkerstomaximumproductivity,sotheyaretryingtoreversethistrend.

22Yes,peoplecanbeexploited,butratherthanopposetheseinevitablechanges,unionsshouldlookaftertheinterestsoflaborconstructively.Asoneunionleaderputit:"Theunion'sjobistopreventmanagementfromspeedinguptheline.There'snothinginherentinwork-teamsystemsthathastobestressful."23

Thereisalsoadawningrealizationthatthesechangesarenotaone-shotthing,butamoredemandingnewwayofworklifewithnoend.Thecomfortabledaysofcoastingalonginahierarchy,typifiedbytheoldBroadwaymusical"HowtoSucceedinBusinessWithoutReally

Trying,"areover."Intenyears,anybodywhorunsabusinessontheoldmodelisn'tgoingtobeinbusiness,"saidtheownerofamanufacturingfirm.24

Weshouldalsocautionthatalargeclassofunskilledworkersmaybeunabletocompeteinthedemandingnewworldofknowledgework.Evenwithgoodeducationsandremedialsocialprograms(agenerousassumption),somesectorsofsocietyarelikelytobecomechronicallymarginalized,leadingtounemployment,crime,andotherdisorders.InTheBellCurve,hiscontroversialworkonintelligence,CharlesMurraydescribedtheprospectoflifebeinggovernedbya"cognitiveelite":

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Thetwenty-firstcenturywillopenonaworldinwhichcognitiveabilityisthedecisivedividingforceindeterminingwhereanindividualwillendup.Unchecked,thesetrendswillleadtowardsomethingresemblingacastesystem.

25

Thisthreatisrealbutnotinevitablebecauseourgrowingpowertospreadknowledgeshouldallowanyonetobeeducatedeffectively,andhumannatureisfarmoremalleablethanwecommonlythink.Weshouldalsobearinmindthatsophisticatedinformationsystemscanincreasinglysupportpeopleindoingtasksthatwouldotherwisebeyondtheirabilitiessomecallit''just-in-timetraining."26Therealissueisfindingthepoliticalwillandthepersonaldisciplinetoaddresssuchproblems.

WorkingwithFlexibility

Table6.1showshowwidelythisnewworkroleispracticednow,andtheideashouldcontinuetospreadsimplyoutofthehardnecessityofcopingwithanavalancheofchange.Onemanagerexpressedtheprospectssuccinctly:"Thiswillbecommonpracticeforjustaboutanyfirminthenearfuture."ThismoresharplyfocusedbusinessarrangementshouldprovidepeopleinanInformationAgetheentrepreneurialfreedomandresourcestoworkastheychoose,whilealsoprovidingorganizationsthefreedomandproductivitytheyneedtocompete.

Organizationsaredestinedtoconfrontmoreturbulenceinthenexttenyearsthanwehaveeverexperienced,whichwillrequireanexceptionaldegreeofflexibility.Self-managedworkteamswillbeessentialtocreateorganicstructurescomposedofinterchangeablemodulesthatcanbeaddedtomeetarushofdemand,droppedduringadownturn,revisedtoobtainadifferentmixofskills,andsoon.

Peopleincreasinglyneedthesameflexibilitytocopewiththehecticnatureofmodernlife.Nowthatthetwo-careerfamilyisthenorm,bothmenandwomenmustchoosetheirtimeandplaceofworkinordertobalancethedemandsofjob,family,education,andwhoknowswhatelse.JakeMascotte,CEOofContinentalAirlines,noted:"Somuchofbusinessisstillstructuredlikefourthgrade."In1990,Continentalbeganencouragingtelecommuting,stoppedtrackingabsences,andinstitutedotherfamily-friendlypractices.Productivityroseandturnoverfell.27

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TABLE6.1.ADOPTIONOFKNOWLEDGEENTREPRENEURPRACTICES.(SAMPLE=426CORPORATEMANAGERS.)

Practice

NotPracticed(03)

PartiallyPracticed(46)

FullyPracticed(710)

Mean(010)

Asignificantportionofemployeepayisbasedonperformanceincentivesystems. 39% 25% 36% 4.9Employeeattitudesurveysareconductedperiodically. 41 16 43 5.1Employeesareencouragedtodeveloptheircreativeideasintonewventures. 23 27 50 6.0Employeesareorganizedintoself-managedteamsthatchoosetheirleaders,workmethods,equipment,hours,co-workers,andmostotheraspectsoftheirwork. 67 20 13 2.7Employeescanuseinformationsystemsto"telework"fromhome,inthefield,andotherlocations. 57 21 22 3.5Means 45% 22% 33% 4.4Source:WilliamE.Halal,CorporationsinTransition(anunpublishedstudyinprogress).Notethatdatainthefirstthreecolumns("NotPracticed,"etc.)areaggregatedbycollapsingportionsofthequestionnairescaleasshown("03,"etc.).SeethequestionnaireinAppendixC.

Flexibilitywillalsobeindispensableinhandlingtheuniqueneedsofolderpeople,youngpeople,minorities,thehandicapped,andcountlessothergroupsofworkerswhowouldotherwiseposespecialproblems.Anddespitemuchtalkofempoweredworkersseekingself-fulfillment,thefactisthatmanypeopledonotreallywanttotakeonsuchresponsibility;thenicethingaboutthenewemploymentcontractisthatteamscanmanagetheiraffairsinwhateverstyletheyprefer:afull-fledgeddemocracy,somesortofspiritualunity,orold-fashioned

authoritarianleadership.Theextensiveskillsofthosewhofocusonbehavioralissues(humanresourcemanagement,organizationallearning,projectmanagement,andthelike)willbeinvaluableformakingthisdiversityworkeffectively,andforhelpingteamsworktogethertoformcompletecorporatecommunities.

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Mostofthecomplextrappingswethinkofasindispensablepartsofajobmaydisappear.Theproportionofemployersofferingmedicalbenefitshasdroppedfrom84percentin1982to56percentin1995.Annualreviews,supervisors,stepgrades,trainingprograms,andsoonarealldeclininginuse.Whyshouldanyonewanttoengageinthisancillarybusyworkwhentheirrealinterestistogettheirtaskdoneeffectively?ListentohowauthorWilliamBridgesdescribedthesimplifyingadvantagesofbeingfreedfromouroldnotionofa"job":

Whatwouldhappentoourpresentpoliciesonleaveofabsence,vacation,retirement,etc.?Leavefromwhat?Vacationfromwhat?Retirementfromwhat?

28

AcceptingSelf-Responsibility

Thesearethemainfeaturesthatshouldmarkworklifeintheyear2000orso:

1.Thenaturalevolutionofeconomiesislikelytomakeanewphaseofknowledgeworkcommoninadecadeorso.

2.Theoldemploymentrelationshipinwhichpeoplewerepaidforholdinga"position"isdyingbecauseitistooconfiningforaturbulenteconomy,leavingemployeeswithoutsecureworkroles.

3.Knowledgeworkersshouldideallybeorganizedintoself-managedteamsthatarefreetocontrolalmostallaspectsoftheiroperationsandarerewardedforteamperformance.

4.Thissystemshouldpermitbothemployersandemployeestousealternativessuchasteleworkingandcontingencyworktogaintheflexibilityneededtocopewithadynamiceconomy.

Likemostacademics,Ispendabouthalfofmytimeworkinginaself-

employedstatusathomeandwithavarietyoforganizations,andIfindthatitrequiresgreatself-discipline.Indeed,thatisboththegreatestadvanceaswellasthegreatestchallengeofthenewemploymentcontract.Itrequiresmanagerstotreatworkersasfullycompetentadults,andworkersinturnmustaccepttheresponsibilityforcarryingouttheirtasksdiligently.Althoughthedemandsarehard,Icannotimagineworkinganyotherway.

Despitethedauntingnatureofthesechallengesandthefailuresthat

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arecertaintocome,thenewemploymentcontractseemslikelytorollon.Forallthepitfallsofperformancepay,forinstance,mostmanagersbelieveintheconceptbecauseitrepresentsanimportantfuturedirection."Wedon'tthinkthealternativepayingeveryonethesameisbetter,"saidJohnHillins,vicepresidentforcorporatecompensationatHoneywell.

OrganizationsarebeingtransformedbytheInformationRevolutionintoafinewebofsmall,automatedsystems,managedinrealtimebychangingassembliesofself-employedteams,withsuchcompleteinformationavailablethattheirbehaviorbecomestransparent.It'snotgoingtobeeasy,butthishistorictransitionpromisestoeliminatethedrudgerylongassociatedwithwork,therebyfreeingpeopleforthemoresophisticatedtasksthatnowformtheprinciplechallengesfacingaknowledge-basedeconomy.

Notes

1.AlexGibney,"ParadiseTossed,"WashingtonMonthly(June1986).

2.AndreaGerlin,"SeminarsTeachManagersFinerPointsofFiring,"WallStreetJournal(April26,1995).

3.Lars-ErikNelson,"UnwelcomeGuests,"WashingtonPost(August14,1995).WilliamB.Johnston,"GlobalWorkForce2000:TheNewWorldLaborMarket,"HarvardBusinessReview(MarchApril1991).

4.ThispointiseffectivelymadebyRobertReichinTheWorkofNations(NewYork:Knopf,1991).

5.SeetheannualsurveyoftheAmericanCouncilofEducation,UCLA.

6.AsoundanalysisofthesetrendsisprovidedbyNualaBeck,ShiftingGears:ThrivingintheNewEconomy(NewYork:Harper

Collins,1995).

7.G.PascalZachary,"ServiceProductivityIsRisingFast,"WallStreetJournal(June8,1995).

8.Seethespecialreport"TheTechnologyPayoff,"BusinessWeek(June14,1994),andMyronMagnet,"GoodNewsfortheServiceEconomy,"Fortune(May3,1994).

9.RamchandranJaikumar,"PostindustrialManufacturing,"HarvardBusinessReview(NovemberDecember1986).

10.WilliamBridges,"TheEndoftheJob,"Fortune(September19,1994).

11.JayMathews,"DoJobReviewsWork?"WashingtonPost(March20,1994).TheConferenceBoardBriefing(JulyAugust1989),and"BonusPay,"BusinessWeek(November14,1994).

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12.Forinstance,thewell-knownstudiesbyFrederickHerzbergshowedthatpay,benefits,andother"extrinsic"factorswerenecessarytopreventpeoplefromfeelingdissatisfiedwiththeirwork,whilechallenge,creativity,andother"intrinsic"factorswerealsonecessarytoprovideactivemotivation.

13.SeeWilliamE.Halal,"TheInformationTechnologyRevolution,"TechnologyForecasting&SocialChange(1993),Vol.44,pp.6986.

14."HomeorOffice?"WallStreetJournal(March31,1987).

15.MichaelMalone,"PerpetualMotionExecutives,"ForbesASAP(January1994).

16.MitchBetts,"'Telework'HubsSproutinSuburbanAmerica,"ComputerWorld(July22,1991).

17.JaclynFierman,"TheContingencyWorkForce,"Fortune(January24,1994).PeterKilborn,"NewJobsLacktheOldSecurity,"NewYorkTimes(March15,1993).

18.ForafineaccountofthisperspectiveseeCliffHakim,WeAreAllSelf-Employed(SanFrancisco:Berrett-Koehler,1994),andKennethLabich,"TakeControlofYourCareer,"Fortune(May1992).

19."Part-TimersAreIn,"ConferenceBoard'sMonthlyBriefings(March1988);"AndNow,'Temp'Managers,"Newsweek(September26,1988).

20.LizSpayd,"GrowingRanksofSelf-EmployedReshapeEconomy,"WashingtonPost(April4,1994);BrianO'Reilly,"TheNewFaceofSmallBusiness,"Fortune(May2,1994).

21.BrianO'Reilly,"TheNewDeal,"Fortune(June13,1994).

22.SeeMikeParkerandJaneSlaughter,"ManagementbyStress,"TechnologyReview(October1988);"UAWDelegatesDispute

'Jointness,"WashingtonPost(June24,1989);and"WorkersAren'tAnxious,They'reProud,"WashingtonPost(October29,1988).

23.JohnHoerr,"IsTeamworkaManagementPlot?"BusinessWeek(February20,1989).

24.MarcLevinson,"PlayingwithFire,"Newsweek(June21,1993).

25.CharlesMurray,TheBellCurve:IntelligenceandClassStructureinAmericanLife(NewYork:TheFreePress,1994).

26.LewisJ.Perelman,School'sOut(NewYork:Avon,1992).TimFerguson,"Help!HowBesttoAvailtheLaborForce,"TheWallStreetJournal(May16,1995).

27."Work&Family,"BusinessWeek(June28,1993).

28.Bridges,"TheEndoftheJob."

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7IntelligentGrowth:BalancingEcologicalHealthandEconomicProgressItistemptingtothinkthatMotherNaturewillbesafenowthatanenvironmentalethichassweptaroundtheworld.Evenbusinessfirmsarecompetingtoprovehow"green"theyare.Butrecenteventssuggestthattheproblemsremainformidable.The"BigGreen"initiativeinCaliforniawasdefeatedsoundlyin1994,andanantienvironmentbacklashisunderwayinotherpartsoftheUnitedStates.

1

Thesereactionsrepresentmorethanresistancebygrowthadvocates.Inawholisticworld,theyareanotherpartofthewhole,tellingusthatenvironmentalismisnoteasilyreconciledwithprotectingjobs,improvinglivingstandards,avoidinggovernmentintrusion,andotherissuesthatconcernmostpeople.

The"McDonald'sClamshellDecision"offersagoodexampleofthecomplexityinvolved.Environmentalistsdemandedthatthecompanyusepaperpackagesratherthantheplastic"clamshells,"which,itwasclaimed,causepollutionanddonotdecomposewell.Butthecompanyhadspentmillionsofdollarsdevelopingabiodegradableplasticpackage.Furthermore,studiespublishedinScienceconcludedthatplasticislessenvironmentallyharmfulthanpaperwhenallfactorsareconsidered,suchasthelossoftreesandtheenergyneededtomakepaperpackages.Yetthepublicpressurebecamesointensewhendrovesofchildrenwereorganizedto

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writelettersofprotest,thatMcDonald'srelentedandswitchedtopaper,againstthebetterjudgmentofitsmanagers.

2

Thusthecallforenvironmentalprotectionmaybelongoverdue,butitisnotsimplyamoralissue.Asweepingtransformationoftheentiretechno-economicsystemisinvolvedthatproducescomplexconflictsbetweenequallyvalidbutopposinginterests.Theconceptof"sustainability"hasbecomewidelyacceptedbecauseitisnowcleartoallthattheenvironmentmustbesustainableindefinitely.Butthispointofviewfailstorecognizetheenormousdemandsposedbybillionsofdeprivedpeoplewhoarejuststartingtoindustrialize.SomebroadervisionisrequiredthatreconcilestheurgentneedtoprotecttheEarthwiththeequallyurgentneedtovastlyimprovehumanlife.

Thischapterdescribesaneconomicperspectivenowemergingthatoffersthepromiseofresolvingthisdilemma.Itmayseemtoogoodtobetrue,butan"ecological-economictransformation"isunderwayasprogressivecorporationsaroundtheworldusethepowerofinformationtechnology(IT),thecreativityofenterprise,andthecollaborativeidealsofdemocracytodeviseanintelligentformofgrowththatisbothproductiveandecologicallybenign.Inplaceofthebegrudgingcompliancewithregulationsthatmarkedthepast,mostbusinessleadersnowunderstandthattherecanbenofuturewithoutasoundecologicalsystem,andsotheyareturningtheirformidableproblem-solvingtalentstothisgoalinearnest.MatthewKiernan,CEOofaSwiss-basedglobalcorporation,putitthisway:

Wearecurrentlywitnessingthebeginningofnothinglessthanaglobalindustrialrestructuring[inwhich]acompany'senvironmentalperformancewillbeincreasinglycentraltoitscompetitivenessandsurvival.3

ReconcilingEconomicsandEnvironment

Althoughanideologicalbattleovertheenvironmenthascontinuedfordecades,pollsshowthatthegreatmajorityofpeoplefromallwalksoflifeandallnationsnowunderstandtheimperativeneedtosafeguardtheenvironment.4

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RiseoftheEnvironmentalEthic

TheurgencyofsoundenvironmentalmanagementbecamestarklyclearwhenthecollapseofCommunismrevealedwhatcanhappenifnatureisignored.ShoddypracticeshadsounderminedtheecologicalsystemoftheentireSovietUnionthatonetrilliondollarsmaybeneededtorestoreittohealth.Thishighlysymbolicfailure,combinedwithsimilarincidentsintheWest,suchastheExxonoilspillinValdez,Alaska,drovehomethewisdomofecologicalprotection.In1993,81percentofbusinessexecutivesthoughtprotectingtheenvironmentwasnecessaryandreasonable.

5

Tobesure,muchofthisnewfoundmotivationistheresultofsternsocialpressures.Consumersaresoconcernedabouttheenvironmentthat80percentarewillingtopaymoreforecologicallysafegoods.TheU.S.governmenthaspasseddemandinglegislation,andtheEnvironmentalProtectionAgency(EPA)increasedindictmentsofillegalpracticesdramaticallytoenforcetheselaws.Manycorporationshavebeenfinedmillionsofdollars,andoffendingexecutivesspent550monthsinjailduring1993.6

Themostobviousjustificationforenvironmentalprotectionisthatpollutantscausedisease.Cancerratesarerising1percentperyearandnowaccountforroughlyone-thirdofalldeathsinmodemnations;asaresult,peoplelivingtodaysuffertwicetheriskofcancerthattheirgrandparentsdid.Theincidenceofbraincancerhasdoubledduringthepasttwodecades.7Althoughthisispartlyduetopeoplesmoking,livinglonger,andothersocialfactors,cancerratesarehighestinindustrializedareas,suggestingthatamajorcausemaybethepresenceofchemicals,combustionexhausts,andotherpollutants.8Itisestimatedthatthethinningoftheozonelayeralonewillcause

200,000deathsoverthenextfewdecades."Theproblemismoreseriousthanwebelieved,"saidWilliamK.Reilly,formerheadoftheEPA.9

Buttheproblemgoesbeyondpracticalconcerns.PeoplenowgrasptheprofoundrealitythattheEarthisaunifiedglobalorganismsupportinganintricateweboflife.Toputitinsymbolicterms,theplanetisagreatlivingbeinginitsownright.Andifalllifeisintimatelyconnected,thenhumansshareafamilylikerelationshipwithotherspecies.That'swhypsychologistsfindacutesignsofdistressoverthedestructionofnature."Iam

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amazedatthenumberofpeoplewhobreakdownintearswhentheythinkaboutwhatwe'redoingtotheEarth,"saysTheodoreRoszak.

10

Manyclaimthatecologicalawarenesstodayrepresentsahistoricshiftinconsciousness,comparabletothereligiousconsciousnessofoldandthetechnologicalconsciousnessoftheIndustrialAge.WillisHarmandefinesitasa"globalmindchange,"afundamentallydifferentphilosophythatviewstheentireEarthasasacredcreationimbuedwithspiritualmeaning.11

TheComingLeapinGlobalIndustrialization

It'swonderfulthatsomanypeoplenowfeelacompellingneedtoprotectnature,buttheyoftenfailtorecognizeotherunavoidablerealities.ApartfromthesatiatedWest,mostoftheworld'spopulationisstarvedforthesamematerialcomfortsnowenjoyedbyafewprosperousnationssuchastheUnitedStates.TrytellingtheMexicans,Indians,orChinesethatmaterialgrowthisabadidea.DespitethefactthatpollutionhasmadelungdiseasetheleadingcauseofdeathinChina,thenationisdeterminedtopursueeconomicgrowthasrapidlyaspossible.12

Moreover,thenumberofpeopleinundevelopednationsisfivetimesgreaterthanindevelopednationsandisalmostcertaintodouble.Thus,thestarkrealityisthatindustrialoutputislikelytoincreasebyroughlyafactoroffivetotenoverthenextfewdecades.TheindustrializationofChinaaloneshoulddoubletheloadontheenvironment,andIndiamaydoubleitagain.13

Inshort,therapidindustrializationoftheglobeseemsalmostunstoppable.Theworldfacesanunprecedentedchallengeofcreatingsomenewandasyetunknowntechno-economicsystemthatcan

managesuchagreatleapineconomicgrowthonaplanetalreadysufferingfromsevereenvironmentalstress.

BetweenTwoGroupsofTrueBelievers

Beyondgeneralagreementonprotectingtheenvironment,opinionsdividesharplywhentoughquestionsareraisedabouthowtohandlethisimminentburstinindustrialization.

Theideaofsustainabilityadvocatedbyenvironmentalistsisausefulconcept,butitdoesnotaddressthishugeproblem.Somewhatliketheequallypopularappealof"corporatesocialresponsibility,"sustainability

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focusesonanecologicalgoalwhileignoringtheeconomicgoalamassiveincreaseinindustrialgrowthisneeded."Sustainabilityhasbecomedevaluedtothepointwhereitisnowjustacliché,"notedoneanalyst.

14

Sustainabilityalonewouldberealizedadmirablyifwereturnedtotheagrarianpast,buthowmanyofusarewillingtogiveupourcomfortablelifestyles?Ioftenwonder,whenhearingpeoplelectureanaudienceabouttheevilsofindustrialization,Didn'ttheytakeajetairplanetoattendthismeeting?Theymustdrivecars?Don'ttheyshopatsupermarkets?Thefactisthatwealldependonmoderntechnologyandindustryforthenecessitiesofmodernlife.

Asimilarmyopiaprevailsattheotherendofthepoliticalspectrum.Manyconservativesstillcelebratethevirtuesofunboundedeconomicgrowth,andsomeeveninsistthatpopulationgrowththekeyfactordrivingthedespoliationoftheplanetshouldnotbecurbedbecausepeoplearethe"ultimateresource."15Withbillionssufferingfrompoverty,famine,andothersymptomsofoverpopulation,onecanonlymarvelatsuchfaith.

Thus,theprimaryobstacletoenvironmentalprogresstodayisaclashbetweentwogroupsoftruebelieverswhoobscurethecomplexnatureoftheproblem:onesideisintentonprotectingtheenvironmentatgreatcosttohumanwelfare,whiletheothersideisintentongrowthatgreatcosttotheenvironment.

Afewyearsago,bigbusinesswasunreasonableinitsoppositiontotheenvironment,butnowmanyenvironmentalistscanbejustasunreasonable.Someenvironmentalistsarethemselvescriticalofthemovement.JohnHeritageblamedthe"go-for-the-throat"attitudeof

hiscolleaguesfortoday'santi-environmentbacklash,andGreggEasterbrookhadasimilarcriticism:"Throughthenextfewyears,conventionalenvironmentalviewpointswillcollapse,doneinbytheirowndisjunctionfromtherealitiesofthenaturalworld.IntheirplacewillemergeanewmiddlepathIcall'ecorealism.'"16

Anobviousexampleofthelackofcommunicationisthecontinualattacksonprominentcorporations.Businesscouldimprove,certainly;however,92percentofcorporateexecutivesnowunderstandthattheenvironmentmustbeoneoftheirtoppriorities,andmanyhavevoluntarilytakentheleadoncriticalissues.17Whendataontheozoneproblemwasannounced,DuPontimmediatelyaccelerateditsplanstophaseoutall

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harmfulgases.ThechairmanofDowChemicalwasthefirstCEOtocallforfull-environmentalpricingofallproducts,aboldsteptowardusingeconomicincentivestocurbpollution(seeBox7.1).

18Yetenvironmentalistspersistincondemningthesecompanies,oftenhandcuffingthemselvestocorporatefacilitiesunderTVcoverage.Aretheseattacksjustified?Dotheyserveanyusefulpurpose?

ThisclashbetweentheLudditementalityofenvironmentalpuristsandthezealotryofunlimitedgrowthadvocateshassquanderedtheleadAmericaonceheldintheexplodingenvironmentalindustry.GermanyandJapannowdominatethemarketforproductrecycling,solarcells,high-efficiencyappliances,pollutioncontrolequipment,andotherboomingfields.19

BOX7.1.THEGREENINGOFDOWCHEMICAL.

AlthoughDowChemicalmayhaveapoorimagewhereenvironmentalmattersareconcerned,infactthecompanyhasbeenamodelofcorporateenlightenmentonenvironmentalmanagement.

ALongHistoryofEnvironmentalProtection.Thefounder,HerbertDow,hadareputationfordespisingwasteandpollution,andpioneeredindevelopingmanyoftoday'senvironmentalprotectiontechnologiesduringthe1920s.Later,in1972,CEOCarlGerstackersaid:''Solvingpollutionproblemsisgoodbusinessaswellasgoodcitizenship.Solet'sgetatitwithenergyandenthusiasm."

FirstEnvironmentalAdvisoryCouncil.In1991,DowbecamethefirstAmericancompanytoformacouncilofoutsideauthoritiesto

provideadviceonenvironmentalmatters.ThecouncilisheadedbyDavidT.Buzzelli,VicePresidentfortheEnvironment,Health,andSafety,andincludesroughlyadozenindependentauthoritiesfromgovernment,academe,andjournalism.

LeadershiponFullEnvironmentalPricing.In1992,ChairmanFrankPopoff,tooktheboldstepofcallingforfull-costenvironmentalpricingonallproducts.Byincludingthecostsattributabletopollutionpreventionoveraproduct'sfulllifecycle,marketforceswouldbeharnessedtoprotecttheenvironment.

Sources:LauraM.Petty,"IstheGreeningofCorporateAmericaReal?"(Unpublishedpaper,GeorgeWashingtonUniversity,1991);MarthaHamilton,"DowtoNameAdvisersonEnvironment,"WashingtonPost(October16,1991);MarthaHamilton,"MakingaProduct'sCostReflectPollution'sCosts,"WashingtonPost(November29,1992).

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TheEcological-EconomicTransformation

Curbingwastefullifestylesandbusinesspracticesisurgent,butmoralizingagainsteconomicgrowthignoresthevastdimensionsofthetask.Evennowweseearisingtideofindustrializationdoomwildlifespeciestoextinction,destroyforests,turnfarmlandintodesert,wipeoutfishingstocks,foulourairandwater,andcauseseveredisease

20whiletheunderdevelopednationsarelikelytomagnifytheseproblemsmanyfoldoverthenextfewdecades.

Theonlyfeasiblesolutionistodeviseamoresophisticatedwayoflifethatisbotheconomicallycomfortableandecologicallybenignan"ecological-economictransformation,"or"eco-economictransformation."Therearefeweasyanswersbecausethisenormoustaskwillrequireseriouscompromiseaswetradeoffthecostsandgainsofvarioussolutions.ExpendituresforenvironmentalprotectionintheUnitedStatesrosefrom0.8percentofGDPin1972to2.4percentin1992,about$200billion,causingtotaldeclinesofseveralpercentagepointsinproductivity,economicgrowth,andpercapitaincome.21

Forinstance,theproblemofautoemissionsisnotlikelytoberesolvedeasily.Theworld'sfleetof500millioncars,whichevennowhasmadedrivinginmajorcitiesalmostunbearable,isexpectedtodoubletoabillionvehiclesby2010.LeadingAmericanstates,suchasCalifornia,havemandatedelectriccarstoreduceautoexhausts,butthisapproachhasitsdrawbacks.Theaddedcostandlimitedrangeofelectricswilllimittheiruse,oldbatterieswithtoxicchemicalsmaysoonlittertheGoldenState,andpollutionislikelytomovetopowerplantsthatprovidetheelectricity.Indeed,astudyconductedbythe

EnvironmentalProtectionAgencyfoundthatelectriccarscouldincreasepollutantlevels.22

Wecouldsimplyrecycleeverything,peoplesay,andsolvetheproblem.Well,it'snotthatsimple.Thesystemicnatureoftherecyclingproblembecameapparentwhencitiesfoundthemselvesholdingbulgingwarehousesofoldnewspaperbecausepresentrecyclingprogramsarehavingtroublecoveringcosts.

IntegratingEconomicProgressandEcologicalHealth

Fortunately,awaveofinnovationisunderwayasbusinessmanagers,environmentalists,governmentofficials,andconsumersstruggletoprotect

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naturewhilealsoservinghumanneeds.These"greeneconomicpractices"gobeyondtheoldwarbetweenbusinessandtheenvironmentbecausethetwocanreinforceoneanotherifapproachedproperly.Justasthequalityrevolutionrevealedthatwecanhavebothhigh-qualitygoodsandlowerprices,theeco-economictransformationisbasedonthecarefulintegrationofenvironmentalandeconomicgoals.

Havingacceptedtheeconomicreasonsforchange,pragmaticbusinesscorporationshavemovedaheadontheissue.Indeed,thereisarefreshingtoneofboldinnovationbecausesoundenvironmentalmanagementcanavoidlitigation,reduceoperatingcosts,attractcustomers,andbeinaccordwithsocialvalues.Environmentalprotectionisnowregardedbyprogressivemanagersaroundtheworldasaneweconomicfrontierofferinghugeopportunities.StephenSchmidheiny,aSwissbusinessman,expresseditbest:"Sustainabledevelopmentmakesgoodbusinesssensebecauseitcancreatecompetitiveadvantagesandnewopportunities.Butitrequiresfarreachingshiftsincorporateattitudesandnewwaysofdoingbusiness."

23

PrinciplesofEnvironmentalManagement

Managingthisleapingrowthprudentlyrequiresdramaticchangesinallphasesofmanagement,somanyauthoritieshavedevelopedconceptstohelpunderstandthiscomplexundertaking:the"threePs"("PollutionPreventionataProfit");"threeRs"("Recycling,Reclamation,andRemanufacturing");andprogressivephasesofenvironmentalmanagement("Reactive,Receptive,Constructive,andProactive'').24Mystudiesshowthatthisfieldcanbedescribedin

termsofthefiveprinciplesdiscussedinthesectionsthatfollow.

InternalizeEnvironmentalCostsandBenefits

Possiblythesinglemosteffectiveactionwecantakeistointernalizeenvironmentalcosts.Peoplemayfavorecologicalprotectionintheabstract,buttheiractionsareguidedbyeconomiccostsandbenefits.Oneofthereasonsautocongestionissoheavyisthat$300billionofpublicfundssubsidizeautotravel.IncitiessuchasSingaporewherethecostofenvironmental"externalities"arepassedontodrivers,or"internalized"theproblemalmostsolvesitselfaspeopledecidethatotheralternativesarecheaper.

Theconceptisbeingadoptedwidely.Agoodexampleisprovidedby

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the1990CleanAirAct:byallowingfirmstosellpollutionrightstooneanother,companiesbalancethecostsandgainsofvariouscleanupfacilitiesagainstthecostofpollutionrightstoarriveatoptimaldecisions.Earlyestimateswerethatthiswouldcost$600to$1,600pertonofpollutantsremoved,buttheactualcostwas$150perton."Onceyougivepeopleachoiceandtheyhaveanincentive,theyfindawaytodoit,"saidanEPAadministrator.

25

Otherexamplesabound.Powercompaniesinthirtystatesarepayingthepublictoavoidusingenergy,therebysupplyinghalfoffutureenergygrowththrough"negawatts."Governmentsaroundtheworldareusingvariousmethodstoestimatethecostspollutersmustpaytocompensateforenvironmentaldamage,aswhentheU.S.governmentfinedExxon$1billionfortheValdezoilspill.Citiesarebeginningtochargepeopleforpickinguptheirtrash.Somefirmsarebasingmanagers'paypartlyonenvironmentalperformance.26

ExtendPreventionthroughouttheProductCycle

Pollutionpreventionisnolongerlimitedtocleaningupwastebutisnowregardedasaconstantactivityextendingthroughouttheproductcycle.AstheexamplesinBox7.2suggest,companiesnowdesignproductswithmaterialsthatminimizeenvironmentalimpact,theydevelopmanufacturingprocessesthatareenergyefficientandnonpolluting,simplifyconsumerpackagingtoavoidwaste,refillusedcontainers,repairproductstoextendtheirlife,andrecyclethefinaldiscardedproduct.27

Thesignificanceofthisnewperspectivecanbeassessedbycomparingittoprogressinotherfields.JustasTQMnowemphasizesmorerobustproductdesignsandcontinualimprovement,andjustas

healthcareischangingfocusfromcuringillnesstopreventionandwellness,environmentalprotectionisbestachievedearlyintheproductcycle.

ClosetheManufacturingCycle

Whenaproduct'susefullifecomestoanend,anotherprinciplecomesintoplay:closethemanufacturingcyclebyusingwasteasthesourceofrawmaterials.

Thelarge-scalerecoveryofuseableresourcesfromwasteisimprovingtothepointwherebusinessoftenprefersrecyclingmaterialsbecauseitis

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BOX7.2.ENVIRONMENTALPROTECTIONTHROUGHOUTTHEPRODUCTCYCLE.

ProductDesign.Productsrangingfromlightbulbstoentirehomesarebeingredesignedtoreduceenergyconsumption,avoidtoxicmaterials,andfacilitaterepairandreuse.AmoryLovinsclaimsthatsuchchangeshavesavedfourtimesasmuchenergyasthatobtainedfromnewenergysourcesoverthepastdecade,andheexpectswecouldsave90percentofpresentelectricityuse.

Production.TheMinnesotaMiningandManufacturingCompany(3M)hasbecomefamousforits"PollutionPreventionPays"program.Bychoosingless-pollutingmaterials,devisingmoreefficientmanufacturingprocesses,andrecyclingwastematerials,thecompanyhasconvertedanotherwisemassivepollutantstreamintosavingsof$1billionoverthepastdecades.HermanMiller,Inc.,thefamousfurnituremaker,savestwotothreemilliondollarseveryyearbyrecoveringmanufacturingwastes,recyclingscrapmaterials,reducingpackaging,andrefurbishingoldfurniture.Thecompanyexpectstobeawaste-freesystemby1995.

RecyclingUsedProducts.Europeanmanufacturersareactivelyplanningtoreclaimalldiscardedproducts.Thecompanieswillreuseoldcontainers,repairselectedproductpartsforreuse,andrecycletheremainingmaterials.Lawshavebeenpassedrequiringthisplanforconsumergoods,andtheyarebeingextendedtoincludeappliancesandevenautomobiles.

Sources:WilliamBryantLogan,"TheFuturists,"Worth(DecemberJanuary1993);FrancisCairncross,"HowEurope'sCompaniesRepositiontoRecycle,"HarvardBusinessReview(MarchApril,1992).

cheaper."Theenthusiasmoutthereforrecyclingisoverwhelming,"saidDeanBuntrock,chairmanofWasteManagement,Inc.,theprimaryrecyclingcorporationinAmerica.

28Majorportionsofaluminum,copper,steel,glass,paper,andotherproductsareproducedfromrecycledmaterialsnow,especiallyinJapan,wherehalfofallwasteisrecycled.

Tofacilitaterecycling,manufacturerssuchasBMW,IBM,Xerox,andHParerapidlyintroducingatechniquecalled"designfordisassembly"(DFD).BMWestimatesthat20millionEuropeancarswillberecycledbytheendofthisdecade.GM,Ford,andChryslerhavebuiltajointlaboratoryfordevelopingDFDmethods.Americanautosarenowbuiltof75percentrecycledmaterials,andBMW'sareapproaching95percent.Manymanagersclaimallproductswillberecycledinabouttenyears.29

Thusmanufacturingismovingtoapositionthatregardspollutantsas

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notinherentlybad,butsimplyresourcesthatareinthewrongplace.Thetaskthenbecomesoneofconvertingwasteintousefulresources.Bydevelopingsophisticatedrecoverymethods,thelevelofrecycledmaterialsshouldapproach100percentintime,turningtoday'soverflowinggarbagedumpsintoveritableminesofvaluablematerialdeposits.

ObtainAccurateInformationonEnvironmentalImpacts

Inordertoguidesuchcomplexmatters,effectiveinformationsystemsareneededthatwillallowmanagerstoassessthetrade-offsbetweenenvironmentalandeconomiccosts.Sounddecisionsdependonaccurateinformation.

StudiesbyAlcan,alargeCanadianmakerofaluminumwindows,showthatconstructiononlyconsumes1to2percentofthetotalenergycostsincurredduringawindow'stypicallife.Therestispassedthroughthewindow,soattentionshouldfocusonbetterinsulateddesigns.Procter&Gambleandmanyothercompanieshaveconductedsuchlifecycleanalyses(LCAs)andfoundthemequallyuseful."Ifyoudon'tusesoundsciencetomakethesedecisions,you'llmakeenvironmentallybadchoices,"saidaP&Gvicepresident.SophisticatedsoftwareprogramsarebeingdevelopedthatconvenientlyconductLCAsontypicalPCs.

30

Companiesarealsoevaluatingtheenvironmentalimpactsoftheirpractices.Variousformsof"ecologicalaudits,""greenaccounting,"and"socialindicators"arebeingdeveloped,includingthetranslationofenvironmentalimpactsintodollarequivalents.Anda"greenGDP"isbeingdevelopedthatwillbringenvironmentaldamage,renewableresources,andothernonmarketcostsandbenefitsintonational

economicaccounts.31

DevelopCollaborativeWorkingRelations

Becauseecologicalproblemsarewide-rangingissuesthatspandifferentinstitutionsandnations,theycanonlybehandledbyinterestedpartiesworkingtogether,anditisintheinterestsofallpartiestodoso.

TheEnvironmentalDefenseFundhasjoinedwithMcDonald's,GeneralMotors,andothermajorcorporationstoadvisethesecompaniesonimprovingtheirenvironmentalpolicies.Roughlyone-thirdofmajorcorporationshadorganizedpermanentenvironmentaladvisorycouncilsasof1993.TheU.S.governmenthasformedtheGreenLightsProgramtoassist

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companiesindevelopingbusinesspracticesthatareecologicallysoundandprofitable.

ThePowerofEconomicReality

Thehopefulfeatureoftheprinciplesofenvironmentalmanagementisthattheyareeminentlypractical,sotheyreinforcetheinterestsofaveragepeopleratherthanrequiringheroicaltruismthatcannotoftenbesustained.Table7.1showstheyarebeingadopted,albeitslowly,andPeterCoors,CEOofCoorsBrewing,knownforhisconservativeviews,expressedthehard-corebusinessperspectiveintheseterms:

Environmentalperformanceisadependablepathtoprofitability.Findpollutionorwasteandyou'vefoundinefficiency...fundamentally,allpollutionislostprofit.Bystrivingtoeliminateit,wecantogethergrowamoreefficient,competitiveeconomy.

32

TABLE7.1.ADOPTIONOFINTELLIGENTGROWTHPRACTICES.(SAMPLE=426CORPORATEMANAGERS.)

Practice

NotPracticed(03)

PartiallyPracticed(46)

FullyPracticed(710)

Mean(010)

Environmentalimpactsarestudiedastheyaffectproductdesign,manufacturingprocesses,packagingwastetreatment,recycling,andotheraspectsofoperations. 30% 24% 46% 5.4Environmentalcostsandbendfitsareincorporatedintomanagementdecisions. 34 26 40 5.1Thecompanysolicitsadvicefromanenvironmentaladivisorycommittee

and/orvariousenvironmentalgroups. 49 22 29

4.0

Means 38% 24% 38% 4.9Source:WilliamE.Halal,CorporationsinTransition(anunpublishedstudyinprogress).Notethatdatainthefirstthreecolumns("NotPracticed,"etc.)areaggregatedbycollapsingportionsofthequestionnairescaleasshown("03,"etc.).SeethequestionnaireinAppendixC.

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Obviously,thisapproachlackstheloveofnaturethatmotivatesenvironmentalistsandsomeothercompanies.AsshowninBox7.3,theBodyShopnotonlystrivestooperatebytheaboveprinciples,butitgoesbeyondthemtoconductpublicinterestcampaignsthatprotecttheenvironment.However,itseemsunlikelythatmorethanaminorityiscapableofsuchadmirableconduct.

ThatispreciselywhytheviewofordinarybusinesspeoplelikePeterCoorsissopromising:itmakessenseinhardeconomicterms.Thisfundamentalconclusionremindsusonceagainthatmarketscanbecompatiblewithsocialvalues,asarguedinChapter4.

Recentsurveysofhundredsofenvironmentalbusinessinvestmentsfoundaverageannualreturnsrunningfrom63percentto204percent.Theresearcherconcluded:"Pollutionpreventionisoneofthefundamentalshiftstakingplaceinbusinessthroughouttheworld.Everycompanycanincreaseitsprofitsandproductivitybyreducingpollutants."

33Otherstudies

BOX7.3.THEBODYSHOPONENVIRONMENT.

AcentralpartoftheBodyShop'sunusualsuccessisitsfocusonsafeguardingtheenvironment.WhenAnitaRoddickstartedthecompanyherapproachseemedaradicalidea;nowithasalteredthemainstreamofbusinessintheUKasBritishcompaniesrushtoadvertisetheirecologicalawareness.

NaturalProducts.Theshopsarebright,aromatic,individualizedsettingsfilledwithcolorfulpostersandliteraturedescribingproductsmadeofnaturalsourcesfromaroundtheworld:amudshampoofromMoroccowithspecialproperties,agrapeskin

toner,apeppermintfootlotion.Theresultisatantalizingarrayofethniccosmeticsthatdeliversvalueandstresseshumansafety.

EcologicalProtection.Everythingthecompanydoesisdesignedtominimizeitsenvironmentalimpact.Productsarebiodegradableandcomeinrefillablecontainers.Threeindependentlyverifiedenvironmentalimpactauditshavebeenconducted,anda"ValuesReport"isunderwaytoassesstheBodyShop'senvironmentalandsocialperformance.

EnvironmentalCampaigns.Thecompanycampaignstoprotecttheenvironment.ItspenthundredsofthousandsofdollarstohelpindigenoustribesinBrazilsavetheirrainforests,operatedpubliccampaignstopromote"Refill,Re-Use,andRecycle,"andcollected70,000signaturesand$57,000toprotectseaotters.

Source:BoBurlingham,"ThisWomanHasChangedBusinessForever,"Inc.(June1990).

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findthatchemicalplantsusingpollution-preventiontechnologytypicallyrecovertheirinvestmentinsixmonthsorlessandthengoontosavehugesumseveryyearafter.Anenvironmentalthinktankconcluded,"ThepollutionpreventionethicisfirmlytakingrootinAmericanbusiness."

34Box7.4describessuccessfulprojectsunderway.

Theeconomicadvantagesareenormous.Asof1991,theenvironmentalmanagementindustryinAmericaconsistedof70,000businessesemploying1millionworkersandgenerating$130billioninsales.Consideringthenormaleconomicmultiplier,thetotalimpactlikelyproduces3.5millionjobs,$270billioninsales,and$76billioninfederaltaxes.IfAmericanscouldconserveenergyasefficientlyastheJapanese,wecouldsave$200billionperyear,whichwouldeliminatethefederalbudgetdeficit.35

Achievingthissocietaltransformationwillbeameanfeatthatissuretotestferventenvironmentalistsandstaunchgrowthadvocatesalike.Neitherapureallegiancetotheenvironmentnortogrowthwillbepossible;instead,amoreintelligent,balancedsynthesisisneededthatgoesbeyondsustainability.GunterPauli,CEOofEcover,aEuropeancorporation,putitthisway:"TheeraofLeftGreens[environmentalists]isover.TheeraofRightCapitalists[growthadvocates]isover.Thetwosidesareconverging."36

Theconceptof"sustainabledevelopment"isclosertoreality,butitisalsosomewhatmisleadingbecausetheword"development"isreallyaeuphemismthatavoidsthenegativeconnotationsof"growth."Ifindtheconceptof"intelligentgrowth"or''smartgrowth"moreusefulbecauseitacknowledgestheneedforgrowth,butinamoresophisticatedmannerbasedontheuseofknowledgetomakechoices

thatprotectnatureandservesocietyaswell.

Thesedistinctionsmayappeartobequibblingoverwords,buttheycanbecrucialbecausetheyoftenleadtodifferenttypesofaction.Forinstance,muchattentionisbeingdevotedtodefiningsustainabilityinprecisetermssoitcanbeimplemented,andmanypeopleareconvincedthatonlybyabandoningthefreeenterprisesystemcanwecreateanequitableenoughdistributionofresourcesandreasonableenoughlifestylestosolvetheenvironmentalproblem.37

Suchascenariomaybepossible,butitishardtoevenvaguelyenvisionwhatitwouldlooklike.ThefallofCommunismhasaffirmedthatfreeenterpriseistheonlyviablewaytomanagetoday'scomplexworld.

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BOX7.4.ENVIRONMENTALBUSINESSPROJECTS.

TheSuperRefrigerator.Twenty-fivepowercompaniesputupa$30millionrewardforthedevelopmentofanecologicallysaferefrigerator.ThecompetitionwaswonbyaWhirlpoolteamthatproducedadesignbenefitingallparties.Theutilitieswillavoidtheneedtobuildnewpowerplants,Whirlpoolwillgainaleadinthemarket,buyerswillsave$500inoperatingcostsofeachunit,thenationwillsave$250millionperyear,andtheenvironmentwillbespareddamagetotheozonelayer.

TheGreenCar.AutomakersareformingR&Dprogramstoproducea"GreenCar"thatwillbenonpollutingandenergyefficient.Anannualracehasbeenheldforyearsamongsolar-poweredcarstheSunrayceCompetition.In1992,GM,Lockheed,andPacificGas&Electricformedaconsortium(CALSTART)toproduceanelectriccarforCalifornia.Mazdahasanoperablehydrogen-fueledcarthatproducesnopollutants.TheClintonadministrationhasannouncedaconsortiumofU.S.carmakersthatwilldevelopa"CleanCar"thatburnshydrogeninafuelcell.

The"GarbageHouse."TheNationalAssociationofHomeBuildershaserectedanattractive,comfortablehouseinMarylandthatisconstructedcompletelyoutofrecycledmaterials.Thesteelframeismadefromjunkedcars,insulationisfromoldpolystyrenepackages,andtheceilingtilesaremadefromnewspapers.

MoltenMetalTechnologies.Thiscompanyiscommercializinganewprocesstorecyclemetalintousefulgases,metalalloys,ceramics,andothervaluableproducts.MauriceStrong,abusinessmanandenvironmentalist,said:"I'veseenalotofenvironmentaltechnologies,butI'veneverseenanythingasexcitingasthis."

GreenChemistry.NovoNordiskinDenmarkisusingnaturalenzymestoreplacechemicalsusedforindustrialpurposes.Thecompanyhasdevelopedfortyprocessesformakingpenicillin,cleaningagents,pesticides,andagrowingrangeofotherproducts."We'refindingnaturalsolutionstoindustrialproblems,"saidtheCEO.

The"Fling"Camera.Kodakdevelopedathrowawaycamera,the"Fling,"whichsooutragedpeoplethatsalesslumpedeventhoughitservedarealneed.Thecompanythenbeganrecyclingitin1990,causingunitsalestohit22millionin1992."Iseesalesquadruplingwithinthreeyears,''saidaKmartmanager.

InteractiveManufacturingEcologicalSystems.ThetownofKalunborg,Denmark,hasintegratedseveralcompaniesintoanecologicallysupportivecomplexofmanufacturingandenvironmentalsystems.Apowergeneratingplant,oilrefinery,biotechnologyplant,plasterboardfactory,sulfuricacidproducer,cementcompany,andlocalfarmsarealldesignedtosharethesamewater,energy,andecologicalinfrastructureinthemosteconomicallyproductiveandecologicallybenignmanner.

Sources:JamesTeece,"TheGreatRefrigeratorRace,"BusinessWeek(July15,1993);"HandlewithCare,"NewYorkTimes(April11,1990);"TheHottestThingSincetheFlashbulb,"BusinessWeek(September7,1992).

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Likewise,achievingsustainabilityisfartoocomplextobeentrustedtosomegovernmentagency,agroupofscientists,orotherelites.Likeothercomplexundertakingsachievingsuccessinacareer,acorporatestrategy,oranationalgoalitcanonlybepursuedbyincrementallymovinginageneraldirectionasourunderstandingimproves.Thus,anecologicallysustainablefuturecannotbeplanned,butmustemergeoutoffreemarketsguidedbydemocraticinstitutionstocontinuallybalancetheneedsoftheEarthanditsinhabitants.

FindingourwaywillbeeasierifwebearinmindtheprinciplesoftheNewManagement.TheInformationRevolutionshouldmakeitpossibletodrawondemocracyandenterprisetocreateanintelligentformofgrowththatprotectstheenvironment.Corporationsandgovernmentsshouldinvolvetheirconstituenciesincreatingagreeneconomicinfrastructureandthenallowinternalmarketforcestosortoutconflictingclaimsintooptimaldecisions.Thetaskwillbedaunting,butinformationsystemsshouldimproveourabilitytomonitorenvironmentalconditions,understandthetrade-offs,internalizecosts,educatepeople,embracenonpollutingmodesof"teleworking"and"teleliving,"andgenerallyshapeamoreconservingsociety.

TheconceptofcorporatecommunitydescribedinChapter3helpsputtheroleofenvironmentalmanagementinperspective.Protectingecologicalsystemsisafundamentalprioritybecauseitaffectsnotonlythegeneralpublicbutallstakeholdersaswell.Afterall,theenvironmentistheultimatecorporatestakeholder.

ReconcilingtheObstacleswithin

Thefollowingconclusionsstandoutasaguidetothemajorchangesthatareneeded:

1.Theworldisverylikelytoexperienceafive-totenfoldincreasein

economicgrowthoverthelongterm.

2.Acompletetransformationintechnological,economic,andsocialsystemsisneededtomakesocietiesecologicallybenign.

3.Businesswillhavetodevelopsystemsforgreenmanufacturing,recoveryofdiscardedproducts,andfullenvironmentalcosting.

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4.Governmentmustbeartheresponsibilityformonitoringtheenvironment,passingprotectivelaws,andinternalizingcosts.

5.Thepublicmustadoptamoretemperatestyleoflivingthatiscompatiblewithecologicalhealth.

Thistransformationwillinevitablyalterthewaymodernsocietiesarestructured,butthetrulydifficultobstaclesliewithinusasindividuals.Thechangetoanecologicallyhealthyeconomywillrequireaninnerchangeinourpersonalvalues.Canpeopleinadvancednations,especiallytheUnitedStates,tametheirextravagantconsumptionhabits?Howmanybusiness-peoplewillbeabletoseebeyondtheirimmediatefinancialperformance?Canenvironmentalistsaccepttheneedforeconomicgrowth,especiallyasitracesthroughtheundevelopedworld?

ItissuretobeadifficultstruggleforaverageAmericanstoacceptlimitsontheirindulgentlifestyles.Isitreasonableformanyfamiliesoftwoorthreepeopletolivein5,000-square-foothomes,consumingenoughresourcestosustainseveralfamiliesinotherpartsoftheworld?Isn'tasecondhomeusedforafewweekendsayearwasteful?Canwetolerateathrowawaycultureinwhicheverythingfromcigarettelighterstoautosisdisposable,withoutbearingenvironmentalcosts?(IknowthefirstreactionofmyfamilywhenfacedwithanythingoutmodedistojusttossitoutthenIretrieveitfromthetrash.)

Althoughbusinesshasmadegreatadvances,oneofthethemesthatemergedfromtheCITsurveyisalackofawarenessofhowpervasivetheproblemreallyis.Mostmanufacturingmanagersareworkingonenvironmentalprotection,buttimeandagain,othersclaimeditdidnotapplytotheirwhite-collarorganizationbecausethey"didnotmanufactureanything."Yettheyoperatedbuildingsthathadtobeconstructed,lighted,heated,andcooled.Theyemployedpeoplewho

drovecarstowork,usedelectricalequipment,anddiscardedpaper.Onemanagernoted:"Iamamazedtoseelightsleftonduringlongvacationsandreamsofpapertrashedwithoutbeingrecycled."

Oddlyenough,environmentalistsmayprovethemostresistant.SharonNewsome,vicepresidentoftheNationalWildlifeFederation,noted:"Iwonderediftheenvironmentalcommunitywascapableof[compromise]?

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I'vecometothecondusionwe'renot.Takingonyourenemiesismorefun."

38IfweAmericanscannotagreeamongourselves,howcanweexpecttheMexicans,Indians,Chinese,andmembersofothernationstoagreewithusontheurgencyofdiscipliningtheirbirthratesandtheirnewfoundappetitesforconsumption?

Resolvingtheseconflictsinvolvesacceptingtherealitythatlifeismorecomplexthananysingleperspective.Forinstance,despitethefactthattheweatherhasbeenunseasonablyhotinrecentyears,scientificevidenceforglobalwarmingremainscontroversialbecausethetemperaturerisethathasoccurredsince1900lieswithinthenormalrangeoftemperaturecycles.Onewondershowmuchoftoday'sconcernhappenstobearesultofpoliticalfashion?GeorgeWillnotesthatadecadeortwoagoweweredelugedwithsimilarfearsoverglobalcooling.39

Itseemstomethatitisnecessaryinthesepersonal,overwhelminglycomplexmatterstogobeyondmanagementandtechnologybycarefullyattendingtothesubtleinteractionsbetweenlifeanditsenvironment.Anewformof"biologic"isneededthatappreciatesthesesubtleecologicalconsiderations,thatrecognizestheuniquecharacterofeachnaturalsystem,senseseachone'sstateofecologicalhealth,learnshowtodrawwhatweneedwithminimaldisruption,anddevelopsappropriatemeansfordoingso.40Ifwecancultivateasocietyattunedtotheneedsofotherspecies,wemaythenlearntocoexistwiththeminharmony.

Asmallaccomplishmentinmylifehadagreatimpactonmyunderstanding.Ilovetobesurroundedbynature,andsoIhavecultivatedagardenthatenvelopsmyhomeinprofusegreenery.It's

notpracticalinanyeconomicsense,anditrequiresconsiderabletimeandresourcestomaintain.ButIbuiltacompostsystemthathelpsmakegardeningconvenient.Ratherthanhavingtobagleaves,grass,andthetonsofotherorganicmatteranygardenproducesandthenhavingithauledmilesawaytosomedump,Ijusttossitintomycompostbin.ThroughouttheyearIcanthenextractrichblacksoilfromthebottomthatnourishesmygardenwithbetternutrientsthancostlyanddamagingchemicals.

It'samodestsuccess,ofcourse,butI'vefoundthatthishumblesystemisnotonlyconvenient,itisalsospirituallyrefreshing.Thereissomethingaboutclosingthecycleofnaturethatstrikesmeasproper,inkeepingwith

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therhythmofseasons.TendingagardenwithgraceismysmallbutcherishedofferingtothepropagationoflifeonahealthyEarth.

Ifwecanbecomeattunedtothelargergardencomposedofthevastecologicaldiversitythatsurroundscivilization,thereisnogoodreasonwhywecannotdevelopabenignglobaleconomythatallowsustoliveinharmonywiththeEarth.Wewouldthenfindawaytobuildcleanfactories,turnfarmsandparksintochemical-freenaturalsettings,reforestdenudeddesertsandcities,downsizeourhomesandpublicbuildings,harnessthepowerofITtoreplaceneedlesstravel,andemploycountlessotherwaysofmaintainingabountiful,healthyenvironment.

Thesedifficultchangesshouldbeeasierifweseethattheyconstituteanhistoricinnovation,somewhatcomparabletotheinventionofdemocracy.Wheredemocracycreatedasustainablesocialorderbasedonthesacredrightsofpeople,theeco-economictransformationshouldformasustainableeconomicorderbasedonthesacredrightsofNature.Recognizingthatalllifeissacreddoesnotmeanwecannotharvestplantsandanimalstoservehumanneeds.Itmeansthatweshoulddososparingly,withreverenceforthepassingoftheirlivesintoours,likeasacrament.

Notes

1.SeeCarlDeal,TheGreenpeaceGuidetoAnti-EnvironmentalOrganizations(Berkeley,Calif.:OdonianPress,1993).

2.GeorgeC.LodgeandJeffreyF.Rayport,"Knee-deepandRising:America'sRecyclingCrisis,"HarvardBusinessReview(SeptemberOctober1991).ArtKleiner,"WhatDoesItMeantoBeGreen?"HarvardBusinessReview(JulyAugust1991).

3.MatthewJ.Kiernan,"TheEco-IndustrialRevolution,"Businessin

theContemporaryWorld(Autumn1992),p.133.

4.PollsterGeorgeGallupsummeduptheresultsofhissurveysonenvironmentalisminatalkgivenattheNationalPressClubinWashington,D.C.,onMay4,1992:"Thestateoftheenvironmentisnolongeranexotic,elitistissue[but]atrulyglobalconcern,reachingalllevelsofsocietyandnationsaroundtheworld."

5.MarkStarik,"WhenBusinessGoesfortheGreen,"GWMagazine(Summer1993).

6.Starik,"WhenBusinessGoesfortheGreen."

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7.DavidBrown,"CancerRiskUpSharplyinThisEra,"WashingtonPost(February9,1994).

8.EliotMarshall,"ExpertsClashOverCancerData,"Science(November1990),pp.900902;SusanOkie,"CancerRatesinIndustrialCountriesRise,"WashingtonPost(December9,1990).

9.MichaelWeisskopf,"SkinCancerRiskIncreases,"WashingtonPost(October23,1991).

10.TheodoreRoszak,VoiceoftheEarth:AnExplorationofEcopyschology(NewYork:Simon&Schuster,1992);TerrenceO'Connor,"TherapyforaDyingPlanet,"Networker(September/October1989).

11.WillisHarman,GlobalMindChange(Indianapolis:KnowledgeSystems,1988).

12.HeBochuan,ChinaontheEdge(ChinaBooks,1991);VadavSmil,China'sEnvironmentalCrisis(Armonk,NewYork:Sharpe,1993);andSherylWuDunn,"ChineseSufferfromRisingPollution,"NewYorkTimes(February28,1993).

13.Seethe"BruntlandReport"bytheWorldCommissionofEnvironmentandDevelopment,inOurCommonFuture(NewYork:OxfordUniversityPress,1987),andJimMacNeill,PieterWinsemius,andTaizoYakushiji,BeyondInterdependence:TheMeshingoftheWorld'sEconomyandtheEarth'sEcology(NewYork:OxfordUniversityPress,1991).Manyolderstudieshavepredictedatenfoldincreaseinindustrialconsumption,suchasHerbertRobinson,"CantheWorldStandHigherProductivityandIncomes?"TheFuturist(October,1977),andJayForrester,"CounterintuitiveBehaviorofSocialSystems,"TechnologyReview(January1971).

14.JohanHolmberg,MakingDevelopmentSustainable(London:

Earthscan,1992).

15.OneofthemostarticulateproponentsofthisviewisJulianSimon,oftheUniversityofMaryland.Foroneofhisrecentstatements,see"TheUnreportedRevolutioninPopulationEconomics,"ThePublicInterest(Fall1990),pp.89100.

16.SeetheviewsofWallaceKaufman,formerpresidentoftwoenvironmentalgroups,NoTurningBack(NewYork:BasicBooks,1994).JohnHeritage,"WhenEnvironmentalistsGofortheThroat,"WashingtonPost(June2,1995).GreggEasterbrook,AMomentontheEarth(NewYork:Viking,1995).

17.TheCorporateResponsetotheEnvironmentalChallenge(Amsterdam:McKinsey&Company,1991).PieterWinsemiusandUlrichGuntram,"RespondingtotheEnvironmentalChallenge,"BusinessHorizons(MarchApril1992).

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18.BoyceRensberger,"DeclineofOzone-HarmingChemicalsSuggestsAtmosphereMayHealItself,"WashingtonPost(August26,1993)."Quick,SavetheOzone,"BusinessWeek(May17,1993).

19.CurtisMooreandAlanMiller,GreenGold:Japan,Germany,theUnitedStates,andtheRaceforEnvironmentalTechnology(Boston:BeaconPress,1994).

20.ForanassessmentoftheenvironmentalproblemseeLesterBrown,StateoftheWorld(NewYork:W.W.Norton,1993),andDonellaMeadowsetal.,BeyondtheLimits(PostMills,Vt.:ChelseaGreen,1992).

21.BruceBartlett,"TheHighCostofTurningGreen,"WallStreetJournal(September14,1994).NoahWalleyandBradleyWhitehead,"It'sNotEasyBeingGreen,"HarvardBusinessReview(MayJune1994).

22.OscarSuris,"ElectricCarsAlsoPolluteAir,ERAStudySays,"WallStreetJournal(April5,1994).

23.StephanSchmidheiny,ChangingCourse:AGlobalBusinessPerspectiveonDevelopmentandtheEnvironment(Cambridge,Mass.:MITPress,1992),p.xii.

24.TheseexamplesarefromWilliamK.Reilly,"Environment,Inc.,"BusinessHorizons(MarchApril1992),pp.911;JosephF.Coates,"WasteNot,"AmericanWay(November1,1992);andWinsemiusandGuntram,"RespondingtotheEnvironmentalChallenge,"pp.1220.

25.MarthaHamilton,"SellingPollutionRightsCutstheCostofCleanerAir,"WashingtonPost(August24,1994).

26.PaulKlebnikov,"Demand-Siders,"Forbes(October26,1992).RobertRepettoetal.,GreenFees(Washington,D.C.:WorldResourcesInstitute,1992).EmilySmithetal.,"TheGreeningof

CorporateAmerica,"BusinessWeek(April23,1990).

27.SeeJimJackson(ed.),CleanProductionStrategies(BocaRaton,Fla.:Lewis,1993).

28.BrianBremner,"Recycling,"BusinessWeek(March5,1990).

29.GeneBylinsky,"ManufacturingforReuse,"Fortune(February6,1995).

30."TheGreenMachine,"Enterprise(October1994).

31.HazelHenderson,ParadigmsinProgress(Indianapolis:KnowledgeSystems,1991).HermanE.DalyandJohnB.Cobb,Jr.,FortheCommonGood(Boston,Mass.:BeaconPress,1989).

32.PeterCoors,"TheNewCorporateEnvironmentalism,"BusinessWeek(May11,1992).

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33.JosephRomm,LeanandCleanManagement(NewYork:Kodansha,1994).

34.MarthaHamilton,"FirmsSavingMoneybyPreventingPollution,"WashingtonPost(June17,1992).

35.TimothyWirth,"EasyBeingGreen,"WashingtonPost(October4,1992).

36."GunterPauliCleansUp,"FastCompany(November1993).

37.WillisHarman,forinstance,isaleadingspokepersonofthisview,whichiswelldescribedin"GlobalDilemmasandthePlausibilityofWholeSystemChange,"TechnologicalForecasting&SocialChange(May1995).

38.DanielGlick,"BarbariansInsidetheGate,"Newsweek(November1,1993).

39.GeorgeWill,"ChickenLittles,"WashingtonPost(May31,1992).

40.Theconceptof"biologic"wascoinedbyDavidWann;seehisBiologic:DesigningwithNaturetoProtecttheEnvironment(Boulder,Colo.:JohnsonBooks,1994).

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PARTTHREELEADINGINTHENEWECONOMICORDERInthisfinalpartofthebook,weturnourattentiontohowtheNewManagementhelpsmanagerscarryouttheirroleasleaders:providingguidanceinaworldofconstantchange,empoweredpeople,andaglobaleconomy.

Chapter8showsthatcreatingstrategicchangerequiresunitingtheorganizationwiththeforcesthatcausechange.Aninternalmarketrootstheorganizationintoitseconomicenvironment,whileacorporatecommunitydrawsonthediversevaluesofstakeholderstointegratebusinesswithsociety.Modermanagersusethisorganicformoforganizationtoproducecontinuouschangethroughtheebbandflowofexternalforces.

Chapter9exploreshowthecomingshifttoempoweredworkers,demandingclients,andtemporarybusinesspartnersrequiresmanagerstofindcollaborativesolutionsinthefaceofstronglyhelddifferences.Leadingwithoutformalpowercanbebestaccomplishedbydrawingontheleader'sinnerresources:reallylisteningforthemeaninginother'sviews,livingwithproblemsandcrises,andexpandingawarenesstoheightenone'sinnerwisdom.

Thefinalchapterexaminestheimplicationsofadecentralizedglobaleconomythatisemergingastheoldstructuresofbigbusinessandbiggovernmentgivewaytoshiftingnetworksofsmallenterprisesspanningtheworld.Tothriveinthisunstructuredarena,managerswillhavetoworkacrossvastculturaldifferencestoformpocketsofentrepreneurialcommunityatthelocallevel.

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8ContinuousChange:RootingtheOrganizationintoItsEnvironmentAllagreethatcopingwithchangeiscriticalnowthattheInformationRevolutionisroaringuponus,yetattemptstomanagechangedonotsucceedveryoften.Lookatthefailedpromiseofnuclearpower"toocheaptometer,"theAT&TPicturePhone,theGreatSociety,andmanyotherformidableundertakings.Ifwehopetomanageacomplexfuture,itisbesttohavenoillusions.Strategicchangeisanunusuallydifficultundertaking.ConsidertworoughlysimilarattemptstoproducemajorsocialchangeintheUSAandtheformerUSSRthattookverydifferent,unexpectedpaths.

ThehealthcaresystemintheUnitedStatesissufferingfromskyrocketingcosts,alargeuninsuredpopulation,andmediocreperformance.

1EliGinsberg,anauthorityonhealthcare,saysthat"thesystemislikelytobederailedsometimethisdecade,"andformerSurgeonGeneralC.EverettKoopclaimsthat"thereissomethingterriblywrong.Weneedacompletechange."2ThenwhydidattemptstoreformthesystemfailwhenPresidentClintonarousedthenationtoact?HereisasophisticatednationthatplannedthesuccessofWorldWarIIandlandedmenontheMoon,yetitseemsunabletochangeahealthcaremessthatislikelytogrowfarworse.

Contrastthiswiththetransitionofcommunismtocapitalism.TheSovietUnion'ssystemwassofiercelysupportedbygenerationsoffaithfuladherentsthatitdominatedhalftheglobe.Infact,Western

nationsfeared

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itwasmorepowerfulthandemocracybecauseanauthoritarianstatedoesnothavetopleaseaficklepublic.YetsuddenlythisformidablestructurebeganaconversiontothemarketsystemRussiansconsideredtheirnemesisforseventyyears.

Thereisnobetterwaytounderstandchangethanbyprobingthemeaningofthesetwocontrastingexperiences.WasMikhailGorbachevamoreskillfulchangeagentthanClinton?GorbachevhardlyintendedtobringdownCommunism;hesimplywantedtoimproveit.DidGorbachevhavegreatersupport?AsChapter10willshow,mostSovietsdidnotwanttoendCommunism,whereas,whenClintonproposedhealthcarereformin1993,morethan60percentofthepublicsupportedhimandhehadsolidbackingfromthemediaandcongress.True,theSovietsystemwasstartingtofail,butsowasAmericanhealthcarewhenClintonbecamepresident.

Ithinktheseexamplesillustratethattheprimaryrequirementforeffectivestrategicchangedoesnotlieintheleaders,theirfollowers,orthesystemitself.Thenwhatdiddrivethechangefromcommunismtocapitalism,andwhatpreventedthechangeofAmericanhealthcare?Itwastheeconomicandsocialenvironmentthatsurroundedeachofthesesystems.Amorecomplexglobaleconomyisbeingbornthatdemandsorganicmarketsratherthanthemechanisticbureaucraciesofthepast.ThisimperativeforcedtheSovietstoreplacetheirplannedeconomywithamarketsystem,anditcausedAmericanstorejecttheClintonhealthcareplanbecauseitwasseenfinallyasmorebiggovernment.

3

Thus,effectivestrategicchangerequiresfarmorethanaskillfulleaderabletoarousehisorherconstituentstoredesigntheirorganization.Executivescertainlyattempttobringaboutchange,andsomebrilliant

leadersshineatthistask.However,therealityisthattheirpowerislimitedbecausestrategicchangecanonlyoccurwhenitissupportedbytheenvironment.Skillfulmethods,soundforecasts,cleverstrategies,competentworkers,andbrilliantleadershipareneeded,tobesure-butultimatelytheirresistiblemovementofexternalforcesdetermineswhicheffortssucceedandwhichfail.Thetruesourceofstrategicchangeliesinthelargerenvironment,andmanagersareservantsofthismaster.

Thismayshockmanagersbecauseitimpliesthattheyarenotreallyincontroloftheirorganization'sdestiny,buttheimplicationsaremoresub-

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tle.Thekeytocreatingchangeistoworkcloselywiththeseexternalpowersinordertoharnesstheirenergy.Japanesecorporationsthrivedinthe1980sbecausetheyunderstoodthatmodernconsumerswerehungryforvalue,quality,andservice;theyareintroublenowbecausetheyhavenotbeenabletoalignthemselveswiththenewrealityoffast-moving,freeenterprise.TheSaturndivisionofGMstandsoutbecauseithonorsthenewattitudesofworkers,carowners,andotherforcesinitsenvironment.TheBodyShopisahugesuccess,butthisislargelyaresultofhavingchosentherighttimetotapthevastsocialchangesfavoringahealthyecologicalsystem.

Thischapterdescribesaperspectiveof''continuouschange"basedonthesymbiosisbetweenorganizationsandtheirtechnical,economic,andsocialenvironment.Justasallorganismsadapttotheirenvironmenttosurvive,organizationsmustalsoadapttotheirenvironment.ThisanalogyhelpsusseethattheOldManagementapproachestochangestrategicplanning,topdownrestructuring,andbottom-uplearninghaveproveddisappointingbecausetheyunwittinglyisolatedorganizationsfromthisexternalreality.

Butsupposewecoulddirectoureffortsoutwardtobuildexternalrelationshipsthatconvertthepowerfulbutchaoticforcesintheenvironmenttousefulpurposes?

ThatisexactlyhowtheNewManagementderivesitsspecialadvantageincreatingstrategicchange.Justasnationsrelyonenterpriseanddemocracytochange,thesesametwoimperativeshelporganizationschange.Smallenterprisesinaninternalmarketconstantlyadapttoeconomictrends,whiledemocraticgovernancebringsthechangingviewsofstakeholdersintomanagementdecisions.Ratherthanfighttheenvironment,theNewManagementusesitasaconstantsourceofenergyandinformation.

OldApproachestoaNewChallenge

Afterdecadesofdebate,thefuturearrivedinthe1990swhenmanagersrealizedthatmajorstructuralchangewasinevitable.TheConferenceBoardnoted:"Intoday'sbusinessenvironment,ignoringtheneedforchangeplacesacompanyatperil,"andBusinessWeekissuedaspecialeditionin1992on"ReinventingAmerica."

4

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Notonlyhaschangebecomeamajorconcern,ithasbecomewhatPeterVaillcalls"permanentwhitewater."

5Productionengineeringwascrucialearlyinthiscenturywhenmanufacturingsystemswerebeingdeveloped;marketingdominatedthe1950'sand1960stostimulateconsumerdemand;andfinancehasthrivedintherecentperiodofmergersandacquisitions.Asthecenturyends,however,thechallengeofadaptingtoacontinuallychangingfutureisbringingstrategicchangetothefore.AsTable8.1shows,thefocushasmovedfromproductionmanagement,tomarketingmanagement,tofinancialmanagement,andnowtostrategicmanagement.

TABLE8.1.THEEVOLUTIONOFSTRATEGICMANAGEMENT.Period MainNeed ManagementFocus19001930Manufacturingefficiency Productionmanagement19301960 Createdemand Marketingmanagement19601990Mergersandacquisitions Financialmanagement1990? Continuouschange Strategicmanagement

Theideaofstrategicmanagementhasbecomeverypopularforthisreason,butmostviewsofthisfieldseemlimitedbyconceptsoftheOldManagement.Textbooksandmanagersthemselvesusuallydiscussstrategicmanagementinessentiallythesametermsastheprocessofstrategicplanningwhichbecameoutmodedadecadeago.

StrategicPlanning:TheApproachThatFailedCommunism

Whenstrategicplanningwasatitspeakofpopularity,IconductedasurveyamongFortune500companiesandfoundthatmostofthemhaddevelopedsophisticated,corporatewideplanningsystemstocopewithanonslaughtofsocialturbulence.6Underdirectionfromthe

CEO,largecorporateplanningstaffscoordinatedacomplexprocessthatshepherdedalloperatingunitsthroughanannualplanningcycle.Theonlyproblemwasthatthisrarelyproducedstrategicchange.Yes,managersweredeeplyengrossedinformulatingimpressivestrategicplans,buttheywerenotusuallyimplemented,forahostofreasons.OnemanagerinmyCITsurveysaid:"Rarelyarestrategiesturnedintoreality."

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Thefirstroundoftheplanningcyclewasusuallystimulating,butinterestsaggedasitscomplexityescalatedintoanelaborateandpointlessannualevent.Operatingmanagerssoonfoundthemselvesspendinghugeamountsoftimefillingoutformsandattendingmeetings.Theresultwasthatstrategicplanningbecameabureaucraticroutine.Fortunesummeditupin1982tomarktheendofstrategicplanning'sinfluence:"Theprocessendsuphavingtheperverseeffectofdesensitizingpeopletostrategicissues."

7Thedisenchantmentwassobadthatmostcompaniescutbacktheirplanningefforts,andmanyabandonedthepracticecompletely.

Inretrospect,itisnowclearthatchanginglargeorganizationsissodifficultthatitcannotbe"planned"inthissense.Indeed,conventionalplanningitselfistheproblem.Ifcompaniesaremanagedfromthetopdown,planningaddsmorebureaucracybecauseitissimplygraftedontothehierarchy.Asthefailureofcentrallyplannedeconomiesshows,anytypeofcentralplanningistooslowtorespondtorapidchange,itdrivesoutcreativethoughtinfavorofworn-outroutines,underminesmotivation,andproducesotherbureaucraticsymptoms.8IrecallvisitingIBMbeforethecompany'sfallfromgraceandmarvellingathowcumbersometheirplanningsystemwas,almostlike"socialism."

Strategicplanningisstillneededtocopewithchange,asweshallsee,butitisnowconductedinaninformalmannertominimizetheseproblems.Mostimportantly,itisinitiatedbyoperatingmanagersratherthanimposedasacompanywideprocess.

RevolutionfromtheTop:ShockTherapyforCorporations

Anotherschoolofthoughtcontendsthatstrategicmanagementavoidstheseproblemsbyfocusingontheactualimplementationofstrategicchange,ratherthanontheplanningprocess.

Thisapproachmayadvocateinstilling"strategicthinking"anda"readinessforchange"throughoutthefirm,buttherealityisthatitremainsflawedbyarelianceonpower.Withoutreplacingthehierarchywithsomeformofdecentralizedsystem,thisisusuallyatop-downprocessinitiatedbyasmallgroupofcorporateexecutives:theyusuallyestablishanurgentlyfeltneedforchange,defineaguidingvision,communicateittotherankandfile,andensurethatitisaccomplished.9Widespreadparticipationmaybeinvolved,butthisisusuallyavoidedbecauseitistime-consumingand

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disruptive.Managersinoursurveyoftentoldthesamestory:"Strategyiscentralized,""Notenoughisdoneatlowlevels,"and"Employeeshavenoknowledgeofwhatisgoingon."

Forexample,thewayJackWelchrestructuredGEistellingbecauseitwasa"revolution,"inthewordsofNoelTichy,oneofthe"revolutionaries."Welchandotherexecutivesplannedthechange,somewhatlikeaplot.Asinanyrevolution,theyseizedtheleversofpowerallocationofresources,corporatecommunicationsystems,trainingprograms,andsoonandturnedthemtotheiragenda.Inasymbolicevent,WelchandhisfollowersburnedtheGEBlueBooks(policymanuals)toannouncetheendoftheoldsystem.

10GEisabetterorganizationnow,butthewayitwaschangedbearsastrikingresemblancetotheoverthrowofagovernment.

Notonlydoesonewonderaboutthelegitimacyofforcedchange,therearequestionsaboutitseffectiveness.AswenotedinChapter2,TQM,downsizing,reengineering,andotherstrategiesareusuallyforcedoncorporations,leavingbehindatrailoforganizationaldamage.Someanalystshavenotedtheclosesimilaritybetweentheseforcedattemptstoget"leanandmean"anddietingtoloseweight.Neitherworks,butweseemdeterminedtokeeptrying.Whydoesthis"managementanorexia"goon?

Thecommonbeliefseemstobethatchangeisnowessentialtosurvive,andsoCEOsimposeitinwaystheybelievewillovercometheinevitableresistanceandgetoverthepainquickly.Itisroughlyakintothe"shocktherapy"usedonsocialisteconomies.JackWelchnotedthattheroleofcorporateleadersistocreate"shock"andthenleadthecompanyintorecovery.11

Thisapproachmaysucceediftheleadersarebrilliant,asinthecaseof

JackWelchandmanyotherunusuallycapableCEOs.Butitisriskybecauseitisdrivenbythelimitedvisionofafewpeople.Thefactisthatmostleadersarefairlyordinary,andoftenflawed,humanbeings,sotheycaneasilyleadtheirfollowersoveracliff.CountlessattemptsatstrategicchangehavefailedwithvaryingdegreesofdamagebecauseCEOsthoughttheyknewbest.AmericanhealthreformdiedbecausetheClintonstriedtoimposetheirsolution."Thebillwastheproductofanivorytower,"saidSenatorCharlesGrassley.FormerCEOWilliamAgeealmostdestroyedMorrisonKnudsenCorporationbyimposingamisguidedstrategyuntilhewasoustedbyarevoltoftheboardofdirectors.12

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Suchexamplesarenotuncommonbecausetheyareamongtheintrinsicdisadvantagesoftop-downchange.Foreveryorganizationthatisrevitalizedbyagreatleader,manyothersareheldhostagebymediocreleaders.Thefuturepresentssuchcomplexitythatnosinglegroupofpeoplecanplaniteffectively.

Wewillcontinuetoseemoreofthistypeofchangebecauseitappealstothoseholdingatough,expedientviewofmanagement.However,corporateshocktherapyisallshockandlittletherapy.Economicshocktherapymaybejustifiedtoconvertsocializedeconomiesintomarketsystems,butmostcorporationsremaincentrallycontrolledhierarchiesafterallthedustsettles.

Thatisthemostseriousfaultofthisapproach.Itisatemporarysolutionthatreliesonexecutivestoperiodicallyintroducetop-downchange,ratherthancreateanorganicsystemthatisinherentlyadaptive.Top-downchangeisroughlycomparabletoforcingtheoldUSSRthroughacourseofshocktherapyonlytorestructurethesystemintoamoreefficientformofcentralplanning.

LearningattheBottom:AReplayofOrganizationalDevelopment

Attheriskofseemingdifficulttoplease,let'sexamineabottom-upapproachtochange,"organizationallearning"(OL).OLfocusesonhelpingteamscreateasharedvision,engageinhonestdialogueonhowtoachievethisgoal,andsolveorganizationalproblems.

13Theintentistolearnhowtocutthroughthemisunderstandingandconfusionthatpreventsworkingtogether.

Whowouldnotagreethatweneedtolearnhowtoworktogetherbetter,especiallyinacompetitiveworld?However,suchintensepersonalinteractioncanonlybedoneinsmallgroups.LikethelimitsofparticipationdiscussedinChapter6,thesegroupprocessmethods

aregreatforunifyingteamsofabouttwentypeople,andpossiblyunitscontainingafewhundredpeople.Buttheycanrarelyaddressthecomplexstructuralproblemsoflargeorganizations.

Iwasdeeplyimpressedbyasimilarmovementthatsweptthroughthe1960s."Organizationaldevelopment"(OD)alsousedgroupprocessmethodstovitalizeorganizationsbyalteringpersonalvaluesandworking

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relationships.DuringtheheydayofOD,mostmanagerstriedthisapproach,andtheresultswereoftendramaticaspeoplerediscoveredtheirhumanityandvowedtofosterharmony.

Thesewerefleetingeffects,unfortunately,becausethehardrealityofworklifereasserteditself,usuallycausingthesystemtoreturntothestatusquoante,oftenwithavengeance.Itbecamedearthatalargeorganizationismorethanthegoodintentionsofitsmembers.Ifthereisonethingthatmanagementsciencehasdemonstratedthroughdecadesofstudy,itisthatorganizationsarenotsimplycollectionsofpeople.Theytranscendindividualsbecausetheyaresomuchlarger,morepowerful,intricate,mythical,andenduringthatittakesaheroicacttochangethem,likeWelch'srevolutionatGE.Thatiswhypeopleoftenfeeltrappedintheirinstitutions.Thepressuresofcompetition,thelabyrinthofcommunicationchannels,persistentdifferencesinvalues,complexdepartmentalroles,lastingheritagesoffailureandsuccess,andotherstructuralfeaturesofworklifeimposeexactingdemandsalltheirown.

MymainimpressionisthatOLrepresentstherebirthofOD.Thefocusoncatharsisofpent-upemotions,authenticexpressionofdifferences,andonachievingaunifyingvitalityarestrikinglysimilar.Eventhenamesarealike.Idothinkthesegroupprocessmethodsareneededtobuildeffectiveworkteams.However,IalsosuspectthatOLpractitionersarelikelytorealizeintimethatsomethingelseislackingthedesignofsophisticatedorganizationalstructuresthatcanmakesuchbehaviorawidespread,enduringwayoflife.OLclaimstoofferinsightsfromsystemsthinking,butthatappearstobeaminorgoal,anditdoesnotrecognizethedominantneedtotransformorganizationsintoentrepreneurial,democraticsystems.Afterstrugglingtochangethewayhisemployeesworked,onefrustratedmanagerfinallygotthepoint:"Itisn'tthepeople,it'sthesystem."

ItisinterestingtonotethatOLrepresentstheoppositeofcorporateshocktherapy.Shocktherapyusespowertoforcechangefromthetop,whileOLusesteamlearningtoencouragechangefromthebottom.Thelimitsofshocktherapywerenotedabove,butconsiderthelimitsofOL.RelyingonOLtoproducestrategicchangeisroughlyanalogoustotransformingtheoldSovieteconomybyhelpinggroupsofRussianslearntoworktogetherhopingthattheywilldiscoverhowtocreateacomplexmarketeconomy.

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PrinciplesofContinuousChange

Ifcentralizedplanning,top-downchange,andbottom-uplearningdonotprovideaneffectiveformofstrategicmanagement,whatwill?Institutionsarelikepeoplewritlarge.Theyhaveahardtimeunderstandingthemselves.Theydon'tknowwhattheywant,orhowtogetit.Theyoftencan'tbringthemselvestotakeactionstheyknowareintheirbestinterests,andsotheyawaitexternaleventstomovethem.Whatunusualforcecanovercomethisinertia?

ThereaderwillnotbesurprisedtofindthatIproposeadifferentapproachtostrategicchange.Asthefollowingsectionswillshow,effectivemanagerstodaycombineinternalmarketsandacorporatecommunitywithinanintelligentinfrastructuretoharnessthepoweroftheenvironment.

AnOrganizationTreeHarnessesthePoweroftheEnvironment

Alittlereflectionwillacknowledgethatanyinstitutionisaninseparablepartofthelargerenvironment.Indeed,itismeaninglesstothinkofchangeotherwisebecauseanyorganismexistsinareciprocalsymbiosiswithitssurroundings.Allmaterials,energy,information,andeverythingelseanorganizationdependsonforitsexistenceflowfromthedynamiclifeoftheeconomy,technologicalprogress,society,andnatureitself.Likeindividuals,institutionsatrophyifisolatedfromlife,andtodayorganizationsareimmobilizedbyOldManagementstructuresthatshieldthemfromthevitalenergiesswirlingallabout.

Thecaseoftheautomobileindustryoffersanobjectlesson.DisasterbefellthebigthreeAmericancarmakersinthe1980sbecausetheylosttouchwithenvironmentalforcesbeyondtheirpower:risingglobalcompetition,theecologicalcrisis,demandsforquality,andthelike.Inaveryrealsense,thecrisisoftheautoindustrywaslife'swayofforcingthesecompaniestoreestablishcontactwiththechanging

worldaboutthem.Theyarerecoveringnowonlybecausetheyhaveyieldedamisplacedarrogancetoadapttotheseexternalforces.

Fromastrategicperspective,thepoweroftheNewManagementisthatitispreciselydesignedtoharnesstheseforcesoftheenvironment.Onlymarketscantapthevitalizingenergyofeconomiclife,anddemocracyisessentialtoconvertsocialdifferencesintolegitimategovernance.

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AswesawinChapter2,MCI,Johnson&Johnson,Hewlett-Packard,ABB,andmanyotherdynamiccompaniesareenergizedbyentrepreneurialsystemsthatcontinuallyprobetheenvironmentforopportunities.Thereissimplynosubstituteforthepowerofenterprise.Small,freeenterpriseformstheveryessenceofeconomiccreativity,andmostlarge,mechanisticorganizationsaredyingbecausetheystiflethisenergy.

AsChapter3alsoshowed,GM-Saturn,theBodyShop,HomeDepot,IKEA,andagrowingnumberofothercompanieshaveharnessedanothersourceofpowerbydrawingontheideasandvisionoftheirstakeholders.Thispowerofhumanvalues,cooperationandotherdemocraticprinciplesdiffersfromthatofenterprise,butitisequallyenergizing.Theycomplementoneanother.

WealsoshowedinChapter4thatthesetwoprinciplesforman"organizationtree,"whichisreproducedhereforyourconvenience.Atthebottom,internalenterprisesconnecttheorganizationtothegrassrootsoftheeconomy,therebyprovidingrevenue,information,andothernutrientsthatfeedthetree.Atthetop,democraticgovernanceamongstakeholdersexposesthisentrepreneurialcommunitytothelightofdiversevaluesthatfuelgrowthandguideittoserveausefulroleinsociety.

AnIntelligentInfrastructurefortheEntrepreneurialCommunity

AswesawinChapters2and3,thisentrepreneurialcommunityneedsan"intelligentinfrastructure"tohelpitcreatenewknowledgeandlearnhowtoactstrategically.OLtriestodothis,butseriousorganizationallearningismorethanthesumofindividuallearninginteams;itisthelearningofanentirecorporatesystemtoproduceahigherformofintelligence.Buthowcanweincreaseanorganization'sabilitytolearn?Byusinginformationtechnologytocreateatotallearningsystem.

Itwillsoonbepossibletocombinehigh-performinginformationnetworksanddynamicorganizationstructurestoproduceanunusualcapacitytoamassrawinformation,distillitintousefulnewknowledge,storethisintelligenceincommonknowledgebases,andretrieveitfromanypartofthenetwork.

14Theorganizationtreewouldprovidethemanagementsystem,andadistributednetworkofPCswouldprovidethe

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TheOrganizationTree.

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informationsystem.Microsoft's"Cairo,"Novell's"Tuxedo,"andotherPCnetworksarenowbeingdevelopedforthispurpose.

Thesesystemsshouldserveasthebackboneoftheintelligentorganization,constitutingacentralnervoussystemthatleveragesordinarylearningintopowerfulnewstrategiesforguidingacomplexinstitution.Ifwecarrythislineofthoughtfurther,eachindividualorteambecomesanodeintheinformationnetwork,whichthenformsasortof"corporatebrain"possessingpowersofmassintelligence.AmanageratSunMicrosystemsdescribedtheconceptthisway:"Thenetworkisthecomputer."

15

McGraw-Hilldevelopedanearlyprototypethatillustratesthisconceptnicely.Thecompanyworksinindustriesthatproducevariousformsofknowledge:publishing,informationservices,andsoon.TheCEOcreatedacorporatewideinformationnetwork,performanceincentives,andtrainingprogramstoengageallunitsinan"intellectualcommunity,"somewhatlikeauniversityorresearchlab.Thecentralelementinthissystemwasacomputerizedknowledgebasethatpooledinformationgatheredbytheunits;theycouldthendrawonthatinformationtoservetheirclientsbetter.Thesystemwasaptlycalledan"informationturbine"becauseitconvertedrawdataintoastreamofknowledgethat"powered"theorganization.

Theabilitytocreatethistypeofintelligentorganizationwouldhavevastimportanceforcreatingeffectivestrategicchange.InanIndustrialAge,competitiveadvantagewenttocompaniesthatproducedvaluablegoodseffectively,butinanInformationAgeitwillgotothosewhocanproducevaluableformsofstrategicknowledgequicklyandconstantly.

AnOrganicFormofStrategicManagement

Theutilityoftheseconceptsliesintheinsighttheyofferforcreatinganorganicformofstrategicmanagement:anorganizationthatcombinestheentrepreneurialcreativityofinternalmarkets,thepoliticalsupportofcorporatestakeholders,andtheknowledge-generatingpowerofanintelligentinfrastructure.

ThisorganicapproachissodynamicthatittranscendsthechangemethodsoftheOldManagementdiscussedabove,butthisdoesnotmeanthatthosemethodshavenouse.Onthecontrary,aswenotedinChapter1,

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theOldManagementcanplayaneffectiverolebybeingincorporatedintotheNewManagement.Here'showAndrewGrove,CEOofIntel,describestheroleofplanninginaflexibleorganizationcapableofrapidchange:

Letchaosreign,thenreigninchaos.Doesthismeanyoushouldn'tplan?Notatall....Youplanbyshapingaflexibleorganizationcapableofrespondingtounpredictableevents.

16

Considerhowanorganicformofmanagementcanovercomethedrawbackswedescribedaboveforstrategicplanning,top-downchange,andbottom-uplearning.

Strategicplanningwillalwaysbeindispensablebecauseitrepresentstheproblem-solvinglogicallorganizationsneedtosurvive.AsMichaelPorterputit,''Thequestionsthatgoodplanningseekstoanswer...willneverlosetheirrelevance."17Theneedistofreeplanningsoitisperformedvoluntarilybyentrepreneursthroughouttheorganization,ratherthancentrallyplannedbybureaucrats.AtGE,theformercitadelofstrategicplanning,strategyformulationnowconsistsofbusinessunitsdevelopingaone-pageoutlineofcriticalissuesandpossiblestrategiesforthenexttwoyears.AndrewGrovedescribesthisapproachasanaturalpartofeverydaybusiness:"Peopleformstrategydayinanddayoutastheyrespond,byvirtueoftheproductstheypromote,thepriceconcessionstheymake,thedistributionchannelstheychoose."18

Thisorganicqualityisseenintheintuitive,unpredictablewaythatmanagersmakestrategicdecisions.19Formalplanningmethodsmayusealinear,rationalprocess,butthatisnothowdecisionmakersactuallythink.Onemanagertoldmethat"strategicplanningiswhatgoesoninsidetheCEO'shead."Strategicdecisionsaresocomplex

thatmanagersmaytakeyearstodefinetheproblemandreachasolution.Theyseekinformationandideasfromavarietyofsources,continuallycyclethroughtheprobleminaratherhaphazardwayuntilitbeginstotakeshape,andfinallyreachadecisionwhenallthepiecesfittogetherintoacoherentwhole.AmarBhide'sstudyofstrategicdecisionmakingamongentrepreneursfoundthatonly28percentdevelopacompleteplan,26percentsketchoutaroughplan,5percentworkupfinancialprojectionsalone,and41percenthavenoplanatall.Bhideconcluded:

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Toomuchanalysiscanbeharmful;bythetimeanopportunityisinvestigatedfully,itmaynolongerexist....Theentrepreneuronlydoesasmuchplanningasseemsusefulandmakessubjectivejudgementswhennecessary.

20

Thisshowsthatstrategicplanningisasnaturalasordinarylearning,thesearchbehaviorofwildcreaturesstrugglingtosurvive,andallotherformsofadaptivechange.Aneffectiveorganizationhelpsitsmanagersimprovetheirownidiosyncraticapproachesbydevelopingintelligentinformationsystems,internalmarkets,andastrongcorporatecommunity.TheseelementsoftheNewManagementassistoperatingmanagersbyprovidingusefulknowledge,entrepreneurialfreedom,colleagueswhocanhelp,andthesupportofstakeholderswhomustmakeaventuresucceed.

Likewise,top-downchangeisessentialtoredefinethecorporateinfrastructure,thecorporatemission,andotherbroadelementsofplanningthatareneededtoguidebusinessunits.Thedifferenceisthatthisplanningshouldbedonedemocraticallybysomeprocessthatincludesstakeholdersandoperatingmanagerssothatitisenergizedbythediverseviewsthateveryorganizationmustreconcile.Box8.1describeshowapublicpowercompanyresolvedcrisesbyinvolvingstakeholdersinpolicydecisions.ListentohowtheCEO,PeterJohnson,describedtheadvantages:

Byinvitingthepublictoparticipate,ouradversarieshelpedusmakebetterdecisions.Wegainedauthorityandlegitimacy,avoidedcostlylawsuitsandpoliticalchallenges,andarrivedatcreativesolutionstoseeminglyintractableproblems.Havingseenourvictories,Iamconvincedthatpublicinvolvementisatoolthattoday'smanagersmustunderstand.Withexternalstakeholdersnowexertingsubstantialinfluenceineverysector,conflictisinevitable.Theonlychoiceiswhethertododgethecontroversyorlearn

howtoharnessit.

Bottom-uplearningisalsoessentialtocreateeffectiveteams,butitshouldbedonebysmallautonomousbusinessunitsaspartoftheirstrategyformulationtosucceedinamarketsystem.Box8.2describesthetransformationatXeroxfromahierarchicalstructureintoalooseassociationofself-managed,entrepreneurialbusinessteams.Here'swhattheCEO,PaulAllaire,hastosayaboutthisapproachtostrategicchange:

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Wehaveembarkedonaprocessto[become]moreentrepreneurial,moreinnovative,andmoreresponsivetothemarketplace.Ienvisionatimewhenthiscompanywillconsistofmanysmallworkgroups...tieddirectlytothecustomer[with]thecapabilitytodesigntheirownworkprocessesandtoadaptcontinuouslyasbusinessconditionschange.

21

Notethecommonelementthatmakesalloftheaboveapproacheseffective.Ineachcase,amethodisusedbecauseallpartiestoasmallenterprisechoseitasamoreusefulwaytomanagetheirownaffairs.

BOX8.1.STRATEGICCHANGEUSINGSTAKEHOLDERPOWER.

TheBonnevillePowerAdministration(BPA)wasoncemanagedinatraditionalway,whichtheagencyheaddescribed:"Iviewedconflictwithpeopleoutsidethecompanyasanannoyance.Thoseofusontheinsideknewwewerecapableofmakinggooddecisionsandmadeeveryefforttoexplainourreasoning.Wewereessentiallytellingpeoplethatweknewwhatwasbestforthem.Meanwhiletheyweretellingusthatthefather-knows-bestapproachisunacceptable."Here'swhathappenedlater:

TheFormationofWorkingRelations.BPAbegananambitiousprogramtoengageitscriticsindirectdiscussions.Managersinvitedinputfromanyone;theyheldpublichearings,adoptedsuggestions(suchasmovingtransmissionlines),releasedinternalreportsand"issuealerts"tothemediaonupcomingdecisions,andevenmetwithenvironmental"crazies."Afterthesedemonstrationsofsincerity,frank,tension-freediscussionscouldbeheldonanytopic.

SavingtheAluminumIndustry.WhentheWashingtonPublic

PowerSupplySystem(WPPSS)failed,energyratesleapedeightfold,threateningthelocalaluminumindustry,whichdependedoncheappower.BPAformedacommitteerepresentingutilities,localgovernments,thealuminumcompanies,laborunions,andprivatecitizens.Afterdozensofmeetings,attendedbyatotalof4,600people,aconsensuswasreachedthatsavedtheindustry,jobs,andthelocaleconomy,andestablishednewfoundlegitimacyforBPA.

ReconciliationonNuclearPower.Whenconstructionoftwonuclearplantsstalledduetopoliticalopposition,lossestotalinghundredsofmillionsofdollarshadtobeabsorbedbypublicandprivateutilities.BPAheldmeetingswithbothgroups,whichatfirstgreetedthemwith"hootsandhollers,"butfinallyreachedasettlementthatsatisfiedallparties.

Source:PeterJohnson,"HowITurnedaCriticalPublicintoUsefulConsultants,"HarvardBusinessReview(JanuaryFebruary1993).

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Whetheritisaunitmanagerplanninghisorherinternalenterprise,theboardofdirectorsguidingacorporation,orasmallworkteammanagingitsoperations,goodstrategicmanagementisanentrepreneurial,collaborativeprocessofproblemsolvingthatmayattimesinvolvetheuseofstrategicplanning,top-downchange,organizationallearning,oranyotherapproach.

Mostorganizationsaremovingtowardthisorganicformofstrategicmanagementasunitmanagersarefreedtopursuetheirownstrategies,assistedbyacorporateplanningprocessandcommittedexecutives(seeTable8.2).Wealsofindwidevariationinthewaydifferentindividualsandorganizationsgoaboutit.Somefeeltheneedtodefineacreativemission;othersforecasttheenvironment;manyfocusonresolvingcriticalissues;

BOX8.2.STRATEGICCHANGEUSINGMARKETPOWER.

CEOPaulAllairesetouttotransformXeroxfromatraditionalhierarchyproducingcopiersintoanentrepreneurial,market-drivensystemdedicatedtothecreation,storage,andtransmittalofreports,financialrecords,andallothertypesof"documents."Hedescribedthetaskthisway:"Thechangewearemakingwillaltercompletelythewaythiscompanyismanaged."

ManagingtheChangeProcess.A"FutureArchitectureTeam"ofXerox'sbestmanagersandemployeeswasorganizedtoplanthetransition.Theysurveyedthefieldforconceptsandexamples,studiedvariousalternativestructures,andpassedtheirrecommendationsonfordiscussionandimplementation.

NineIndependentBusinessDivisions.Themajorchangewastomovefromastaff-drivenstructuretoaproduct-drivenstructureinordertorespondquicklytotheflurryofnewtechnologiesbeingspewedoutbytheInformationRevolution.Ninebusiness

divisionshavebeenorganizedasprofitcentersthatproduceproductsfordifferentmarkets.Thesedivisions,inturn,havedozensofsmallerbusinessteamstoserveparticularcustomerneeds.Additionally,overadozenothernewproductsarebeingdevelopedbysmallXeroxsubsidiaries.

PerformanceIncentives.Tomotivateentrepreneurship,aplanhasbeensetupthatrewards2,000peoplewithannualbonusesbasedontheirperformanceatteam,division,andcorporatelevels.Allaireexplainsthelogic:"Wewantpeopletothinkintermsoftheirindividualunits,butalsointermsofthecompanyasawhole."

Sources:RobertHoward,"TheCEOasOrganizationalArchitect,"HarvardBusinessReview(SeptemberOctober1992);"RedesigningtheCorporation,"Enterprise(January1994).

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stillotherssimplyturntheirintuitionfreetothinkcreatively;somestrivetodesignnewproductsandventures;andothersprefertrainingandeducation.

22Nosingleapproachisbestbecausetheoptimumtypeofplanningshouldbechosenbytheunittosuititsspecialneeds.

Whatevertheapproach,thecentralideaistocreateafluid,organicformofstrategicproblemsolvingtobeusedfreelybyallunitsfromthecorporateboardroomtotheblue-collarworkbenches.Ifmanagershopetothriveinaworldofconstant,massivechange,strategicmanagementwillhavetobebuiltontheNewManagementfoundationofinternalmarketsandcorporatecommunitytocreateanorganicorganization.Theoutcomewouldcombinethepowerofbothtop-downleadershipandwidespreadparticipation,constantlearninginentrepreneurialunits,andvoluntaryplanningeverywhere.

Thisapproachoffersnopanaceas,certainly.Transforminginstitutionsintothistypeofsystemisitselfachallenge,andhelpingpeoplemanagethemselvesinademocratic,entrepreneurialwayisalwaysdifficult.These

TABLE8.2.ADOPTIONOFCONTINUOUSCHANGEPRACTICES.(SAMPLE=426CORPORATEMANAGERS.)

Practice

NotPracticed(03)

PartiallyPracticed(46)

FullyPracticed(710)

Mean(010)

Aformalstrategicplanningprocessisconductedperiodicallytodeterminehowcorporatestrategyshouldrespondtotechnologicaladvances,economicconditions,social

attitudes,andothercriticalissues. 11% 20% 69% 7.2Unitmanagersarefreetopursuetheirownstrategiesfortheirunits. 18 32 50 6.0Topmanagementrncouragesmajorstructuralchangeswhentheyareneeded. 12 16 72 7.3Means 14% 23% 63% 6.8Source:WilliamE.Halal,CorporationsinTransition(anunpublishedstudyinprogress).Notethatdatainthefirstthreecolumns("NotPracticed,"etc.)areaggregatedbycollapsingportionsofthequestionnairescaleasshown("03,"etc.).SeethequestionnaireinAppendixC.

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issuesofleadershipareaddressedinthenextchapter.Whattheconceptcanrealisticallyhopetoachieve,however,istoinjectavitalflowoffreshopinionanddisciplinedactionintotoday'sbureaucraciesinsum,toconnectthemwiththeforcesofcreativedestructionintheirenvironment.

ControlofLivingOrganizations

Effectivestrategicmanagement,then,cannotbesimplysophisticatedplanning,boldleadershipfrombrilliantCEOs,orenlightenedpeopleworkinginteams.Thesewillonlybeusefuliftheyarepartofadramaticallydifferentorganicinstitutionexpresslydesignedtoproducestrategicchangerapidly,effectively,andcontinuously.TheheadoftheXeroxPaloAltoResearchCentersaid,"Themostimportantinventionthatwillcomeoutofthecorporateresearchlabinthefuturewillbethecorporationitself."

23

ConstantResponsesEverywheretoExternalForces

Idon'tthinkweappreciatethefullimplicationsofwhattheseorganicsystemswouldbelike.Trulyorganicorganizationswillnotbesimply"flexible,""empowered,"orotherwise"better.''Theywillbeasfullyaliveasacolonyofbees,atree,oramarket.Onlylivingsystemsoperatingonselforganizingprincipleswillbeabletosustainthemselvesthroughthewhirlwindahead.24

Themostdistinguishing,andperhapsthemosttroubling,featureisthattheywillhavetooperatebeyondthecontrolofmanagement.Onecancontrolamachineandahierarchicalorganization,butnotabeecolony,atree,oramarket.Evenifonecould,itwoulddefeattheorganicsystem'spurposebecauseitsverynatureistoadaptthrougha

freeflowofcreativeresponsiveness.ThinkoftheInternet;whocouldpossiblycontrolthisvastoceanofcommunication?KevinKelley,editorofWiredmagazine,describedtheoutcomeoftoday'sracetoinformationnetworksthatwillsoonmergeintoaglobalwebofcommerce:

Asweunleashlivingforcesintoourmachines,welosecontroloverthem....Thisisthedilemma.[Humans]cannolongerbesovereignovertheirfinestcreations....[Systems]willbecomeautonomous,adaptable,andcreativebut,consequently,outofourcontrol.Ithinkthat'sagreatbargain.25

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Indeed,someofthecorporationsI'veworkedwithdidlosecontrolofinnovativepractices.Onefirmshowedaburstofvitalityaftermovingtoamarketsystemthatspawnednumerousventures,butpoorcontroloftherisksresultedinseriousbusinessfailures.Thisproblemmighthavebeenavoidedwithstrongerleadership,butitillustratesboththechallengeandthepotentialthatareinvolved.Organizationalfreedomunleashesgreatreservoirsofcreativeenergy,andthisenergymustbecarefullychanneledintoconstructiveavenues.

WhenIclaimthattheNewManagementrepresentsasourceofgreaterpower,Iamnotbeingrhetorical.Theintroductionofdemocracyandenterprisewillchargetoday'sorganizationswithnewlife,andmanagerswillhavetolearntoguidethislifemorecarefully.Thetaskshouldbecomparabletooperatinganuclearreactor.Enormouspowerisavailabletoserveusefulpurposes,butpulltherodsouttoofarandthereactionwillrunoutofcontrol.

Thisdoesnotmeanthatorganicorganizationswillbeoutofcontrolinthesenseofbehavinginwild,unpredictableways.Itmeansthatthelocusofcontrolwillmoveoutofthehandsoftopexecutivessothatitcanbesharedbyoperatingmanagers,workers,clients,andotherswhoareinvolved.Anorganicorganizationcanbeunderfarmoreeffectivecontrolbecausedecisionsaremadethroughoutthesystembypeopleclosetotheaction.

Thestrengthofanorganicsystemisthatitismoresensitivetotheneedforchangebecausecontrolisexercisedconstantlyallaboutinresponsetotheebbandflowofenvironmentalforces.Peopleordinarilyresistchange,notbecausetheyareobstinate,butbecausetheyarefearfulwhenchangeisforcedonthem.Ifchangeoriginatesfromthem,however,theycanacceptitbecausetheyareincontroloftheirlives.Manythriveonself-createdchangebecauseitgivesthemasenseofmasteryovertheirfuture.

Weliketothinkthatleadersbringaboutchange,especiallyinbusiness,wheredynamicexecutivesareadmiredfortheirabilitytotakechargeofcorporationsandturnthemaround.Managerscertainlystrivetoformulatestrategiesbyintroducingnewproductsandchangingtheirorganizations.ButthesearemoreliketherandommutationsthatDarwinianevolutionpresentswhensearchingforanadaptivefitbetweentheorganismanditsenvironment.Thefactisthatmanagersfacesuchuncertaintyintryingtosurviveaturbulentworldthattheireffortsoftenamounttoan

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informedgamble,almostasthoughtheywereplacingbets.Outofallthediversestrategiesthatvariouscompaniesdevise,theenvironmentselectsthosethatrepresentafunctionaladvantage.

Forinstance,PaulAllaireisrevivingXeroxonlybyacceptingthefactthatanalogphotocopiershavebeenmadeobsoletebythedigitalizationofdata,andthecompanywasthenabletodefineanewproductlinebasedondigitaldocuments.ThinkofotherrecentchangesthefallofCommunism,theenvironmentalcrisis,theriseofaglobaleconomy.Wecan'tpossiblycontrolthesehistoricturningpoints,butwecanusetheirpower.

FacingUncertainty

Here'swhatthischapterhasconcludedaboutthecriticalneedforamoreeffectiveapproachtostrategicchange:

1.Organizationsarelikeotherorganismsinthattheyaredependentontheirsurroundingsforallresourcesandinformation.

2.MostattemptstocreatestrategicchangefailbecausetheyusemechanisticelementsoftheOldManagementthatisolateorganizationsfromenvironmentalforces.

3.TheNewManagementincorporatesanorganicapproachtostrategicchangebecauseinternalmarkets,corporatecommunity,andanintelligentinfrastructureintegratetheorganizationintotheexternalforcesthatdrivechange.

4.Managerswillhavetolearntocontroltheseorganicsystemsinsubtlewaysthatinfluenceandguidetheirself-organizingbehavior.

Acknowledgingthatwearenotinfullcontrolmayprovokeanxiety,butitwillalsomakemanagementafarmoreexciting,creativeadventure.Iknowmyexperiencemanagingaerospaceprojects,businessstart-ups,conferences,andeventhepublicationofbookshas

alwaysbeen"organic."Whencontemplatinganewventure,Imaytryto"plan"itinthesenseofestimatingitsfeasibility,theobstaclesahead,andotherconcerns.Butonceunderway,everyimportantprojectIhaveeveraccomplishedhastakenonanunpredictablelifeofitsown.

Managinganewventureislikegivingbirthtoachild.Onecreatesthislivingcreature,anditthentakesovertorunitsownlife.Ihavethesense

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thatIamnotinchargeoftheventure,buttheventureisinchargeofme.Ihaveunwittinglybecomeitsservant,holdingonfordearlifeasitroarsahead.Yetsomehowthingsusuallyworkoutjustaboutastheyshould.Iftheventureisnotagreatsuccess,IfindthereweregoodreasonsthatIcanlearnfrom.ButmostoftenIamamazedatthegoodfortuneIreceive.Despitemyfears,therightpeopleseemtoappearattherighttime,eventsunfoldinwaysIcouldnothaveimagined,andcrisesusuallyturnouttobeblessingsindisguise.

Bylearningtofacetheinevitablerealitythatmanagementinvolveshugeamountsofuncertainty,wemayfindtheawarenessneededtoinfluencethosewispyforcesintheenvironmentthatshapeevents,andwewouldcertainlybebetterpreparedtoreactwhentheysurpriseus.Allthoseexternalenergiesthatnowposesuchthreatstooursenseofcontrolcouldthenpossiblybeusedtomoveprojectsahead.Justasthemartialartsconvertthestrengthofanaggressortoone'sbenefit,thisabilitytoconnectmoresolidlywiththatinvisible,fleeting,oftenmysteriousenvironmentmayallowmanagerstoconvertitsexternalthreatstotheirstrategicadvantage.

Notes

1.AlthoughtheUnitedStatesspendsmorepercapitathananynation,longevity,childmortality,andotherhealthindicesareonlyaverage.FortymillionAmericanswithnoinsuranceuseexpensiveemergencyclinicsfortheirroutinecare,whichweallpayfor.Thosewhoarecoveredhavenoincentivetoreducecosts,andthereislittlecomparativeinformationavailabletoguidechoicesanyway.Theseproblemshaveincreasedhealthcoststo14percentofGNP,andexpenditurescouldreach20percentsoon,asthepopulationages.

2.EliGinsberg,MedicalGridlockandHealthReform(Boulder,Colo.:WestviewPress,1994),C.EverettKoop,"TheHealthCare

Mess,"Newsweek(August28,1989).

3.SeeMichaelRothschild,"WhyHealthReformDied,"WallStreetJournal(September22,1994).

4.KathrynTroy,ChangeManagement(NewYork:TheConferenceBoard,1994).ReinventingAmerica,aspecialissueofBusinessWeek(1992).

5.PeterVaill,ManagingasaPerformingArt(SanFrancisco:Jossey-Bass,1991).

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6.WilliamE.Halal,"StrategicManagement:TheState-of-the-Art&Beyond,"TechnologicalForecasting&SocialChange(May1984).

7.WalterKiechel,"CorporateStrategistsUnderFire,"Fortune(December27,1982).

8.SeeDanielGray,"UsesandMisusesofStrategicPlanning,"andRobertHayes,"WhyStrategicPlanningGoesAwry,"InArthurA.Thompson,Jr.,etal.(eds.),ReadingsinStrategicManagement(Homewood,Ill.:Irwin,1990).AlsoseeIanWilson,''TheStateofStrategicPlanning,"TechnologicalForecasting&SocialChange(1990),Vol.37.

9.AgoodsummaryofthecurrentstateoftheartisJohnKotter's"LeadingChange,"HarvardBusinessReview(MarchApril1995).

10.NoelM.Tichy,"RevolutionizeYourCompany,"Fortune(December13,1994).

11.FrankSwoboda,"UpAgainsttheWall,"WashingtonPost(February27,1994).

12.DanaPriest,"WhereHealthCareReformEffortFailed,"WashingtonPost(September15,1994).BrianO'Reilly,"AgeeinExile,"Fortune(May29,1995).

13.PeterSenge,TheFifthDiscipline(NewYork:Doubleday,1990).

14.GiffordandElizabethPinchot,TheEndofBureaucracyandtheRiseoftheIntelligentOrganization(SanFrancisco:Berrett-Koehler,1994).

15.BrentSchendler,"WhatBillGatesReallyWants,"Fortune(January16,1995).

16.AndrewGrove,"FromtheFront,"Fortune(September18,1995).

17.MichaelPorter,"TheStateofStrategicThinking,"TheEconomist(May23,1987).

18.RonaldHenkoff,"HowtoPlanfor1995,"Fortune(December31,1990).

19.WilliamE.Halal,StrategicPlanning(CollegePark:UniversityofMaryland,1991).

20.AmarBhide,"HowEntrepreneursCraftStrategy,"HarvardBusinessReview(MarchApril1994).

21.RobertHoward,"TheCEOasOrganizationalArchitect:AnInterviewwithPaulAllaire,"HarvardBusinessReview(SeptemberOctober1992),pp.107121.

22.SeeJohnBryson,StrategicPlanningforPublicandNonprofitOrganizations(SanFrancisco:Jossey-Bass,1988).

23.JohnSeelyBrown,"ResearchThatReinventstheCorporation,"HarvardBusinessReview(JanuaryFebruary1991).

24.MichaelRothschild,Bionomics(NewYork:Holt,1990).

25.KevinKelley,OutofControl(Reading,Mass.:Addison-Wesley,1994),p.4.

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9InnerLeadership:HowtoHandletheComingPowerShiftReadingthepreviouschapters,you'veprobablywonderedhowintheworldmanagerslikeyourselfaregoingtoaccomplishallthesedifficultinnovations.Theideasmaymakesense,buthowwillyourestructuretoday'sbureaucraciesintomarketsystems?Unitediverseinterestgroupsintoapoliticalcoalition?Reorientsalestoservingpeople?Organizeworkteamsthatmanagethemselves?Transformoperationssothattheyareecologicallybenign?Andkeepthisentiresystemconstantlyadaptivetochange?

Youarenotgoingtodoitusingauthority,butbydrawingoutthetalentsofothers.Iwasprivilegedtowitnessavividdemonstrationofthistypeofleadershipwhenvisitingamanufacturingcompany.Incontrasttotheantagonismbetweenvariousgroupsthatwasoncerifeinindustry,thisorganizationhadlearnedtoworktogetherbyconfrontingitsdifferencesinaconstructivespirit.Seatedataconferencetableweremanagers,laborleaders,suppliers,distributors,andevenofficialsfromthelocalgovernment.Moststrikingwasthatthepresidentofthecompanydidnotseemaparticularlyimposingperson.Hehadnocommandingpresence,wasnotagenius,andshowedlittlecharisma.How,Iwondered,didhemanagetopullthisdiversegroupofbigegostogetherintoaharmoniousteam?

Asthemeetingprogressed,itbecameapparentthatthiswasadifferenttypeofleader.Hesawhisroleasencouragingthetalentsofthepeoplein

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theorganization,andsoherarelyspokehimselfbutwasmoreintentonaskingothersfortheirviews.Remarkably,hereallylistened.Unlikealmostallotherleadersoneusuallymeets,thismanwasgenuinelyhumbleinthesensethathefocusedonunderstandingtherealityofthesituation.Itwaslikeabreathoffreshair!Aleaderwhocareswhatpeoplereallythink?Whowantstohearthemessytruth?Whodoesnotimposehissolutions?Surelythiswaseitheraruseoritdidn'twork,Ithought.

Butitdidwork.Itenergizedthemeeting.Peoplebroughtouttheirproblems,theirideas,theirdoubts,theirmisunderstandings,andalltheotherhiddenagendaswenormallykeepcontainedwithinus.Thepresidentsimplyaskedanoccasionalquestion,madeafewsuggestionsforthegrouptoconsider,andtriedtoclarifywhattheyweredoing.Otherwise,thegroupcontrolledthemeeting.Mostimportantly,themeetingaffirmedthatthiswastheirorganization.Theywereresponsibleforitssuccessorfailure,sotheydidwhateverwasneededtomakeitwork.

OK,thishumbleapproachreallyworks,butwhatabouttheleader,Iworried?Hewasobviouslynot"incharge,"andinfactheseemedabitawkwardanduncomfortableattimes.Littlewonderwhenpeoplewouldsayharshthingsdirectlytohim,suchascomplainaboutsomeaspectofthecompanyandcriticizehisbehavioroccasionally.Theyevencalledhimbyhisfirstname!Howcouldhepossiblymaintainhisdignityandself-respect,muchlessthepowerneededtobeeffective?

Beneaththisappearanceofcasualdisregardwasadeepsenseofrespectandaffection.Notbecausethisleaderheldthepowerofthepresident,butpreciselyfortheoppositereason.Hehadvoluntarilyyieldedhisauthority.Theheartofthisrelationshipwasthatthepresidentwasgenuinelyconcernedabouttheneedsofthepeopleinthatorganization,andheprovidedasubtle,supportiveguidancethat

helpedthemfindthewayahead.Ironically,bygivinguphisformalpower,hewasgivenfarmorerealpower.Theywoulddothingsforthismanthatnoordinarybosscouldevenaskfor.

Hewasnotsimplyanothermemberoftheteam,however.Attimeshehadtobeartheresponsibilityfortakingsomedifficultactionontheirbehalf,suchasaskingfordisciplineorbringingupaseriousissue.Butbecausehewasatrueleaderratherthanaboss,hewasabletodothiswiththeirwillingsupport,ratherlikea"servantleader"ora"goodfather."

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Thisisonlyoneexample,ofcourse,ofthemanydifferentwaysthatgoodleaderswork.ButIthinkithighlightsakeyprincipleofleadershiptoday:Inaworldofescalatingcomplexityandempoweredpeople,leadersmustcultivatetheartofhelpingotherstosharetheresponsibilitiesofmanagement.Andthepriceoftheirsupportistorelinquishthatcomfortableoldsenseofcontrol.

Genuineparticipationisanintense,creativeactinwhichpeoplestepoutoftheircomfortablerolestoengagetheirdifferences.Ifthispainfulexplorationcanbesustainedthroughitstwistsandturns,anewclarityofawareness,ora"vision,"maybegivenustoguidethewayahead.Becausethisprocessinvolvesnurturinganexpandedsenseofawareness,itcanbesaidtobe"spiritual."Participativeleadership,then,isthefusionofhumanspiritsthatreleasesnewenergyandvision.

Thischapterexploresthisinnerdimensionofmanagementinwhichparticipativeleadershipoccurs.Webeginbyclarifyingtheillusivenatureofpowertoshowthatbothleadersandfollowersmutuallyshapeeachothers'awareness.Thenweexaminehowahistoricshifttoaformofsharedpowerisunderwaytodaythatexposesallofustostressanduncertainty.Butifleaderscandrawontheirinnerresourcestokeeptheorganizationalertinthemidstofproblemsandcrises,creativesolutionsmayemergebeyondthepowersofeithertheleaderorthefollowers.

TheChangingIllusionofPower

Wheneverpeoplediscussleadership,attentioninvariablygravitatestothatillusiveissueofpower.Theveryessenceofleadershipistogetotherstodosomething,soleadersmustfocusontheskillfuluseofpower,influence,orwhateveronechoosestocallthisforcethatpropelsaction.WarrenBennisputitthisway:"Leadershipisthewise

useofpower."

1

Inthisbroadersense,everyoneactsasaleader.Undersomecircumstances,wealltrytoinfluenceourco-workers,bosses,spouses,children,andotherrelationships.Thus,powerisaneverpresentreality,sincepeoplealwaysattempttoexertinfluence,andtheresultofallthismutualinfluenceiswhatsocialscientistscall"thesocialconstructionofreality."Powerisnotsomefixed,officialauthorityheldbyoneperson,butachanging,somewhatarbitrarywayoforganizingsocietyanillusion.

Thisfluidnatureofpowerisseeninthewidevariationittakes.Intheexampleatthebeginningofthischapter,forinstance,thecompany

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presidentshowedthatpowercaneasilybesharedwithfollowersiftheyfeelcommittedtotheleaderortheorganization.Infact,thisbenigntypeofpowerisusuallyfarmoreinfluentialbecausepeoplefeelunitedbyacommonsenseofpersonalempowerment.Witnessthemutualempowermentsharedbygreatleadersandtheirfollowers:GandhiandhisIndiancountrymen,MartinLutherKing,Jr.,andhisblackbrothersandsisters,PopeJohnPaulIIandtheCatholicChurch.

Suchexamplesarefairlycommonbecausepeoplewanttofeelasenseoftheirownpower.Psychologistsidentifythisasahealthydrivetobeeffectual,tohaveanimpactontheworld,andtoseeone'sactionsasmeaningful.Thisneedcanbepervertedinto"dominance,"ofcourse,whichiswhyanopen,aggressivedriveforpowerisoftentabooinsociety.Butweshouldacknowledgethatallpeoplehaveahealthyneedtofeelpowerfulandtoinfluenceothers.

PowerIsanInnerExperience

Thewidespread,changingpursuitofpoweris,however,oftenaccompaniedbyconflict,confusion,anddoubt,largelybecauseitissooftenaforbiddensubjectandisusuallypursuedaloneandinsilence.

AfewyearsagowhenIwasaconsultanttoamajorcompany,Iexperiencedanexhilaratingbutpainfullessoninthewaysofpowerthathelpsclarifythisproblem.IhadbeenaskedtoadvisetheirmanagersabouttheNewManagement,andtheywereintriguedtoseethatamoreeffectivetypeofcorporationcouldbedevelopedusingtheseprinciples.Iwasthenaskedtohelpimplementthisconceptintheiroperations.

Well,youcanimaginethatIwasflyinghighattheprospectofseeingmyideasbroughttolife.Itmademerealizetheattractionno,theaddiction,thatgripsthosewhotastegreatpower.Usingone'sabilities

toswaytheopinionofothersisaheady,deliciousfeeling.Incontrasttothestruggleofdailylife,powerconveysasenseofmasteryoverourenvironment.AsthepoliticalTVtalkshowhostJohnMcLaughlinputit,"Powerisanexperienceasintenseassex."

Butthestorygetsbetter.Thecompanyaskedmetoconductaprojectthatrequiredgainingthesupportoftwenty-fiveotherbigcorporations.Whentheprojectwascompleted,Iorganizedameetingofallthemanagers

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todiscusstheresults.Atthemeeting,Istrodetothepodiumsavoringthethrillofaccomplishment,madesomebriefremarks,andnotedthatthisprojecthadsucceededbecausetheyhadallworkedtogethercooperatively.

Unfortunately,Imadethemistakeoftakingmyobservationstoofarbysayingthattheyshoulddevelopasimilarcooperativespiritwiththeiremployees,customers,andotherstakeholders.Suddenly,lookingoutatallthosefaces,Ifeltwavesofresentmentflowingtowardme.TheyrightlyfeltthatIwasmisusingmyroletolecturethem.Whenthefullforceoftheirangerhit,Iwasplungedintothenightmarethathauntsspeakers,apanicattack.InfrontofallthoseimportantpeoplewhoIhadwantedtoimpress,Ijuststoodthere,wordless,unabletofindawayoutofmyterror.Itwasonlyafewsecondsreally,butitseemedlikeanendlessordeal.

Idescribeboththehighsandthelowsofthisexperience,eventhoughtheyarebothembarrassingindifferentways,toillustratehowdeeplyweoftenexperiencetheuseofpower.Thinkofatimewhenyouhandledatoughinterpersonalsituationwellandfeltaglowingsenseofachievementorwhenyoumishandledasituationandfeltthepowerdrainfromyou.Suchdeepfeelingsarecommonbecausejoustinginthearenaofpowerisafactoflife,andtodaythegameisplayedatapsychiclevelaswetestourbeliefs,knowledge,andwillagainstoneanother.Itwouldbegreatifwecouldallworktogethercooperatively,butthatdoesnothappenveryoften.

Entirelibrarieshavebeenwrittenonleadershiptraits,styles,andskillstoclarifythesemurkymatters.

2This"outer"view,focusingontheleader'sbehavior,isuseful,butitmissestheinnerrealityfromwhichpoweremanates.Intheexperiencedescribedabove,myouterbehaviorandthatofmy

audiencemakesnosensewithoutunderstandingtheinnerforcesatwork:mypushyneedtochangethesemanagers,theirsenseofresentment,myfearfulreactioninthepanicattack,andsoon.Here'showRobertRabbin,headofaconsultingfirmthathelpsmanagerscultivatethistypeofinnerunderstanding,describesit:

Learningaboutawarenessteachesusthatlifeisactuallyan"insidejob."Ourexperiencesandabilitiesareanimprintofourawareness....Thequalityofourawarenessdeterminesthequalityofourlifeandactions.3

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TheComingShiftinPowerStructures

Theinnerdomainofleadershipisbecomingespeciallyimportantnowbecauseahistoricshiftintheuseofpowerisdisruptingtheoldrelationshipbetweenleadersandfollowers.

Figure9.1illustratestheevolutionofpoweroverthelongterm,showinghowthedominantformofleadershiphaschangedinresponsetotwocentralfactors.AsnotedinChapter6,increasinglycomplextechnologiescreateafundamentaladvanceintheeconomicfoundationofwork,which,inturn,drivestheprevailingculturetowardhigher-ordervalues.Theresulthasbeenaslowbutsteadyincreaseinfreedomateachstageofdevelopment:fromtheabsoluteruleoffeudallords,totheauthorityofindustrialbosses,tothehumanrelationsleadersoftoday'sserviceeconomy,andsoon,toself-managedteamsofknowledgeworkers.

4Thisisonlyageneraltendency,ofcourse,butaquickscanofhistorybearsoutthistrend.

Agrariansocietiesareusuallymarkedbyautocraticleadersbecausetheseareprimitiveculturesinwhichpeopledosimpleworkandliveatasubsistencelevel.Itisnocoincidencethatmostundevelopednationsarestillgovernedbykingsanddictators.

Industrializationgenerallymovespowerupanotchtotheuseofformalauthorityforinstructingprofitmaximizers"economicmen"atroutinejobs.Industrialbossesdidnotrulebysheerforce,butdevelopedarationalformofcontroltomanagefactoriesefficiently.

Asautomationreplacedindustrialjobs,aservicesocietydevelopedinthe1950stofocusonpersonalservices.Becauseworkwasmainlyconcernedwithmanagingsocialrelationshipsamongwhite-collaremployeesharmoniously,a"humanrelations"styleofleadership

emerged.Theleaderwasstillinchargebuthadtocultivateawarmemotionalatmosphereamongaunifiedcorporatefamily.Thismodelgenerallyprevailsinmostorganizationstoday.

Now,asrobotsandinformationsystemsautomatefactoriesandoffices,teamsofskilledprofessionalsmustmanagecomplexbusinessventures,solvetechnicalproblems,andprobetheboundariesofaknowledgeeconomy.Notonlyareeconomiesbecomingunusuallycomplex,amoreeducated,sophisticatedbreedofknowledgeworkerisappearingthatismotivatedbyachievement,creativity,and,especially,controlovertheirwork.

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Figure9.1.TheEvolutionofLeadership.

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Theresult:ahistoricupheavalinpowerstructuresisunderway.JackWelch,CEOofGE,summeduptheneed:"Ina[world]wherewemusthaveeverygoodideafromeverymanandwoman,wecannotaffordmanagementstylesthatsuppressandintimidate."FrankDoyle,GE'svicepresidentforhumanresources,added:"Powerintheninetieswillbepeoplepower.Powerwillgotoemployeeswithadaptablemindsandflexibleskills."Here'showAlvinTofflerdescribedthecomingpowershift:

Theentirestructureofpowerthatheldtheworldtogetherisnowdisintegrating[dueto]theriseofaradicalnewsystemforwealthcreationinwhichinformationplaysadominantrole.Theessenceoftheneweconomyisinnovation.

5

ThispowershiftamountstoapeacefulrevolutionthatcouldproveasunsettlingasthegreatrevolutionsthatcreatedmoderndemocracyintheUnitedStatesandEurope.Evennowemployeesaregainingcontrolovertheirtimeschedules,theyoftenhaveaccesstothecompany'sfinancialrecords,determinehowtoperformtheirjobs,chooseco-workersandsuppliers,challengeunjustfirings,andevenevaluatetheirsuperiors.6Aspowermovestoworkers,howwillmanagersguideallthisrawenergyintousefuldirections?

RiseoftheInformalOrganization

Thesedemandsforsharingpowerarelikelytoproveemotionallyvolatile.Theproblemcanbeunderstoodbycomparingthe"formal"and"informal"levelsoforganizationtothe''conscious"and"unconscious"levelsofhumanthought.Fromasystemsperspective,bothorganizationsandindividualsmanifestoutwardbehaviorthatseemsrational.Formostofus,theconsciouslevelofthoughtseemsfairlycoherent,andmostorganizationsappeartobemanagedinan

orderlyfashion.Butbeneaththesurfaceofbothsystemsliesaseaofturbulentenergy.

Theunconsciouslevelofthoughtcomprisesthatinnerdomainoffantasyandprimalurges,whichSigmundFreudidentifiedaslyingdeepwithinthehumanmind.ItscounterpartinmanagementistheinformalorganizationthattheHawthornestudiesdiscoveredatroughlythesametimeFreud'sworkwasgaininginfluence.Itistheunofficial,hidden,andsomewhatzanywayorganizationsactuallybehavebeneaththeformalsurface:

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thebootleggedjobsand"skunkworks,"unofficialleaders,thegrapevine,andalloftheothernatural,rawbehaviorthatemergesspontaneouslywithinanysocialsystem.

7

ApopularexampleoftheinformalorganizationisattheheartofthefamousmovieandTVseriesM*A*S*H.Twosurgeons,HawkeyeandBJ,makebathtubgintotoleratethehorrorsofwar.Thecompanyclerk,Radar,actuallyrunstheunitbecausetheCO,ColonelBlake,isalwaysbusyfishing.Andeveryoneacceptsthefactthatoneofthemedicalcorpsmen,Klinger,isacross-dresser.Yetthebizarrebehaviorofthismilitaryunitsomehowhasalogicofitsownthatallowsitsmemberstoworktogethereffectively.

Althoughmanagersknowthatinformalactivitygoesonunderground,today'spowershiftiscausingtheinformalleveltosurface.Asauthoritariancontrolyieldstoparticipation,theinformalorganizationrisestochallengetheformalsystem.Educatedemployeesinsistoncontrollingtheirwork.Customersmakegreaterdemandsforqualityandservice.MajorinvestorsreplaceCEOs.

Theproblemisespeciallyvisibleonthecommunicationnetworksthatwillsoondominate.IntheInternet,greattimeandenergyisdevotedto"flaming"becausetheanonymityofnetworksbringsoutthehiddenimpulsesinpeople.Whenpersonalityclashesoccur,peopleoftenunleashthoseimpulses,spewingbileincyberspace.Thesamehappensinbusiness.OneCEOconvenedan"electronicmeeting"tospuropendiscussion,onlytoseetopmanagementattackedsoviciouslythathehadtopulltheplug.8

Thesavingfeatureisthatthisriseoftheinformalorganizationalsopresentsavastnewsourceofcreativeenergy.Infact,thisunionofthe

formalandinformalorganizationsiswhatmakestheNewManagement"organic."HalHinson,ajournalist,hasclaimedthat"weareonthebrinkofarenaissanceofspiritthatwillmakethe'60slooklikeadressrehearsal.Thesignsofthisculturalrevolutionareeverywhere."9Thesignscanbeseeninthe"liberated"womenwhopursuecareers;the"men'smovement''thataimstonurturemalesensibilities;andawaveofinterestinspirituality.Fortunesaidofthisperspective:"Thenewparadigmputspeopleatthecenteroftheuniverse."10

Obviously,managerswillhavetobefarmoreskillfultodirectthisrawenergyintoproductivedirections.Theywillhavetoshedtheirmaskofauthoritytomeetpeopledirectly,facingallthestingingcriticism,outrageous

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demands,andotherdisplaysofhumannaturethathavebeensuppressedbyauthoritariancontrols.Andemployeeswillbeequallyunsettledatseeingthatmanagersarenotreallydemigodswithalltheanswersbutfalliblehumanslikethemselves;theywillthenhavetoassumetheresponsibilitiesthatmanagersarebeingaskedtorelinquish.Withmanagersandemployeesstrippedoftheiroldillusions,bothpartiesmaythenbeabletosettleinforthehardbutrealistictaskofmakingparticipationwork.

PrinciplesofInnerLeadership

Asillustratedinthischapter'sopeningexample,theparticipativeleaderplaysaneutralroleoffacilitatingashareddecision-makingprocess:encouragingopendiscussion,clarifyingissuesandresolvingconflicts,summarizingkeythemes,anddrawingoutasatisfactoryconclusion.Table9.1showsthatmanagersgenerallyaccepttheneedforparticipationnow,anditisevenbeingpracticedinpolitics.Oregon'sGovernorBarbaraRobertsorganizeda"ConversationwithOregon"programin1992usingwidespreadopinionpollsandelectronictownmeetingstoengagecitizensinapublicdebateovercrucialstateissues.

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TABLE9.1.ADOPTIONOFPARTICIPATIONPRACTICES.(SAMPLE=426CORPORATEMANAGERS.)

Practice

NotPracticed(03)

PartiallyPracticed(46)

FullyPracticed(710)

Mean(010)

Theleadershipstyleofmanagementisparticipativeinmostrespects. 13% 24% 63% 6.9Thecorporatemissioniswell-definedandgenerallyaccepted. 8 20 72 7.5Majordecisionsanddisagreementsare

discussedopenlyamongthoseconcernedtoreachconsensus. 11 20 69 6.7Means 11% 23% 66% 7.1Source:WilliamE.Halal,CorporationsinTransition(anunpublishedstudyinprogress).Notethatdatainthefirstthreecolumns("NotPracticed,"etc.)areaggregatedbycollapsingportionsofthequestionnairescaleasshown("03,"etc.).SeethequestionnaireinAppendixC.

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Whiletheconceptissimple,itsexecutionissurprisinglydifficultbecausetheoutcomemaybesotryingthatitteststheskillofthebestleader.That'swhymanagerscontinuallyagonizeovertheproblemofgettingemployeestoassumeresponsibilityfortheirbehavior.Thereisnoreallygoodsolution,obviously,butthefollowingsectionsdescribethebenefitsoflearningtolivewithproblems,tolistenforunderstanding,andtotrustone'sinnerwisdom.

TheseapproachesmakeevenbettersensewhenweseethattheyreflectthethemesofdemocracyandenterpriserunningthroughtheNewManagement.Thepurposeofparticipationistwofold.Onegoalistoengageknowledgeablepartiesinmanagingtheorganizationmoreeffectively;this"enterprise"dimensionrequiresasharpfocusonproblemsolvingandaccountabilityforperformance.Theotherpurposeistoensurethatmembersofthecorporatecommunityareinvolvedsothattheoutcomereflectstheirinterests;this"democratic"dimensionleadstotheneedforlisteningcarefullytooneanotherandtoourinnerwisdomaswell.

LivingwithProblemsandCrises

AstheroutineworkoftheIndustrialAgeyieldstothecomplexdemandsoftheInformationAge,theveryessenceofworkisincreasinglyconcernedwithproblemsolvingonaregular,continuingbasis.Afterall,thepurposeofaknowledgeeconomyistogainbetterinformationandtouseitinsolvingproblemsmoreeffectively.Thus,managerstodaymustaccepttherealitythatthecentraltaskoftheirorganizationistolivewithproblems.

Now,thisistoughbecauseproblemsareusuallydefinedinnegativeterms.Theyareseenasdeviationsfromthenormalorderandsatisfactionwewant,bringinginsteadthestressandconfusionwetrytoavoid.ManagerswhorespondedtotheCITsurveydescribedthetypicalsituationthisway:"Problemsarenotopenlyaddressed,which

causesmuchdissension,"and"Disagreementsfrequentlyescalateandhavetobetakenbehindcloseddoors."

However,problemsareactuallynaturaleventsintheprocessofchange.Acrisisinsomeinstitution,forinstance,highlightsthelimitsofthesystemsothatallcanseetheirdangeroussignificanceinstarkclarity,therebymobilizingopiniontomovethesystemtoitsnextstageofdevelopment.TheUnitedStatesisacrisis-drivensocietybecauseactingoncrisisispractical.It

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wouldbeniceifcrisescouldbeaverted,butthatrequiresunusualforesightanditwouldnottriggertheattentionneededtodriveseriouschange.

Moreover,problemsareprevalentbecausetheworldispassingthroughaperiodofupheaval,soitisonlyrealistictoacceptthisturbulentstateofaffairsandlearntolivewithitgracefully.Wemightthenfindthatlivingwithproblemshasitsbenefits.Oneofthegreatesttestamentstothepowersofthehumanspiritistheremarkablewaypeoplefindthecouragenotonlytoendurebutalsotofindmeaninginpoverty,failure,andeventerminalillness.

12Wemayneverenjoyproblems,buttheyhelpusshedourpreconceptionsabouttheworldsothatwemayacceptrealityinstead.

IwasshockedattheelectionofRonaldReaganin1980becauseitviolatedmyliberalinstincts.Butafterponderingthemeaningofthiscrucialvote,Icametoseethedebilitatingproblemofbiggovernmentandthefundamentalimportanceofindividualfreedom.Thiscrisisinmyintellectuallifehasprovencentraltomypresentfocusonsynthesizingliberalandconservativephilosophies.Indeed,thisbookwouldbefarweakerifIhadavoidedfacingthemeaningofthe"ReaganRevolution."

Thus,problemsservetheessentialpurposeofdemandingthatwelearntocopewithacomplexworld.Theyforceustogrowincharacterandwisdom.Withoutproblems,wewouldremainchildren,andourinstitutionswouldbeprimitive,boringplaces,ratherthantheexcitingarenasofactiontheyaretoday.TheNewManagementchallengesustoacceptproblemsasanessentialpartofcreativework.Ratherthanresisttheirdemands,problemscanbewelcomedasaninvigoratingdisciplinefromwhichwecandrawstrength.

OneofthemosteffectivelecturesI'veevergivenwasdeliveredduringapersonalcrisis.Myinfantsonwasinintensivecare,strugglingtosurvivethethreatofagravedisease.Ihaveneverbeensoterrifiedinmylife,butIhadaclasstoteachandthoughtitmighthelpdivertmymindfromthisordeal.Ifeltnumbgoingtotheclassroom,yetoncethereanextraordinarycalmnesscarriedmethroughthemeeting.BecauseIhadtranscendedmynormalworriesaboutdoingagoodjob,thelecturewentfarbetterthanIcouldhaveimagined.Withouttryingorthinking,pointafterpointflowedbetweenmeandmystudents,backandforthinagentle,accuraterhythmthatleftusallalittlehigh.

Mysonsurvivedandisfinenow.Ilearnedthatthereisasmallcenter

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ofpeacewithineventhemostdevastatingordeal,aplacewherewemustsurrenderourwilltoeventsbeyondourcontrol,hopefullytobecaredforbysomehigherpower.ThismustbethewayJohnKennedyfeltduringtheCubanmissilecrisisashewaitedtoseewhethertheSovietswouldstartWorldWarIII.

Creativemanagersgothroughasimilarprocess.SpringfieldManufacturingfacedthelossofacontractthatthreatenedtoidleone-thirdofitslaborforce.AsBox9.1shows,theCEOtookthedecisiontohisemployees,andafteragruelingyearofall-outeffort,theyavoidedlayoffsandgainedasenseofpurpose.InBox9.2,WilliamPeace(Iamnotmakingthisnameup)findsthatconfrontingsensitiveproblemsproducessurprisingbenefits,eventhoughheisoftenembarrassedandpainedbytheexperience.

FeelingvulnerableisincreasinglycommonbecausenobodyreallyknowshowtohandlethaupheavaloftheKnowledgeRevolution.Yes,afew

BOX9.1.SPRINGFIELDMANUFACTURING'SMOMENTOFTRUTH.

SpringfieldManufacturingwasthrivingduetoalargecontractwithGeneralMotors.Suddenly,GMcancelleditsplanstohave5,000enginesrebuilt,threateningtolayoffone-thirdofSpringfield's500-personworkforce.Afteragonizingoverthecrisis,JackStack,Springfield'sCEO,thought,"WhyamIsittingheretryingtomakethisdecisionforallthesepeople?Theyshoulddecideforthemselves."

TheCompanywideDecision.TheCEOcalledacompanywidemeetingatwhichheexplainedthesituationascandidlyaspossible,pointingoutthealternatives.IfSpringfielddidnotcarryoutlayoffsandwasunabletogenerate50,000hoursofnewwork,

theresultinglossofincomewouldrequirelayingoffevenmorepeople.Theunanimousdecisionwasto"goforit."

TheStruggle.Theentireworkforcestruggledtobringinnewwork,venturingintoproductsandmarketsunknowntothem.Peopleworkedsuchlonghoursunderstressthatsomebrokedownintears.Buttheresultwasanincreaseinrevenueoverthepreviousyear.

TheRealization.TheCEOrealizedthatthecompanymighthavediedifithadacceptedthelayoffsandthathewasrighttohavetakenthedecisiontotheworkers:"Icouldn'tmakethedecisionmyself.Itwastheirfuture.Maybethat'swhywe'rehere.I'dfeltforalongtimethiscompanyranondivineintervention,thattherearehigherlawsinthisworldwedon'tunderstand."

Source:JackStack,"CrisisManagementbyCommittee,"Inc.(May1988).

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BOX9.2.THEHARDWORKOFBEINGASOFTMANAGER.

WilliamPeacecallshisapproachtoleadershipbeinga"softmanager":"Itrymybesttobetentative,andIcherishmyownfairshareofhumanfrailty.Openness,candor,sensitivity,andawillingnesstosufferpainfulconsequencesareproductivemanagementapproaches.Beingvulnerabletothegive-and-takeofemotionalcrossfireandintellectualdisagreementmakesusmorehuman,morecredible,andmoreopentochange."

FacingPeopleYouHavetoLayOff.AsageneralmanagerofaWestinghousedivision,Peacehadtolayofffifteenpeople.Ratherthanhaveastaffmembertellthem,hetoldthemhimself."ItwaswithoutadoubtoneofthemostpainfulmeetingsI'veeverattended.Yet,Ifeltacertainnewclosenesstothosepeople."Laterhenoticedtheremainingemployeesseemeddeterminedandcheerful,andwhenhehadanopportunitytorehirethefifteenfiredworkers,theyallcamebackingoodspirits."Iammoreandmoreconvincedthatthe'success'ofthatmeetingwasduetothefactthatitmademevulnerabletothecriticismandangerofthepeoplewelaidoff."

ConfrontingUnionOpposition.Onanoccasionofunionconflict,Peaceheldameetingwiththeunionmembershiptoaskforsupport.Thepresentationwasanightmare.Theyheckledhimmercilessly,theyshoutedabuseandthreats.Butlaterhewastreatedwithrespect."TheywouldlistentowhatIhadtosayreallylisten."Becauseheopenedhimselftocriticism,peoplewereinclinedtobelievehim.

Source:WilliamPeace,"TheHardWorkofBeingaSoftManager,"HarvardBusinessReview(NovemberDecember1991).

outstandingpeoplearesmarterandbraverthanmostofus,buttheyalsohavethesameunavoidabledoubts.Goodleaderswilloftenadmitthattheyreallydonotknowwhattodoindifficultsituations.RandyBerggren,manageroftheEugeneWater&ElectricBoardinOregon,wasrestructuringalargepublicutilitytomeetnewcompetitionwhenhefoundhimselfacknowledgingthatheneededhelpfromhisfellowworkers:"Ijustcameoutandsaid,'I'mconfusedandalittlescared.'Itisn'twhatpeoplewanttohear,butI'mnotall-knowing.Ihelppeopletohelpme."

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AsBox9.3shows,socialscientistsunderstandthatpeopleinvolvedincreativeproblemsolvingalmostalwayspassthroughthistypeofintense,painfulprocessinordertogainavisionofsomefreshinnovation.Leadingoldinstitutionsintoaneweraisoneofthemostcreativetasksofourtime,somanagerswillhavetolearnhowtoliveinthemidstofformidableproblemsandcrises.

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BOX9.3.THENATUREOFCREATIVEPROBLEMSOLVING.

Thefollowingcommentsfromthestudyofcreativityillustratethatstrugglingthroughaturbulent,painfulproblem-solvingprocessisessentialtoproducecreativesolutions:

IraProgoff:"Thereisnosuchthingasacreativeactwithoutanxiety,depression,ordifficultyprecedingit."

ErnestBecker:"Thecreativepersonbecomesthemediatorofnaturalterroranddevelopsanewwaytotriumphoverit."

RolloMay:"Oneneedscouragetobringanythingnewintotheworld,toconfrontthe"nothingness"ofone'sfuture...andgiveitmeaning."

Sources:ErnestBecker,"TheDenialofDeath,Co-EvolutionQuarterly(Fall1977);RolloMay,TheCouragetoCreate(NewYork:Norton,1975).

ReallyListening

Thesecondrequirementforparticipativeproblemsolvingistoreallylisteninordertofullyunderstandthemessycomplexityofproblemsandthewildlydifferentideasothersholdaboutthem.

Theartoflisteningisoftendiscussedbutseldompracticedbecauseitisademandingdiscipline.Itisunfortunatelytruethatmostpeoplefeelchronicallydeprivedofbeingheardinadeepwaythatfullyappreciatestheiruniqueviewsandstruggles.Whensomecaringsouldoescomealongtoreallylisten,theaveragetroubledindividualwillsoeagerlyunburdenhim-orherselfthatthelistenermayhaveahardtimedisengaging.Thebeneficialeffectsaresogreatthatanentireschoolofpsychotherapyhasthrivedbasedonnothingmorethan

listening.

ItmaybeOKforatherapisttopatientlywaitforaclienttoprobethewindingrecessesofhispsyche,buthowdoaction-oriented,hard-drivingmanagershandleaimlesstalk?Iamstruckwiththeevanescentqualityofmostdiscussions,theunpredictablewaythatagroup'smoodcanformoutofnothing,meanderabout,andmoveinimprobabledirectionsonwhatappearstobesheerwhim.Itiscommontoseeagroupreachconsensus,whensuddenlysomesmalleventwillswingthemooddramaticallytoanoppositeconclusion.

IvividlyrecallwhenRonaldReaganwasdebatingWalterMondale

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duringthe1984presidentialelectioncampaign.Reaganhadbeenshowingsignsofoldage,andpublicopinionwaspoisedtoleapatanyfurtherhintofweaknessasconfirmationthathewasnowtoooldforoffice.WhenMondalebroughtuptheissueofage,Reagansummonedhismasterfulwittoannouncethathewasnotgoingtotakeadvantageofhisrival'syouthfullackofinexperience!Theaudienceroaredatthiscleverreversal,andevenMondalejoinedinthelaughter,therebyburyingtheissueforgood.WalterMondale'scampaignwentsteadilydownhillafterthatturningpoint,leavingadistinctsensethatthereelectionofRonaldReagantohissecondtermwasdecidedbythattrivialbitofhumor.

Howcanmanagerscopewithsuchflightybehavior?Someofitispurefroth,butIhavefoundthatthereisusuallyadeepwisdomtogroupdiscussionsthatisnotreadilyapparent.Groupsmaypursuecircuitouslogic,butiftheleadergivesuppriorexpectationsandlistenswithacareful,receptivemindtocapturesubtlemeanings,themostoutlandishpointscanprovetobenuggetsofgoodfortunedroppedquietlyintoone'slap.

Forinstance,thereisnobetterwaytoconfirmanargumentthantobechallengedbyanespeciallystrongobjection,andthentoturnthatobjectionintosupport.Asateacher,Ihaveanguishedoverobjections,andtimeandtimeagain,Iinvariablyfindthattheywereopportunitiestolearn.Ifonecancontainthefearofbeingprovedwronginordertolistencarefullyandaskprobing,honestquestions,aresolutionusuallyappears.

FindingThatInnerWisdom

Listeningtoothersinordertounderstandthemisessential,butparticipationisatwo-waystreet,andthemostprofoundsourceofunderstandingislikelytobefoundwithinoneself.Theinnerexperienceofleadership,then,ultimatelytakesustothespiritual

domainfromwhichallpoweremanates.

Withoutapproachingthatcontroversialrealmknownasthe"divine,"wecanadequatelydiscussthespiritualdomainasconsistingofthehumanspirit,thatvastinnerworldofperception,knowledge,emotion,intuition,andothersubtlesourcesofunderstandingthatcreatesouruniquesenseofawareness.Managersareapproachingspiritualitytodaybecauseitis

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becomingapparentthatthisisthesourceofallvalues,beliefs,andothertranscendentqualitiesthatgovernthewaywelive.ListentohowJerryRosenbaum,presidentofanaffiliateofConnecticutMutualandaformerGreenBeret,describedit:"I'mconvincedthatlifeisamanifestationofmysubconsciousthoughts.SoIhavetodevelopabeliefsystemthatwillallowmetocreate[thetypeoflife]Iwant."

14

AsRosenbaumsuggests,today'sinterestinspiritualityisdistinctivebecauseitisoftenseenasameanstocontrolone'slifemoreeffectively.ThatmayexplainwhyAmericansdespitealonghistoryofcynicismareembracingspiritualityinrecordnumbers.ItisestimatedthatalmosthalfofAmericansareactivelyinvolvedinsomeway.Thisisnotthe"old-timereligion"butapersonal,practicalvarietylearnedthroughpersonaldevelopment,meditation,twelve-stepprograms,andotherapproaches.15Amajorreasonsocietyisawashinirresponsiblebehaviorcrime,drugabuse,violenceisthatwehaveignoredtheserealities,andsoatleastpartofthesolutionliesinsomeformofspirituality.WilliamRaspberry,aPulitzerPrizewinningjournalist,notesthatonlyspiritualconversionseemstocuredrugaddicts.16

Speakingasonewhohaspracticedthisformofspiritualityfortwodecades,Iseeagrowinghungerformakingpeacewithone'sinnerselfandforfindingmeaningbeyondmaterialgratification.AswesawinChapter4,societyisalwaysevolving,andbeyondtheInformationAgewearelikelytodiscoveraninfiniteworldofthespirit.

AsBox9.4shows,anumberofleading-edgemanagersnowusemethodsforshapingawarenesswiththesamefervortheyhavepreviouslyembracedothermanagementpractices.Someofthesemethodsmayprovetobepassingfads,butthedomainofthespiritissopowerfulthatitseemslikelytobecomeacentralpartof

management.Lotus,AT&T,Boeing,andothercompaniesareformingvariousspiritualityprogramstoexaminetheirapproachtomanagement.ABoeingmanager'sfirstreactionwas"Whatawasteoftime."Helateradmittedit"helpedustothinkdifferentlythanweeverhadbefore.Wehadtolookinsideofourselves."17

Ifbusinessmorefullydevelopsitsuseofvision,reflection,andotheressentiallyspiritualdisciplines,managersmaycometoresemblesamuraiwarriorsastheydrawonthesehigherpowerstotransformalargecompany,introduceaglobalproduct,ortakeotherheroicactions.Here'showa

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BOX9.4.MANAGEMENTPRACTICESFORSHAPINGAWARENESS.

While"spirituality"mightseemdifferentfromothermanagementtechniques,itisremarkablehowspiritualpracticeslendthemselvestobusinessuse.Thefollowingexamplescanbethoughtofas"managementtoolsforshapingawareness."

StrategicVision.Theideaof"vision"wasoncerestrictedtomystics.ButnowtheconceptissoingrainedinbusinessthatIBM'sCEO,LouisGerstner,createdascandalbyannouncing,"ThelastthingIBMneedsisavision."

CorporateCultures.Someofthemostsuccessfulcorporationshavecorporateculturesinfusedwithspiritualmeaning.Forinstance,MaryKayCosmeticshasgrownfrom$198millionsalesin1963toalmost$1billionin1993asaresultofaspiritualphilosophyandtheCEO'scharisma."Sheisrevered....Thegiverandreceiveroftruelove.Cynicsdonotremaincynicsinherpresenceforlong,"saidFortune.

ProcessFacilitation.Oneofthemainpurposesofprocessfacilitationistoclearupinterpersonaltensionsinordertocreateamoreproductivesenseofawarenessandtoreleaseconstructiveenergy.ManypractitionersoforganizationallearningandHRDmaketheirspiritualagendaquiteexplicit.

CreativityTraining.Theonsetofaneconomydrivenbyinnovationhasmadecreativityessentialtosuccess,soconsultantshavebeenconductingcreativitytrainingthatemploysvariousexercisestoliberatethemindandotherwiseinduceacreativestateofawareness.

ManagementIntuition.Studiesshowthatintuitioncorrelates

stronglywithmanagementsuccess.Thefieldhasspawnedvariousapproaches,books,andprofessionalsocietiesfortrainingmanagerstousetheirintuitionbetter.

Meditation.Agrowingnumberofmanagersaremeditatingbecausethepracticerelievesstress,clarifiesthought,andencouragesinsight.ThechairmanofJohnGibbsAssociatessays,"Throughpsychicattunement,we'reintherightplaceattherighttime.That'sthebigthinginbusiness."

Prayer.JerryHarveyreportsthat90percentofCEOsprayduringdifficultdecisions,roughlythesameproportionofAmericansthatpray.Onemanagerclaimsprayer"doeswondersforyourcolleagues,clients,andthecompany."

QuietReflection.Someorganizationsinterruptdiscussionsforafewminutesofquietreflection.OneCEOdescribedtheneed:"Anenormousamountoffactshavetopassthroughyourmindtomakeadecision.Thattakestimeandquiet."

ManagementStudy.Anewtypeofbusinessbookhasbeengainingattentionduringthe1990sfocusingonhumanandspiritualvalues.ExamplesincludeTomChappell's,TheSoulofaBusiness(NewYork:Bantam,1993)andCarolOsborn'sInnerExcellence:SpiritualPrinciplesofBusiness(NewWorldLibrary,1993).

Sources:AlanFarnham,"MaryKay'sLessonsinLeadership,"Fortune(September20,1993).AlanFarnham,"HowtoNurtureCreativeSparks,"Fortune(January10,1994).Franz-TheoGottwald,"CreatingSynergyThroughMeditation,"ICISForum(Winter1993)."GodattheWorkplace,"Newsweek(March10,1986).

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womanmanagerdescribedtheadvantagesofherspiritualpracticeinwork:''Ifeelpluggedintothefundamentalpoweroftheuniverse."

18

Manywillthinkthisconstitutescorporatebrainwashingorreligiousindoctrination.Thereisadangerofconformitybecausespirituallifecanbesuchapowerfulexperiencethatsomepeoplebecomezealots.Butthatisasmalldetouronthejourneytoenlightenment.Infact,thereverseofmindcontrolismoreusual.Withincreasingawareness,wearelesslikelytoimposeourmoralityonothersandmorelikelytoappreciatethediversityoflife,toseetherichnessofthissubtleinnerworld,andtoacceptitsownsenseoforder.Aconsultantdescribedthechangeinmanagersthisway:"Oncetheybecomeself-reflective,theyrealizetheydon'tknowalltheanswers."19EdMcCracken,CEOofSiliconGraphics,whohasbeenmeditatingforadecade,seesitthisway:

Weallhavethefantasythatwecontrolwhathappenstous.Butinfactnoneofushasthatkindofcontrol.Meditationhelps[by]givingmemoreconfidencethatIcanletgoofthefeelingthatIhavetocontroleverythingandthingswillstillturnoutallright.20

Speakingfrommyownexperience,Ihavecometorealizethattheverystuffoflifeisinherentlymysterious.Inspiteofmanyyearsofstudyandreflection,everydayissomewhatpuzzlingpreciselybecauseitallremainssoopen.AsIgrowolder,lifebecomesamorethinlydisguisedapparition,ateemingblendofimages,memories,andfeelings,somewhatlikea"cosmicsoup"withsuchsubstancethatIcansavoritsflavorandtexture.

Mymaintaskincreasinglyseemstoinvolvepayingcarefulattentiontothisfloodofexperienceinordertoselectwhatseemsrightatthetime.AndmybestguideisaninnerwisdomthatIhavecometo

respect.Idonotknowwhereitcomesfromorwhatitis,andIsupposewealldothiswithoutgivingitmuchthought.But,still,Idon'tknowhowIwouldcopewithoutit.Manymanagers,suchasWillowShire,avicepresidentatDEC,alsorelyontheirinnervoice:"Whenyouneedananswer,ifyoulistentoyourselfandjusttrusttheprocess,theanswerwillcome."21

AsIhavegrownmorefamiliarwiththisinnerwisdom,IfindthatitisutterlydependableifIlistencarefullyandinterpretitfaithfully.Thatdoesnotmeanallwillbesmoothsailing,becauseitgetsmeintoserioustroublenowandagain,asinthespeechthatbombed.Frankly,attimesIwishitwouldleavemealone.ButIcallonitwhenIneedguidance,suchasright

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nowasIwritethisbook.I'velearnedthatmyinnervoicecancutthroughtheconfusionaboutallthethingsthatcouldbesaidinordertofocusonthethingsthatshouldbesaid.

MakingParticipationWork

Despitemyespousaloflivingwithproblemsthroughlisteningtoothersandtoone'sinnerwisdom,Iwanttoavoidimputingsacredmeaningstothisinnerworldofmanagement,asifitwere"altruistic"or"holy."Itmaybethesethingsformanypeople,andattimesitcertainlyisforme.Butforourpracticalpurposeshere,itisprimarilyanetherealdomainofthoughtandactionthathaslargelybeenignoreduptonow.Today,theadvanceofaworldbasedonknowledgeoffersanopportunitytocometogripswithitsspecialpower.Progressivemanagersarecultivatingthisdomainofthehumanspiritbecauseitistheterrainonwhichtheymustleadcompetentemployees,successfulventures,andstrongorganizations.

Idonotthinkthismeansthat"spiritual"leaderswillbelesspowerful.Quitethecontrary,innerleadershipseemstoofferleadersmorepower,eventhoughitisusuallybenign.Thedifferenceisthatpowerisnotexertedthroughforceorformalauthority,butthroughthehigherawarenessandsheerwilloftheleader.Andpreciselybecausethistypeofpowerishardtounderstand,thereisalwaysaseriousriskthatsuchleaderswillgoastray.Hitlerwasanunusuallypowerfulcharismaticleader.

Toensurethatthispowerisnotmisusedandtodrawoutthetalentneededforaknowledgesociety,managerswillhavetoreversewhatwasonceconsideredadmirable.Ratherthanactingwithbolddeterminationandextendingabrilliantvisiontoguideothers,today'sleadersmustdirectattentionawayfromthemselvestofocusontheirfollowers.Theyshouldcertainlyoffertheirownideas.Butiftheycan

unitetheirvisionwiththemanyothervisionsalsowaitingtoberealized,theresultingsynthesisofviewsisinvariablyfarricherandmorepowerful.

Sofarwe'vefocusedontheadvantagesofthisinnerpower;italsoinvolvesdemandsthatareformidable.Thereislittletoleranceforfeel-goodhumanrelationsorshamparticipation;peoplecannotbefooled,soleadersmustbehonestiftheyhopetomaintaincredibility.RespondentsintheCITsurveyoftenreportedthatempowermentwas"justalotoftalk."Anespeciallyunpleasanttaskisholdingpeopleaccountablefortheirperfor-

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mance.Here'showonemanagerputit:"Oneofthemostpainfulthingsistopointouttosomeonethattheyarenotcominguptoexpectations."It'salsoessentialtoavoidgettingcarriedawaywithgrandiosevisions.ListentohowGeraldLangeler,presidentofMentorGraphics,describedtheescalatingrhetoricoftheircorporatevision:"AsIsatinameeting,itdawnedonmethatwewerenotconvergingonaproduct,wewerecirclingendlesslyaroundadream.Wenolongerhadavision,thevisionhadus.Wewerenolongermaking[business],weweremakingpoetry."

22

Perhapsthemostdifficultchallengeistoreconciletwoopposingneedsthatseeminevitable.Managersincreasinglyknowtheymustyieldcontrol,butthisveryprocessoftenreleasessuchchaosandpersonaldiscomfortthattheymayhavetoreassertthemselvestokeeptheorganizationfromflyingapart.Thiscontinualoscillationbetweenfreedomandcontrolformsanuncertaindilemmabecausethereisnogoodsolution.Theonlyfeasibleapproachistograntpeopleroomtogrow,trytoguidethemskillfully,andtrustthattimeandexperiencewillleadthemtoincreasinglyresponsiblebehavior.Itshouldbeobviousthatthisrelationshipcloselyparallelstheambiguityparentsfaceinraisingchildren.JamesAutry,aFortune500executive,calledthecomparison"atouchysubject,butonethatallmanagerscometounderstandatsomepointintheircareers."23

TheNeedforFreshUnderstanding

Ifwecanhangintherelongenough,wemaybeblessedwithagiftofunderstandingthatopensupnewpossibilities.Thisfreshsenseofawareness,thisvisionthattheworldcouldoperateinsomedifferentway,isthestuffthatfinallyleadstoallhumanadvances.AfterfiftyyearsofhostilitybetweentheUnitedStatesandtheformerU.S.S.R.,

theonsetofaunifiedworldhelpedMikhailGorbachevenvisiontheSovietUnionasanintegralpartofaglobalcommunity,endingthecoldwar.IttooktwohundredyearsofcivilrightsconflictbeforeAmericanscouldunderstandthatwomen,African-Americans,andotherminoritygroupsshouldbeequalmembersofadiversesociety.Afterfiftyyearsofcontroversyoverauthoritarianinstitutions,nowmanagerscanseetheirwaytosharedgovernance.

Wearestillalongwayfromrealizingthisvisionbecauseanoutmodedformofpowercontinuestoposeseriousobstacles.Imeetcountlessworkingpeople,andmanyofthemarestillsuffocatingundercoercivebosses,

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complexbureaucracies,andmeaninglessjobs.Itisestimatedthatonefourthofemployeesaresoabusedbyauthoritythattheycallinsick,limitproductivity,anddeliberatelysabotageoperations.

24

Themostdiscouragingthingaboutthemisuseofpoweristhatweusuallydonotfaceitopenly.Theobstaclesseemsohuge,sopervasive,sobeyondtheabilityofmereindividuals,thatmostpeoplehavegivenuphopethatthingswillchange.Tomaintainasemblanceofsanityandpeace,wehavecometoaccepttheseassaultsonourhumanityasaninevitablepartoforganizationallife.Managementcultureseemsswathedinasortofemotionalfogwheretheseabusesareconcerned,apolitenonsenseofhumanrelationspumpedouteverywheretoblankettheharshnessofauthority,makelifebearable,keepthingsworking,andrenderusallpowerless.

Butasmoremanagers,employees,customers,andothersarethrowntogetherbythehistoricshiftinpowerthatisgatheringforce,thisinteractionbetweendiverseviewsshouldcarrythecollectivespiritofmodeminstitutionstonewvistas.Evennowpeoplearevoluntarilysubmittingtounprecedentedopencommunications,suchas"360-degreeevaluations"fromemployees,peers,andbosses.Wehavelongknownthatmanagersholdfaultyperceptionsofhowothersseethem,andnowthoseblindspotsarebeingexposedtoaccuratefeedback.25

Scholarsandintellectualslikewisepersistinholdingontotheirlimitedviewsofrealitybecausetheyhaveinvestedalifetimeindevelopingsomeparticularmodeofunderstanding.Ihavenumerouscolleagueswhoinsistthatthesolutiontotheworld'sillsliesinacceptingtheirparticulartheory,andIsupposeIdothesame.Overmydeskhangsacartoonshowingapsychotherapisttellinghispatientonthecouch:"Butyoucan'tgothroughlifeexplainingeverything

withHeisenberg'sUncertaintyPrinciple."

Thereinliesthegreatestlimitationtheworldisstrugglingwithtoday:weareallcreaturesofbelief,andweareusuallytrappedinsideofourownheadsbylimited,outmodedbeliefs.ThefirstresponsibilityofaleaderintheKnowledgeAgeistounderstandthatitisOKtoadmitwedon'thavealltheanswers.Leadersshouldmakethesearchforunderstandingnotonlyacceptablebutalsopraiseworthyandshowthewaybymodelingtheabilitytolearnthroughhonestinteraction,thushelpingothersdothesame.

Whenthinkingaboutthis,Irealizehowlittleweunderstandthewisdomoftraditionalsayings,suchasthebiblicalprophecy"Themeekshall

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inherittheEarth."Theverythoughtseemsludicrousintoday'shigh-stakespowergames.Buttherealmessageisnotthat"weakness"willbecomewidespread,butthatagentle,trustinghumilityismorerealisticthanself-prideinaworldthatistoomysterioustofullycomprehend.Ratherthanasignofweakness,humilityisavirtueofstrongpeoplewhodonotneedtoprovetheirmight,sotheyareopentonewunderstanding.

BreakingMentalBarriers

Thefollowingconclusionsfocusonhowaninnerformofleadershipcanhelpmanagersindifficultsituations:

1.TheNewManagementcreatesashiftinpowerthatiscausingtheinformalorganizationtosurfaceandchallengeformalauthority.

2.Effectivemanagersleadinthissituationbylisteningcarefullytotheirfollowersandtheirowninnerwisdomastheyfocusattentiononsolvingdifficultproblems.

3.Participativeleadershipdrawsontheorganization'sfullrangeoftalenttoreleasecreativeenergyforimprovingperformanceandcreatingastrongercorporatecommunity.

Participativeleadershipisnothinglessthatameansbywhichisolatedsoulscantouchoneanothertosetoffsparksofinsightandinitiative.AswebrieflynotedinChapter4,thissynthesis,whichliesattheheartoftheNewManagement,isacreativeprocessforreleasingsocialenergy,andGodknowswewillneedvastnewamountsofsocialenergytocopewithafarmoredemandingworld.

Consideringtheenormouschallengesposedbytoday'srevolutionininformationtechnology,anemergingglobalorder,aloomingtenfoldincreaseinenvironmentaldemands,andthesocialupheavalallthisimplies,morecreativeinstitutionsaresorelyneeded.Onlyanew

socialorderbasedonparticipationcanprovidetheknowledgeandwillneededtosolvethisgrowinghostofnaggingproblems.PatriciaMcLaganandChristoNelcallitthe"AgeofParticipation."

26Managers,then,arechallengedtoredirecttheenergynowwastedincrime,violence,drugs,andjustordinarysocialturmoiltowardusefulpurposes.

Forallitspainandperil,comingtogripswithalltheseunpleasant

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realities,andwitheachother,isessentialtocreatetheneededbreakthroughsinawareness.

Notes

1.ThecentralroleofpowerisdescribedbyFernandoBartolomeandAndreLaurentin"TheManager:MasterandServantofPower,"HarvardBusinessReview(NovemberDecember1986).

2.Forsomeofthebetterworks,seeWarrenBennisandBurtNanus,Leaders(NewYork:Harper&Row,1985);JohnGardner,OnLeadership(NewYork:FreePress,1990);andJohnRenesch(ed.),LeadershipinaNewEra(SanFrancisco:NewLeadersPress,1994).

3.BrochureoftheHamsaInstitute,MillValley,California.

4.Forafullerexplanationofthismodel,seeHalal,TheNewCapitalism(NewYork:Wiley,1986),pp.162166.

5.WelchisquotedbyMarkPottsin"ANewVisionforLeadership,"WashingtonPost(March8,1992).AlvinToffler,PowerShift(NewYork:Bantam,1990).

6.SueShellenbarger,"CompaniesExperimentwithFlexibleSchedules,"WallStreetJournal(January13,1993);TimothyO'Brien,"CompanyWinsLoyaltybyOpeningItsBooks,"WallStreetJournal(December20,1993);FrankSwoboda,"MotorolaExperimentswithLettingPeersWeighTheirPay,"WashingtonPost(May22,1994).

7.Thissamedichotomybetweentheformalversusinformallevelsoforganizationisseeninentireeconomicsystems.ThePeruvianeconomistHernandodeSoto,forinstance,hasshownthattheinformaleconomysuppressedbygovernmentcontrolsrivalstheformaleconomy.SeehisbookTheOtherPath(NewYork:Harper&Row,1989).

8.SeeAmyE.Schwartz,"LearningCivilityinCyberspace,"WashingtonPost(December16,1994),andMichaelSchrage,"HowtoTaketheOrganizationalTemperature,"WallStreetJournal(November7,1994).

9.HalHinson,"AndtheWinnerIs...Us,"WashingtonPost(November1,1992).

10.AwonderfulsurveyoftheriseofhumanfocusinacademicdisciplinesisbyJamesOgilvy,"FutureStudiesandtheHumanSciences,"FuturesResearchQuarterly(Summer1992).TheFortunequoteisfromFrankRose,"ANewAgeforBusiness?"(October8,1990).

11.SeeJudyRosener'sarticle,"WaysWomenLead,"HarvardBusinessReview

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(NovemberDecember1990),andherbookStylesofLeadership(Washington,D.C.:NationalFoundationforWomenBusinessOwners,1994).SeealsoMichaelAbramowitz,"OregonGovernorGetsanEarfulfromthePeople,"WashingtonPost(April10,1992).

12.Forinstance,seeJeanneMandelker,"ShiftingintoHighGear,"Venture(April1986).

13.ThomasA.Stewart,"HowtoLeadaRevolution,"Fortune(November28,1994).

14.DonOldenburg,"ZenandtheArtofMakingMoney,"WashingtonPost(January9,1987).

15.Forinstance,ahalfmillion12-stepprogrammeetingsareheldweeklyintheUnitedStatestohelp80millionAmericansovercomeaddictionstodrugs,alcohol,andfood,andtosolveotherproblems.RobertWuthnow,directoroftheCenterforAmericanReligionatPrinceton,says40percentofAmericansnowparticipateinvariousprograms."TheSpiritualityThatMovesUs,"WashingtonPost(August27,1994).

16.Conservativeshavelongclaimedasmuch,andprogressiveliberalssuchasHillaryRodhamClintonhaverecentlycalledfora"politicsofmeaningredefiningwhoweareashumanbeingsinthispostmodernage."MarthaSherrill,"HillaryClinton'sInnerPolitics,"WashingtonPost(May6,1993).WilliamRaspberry,"ThePowerofSpirituality,"WashingtonPost(December7,1992).

17."CompaniesHittheRoadLessTravelled,"BusinessWeek(June5,1995).

18."PRExecStrivesfor'ContinualConsciousness,'"NewLeaders(MarchApril1995).

19.StratfordSherman,"LeadersLearntoHeedtheVoiceWithin,"

Fortune(August22,1994).

20.Sherman,"LeadersLearn..."

21.Sherman,"LeadersLearn..."

22.GeraldLangeler,"TheVisionTrap,"HarvardBusinessReview(MarchApril1992).

23.JamesAutry,"RandomObservationsAfterTwenty-EightYearsofManaging,"inJohnRenesch(ed.),LeadershipinaNewEra(SanFrancisco:NewLeadersPress,1994),p.15.

24."Good-ByeMr.Dithers,"BusinessWeek(September21,1992).

25.BrianO'Reilly,"360-DegreeFeedbackCanChangeYourLife,"Fortune(October17,1994).

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26.PatriciaMcLaganandChristoNel,TheAgeofParticipation(SanFrancisco:Berrett-Koehler,1995).

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10ManagingaUnifiedWorld:GlobalOrderoutofLocalInstitutionsWhilepreviouschaptershavefocusedontheUnitedStates,similareconomictransitionsareunderwayinothercountriesthroughouttheworld.EastEurope,Russia,andChinaarestrugglingtomakemarketsystemswork,andtheEuropeanUnionisbeginningtodismantleitswelfarestate.EvenJapan,oncethoughttobeinvincible,isbeingforcedtofreeitseconomyfromoverregulationandsocialconformity.

JustastheNewManagementusesawholisticperspectivetovieworganizationsascompletesocioeconomicsystems,theseglobalchangescanbebestunderstoodbyseeingtheEarthasawholesysteminitsownright.Today,afragmentedworldiscomingtogetherastheelectrifyingforceofknowledge,technology,andcapitalflowsinstantaneouslyaroundtheglobe.Throughouthistorytheideaofaunifiedworldwasunthinkable.ButjustwithinthepastfewyearstheEarthhasbeenintegratingbeforeoureyes.

1

In1994,theAsiaPacificEconomicCooperation(APEC)forum,whichincludestheUnitedStates,Japan,China,andfifteenothernations,makinguphalftheworld'seconomy,agreedtoeliminatealltradebarriersoverthenexttwodecades.TheEuropeanUnionisplanningtointroduceacommon

Note:PortionsofthischapterareadaptedfromWilliamE.HalalandAlexanderNikitin(oftheRussianAcademyofScience),"EastIsEast,andWestIsWest,"BusinessintheContemporaryWorld(Autumn1992),pp.95113.

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currencybytheyear2000asitexpandstoincludealmostonebillionpeople.Andtheleadersofthirty-threenationspledgedtounifyeconomicallytheAmericancontinentfromAlaskatoArgentinabytheyear2005.Inadecadeortwo,thesameself-interestedcooperationnowdrivingthegrowthoftheseregionalblocsshouldmergethemtogetherintoasingleglobalmarket.AkioMorita,formerchairmanofSony,hascalledfortheremovalofalltradebarriersbetweenNorthAmerica,Europe,andAsia.

2

Thischapteroffersaglobalperspectivetohelpmanagersguidetheirorganizationsthroughthecomplexworldsystemthatisnowevolving.3WeexaminetherevolutionaryforcesthatareintegratingtheEarthintoaglobalorderandothersthatarecreatingglobaldisorder:boththeunificationofmarketsandcommunications,aswellasthedisintegrationofcorporationsandgovernmentsintoamazeofglobalnetworks.Theemergingglobaleconomyisbecomingachurningoceanofsmallenterpriseoperatingacrossdiverseculturalregions,producingatidalwaveofcreativedestructionthatcouldsweepawaythecomfortablecommunitiesofthepast.Anempiricallygroundedframeworkshowsthatthisdilemmaofcapitalismversuscommunitycouldberesolvedasmanagersaroundtheworldcreateahumanformofenterprise.

MyguidingpremiseisbasedonthesynthesisdescribedinChapter4butcarriedtoagloballevel.Today'supheavalismerelytheonsetofaprofoundtransitiontoaneweconomicordergovernedbytwocentralimperatives:markets,entrepreneurship,competition,andotherprinciplesofenterpriseareessentialtomanageanexplosionofcomplexity,whilecooperation,humanvalues,thepublicwelfare,andotheridealsofdemocracyarealsobeingadoptedbecauseitisequally

importanttointegrateenterpriseintoaproductive,harmoniouswhole.

Thus,themostdistinguishingfeatureoftheworldsystemseemstobesynthesis:thesynthesisofeconomiesintoaunifiedglobalmarket,thesynthesisofdemocracyandenterprise,andintimethesynthesisofcapitalismandsocialism.

TheDilemmaofCapitalismversusCommunity

Thefallofcommunismhasmadeitclearthatmarketswilldominatetheneweconomicorder,buttheabandonmentofcentralplanningandwelfarestatesisopeningaPandora'sbox.Withoutthesupportofbiggovernment,peoplearebeinglefttostrugglealonewithunemployment,poverty,con-

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flict,andothersocialdisorders,causingmountinginsecurityandpoliticalunrest.Thus,thesameforcesthataredecentralizingcorporationsintointernalmarketsaredecentralizinggovernmentsaswell,posinganurgentneedforsomewaytocreatecivilorder.Howwillcivilizedcommunitiesberestoredinadecentralizedworldgovernedbycapitalism?

Thisdilemmaisexacerbatedbythecollapseoffaithinthefamiliaroldideologiesthatguidednationsthroughthepastepochwithgoodsuccess.WiththeU.S.S.R.nowdefunctandtheUnitedStatesstrugglingthroughanidentitycrisis,thelackofsuperpowerleadershiphasleftavacuumofpower,ideas,andmoralguidesattheverytimewhentheworldisfacingHerculeannewchallenges.Toavoidchaos,anewparadigmofpoliticaleconomymustsomehowbeformedthatallowsustomakesenseoftoday'sradicallydifferentglobalrealities.TheCEOofJapan'sNECCorporationhassaid:''Itwon'tbeeasybecausenobodyhasreallycometogripswiththeshifttoaninformationeconomy."

4

Thiscriticalneedisnothelpedbythecommonbeliefthatthecollapseofcommunismprovesthatsocialismisdeadandcapitalismreignstriumphant.Yes,theeraofcentralplanningisover,butmarketsarenotthesamethingascapitalism.ThecompetitivestrengthofJapanesebusinessflowsfromacollaborativetypeofcorporationcalleda"HumanEnterpriseSystem,"andothernationsalsohavewidelydifferingmarketeconomies.5Therealquestioniswhattypeofmarketwouldbebestinpost-CommuniststatesandeveninWesternnationsliketheUnitedStatesitself?

ChallengetotheEast:InventingPost-CommunistMarkets

AseriousexampleofthisdilemmacanbeseenintheformerCommunistbloc.ThereislittledoubtamongEastEuropeansandRussiansthatthereisnogoingbacktotheoldsystemofcentralplanningandone-partypoliticsthe"OldSocialism."However,thesenationshavecommunitarianculturesthatencouragesocialwelfareandeconomicsecurity,andsotheabruptshifttoamarketsystembasedoncompetitionforpersonalgainhasleftpeopleunabletocopewithriskandinequality.Nowthattheeuphoriaofoverthrowingcommunismhasfaded,theseoncefunctioningsocietiesaresufferingseverepoverty,crime,andalienationasanoverdoseofrawcapitalismthreatensthebodypolitic.

EvenEastGermans,whowereexpectedtoadaptimmediatelybecause

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oftheirtiestoWestGermany,nowoftenlongfortheirsocialistroots.Pollsshowthatonly30percentofEastGermanssupportthepoliciesoftheirWesterncounterparts.Here'showmanyseethechange:"Therevolutionbenefitedonly10percentofus,"and"Irealizetomydeepresentmentthatwehavelostsomethingofmuchmorevalue."Onepersonsummeditupthisway:''YoumayhavefreedomintheWest,butwehadsecurityintheEast,afeelingofbeingcaredfor.Itislesscutthroathere."

6

Thetenacityofthis"socialistethic"isprovingamajorobstacletoeconomicreform,asseeninBox10.1.Onthesupplyside,afrenzyofnewventureshasbeenunleashedbyentrepreneursandformerCommunistofficials,buttheprivatizationofstateenterpriseshasfalteredbecauseoflimitedeconomicprospects,thelackofinfrastructure,andpoorbusinessskills.NowgreatplantsthatwereonceproductivebackbonesoftheoldSovieteconomyarerunningatafractionoftheircapacity,andworkerssitidle.

Onthedemandside,thelossofproductivityhasplummetedlivingstandardstohalfofthemeagrelifestylesCommunistsonceenjoyed.Amiddleclassisemergingthatiseagertobuycars,televisions,andtheothergoodsofaconsumersociety,butthosewhocanaffordsuchluxuriesamounttoamere10percentorsoofthepopulationwhileone-thirdormoreareimpoverished.7Understandably,resentmentismountingaspeopleseetheoldCommunistelitessimplyreplacedbycapitalisteliteswithstillmorewealthandprivileges(seeBox10.1).PeterReddaway,formerdirectoroftheKennanInstituteforSovietStudies,describedtheproblemasfollows:

Whyisshocktherapynotworking?BecauseRussia'sdeeplypoliticalcultureishighlyunsuitedtofreemarkets.Yeltsinnowrealizeshemadea

mistakeinoptingforarapidtransitiontocapitalism.8

Meanwhile,theRussianeconomyisbeingrunbyformerCommunistapparatchiks,Mafiabosses,andfinanciersseekingtheirownfortunesratherthancreatingjobsandgoods,reminiscentofthe"robberbarons"ofAmericancapitalism.GeorgeSoros,thefamousHungarian-bornAmericanfinancier,calledit"robbercapitalism."Itisironicthatseventy-fiveyearsofSovietpropagandaaboutthe"evilsofcapitalism"wereneverreallybelievedbytheRussianpeopleuntiltheytrieditthemselves.NowtheimpoverishedproletariatthatMarxwarnedofisrisinginhisownhomeland.9

Ofcourse,theEastEuropeansaredoingbettergenerally.Andsome

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BOX10.1.THEPOST-COMMUNISTCRISIS:OBSTACLESTOADOPTINGCAPITALISM.

ThefollowingpassagessummarizetheobstaclesthatRussiaandEasternEuropearefacinginthetransitiontocapitalism:

AttitudesAgainstCapitalismPersist.ManyRussianscontinuetodislikemarkets,andtheyrejecttheideaofprofitmaking.A1994pollfoundthat30percentthinkcapitalismwillimprovetheirlives,33percentthinkitwillmakethemworse,and37percentareunsure.Anotherstudyconcluded:"ThereislittleevidencethattheRussianpublicisready,willing,orabletoadapttoamarketeconomy."

EconomicProgressHasBeenMeager.Although70percentofstateenterpriseshavebeenprivatized,mostarefailingeconomically,yettheycontinuetobesubsidizedtoavoidmasslayoffs.Theresultisthateconomicproductionhasfallen10to20percentperyearsince1990,foratotaldeclineofroughly50percent.FormerEastGermany,evenwiththesupportfromWestGermany,experienceda50percentdropinemploymentasitsGNPdeclined40percent.

StandardofLivingHasFallenDrastically.Inflationhasincreasedpricesahundredfoldwhilewagesonlydoubled,pricingmostgoodsoutofreachforaveragepeople.Itisestimatedthatathirdtohalfofthepost-Communistblocnowlivesinseverepoverty.Here'showaRussianengineerdescribedhisplight:"Thisishowwelivenow.Wethinkeverydayofhowtosellourselves."Andateachersaid:"NowIamjustabeggar.Icannotaffordtobuyanythingtoeat."

ResentmentoftheRichIsGrowing.Theriseofcapitalistmillionairesflauntingflamboyantlifestylesisignitingkeen

resentment.APoleobjected,"Thenewsystemisturningouttobebestfortherichandstrong."AndaRussiansaid,"Wehavesomerichpeople,whiletherestofusgetpoorerandpoorer."

NeedsforCapitalAreEnormous.FormerEastGermanywillrequire$1trilliontoturnitseconomyaround.ThesumneededtodothesameforRussia,anationroughlytwentytimesthesizeofEastGermany,withlessbusinessexperienceandnocomparablesupport,isinestimable.

Source:WilliamE.HalalandAlexanderNikitin,"EastIsEast,andWestIsWest,"BusinessintheContemporaryWorld(Autumn1992).

Russiansareoptimisticbecausetheythinktheworstisover,sotheseproblemscouldbealleviatedintime.

10Butmanyothersthinkthenationisinserioustrouble.ThechiefeconomistoftheWorldBanknotedthat"zealousreformersunderestimatedthetask,"andaRussianpoliticianworried,"The

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situationisworsening.Someotherwaymustbefound."GeorgeSorosisevenmoredour:"Iwashopingtoseeamarket-orienteddemocraticsystem.Thatattempthasbasicallyfailed.[Thepresentsituation]iscreatingatremendoussenseofsocialinjustice."

11

ByembracingtheiconofcapitalismheldupbytheWest,communismhassheditsoldideologyonlytosubmittoanewideology.ManyRussiansbitterlycondemntheblindfaithincapitalismthatnowimprisonsthemasbadlyascommunismusedto.GeorgeBernardShawputitbest:"Revolutionshaveneverlightenedtheburdenoftyranny.Theyonlyshiftittoanothershoulder."

ChallengetotheWest:InventingaHumanCapitalism

WhilethevirtuesofcapitalismwerebeingpromotedtocuretheRussianmalaise,thesamesystemwassufferinginthelandofitschiefproponent.Americahasenteredaperiodofsocialdeclinebecauseitseemstooconcernedwithfreemarkets,profitmaking,andothercapitalistidealsbeingadvocatedforsocialists.

NoonedeniesthattheAmericansystemhasextraordinaryvirtues.U.S.citizensenjoyanexceptionaldegreeoffreedom,whichhasfloweredintoavibrant,creativecultureandoneofhighestlivingstandardsintheworld.ThesestrengthshavelongattractedafloodofeagerimmigrantstoAmericanshores,andtheyhaveinspiredtoday'srevolutionsaroundtheworld.

Butfreedomentailsaprice,andthepriceAmericanspayistheabsenceofthatessentialsenseofcommunity.Thecompetitivestress,lackofsocialsupport,andsheermaterialismofAmericanlifearemajorcausesfortherampantcrime,druguse,violence,andothersocialproblemsthatarethehighestintheworld;that'swhythe"Land

oftheFree"hasmoreofitspeopleinjailthananyothercountry.OnestudyrankedtheUnitedStates'overallqualityoflifeatthebottomofalistofindustrializednations.12

Yes,productivityandcorporateprofitsaredoingwell,butlayoffshavedemoralizedemployees,peopleareoverstressed,loyaltyisdead,wagesarestillfalling,mostwivesmustnowwork,andmarginalworkersstruggletosurvive.Inthemidstofallthisloss,CEOsareawardingthemselveslavishpayincreases,asBusinessWeekannouncedrecordcorporateearnings:"HotDamn!Profitssurgedanother45percent."13TheresultingdisparityofincomesbetweenthetopandbottomlevelsofAmericansocietyexceeds

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thatofallotherindustrializednations,andithasreturnedtothelevelsreachedpriortotheGreatCrashof1929.

14

Now,itistruethatincomedifferencesareunavoidable,andprofitsareneededforcapitalinvestment.Butwithoutaddressingsuchmountingconcerns,today'supbeatfaithintheOldCapitalismmayproveatemporarylullinthelongdeclineofAmerica'seconomicdominance.Duringthepastthreedecades,theshareofworldwidesalesbyU.S.firmsfellfrom83percentto38percentinautos,71percentto11percentinelectricalgoods,and74percentto21percentinsteel.Evencomputersalesfellfrom95percentto70percent.15Since1985,theAmericandollarhasdeclined70percentagainsttheJapaneseyenand60percentagainsttheGermanmark.16CanthissystemthriveinaKnowledgeAgethatdemandsthesupportofeducated,motivatedpeople?

ThesamelossofsocialsupportisoccurringingovernmentastheRepublicanRevolutionrollsbackthefederalprogramsthathavebeenrelieduponsincetheNewDeal.Ofcourse,thisisanindispensablepartofthehistoricmovetodecentralizeallinstitutionsforanewera.Butdecentralizationcannotsimplyabandonpeopletofendforthemselves.Someformoflocalcontrolmustbedevisedtotakeuptheslackleftbyeliminatingfederalregulations,socialassistance,andotherformsofsupport.Piousclaimsthatthiswillbedoneby"themarket,"the"states,"and"voluntaryinstitutions"arelittlemorethanwishfulthinking.

AsshowninBox10.2,theresultinglossofconfidenceovergovernment,corporations,andotherinstitutionshascausedtheAmericansystemofpoliticaleconomytobewidelyquestionedaswell.

TheDemocraticPartydoesnotshowmuchtalentforexploringnewdirections,andtheRepublicanRevolutionseemsdestinedtorollonbecauseithashistorybehindit.Thus,aseriousquestionisbeingraised:HowwillAmericansavoidthetraumathatseemslikelyasaharsheconomyandthedismantlingoffederalprogramsleavethenationbereftofsocialsupport?

AsimilarconflictisseeninotherWesternnationsthatalsopracticeamorepureformofcapitalism.TheThatcherRevolutionmayhavehaltedthegrowthofthewelfarestateintheUnitedKingdom,butpollsshowtheBritishpeopleareconcernedthatcrime,greed,andpovertyhavereplacedthequalitiesthatmadeEnglandagreatcivilization,andtheeconomyremainsweak.17

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BOX10.2.THEAMERICANCRISIS:LOSTCONFIDENCEANDSIGNSOFCHANGE.

ThefollowingpassagesindicatethattheUnitedStateshasenteredanidentitycrisisthatcouldproducesignificantchange:

AmericansThinktheNationIsHeadingintheWrongDirection.Thenumberofpeoplewhothink"thecountryisheadinginthewrongdirection"rosefrom40percentduringthe1980sto80percentin1995.

EmployeeConfidenceinCorporateManagementHasFallen.Surveysshowthatemployeesareangryovertheincompetenceandexcessivepayofcorporateexecutivesatatimewhentheyareforcedtomakegreatsacrifices.RobertSwain,CEOofaNewYorkconsultingfirm,says,"Everybodyisexhaustedandnobodythinksitwillgetbetter.They'rehangingonbytheirfingernails."Fortunereportedthat"confidenceintopmanagementiscollapsing."

AmericanQualityofLifeRanksBelowAdvancedNations.StudiesplacetheUnitedStates'qualityoflifebelowthatofCanada,WestEurope,Scandinavia,andJapan.Althoughtheirmaterialstandardoflivingishighestintheworld,Americansaretheonlypeopleinanadvancednationwhodonothaveuniversalhealthcareorprotectionagainstworkerfiring;theyhavethehighestratesofinfantmorality,illiteracy,crime,druguse,homelessness,andout-of-wedlockbirths.TheUnitedStateshasthelowestratesforsaving,voting,andrecycling;thegreatestgapbetweenrichandpoor;andthepoorestpubliceducationandtransportationsystems.

APopulistRevoltIsUnderWay.KevinPhillips,theRepublicanpoliticalanalystwhoforecasttheReaganRevolution,counsels

thata"politicalcounterreaction"isunderway,"aresurgenceofeconomicpopulismbasedonresentmentoftherichcombinedwithaconcernoverthedeclineoftheU.S.economy."

ANewParadigmSeemstoBeComing.ThereisgrowingacceptanceoftheideathattheUnitedStatesmustadoptaneweconomicpoliticalparadigm.Timemagazinenoted:"The1990shavebecomeatransformingboundarybetweenoneageandanother,betweenaschemeofthingsthathasdisintegratedandanothertakingshape."

Sources:RichardMorinandPaulTaylor,"PollsShowPlungeinPublicConfidence,"WashingtonPost(October16,1990);AnneFisher,"MoraleCrisis,"Fortune(November18,1991);AlanFarnham,"TheTrustGap,"Fortune(December4,1989);JoaniNelson-Horchler,"ThePayRevoltBrews,''IndustryWeek(June18,1990);SpencerRich,"U.S.RanksSixthinQualityofLife,"WashingtonPost(May18,1993);MichaelWolf,CanAmericaMakeItintheGlobalRaceforWealth,Health,andHappiness?(NewYork:Bantam,1992);KevinPhillips,ThePoliticsoftheRichandPoor(NewYork:RandomHouse,1990);LanceMorrow,"OldParadigm,NewParadigm,"Time(January14,1991).

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Theseproblemsarenotasdramaticasthecollapseofcommunism,buttheyarealsoseriousandtheystemfromthesamecauseoutmodedeconomicbeliefs.Theideologicalflawincapitalismisthewishfulfantasythatruggedindividualisminastruggleforprofitwillsomehowbesublimatedintohealthyprogressbythemagicofaninvisiblehand.Thismayhaveworkedinanindustrialpast,butitignoresthatvastrealmofhumanandsocialrealitiesthatnowdrivesaknowledge-basedeconomy.

18

TheIdeologicalCrisisofOurTime

TheseproblemsareformidablebecausetheyemanatefromaprofoundideologicalcrisisfacingtheentireglobethatismostclearlyseeninRussiaandtheUnitedStates.HistorianCharlesMaierfindsthatboththecollapseofSovietCommunismandthedeclineofAmericancapitalismarearesultofthesamehistorictransitiontoanewerathatisrenderingallpastideologiesobsolete.19

ThereisanintriguingsymmetrytothesedilemmasofEastandWestthatisseldomunderstood.Bothsocialismandcapitalismproduceseriousdistortions,butinoppositedirections.Generallyspeaking,socialismisincrisisbecauseitboughtsecurebutmeagerlivesattheexpenseoffreedom;butcapitalismisincrisisbecauseithasboughtaprosperousfreedomforsomeattheexpenseofsecurityandcommunityforall.Socialismsuffersfromscarcity,whilecapitalismsuffersfromoverconsumption.Socialismproducesangrydissidents,capitalismproducescrimeandlostsouls.20

Evenmoderatenationsarestrugglingwiththisdilemma.AlmostallEuropeangovernmentsareunderextremeeconomicpressuretodismantletheirwelfarestatesandtorejuvenateenterprise.For

instance,Italy,Spain,andFrancearerunningmassiveannualgovernmentdeficits.GermanyhasinflatedwagestoalmosttwicethelevelsoftheUnitedStatesandJapan,socapitalinvestmentproduceslessthanhalfofnormalreturns.TheCEOofaGermancompanysaid:"Wecannotgoonsupportinghighwagesandbenefits.Eitherwechangefast,orwedonotsurvive."21InJapan,thecollapseofthe"bubbleeconomy"isforcingamovetoacceptforeigncompetition,reduceregulation,andcreatemoredynamiccompanies.22

Theconflictbetweencapitalismandcommunityisnotsoeasilyresolved,however,becausethesenationsarealsounderenormouspoliticalpressuretocontinuesupportingtheircitizens.InFrance,54percentofthe

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TABLE10.1.MANAGERS'ATTITUDESTOWARDTHENEWMANAGEMENT(TNM).(SAMPLE=426CORPORATEMANAGERS.)Question U.S.A.EuropeJapanMeanDoyouthinkthesepracticesmakingupTheNewManagement(TNM)areneeded?No 5% 2% 0% 4%Yes 77 93 83 82Unsure 18 5 17 14

WhyaresomefirmsnotusingTNM?Resistancetochange 54 70 68 61Short-termfocus 20 18 17 19Ideasareunacceptable 8 2 4 6Unsure 18 10 11 14

WhatwillhappentofirmsthatdonotadoptTNM?Theywillsurvive 20 3 2 12Marginalexistence 38 65 27 45Likelytofail 14 20 54 33Unsure 28 12 17 10

WhenisTNMlikelytoenterthemainstreamofbusiness?1995 9 12 5 112000 38 40 45 412005 17 29 20 22Later 6 14 13 9Unsure 30 5 17 17

Source:WilliamE.Halal,CorporationsinTransition(anunpublishedstudyinprogress).SeethequestionnaireinAppendixC.

publicwantsmorestatecontroloftheeconomyandonly11percentwantsless.AGermanbusinessmansaid:"Weunderstandthatpovertyandothersocialillsaremorallyunacceptableandeconomically

harmful."TheJapaneseshareasimilarview:"Wesimplycannotfirepeople,"saidNorioOhga,CEOofSony."Itwouldonlycontributetotheworseningoftheeconomy,andwereallycan'taffordthat.''

23

Thesameconfusingdilemmapersistsinotherregions.LatinAmerica

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suffersfromchronicpoliticalunrestbecausewealthissoconcentratedthataformofmonopolycapitalismoftenexploitsanimpoverishedworkingclass.DevelopmentintheMiddleEasthasstalledbecausefreemarketsconflictwithIslamicprinciplesthatrequireservingthecommunity.

EconomicImperativesoftheInformationAge

Itiseasytobepessimisticovertheenormityofthischallenge,buttheimperativesoftheInformationRevolutionseemtobedrivingnationstowardanewglobalorderbasedonenterpriseanddemocracythatmayresolvetheconflictbetweencapitalismandcommunity.Here'showLechWalesaexplainedthewaythisrevolutionoccurredinPoland:"Howdidallthesereformsappear?Theresultofcomputers,communicationsatellites,television."

24

AGlobalNetworkofLocalEnterpriseandCommunity

Chapter3showedthatthesesameforcesofdemocracyandenterprisearealsotransformingorganizations.ThisishappeningnotonlyintheUnitedStatesbutalsothroughouttheglobe.Europeancompanies,suchasABBandSiemens,arebeingrestructuredtospurentrepreneurship,whilethevirtuesofcorporatecommunitywereshowcasedasJapanesefirmscapturedforeignmarketsbycultivatingharmoniousworkingrelations.Table10.1showsthatAmerican,European,andJapanesemanagerstendtoagreethatthistrendtowardaNewManagementislikelytoentertheeconomicmainstreambetween2000and2005.

Asaresult,corporationsarebecomingglobalentrepreneurialnetworksorganizedintopocketsoflocalcommunity.Theynow

operatehundredsofinternalenterprisesinternationally(suchasABB's5,000profitcenters),eachformingcollaborativeallianceswithforeignsuppliers,distributors,andotherbusinesspartnerstoraisecapital,launchnewventures,acquiretechnology,andgainaccesstolocalmarkets.Thesecomplexoperationsaremanagedbyaninternationalclassofprofessionalsdrawnfromallovertheworldwhocanadapttoadiversetapestryofpoliticsandculturesbyworkingeffectivelywithlocalemployees,unions,andgovernments.Thus,aseamlesswebofentrepreneurialcommunityisincreasinglyjoiningandrejoiningoveraworldwideinformationgridtotameacomplex,changingglobalsociety,asshowninBox10.3.25

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BOX10.3.THEKNOWLEDGE-BASEDGLOBALECONOMY.

Thefollowingexamplesillustratetrendsthataredefiningthecentralfeaturesofaknowledge-basedglobaleconomy.

RiseofaGlobalMiddleClass.MiddleclasseswithdiscretionarybuyingpowerareforminghugenewconsumermarketsinChina,India,Russia,andotheronce-slumberinggiantsthataretentimesthesizeofAmericanmarkets.Fortunemagazinenoted"FromSingaporetoSantiago,customerwantsandneedsareconverging."

WorldwideRetailChains.McDonald'sisextendingitsnetworkfrom15,000to42,000restaurantsservinglocaltastesaroundtheworld.Toys"R"Usisgrowinginternationallyata35-percentannualrate.Wal-Martisnowtheworld'sbiggestretailer,operatingsixty-sevendiscountstoresinMexicoalone.Italy'sBenettonoperatesin120countries.TheChinesecompany,Yaohan,isexpandingto1,000stores;onewillhandleamillionshopperseachweekend.

AGlobalInformationRevolution.Businessesinless-developedregionsarebuyingcomputers,cellularphones,faxmachines,andotherinformationsystemsfasterthandevelopedregionsbecausetheyareunhinderedbyinvestmentsinoldsystems.Forinstance,ChilehasonlythreePCsperhundredpeople,comparedwiththirtyPCsintheUnitedStates.

TheTrulyGlobalCorporation.Ford'schairman(Scottish)andCEO(Lebanese)managethecompanyfromajetaircraftequippedwithvideoconferencingsystemsconnectingthemtothirtymanufacturingplantsspanningtheglobe,whichusestandardautomotivesubsystems(frames,engines,andsoforth)toproducecustomcarsformarketsin230countries.GEisfocusingitsstrategyonjointventuresinChina,India,SouthAmerica,and

otheremergingmarkets.

TeleshoppingAroundtheWorld.Long-distanceshoppingusingsuchservicesasCompuServeandtelephonenetworksisattractingbuyersfromaroundtheglobe.L.L.Beannowhas200foreignlanguageoperatorstakingorders,boostingglobalsalesfrom$25millionin1990to$130millionin1994.Microsoftobtainsmorethanhalfofitsrevenuefrominternationalsales.Retailerssaytheyaremerelynibblingattheedgesofanenormousmarket.

TheGlobalTravelandTourismIndustry.Tourismisnowthelargestindustryintheworldandgrowingrapidly.Airlinesarederegulatingandformingalliancestoprovidefarmoreconvenient,inexpensive,andsafetransportationtoanywhere.

Sources:RahulJacob,"MiddleClassesExplodeAroundtheGlobe,"Fortune(May30,1994);CarlaRapoport,"RetailersGoGlobal,"Fortune(February20,1995);"GESeestheFuture,"BusinessWeek(November8,1993);WarrenBrownandFrankSwoboda,"Ford'sBraveNewWorld,"(August12,1994);WorldInvestmentReport(U.N.ConferenceonTradeandDevelopment,1994);SharonWaxman,''GlobalShoppingBooms,"WashingtonPost(June21,1994).

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Governmentsarealsomovinginthissamedirection.In1994,votersinItaly,France,Sweden,Japan,Canada,andtheUnitedStatesrevoltedagainstpoliticalsystemsthatruledthecoldwarerawithcumbersomeregulations,poorservices,hightaxes,andcorruption.U.S.CongressmanRobertAndrewsacknowledged,"Weareinthemidstofamiddle-classpoliticalrevolution.Thepublicisabsolutelyright.Governmentisoutofcontrol."

26

Caughtbetweenpoliticaloppositiontoraisingtaxesandcuttingservices,growingdeficitsarenowforcingtherestructuringofgovernmentthroughouttheworldinroughlythesamewaythatbusinesshasbeendoing:byprivatizingoperations,introducingcompetitiontoimproveservices,andcollaboratingwithpublicstakeholders.27Theseforcesarealsodisaggregatingnationsintosmallercommunities.Thenumberofindependentstateshasdoubledinthepastfewdecades,andsomeclaimtheworldwillholdathousandnationssoon,eachwithnumerousindependentregionsandcities.HenryCisneros,U.S.secretaryofhousingandurbandevelopment,saystheneedisto"decentralizewithavengeance."28

Theemergingroleforgovernmentistoprovideacooperativeeconomicinfrastructurethatsupportssoundeconomicgrowth.Asaglobaleconomyenablesfirmstolocateanywhere,governmentsareunderincreasingpressuretoattractresponsiblebusinessformationbyprovidinglowtaxes,informationsuperhighways,minimalregulations,accesstoadvancedtechnology,educatedworkers,productmarkets,andsocialamenities.29CultivatingthisnewrolemadeSingaporeoneofthemostprosperousregionsoftheworld.Withnonaturalresourcesandasmallpopulation,thecityhasattractedthreethousandcorporationsbycreatingthemostadvancedpublicITsystemand

economicinfrastructureanywhere.

Further,theneedforbothenterpriseandsocialsupportisencouragingasymbioticrelationshipbetweenthesetwopivotalinstitutions,whichcanbeseeninthewaveofbusiness-governmentpartnerships.Governmentsareeagertohelpbusinessrejuvenatetheireconomies,andbusinesscanonlythriveinhealthysocieties."Thegovernmentcan'tdoitbyitself,"saidGovernorGeorgeVoinovichofOhio."Theprivatesectorhastogetinvolved."30

Rememberthatthisemergingformofeconomiccooperationisnotaltruismbutmutualself-interestthatbenefitsallparties.RayNorda,formerCEOofNovell,calledit"coopetitioncooperating,oftenwithone's

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rivals,outofenlightenedself-interest."Infact,itispreciselytheheightenedlevelofcompetitionthatdrivesacorporatecommunitytogether.Thebattleforeconomicsurvivalisnolongerwagedbetweensinglefirms,buttakestheformofcompetitionbetweenthese"clustersofentrepreneurialcommunity."

It'sobviousthatonlyaleadingedgeofprogressivemanagersareadoptingtheseinnovations,especiallytheideaofcorporatecommunity.AndtherewillalwaysbeacrucialrolefortheUnitedNationsandotherinternationalinstitutions.Butthemostlikelyscenarioformaintainingsocialorderinacomplex,changing,decentralizedglobaleconomyisthroughcultivatingcommunityamonglocalinstitutions.

Therevolutionaryforcesdescribedinthischapterandthemanyexamplescitedinthisbookhighlightthepoweroftoday'stechnologicalearthquakethatiscausingaglobalupheaval.Informationtechnologyexertsaforceasrevolutionaryasthatofindustrialtechnologytwohundredyearsago.TheInformationRevolutionrequiresfreeenterprisetomanagearisingtideofcomplexity,whileeconomiccooperationisalsonecessarytounitethiscomplexityintoproductivecommunities.Drivenbythesetwindemands,managersaroundtheglobearetransformingcorporationsandgovernmentsintothesameformofentrepreneurial,collaborativeinstitutionsneededtomaintainacivilizedalthoughturbulentworld.

TheTendencytowardDivergenceandConvergence

Idonotclaimthatthisneweconomicsystemwillbecomeuniversal.Figure10.1depictshowtherelationshipbetweenenterpriseanddemocracyformscomplex,changingpatternsinresponsetotwoopposingtrends:atendencytowarddivergencecausedbydifferencesinculturalvalues,andatendencytowardconvergencecausedbythecommonimperativesofinformationtechnology.

31

Studiesindicatethatnationsdevelopdiverseeconomicsystemsthatarecompatiblewiththeircultures.Figure10.1showshowcountriesliketheUnitedStates,theUnitedKingdom,Canada,Taiwan,SouthKorea,andtheSouthAmericanstatesfavorentrepreneurialfreedomandothereconomicvalues,whichcharacterizethelower-rightendofthepoliticalspectrum.Attheupper-leftendofthespectrum,China,Russia,EastEurope,Sweden,India,Africa,andtheMiddleEastleantowardsocialvalueslikesecurityand

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publicwelfare.Itishardtocategorizenationsneatly,andallthisischanging,ofcourse.Butculture,oneofthemostpowerfulforcesintheworld,seemstoproducethesebroad,generalpatterns.

32

Whilewidevariationswillremain,overthelongtermtheimperativesofinformationshouldcontinuetourgemostnationstowardaroughlysimilarcombinationofdemocracyandenterprisethatintegratessocialandeconomicvalues.Theattractiontowardthiscenterpositionisillustratedbythefactthatthemostproductiveeconomiestendtofavoracombinationofenterpriseandcollaboration;Switzerland,Germany,France,Italy,Scandinavia,andJapanhavecreatedthehighestoverallqualityoflifeintheworldduringthepastfewdecades,althoughtheytooarenowfacingnewadjustments.AEuropeanmanagerexplained:

Thecompetitivebattleseniormanagersfaceisastruggleamong[market]systems,eachwithitsdistinctivesetofvalues.IbelieveourEuropeansystemofalliancesamongworkers,suppliers,distributors;andgovernmentisbettersuitedtomeettheeconomicandsocialchallengesahead.33

Althoughdifferenceswillflourishtosuitculturaltastes,thisdiversityislikelytoevolveintovariationsonthesameorganizingprinciplesbecauseallnationsarepressuredbycommoneconomicrealitiesoftheInformationAge.Theinstantaneousflowofelectroniccapitalaroundtheglobeisnowforcinginterestratesandwagestoconvergeandgovernmentstoadoptsimilareconomicpolicies.In1995,forinstance,theMexicanpesofellprecipitouslybecauseofalargetradedeficit,whiletheJapaneseyenclimbedduetoatradesurplus.34Thisconvergencemaybemostpronouncedinthedevelopingcountriesthataresearchingforamiddleway.MujmulSaqibKhan,aPakistani

ambassador,claimsthat"leadersofdevelopingcountrieswillblendcapitalistandsocialistmodels."35

Thisperspectiveontheemergingglobaleconomy,then,offersmanagerssomeinsightsintothecomplexproblemstheymustsolvearoundtheworld.Notonlymusttheylearnhowtooperateacrosswildlydifferenteconomies,laws,currencies,andcultures,theymustalsoadapttoawidevarietyofdeeplyrootedpoliticalideologies,whichshouldincreasinglycombinevariousblendsofenterpriseandcommunity.Whilethisglobalorderissuretogrowevenmoreintricate,itshouldhelptokeepinmindthatthis

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Figure10.1.TheEvolutionofPoliticalEconomy.

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confusioncanbesortedoutbyusingNewManagementconcepts.Ihopethischaptershowsthatthesameforcesareatworkinaglobalcontext.

Thesetrendsareasyetlimitedtoanavantgarde,ofcourse,buttheirimplicationsareprofound.AsshowninFigure10.1,theconceptofDemocraticEnterprisemayeventuallyintegratesocialismandcapitalismintocompatiblebutsomewhatdifferentversionsofthissameoverarchingglobalparadigm.Wecouldthenwitnessabreakthroughinpoliticaleconomythatfosterstheformationofrobustlocalcommunitywhilesimultaneouslycreatingamoreproductivetypeofenterprise.Aneweconomicepochisathandinwhichenterpriseandhumanvaluesareefficient,sosuchasystemmaybecomecommonplace,makingitpossibleformanagerstooperatemoreeasilythroughoutatrulyunifiedglobaleconomy.

Irealizethatthereismuchcynicismoversuchprospects,butconsiderthechangestheIndustrialRevolutionbroughttotheaverageagrarianpeasant,whosufferedashort,gruelinglifeoflaborinthefieldsunderservitudetoadictatorialmonarch.Averagepeoplelivingindevelopednationstodaycertainlybearhardships,buttheyarewhite-collarworkersenjoyingthefreedomofmarketeconomiesanddemocraticgovernment.WhyshouldtheKnowledgeRevolutionbelessdramatic?

TheEmergingShapeoftheNewEconomicOrder

Projectionsofthesetrendsprovidesomeintriguingforecaststhatdefyconventionalwisdom.

DemocraticEnterpriseintheEast:ANewSocialism?

ThemainobstaclefacingtheformerSovietblocistoday'santisocialistfervor,whichblindsustothemoresubtletruth.Aswe

haveshown,mostpeopleinsocialistcultures,andevenmanyAmericans,disliketheharshnessofcapitalismandpreferthehumanvaluesthathaveinspiredsociallyorientedeconomiesnowthrivinginWesternEurope,Japan,andotherleadingeconomicareas.That'swhyhalftheworldmovedtosocialisminthefirstplace.

ThekeytoresolvingthecrisisgrippingRussiaandEasternEurope,then,istorecognizethatsocialismwasnotanaberrationbutanimportantadvance.Intheheatoftoday'sreforms,itiseasytoforgetthatsocialistphilosophywasoncepraisedasaconstructiveresponsetotheexploitationof

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labor,monopolycontrolofmarkets,andotherinjusticesofearlycapitalism.Communismwasaharshsystem,certainly,butthecapitalismoftherobberbaronswasequallyharsh,andeventhecapitalismoftodaycanbeharsh.WhatmoralitytoleratesasystemthatrewardspeoplelikeMichaelMilkinwithmorethan$500millionperyearwhileaquarterofitsinfantsliveinpoverty?Thepresentloveaffairwithcapitalismislikelytorunitscourseinafewyearsasexcessesmount,takingthepoliticalcyclebacktowardsocialpolicies.

Ratherthanexpectsocialiststoabandontheirheritage,therefore,itismoreusefultoviewtheRussiandilemmaasroughlycomparabletothetransitionAmericansexperiencedduringtheGreatDepressionofthe1930s,whichthrewtheviabilityofcapitalismintoquestion.TheDepressionresultedfromaseverefailureinthemarketsystem,butitwascorrectedwithinsuredsavings,unemploymentbenefits,andothersocialwelfareprogramsthatstabilizedtheAmericaneconomy.

EconomicprogressinRussialagsbehindthatoftheUnitedStatesbyaboutfiftyyears,sothenationismakingasimilartransitionatroughlythesamepointinitsdevelopment.JustasAmericansdidnotabandoncapitalismduringtheGreatDepressionbutcorrecteditsflawsbyadoptingsomeelementsofsocialism,Russiansmayintimedevelopanadvancedformofsocialismincorporatingmarketsanddemocraticenterpriseitcouldbethoughtofasa"NewSocialism."

Manyeconomistsdisputetheconceptofa"ThirdWay,"yetsometrendsaremovinginthisdirection.PollsshowthatmostRussiansandotherpost-Communistpeoplefavorademocratic,marketsocialism.ACzechpoliticiansaid:"Wedonottalkabout'socialmarkets'toavoidheadlines,buttheconditionforoursuccessistokeeppublicsupport."InPoland,theDemocraticLeftAlliancethatwonthe1993electionsbaseditssuccessoncombiningthebestfeaturesofsocialismandcapitalism:"ThebigmistakethatSolidaritymadewastothrowout

everythingfromthepast,"saidthepartychairman.AndaChineseofficialsaid,"Capitalismdoesn'thaveapatentrightovermarkets.We'retryingtoestablishasociallyorientedmarketeconomy.''

36

Justasmarketsarenotnecessarilycapitalism,then,socialismisnotnecessarilygovernmentplanning.TheconceptofDemocraticEnterpriseoffersalogicalsolutiontothecurrentRussiancrisisbecauseitcouldpro-

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videtheadvantagesoffreemarketswhileretainingsomesenseofharmonioussocialcontrol.Intermsoftraditionalsocialistthought,thistypeofsociallyguidedmarketeconomywouldservethepublicwelfarethroughdecentralizedplanning,conductedattheleveloftheindividualenterpriseratherthanthestate,andmanageddemocraticallybystakeholders.

37Themainobstacletorevitalizingthepost-Communistblocisbuildingviableinstitutions,andthisapproachcoulddrawontheircommunitarianculturetoformproductivebusinesscorporationsandothersocialinstitutions.

Let'ssketchoutwhatthissystemmightlooklike.TheprivatesectorinRussiashouldcontinuetobemanagedwithfreemarkets,butthisisbasicallyasocialistsociety,sogovernmentcouldassistwithemployment,medicalcare,housing,andpensionstobufferitscitizensfromthevicissitudesofmarkets.Itmightalsobebesttomaintainstrategiccontroloverbanking,utilities,transportation,andotherquasi-publicindustries,eitherthroughregulationorstateownership.A1995pollof4,000Russiansfoundthat66percentwantmorestatecontroloftheeconomy.38

ThemostcrucialstrategywouldbetohelpRussianmanagersdevelopaformofdemocraticgovernanceinwhichworkers,businesspartners,government,andcustomerssharecontroloforganizations.Thiscrucialstepwouldallowafreshapplicationofsocialistvaluestoformanacceptabletypeofcommunitarianenterpriseabletothriveinavibrantmarketeconomy.Box10.4showstypicalpractices.

Thepaththesenationsfollowiscertaintobemessy,andtoday'srawcapitalismwilllikelycontinueuntilthepublicdemandsreforms,followingtheAmericanexperience.However,opinionpollsshowthe

followingprobabilitiesforthreealternativescenarios:Russiansbelievethereisa22percentchancethatthenationwilldevelopanAmericantypeofcapitalism;a15percentchancethatitwillrevertbacktocentralcontrols;anda63percentchanceitwillfollowthemiddlepathofDemocraticEnterprise.OtherstudiesshowsimilarresultsforChina.39

DemocraticEnterpriseintheWest:ANewCapitalism?

Aninterestingfeatureofthisthesisisthatthecapitalistworldmaymovetowardaroughlysimilarsystem,althoughitwouldbeviewedintermsofWesternvaluesanditwouldbeapproachedfromtheoppositedirection,asshowninFigure10.1.

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BOX10.4.DEMOCRATICENTERPRISEINTHEEAST.

ThefollowingexamplesillustratenewpracticesinRussiaandEasternEuropeinwhich"democratic"enterprisesoperateinafreemarketsystem.

DemocraticCentralism.Tomeettheirtwoculturalneedsfordemocraticpolicymakingandcentralizedcontrol,Russianmanagersperiodicallyengagetheirsubordinatesinafreedebatetoproduceaconsensusonpolicies,afterwhichthedecisionisimplementedinanauthoritarianmanner.Thus,leadershipalternatelymovesfromdemocracytodictatorship,inkeepingwithdifferentneedsatdifferenttimes.

WorkerCouncils.Workercouncilshavebeenformedinlargeenterprisestoparticipateintheselectionofmanagersandinpolicyformation,roughlysimilartotheGermanandJapaneseapproaches,whicharefamousforcreatingproductiveorganizations.

DiverseApproachestoCorporateControl.Poland,theCzechRepublic,andRussiahaveadoptedprivatizationplansthatofferdifferenttypesofeconomiccontrol:sellingcompaniestoprivateinvestors,cross-ownershipamongsuppliersanddistributors,givingstocktoemployee-owners,anddistributingvouchersthatallowcitizenstobuysharesofdifferentbusinesses.

EmployeeStockOwnershipPlans.ESOPsaregainingpopularity.OneofRussia'slargestlumbermills,theUstLlimskWoodIndustrialComplex,recentlysoldsharestoits12,000workers,whonowboastofbeingthemill'sowners.AttheKonveyerplant,asimilarsystemhasbeenrunningsmoothlyforyears,andemployeesreceiveda20percentdividendrecently.

Joint-StockCompanies.Joint-stockcompaniesofferademocraticformofgovernanceinwhichallstakeholdersshareinownershipandcontroloftheenterprise.AgoodillustrationisthefamousGUMDepartmentStoreonRedSquare,whichhasbeenconvertedintoa"joint-stocksociety"whosesharesareheldbyemployees,financialbackers,suppliers,andtheMoscowCityCouncil.

Self-ManagedTeams.Russianshaveorganizedself-managedteamsthatshareresponsibilityandfinancialrewards.Atafamoushospital,forinstance,surgicalteamsarejointlymanagedbydoctors,nurses,andtechnicians,andreceiveincentivepaythatdiffersbynomorethanafactorofthreeamongteammembers.

Sources:WilliamE.HalalandAlexanderNikitin,"EastIsEast,andWestIsWest,"BusinessintheContemporaryWorld(Autumn1992);PaulLawrenceandCharalambosVlachoutsicos,BehindtheWalls:Decision-MakinginSovietandU.S.Enterprise(Cambridge,Mass.:HarvardBusinessSchool,1990).

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Americaisacrisis-drivensociety,sothedrivingforceforsuchadifficultchangeseemslikelytobetheidentitycrisisthatgripstheUnitedStates.ButtheAmericanpotentialformeetingnewchallengesisenormous.AfterPearlHarborforcedAmericaintoWorldWarII,theUnitedStatesemergedasthemostpowerfulnationintheworld.WhenSputniklaunchedthespacerace,Americasoonlandedthefirstmanonthemoon.AndtheAraboilembargoproducedsuchaburstofenergyconservationthattheUnitedStatesbecamegluttedwithcheapoil.Thedemandforchangeduringthe1992and1994electionssuggeststhatasimilarsurgeofreformcouldemergeoversuchideasas"HumanCapitalism"ora"NewCapitalism."

Americansarepracticalpeople,andacontinuationoftoday'ssocialdeclinemayconvincethemthatthenation'sobsessionwithprofit,capitalinvestment,taxes,andothereconomicpoliciesmissestherealissue.ThegreatneedfacingtheUnitedStatesistomakeasubtlebutcrucialshiftfromacapital-centeredsystemtoahuman-centeredsystemthatwouldcreateasenseofcommonpurposetounifyitsinstitutionsandthenation.HerbertStein,formerchairmanoftheCouncilofEconomicAdvisers,saysAmericaneedstoestablishanewgoalof"improvingthequalityoflife."

40

Somemovementhasbeenbuildinginthisdirectionforyears.AssummarizedinBox10.5,thetrendsreportedinthisbookshowthatmanyAmericanmanagersrealizethatacollaborativeformofbusinessisneededbecauseeconomicsuccesshingesongainingthesupportoftheirvariousstakeholders.Whyshouldtough-mindedexecutiveswanttodothis?Becauseitismoreproductive.

Moreover,businessistheleadinginstitutionthatsetsthetoneforsocietytoday,soitsexamplecouldencouragegovernment,education,

andourothersocialinstitutionstodothesame.ThecrisisinAmericaneducation,forinstance,couldberesolvedaspublicschoolsmovefurtheralongthepathtowardinternalmarketsandcorporatecommunitybeingblazedbyinnovativecorporations.Adozenorsostatesallowparentstochooseschools;roughlytwentystatesnowpermitteacherstoformcharterschools,andmanyoffermeritpay.Likewise,participativegovernanceisbeingadoptedtomanageschoolsbybringingadministrators,teachers,andparentsintopolicymaking.Inshort,theprinciplesoftheNewManagementareatworkrevitalizingeducation.

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BOX10.5.DEMOCRATICENTERPRISEINTHEWEST.

ThefollowingtrendssummarizeconceptspresentedthroughoutthisbooktoshowthatWesterneconomiesarecombiningdemocraticcooperationwithcreativeenterprise.

ParticipativeEmployeeRelations.VarioustypesofemployeeparticipationareunderwayatroughlyhalfofAmericancompanies.Also,about15,000firmshaveemployeeownershipplanscovering20millionworkersbecausetheyimproveproductivityandprovideadefenseagainsthostiletakeovers.Asaresult,no-nonsenseexecutiveswhoabhoranywhiffofidealismaremovingtowardthedemocratizationoftheworkplace.

Client-DrivenMarketing.AsforeigncompetitionhasenteredAmericanmarkets,almostallAmericanfirmshavebegunshiftingattentionfromsellinggoodstoservinggenuinecustomerneeds;theyemphasizequalityandcustomersatisfaction,andbringclientsintothepolicy-makingprocess.BusinessWeekmagazinesummedupthismovetoclient-centeredmarketing:"Entirecompaniesarebeingreorganizedaroundgivingcustomerswhattheywant."

StrategicAlliances.Almostallcorporationsarebeingconnectedbystrategicalliances,evenwiththeircompetitors.About250researchconsortiaofcompetingcompaniesand1,600business-governmentresearchagreementshavebeenformedrecentlyintheUnitedStates.Theautoindustryalonehastwelveconsortiainwhichallthreemajorcarmakersworktogether,oftenwithgovernmentsupport,ondevelopingeverythingfromnewfuelstoelectriccars.

Government-BusinessPartnerships.AmericancitieslikeBaltimore,SanAntonio,andIndianapolis,andstateslike

MichiganandPennsylvania,areformingworkingpartnershipsamonglocalcorporations,universities,laborunions,andcivicgroups.Roughlyfortystatesaredevelopingcollaborativegovernmentrolesthatfacilitatethesuccessfuloperationoffreemarkets.

DemocraticModeloftheFirm.Thetrendsnotedherearecreatingcorporatecommunitiesthatunifyworkers,clients,associatedfirms,governments,andinvestors,asillustratedbyGM-Saturn,theBodyShop,andotherprogressivefirms.Morethan80percentofmanagersintheCITstudysaytheircompaniescooperatewiththesestakeholders(seeTable3.3).WilliamAndres,CEOofDayton-Hudson,putitbest:"Wefindnoconflictinservingallourconstituentsbecausetheirinterestsaremutuallyintertwined.Profitisourrewardforservingsociety."

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Apowerfulnewformofgovernmentisalsoneededthatassiststheresponsibleoperationofafast-moving,high-techsociety.Creativepoliticianstodaycouldbemoreeffectivebyhelpingcorporations,schools,andotherinstitutionsdevelopahumanformofenterprisethatdrawsonAmerica'sdemocraticheritage.OnestrikingpossibilityistoformaDemocratic"ContractwithAmerica."WheretheRepublicansgainedpowerbyseizingtheironneedtodecentralize,theDemocratscouldgainpowerbyensuringtheironneedforresponsiblelocalgovernance.Governmentscouldoffercorporationsandotherinstitutionsfreedomfromregulationsandtaxesiftheyadoptdemocraticgovernancesystemsthatassumeresponsibilityfortheirsocialimpacts.

41

Ifadecentralizedsocietyistowork,thistypeofsoundlocalgovernancewillbeneededtocreateself-regulating,vibrantcommunitiesthatreplacefederalcontrolsandwelfareprograms.

AGlobalRacetoInventtheEconomyoftheFuture

Thischapterhasdefinedthefollowingmajordilemmaandhowmanagerscanbestoperateinthenewglobalorder:

1.Althoughtheworldismovingtowardunification,theemergingglobaleconomyisincreasinglycharacterizedbywidespreaddisintegrationofcorporationsandgovernments.

2.Thisdecentralizationiscausingaseriousdilemmabetweencapitalismandcommunity,althougheachnationmayexperienceitdifferently.

3.Managershaveanopportunitytocreateanewformofpoliticaleconomythatdrawsitsstrengthfromcreatingpocketsof

entrepreneurialcommunityatthegrassrootslevel.

Eventswillnotevolvethisneatly,sincearaceisunderwaytodiscoverthesecretsofsuccessforaneweconomicerathatnobodyreallyunderstands.Italmostseemsasthoughtheglobehasbecomeagreatlaboratoryinwhichcompetingnationsandcorporationsmustworkfeverishlytoinventneweconomicprototypesforthefuturebeforedisasterstrikes.

IfRussiansandAmericansareunabletomeetthischallenge,Germany,Japan,andChinaseemmostlikelytoemergeasthedominantglobal

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powers.GermanyispoisedtobecomethegatewaybetweenEastandWest.JapanisformingalliancesthroughoutAsiaandtherestoftheworld.AndChina'sgreatsizealmostensuresitacentralroleintheworldeconomy.Withoutmajorchanges,theUnitedStatesmaybecomeamarginalglobalactorthatcelebratesinnovativefreedomandextravagance,albeitaccompaniedbyincreasingpoverty,crime,andothersocialproblems.Russiawouldprobablysinkfurtherintoitspresentquagmireofoutlawcapitalism,unworkablebureaucracy,andpoorlivingstandards,punctuatedbyperiodicsocialrevoltsthatarebrutallysuppressed.

ButIammoreimpressedbytheimperativesofinformationtechnologywhicharenowforminganewglobalorder.SomethingsimilartoDemocraticEnterpriseseemsinevitableforthesamereasontoday'seconomyreplacedthefeudalsystemtwohundredyearsago:notbecauseofgoodintentions,altruism,orevensoundplanning,butbecauseamoreproductiveblendofmarketsanddemocracyisnowessentialtomeetthedemandsofanInformationAge.Theinexorablelogicofthishistoricdevelopmentislikelytoprevailoverthenexttentotwentyyears,andthebigquestioniswhowillprovidetheleadershipformovinginthisdirection?

Capitalismandsocialismsufferseveredisadvantagesbecauseofstructurallimitsinbothsystems:economicfreedomisproductivebutsociallydisruptive,whilegovernmentcontrolsareorderlybuteconomicallystifling.Itseemstomethatthenextgreatstepinhumanprogressisthetransformationofthesetwofadingideologiesintomodernequivalentsthatcanintegratesocialandeconomicvalues.Andaseminalnewideaisemergingthatmayfinallyresolvethisnaggingolddilemma.Managersaroundtheglobeareredefiningtheverynatureofenterprisetoincorporatesocialvaluesdemocraticallyatthegrassrootslevel.

Notes

1.SeethespecialissueofFutures,TheGlobalEconomy,editedbyWilliamE.Halal(December1989).

2.C.FredBergsten,"ClintonMakesthePacificConnection,"WashingtonPost(November13,1994).JohnGoshkoandPeterBehr,"LeadersofWesternHemisphereAgreetoFormFreeTradeZone,"WashingtonPost(December11,1994).AkioMorita,"TowardaNewWorldEconomicOrder,"AtlanticMonthly(June1993).

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3.SeeHeidiVernon-WortzelandLawrenceWortzel,GlobalStrategicManagement(NewYork:Wiley,1992),andthespecialissueonglobalstrategypublishedbyStrategicManagement(Summer1991).

4.EmilyThornton,"Japan'sStruggletoRestructure,"Fortune(June28,1993).

5.RobertOzaki,HumanCapitalism:TheJapaneseSystemasaWorldModel(Tokyo:KodanshaInternational,1991).Foragoodanalysisofdifferencesinmarketsystems,see"TheManyFacesofFreeEnterprise,"BusinessWeek(January24,1994).

6.PeterGumbel,"EastGermansCan'tShedCommunism,"WallStreetJournal(September29,1994).JaneMayer,"ManyEastGermansFindThereIsNoPlaceLikeHome,"WallStreetJournal(December8,1989).

7.SteveLiesman,"MoreRussiansEnterMiddleClass,"WallStreetJournal(June7,1995).

8.PeterReddaway,"NextFromRussia:ShockTherapyCollapse,"WashingtonPost(July12,1992).

9.FredHiatt,"HistoricChancetoAidRussiaSaidtoBeSlippingAway,"WashingtonPost(March1,1993).

10.ThepresidentofABBRussiasaid:"InanotherfiveyearsyoungRussianswillhavethesameworkhabitsastheWest,"andtheRussiangovernmentclaimsthatrealincomesrose11percentin1994.Buttherearedoubtsaboutthevalidityofthesestatistics.See"InPoland,ReformBringsPainfulProgress,"WashingtonPost(September6,1993),and"Russia'sStrivers,"BusinessWeek(1994,specialissue).

11.HobartRowen,"SovietIceberg,"WashingtonPost(May21,1992).SorosisquotedinBusinessWeek(October3,1994),p.105.

12.GuyGugliotta,"IndexofSocialHealth,"WashingtonPost(October25,1994).

13.TheheadlineisfromBusinessWeek(November14,1994),p.108.Forananalysisofthisconflictbetweenbusinessandsociety,see"We'reNo.1,AndItHurts,"Time(October24,1994).TheeditorialpageofBusinessWeek(April26,1993)notesthataverageCEOpayrose56percentfromthepreviousyearto$3.8million;theeditorialconcluded:"CEOpaycontinuestoclimbtoridiculousheights....Thedisparitytearsatthesocialfabric."

14.AnauthoritativeanalysisisprovidedbyGaryBurtlessandTimothySmeeding,"America'sTide:LiftingtheYachts,SwampingtheRowboats,"WashingtonPost(June25,1995).

15.LawrenceFranko,"GlobalCorporateCompetition,"BusinessHorizons(NovemberDecember1991).

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16.MichaelDobbs,"WhoWontheWar?"WashingtonPost(May7,1995);JudyShelton,"AFlatTaxforaStrongDollar,"WashingtonPost(September6,1995).

17.BasedonaGallupPollconductedforTheDailyTelegraph(April1989).

18.SeeAmitaiEtzioni,TheMoralDimension:TowardaNewEconomics(NewYork:FreePress,1988).

19.CharlesMaier,"TheCollapseofCommunism"(Workingpaper,CenterforEuropeanStudies,HarvardUniversity,1994).

20.SeeClarkKerr,TheFutureofIndustrialSocieties(Cambridge,Mass.:HarvardUniversityPress,1983).

21."EuropeFacesPressuretoCutSocialSpending,"WallStreetJournal(May8,1995).RickAtkinson,"GermanWorkersGettingStiffShotofReality,"WashingtonPost(February22,1994).

22.IchiroOzawa,BlueprintforaNewJapan(Tokyo:KodanshaInternational,1994).

23.HerbertHenzler,"TheNewEraofEurocapitalism,"HarvardBusinessReview(JulyAugust1992).BrenyonSchlender,"Japan:IsItChangingforGood?"Fortune(June13,1994).

24.Walesa'sstatementisfromNewsweek(November27,1989),p.35.AgoodaccountoftheroleoftelevisioninbringingaboutthefalloftheEastGermanCommunistgovernmentisprovidedbyTaraSonenshine,"TheRevolutionHasBeenTelevised,"WashingtonPost(October2,1990).AlexanderKingandBertrandSchneider,TheFirstGlobalRevolution(NewYork:Pantheon,1991).

25.AsnotedbyJohnNaisbitt,GlobalParadox(NewYork:Morrow,1994),p.14.

26.RobertAndrews,"Democrats:ChangeorDie,"WashingtonPost(November10,1994).AlsoseeJohnFund,"TheRevolutionof1994,"WashingtonPost(October19,1994).

27."America'sHeartland:TheMidwest'sNewRoleintheGlobalEconomy,"BusinessWeek(July11,1994).

28.DavidBroader,"ThePowerofOurDiscontent,"WashingtonPost(September6,1995).

29.MichaelPorter,TheCompetitiveAdvantageofNations(NewYork:FreePress,1990).

30.DavidVise,"ComebackonLakeErie,"WashingtonPost(November11,1994).

31.SeeWilliamE.Halal,"PoliticalEconomyinanInformationAge,"inLeePreston(ed.),ResearchinCorporateSocialPolicyandPerformance(Greenwich,Conn.:JAIPress,1988).

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32.SamuelHuntington,"TheClashofCivilizations,"ForeignAffairs(Summer1993).

33.HerbertHenzler,"NewEraofEurocapitalism."

34.SeethespecialissueofBusinessWeek,21stCenturyCapitalism(1994),andJoelKurtzman,TheDeathofMoney(NewYork:Simon&Schuster,1993),whichdescribetheeffectsoftoday's$200trillionvolumeofannualtradeinglobalfinancemarkets,whichisroughlytentimestheentireoutputoftheworld'seconomies.

35."JapaneseFusion,"inthespecial1994issueofBusinessWeek,21stCenturyCapitalism.

36."SovietsRejectU.S.StyleCapitalism,"WashingtonPost(July26,1991)."Prague'sProgress"WallStreetJournal(July6,1994)."PolesSplitinVoteforParliament,"WashingtonPost(October28,1991).LenaSun,"China'sPartySeesThreatfromtheWest,"WashingtonPost(November12,1991).

37.TherationaleforasociallyorientedformofmarketeconomywasfirstdescribedbyOskarLangeinOntheEconomicTheoryofSocialism(NewYork:McGraw-Hill,1964),pp.57143,andPatDevineinDemocracyandEconomicPlanning(Boulder,Colo.:WestviewPress,1988).

38.ReportedinWashingtonPost(November12,1995).

39.JohnBradford,"TheProspectsforChangeintheSovietEconomy"(Unpublishedresearchreport,GeorgeWashingtonUniversity,1990).ZhihuaChen,"TheNewChina:CapitalismorMarketSocialism?"(Unpublishedresearchreport,GeorgeWashingtonUniversity,1991).

40.HerbertStein,"TheShowIsOver,"WallStreetJournal(October25,1994)

41.RobertKuttner,"GoodCorporateCitizens,"WashingtonPost(August23,1995).

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CONCLUSIONDRAWINGONTHEPOWEROFHERITAGEAlthoughmygoalinthisbookhasbeentodefineacomprehensiveapproachtotransforminginstitutions,Iexpectthatreaderswillseetheirgoaldifferently.Youhaveyourownuniqueproblems,yourownideasaboutwhatisneeded,andyourownsetofprinciples.Ialsorealizethatyouarefloodedwithlotsofadvicethatdiffersenormously,sowhyshouldmyconceptsbespecial?

MakingSenseofManagementToday

IhopeyouhavefounditusefultoseethataNewManagementisemergingandthatitsunderlyingconceptsofinternalmarketsandcorporatecommunityofferunusualinsights.Whatsetsthisbookapart,however,isthatitfocusesverysharplyonwhatreallycounts.ManagementcouldbefarmoreeffectiveifwedrewonthepowerofourAmericanheritage:democracyandenterprise.

Itseemstomethatwehavebecometrappedinagreatirony.AttheverytimewhenAmericanidealsarecreatingrevolutionsaroundtheworld,ourowninstitutionsarestillsufferingfromauthoritariancontrol.Theunpleasanttruthisthatwehaverelegatedourprinciplestoloftyoccasions,suchaspresidentialelections,whileignoringtheirrelevancetoourworkplaces,schools,hospitals,churches,andotherordinaryaspectsofdailylife.Thisproblemiscompoundedbytoday'sjumbleofincompatibleframeworksthatscatterattentioninmanyotherdirections:Petersand

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Waterman's''EightAttributesofExcellence,""Deming'sFourteenStepstoTQM,""TheEightPrinciplesforReengineering,""FiveDisciplinesofOrganizationalLearning,"onandoninanendlessstreamofmind-numbinglists.

Iwonderifwerealizehowconfusingthepracticeofmanagementhasbecometoday?Asonewhoinstructsinthisfield,Ioftenfeelembarrassedthatitlacksasolidbodyofknowledgeandacceptedprinciples.Yes,Iknowthat'sbecausemanagementismoreartthanscience,andsomeconfusionisunavoidablebecausemanagementwillcontinuetochange.

ButtheconceptofhierarchyeffectivelyorganizedmanagementthroughthroughouttheIndustrialEra,sowhycan'twedefineaconceptualfoundationfortheKnowledgeEra?Ratherthanstrugglingtosortouttheusefulideasfromtoday'smazeofmanagementfads,almosteverythingweneedcanbefoundinthetwogreatprinciplesofdemocracyandenterpriseAmericahasgiventheWest:

·Isyourcorporationunderpressuretoimprovequality?Restructureintosmallinternalenterprisesthatareheldaccountableforservingtheirclients.

·Howareyougoingtoempoweremployeeswhilemaintainingasenseofcontrol?Byhelpingthemorganizeintoself-supportingteamsthataremanageddemocratically.

·Arealliancesandnetworkingmakinghashofyourorganizationchart?Setupacommoneconomicinfrastructure,andletinternalmarketsdotherest.

·Yousaythedemandsofdifferentconstituenciesarepullingyouapart?Bringthemtogethertocreateademocraticsystemofgovernancethatsortsoutalltheirrightsandresponsibilities.

·Yourcompetitionisrelentless?Adynamicmarketsystemofsmallinternalenterprisesguidedbyskilledstakeholderswouldbeapowerfulcompetitiveadvantage.

Irealizethatnotallproblemswouldfitintothisframework,lotsofsituationswillalwaysrequirefirmcontrol,andfreedomisamessy,difficultthingtomanage.Buttheevidencesummarizedinthisbookshowsthat

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democracyandenterpriseofferauniversal,enduring,readilyunderstoodfoundationthatintegratestoday'sbewilderingblurofmanagementinnovationsintoacoherentwhole.

ManagingtheDailyNeedforCommunityandFreedom

Ifthisheritageissogreat,thenwhydowehavesuchahardtimeacceptingsuchabasicidea?Iamnotentirelysure,butIdoknowthatpeoplefeelambivalentaboutcommunityandfreedom.

Iexperiencedapersonalexampleofthisproblemrecently.Myextendedfamilyhasheldaone-weekreunionformanyyears,whichmybrothersandtheirfamiliesattendfaithfully.Notoneofus,eventheteenagerswhoaresoeagertodissociatefromtheirparents,wouldthinkofmissingthisannualfeastofcommunity.Itisaveritableorgyofreminiscing,tellingstories,huggingandkissing,workingonfamilyproblems,exchangingphotos,admiringeachother'skids,swappingadvice,andmakingfutureplans.

Yetthereisalwaysasubtlebutsolidresistancetointegratingourlivesbeyondacertainpoint.Whowantstotaketheresponsibilityfororganizingnextyear'sreunionwhentheyarestrugglingtokeeptheirownlivesundercontrol?Iwouldlovetohelpmybrother'ssonwithhiscollegestudies,butI'mworriedaboutmyownkids.Anddoesanybodyreallywanttogothroughalltheargumentsthatarepartofacloserrelationship?

Afamilyisnotalargeorganization,butIthinkthesametwoopposingforcesareatworkinallsocialsystems.Mostofuswanttobeaclosepartofagroup,butwealsoinsistonretainingourindividualfreedoms.Forinstance,employeesshouldbepartofthecorporateteambuttheymaynotagreewitheachother.Citizenswantstronggovernmentsupportbuttheyalsowanttoavoidrulesandtaxes.Thebasicproblemisthatwerarelyacknowledgetheseconflictingneeds

forcommunityandfreedom,sotheyarenotaddressedverywell,leavingeveryoneconfusedandirritated.Iknowourfamilyreunionsgofarbetterifwemakeexplicitplansforcommongatheringsandblockouttimeforindividualactivities.

Thesetwobasicneedsarestrongandgrowingstronger,andtheonlyrealsolutionistoplanhowtoservethembetter.Bringingdemocracyandenterpriseinsideorganizationswillnotmagicallydissolvethefears,doubts,andothercomplexissuesweexperienceoverthisdilemma.ButIdothink

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theNewManagementwillprovideaframeworkfordealingwiththesemattersmoreeffectively.

TheUniversalPoweroftheNewManagement

IwouldliketoconcludethisbookwithapersonalexperiencethathelpedmeappreciatetheessentialnatureoftheNewManagementmorefully.It'seasytodiscusswhatweshoulddointheabstract,butsomehowthingsalwayslookdifferentlywhenputintopractice"managementfromtheinsideout."That'swhathappenedwhenIhelpedmakeamajorchangetomyneighborhood.

IliveinalovelyoldcommunityofEnglishTudortownhouses.ItisconvenientlylocatedinGeorgetown,closetodowntownWashington,D.C.,yetitretainsthespaciousfeelofasuburb.Oneofthegreatlegaciesleftbythebuildersisthreeparklike"circles"thatdotthecommunity.Theoneinfrontofmyhomeisa150-footcirclesurroundedbyotherhomes,creatingalarge,graciousopenspacethatresemblesapublicsquare.

Althoughlivinginsuchmagnificentspaceisrareinanycity,thiscirclehadgrownintoauselesslotovertheyears.Largebushesandtreeswereplantedinthecenter,whichbecameovergrownandchokedwithweeds,makingtheentirecircleanimpenetrablejungle.Theonlypurposethisprizedpieceofrealestateservedwasasaconvenientplaceforpeopletowalktheirdogsithadbecomealatrine.Theproblempersistedbecause,likemostcommunities,mineconsistsofawidevarietyofpeoplewithstrongbeliefs,andthedifficultyofachievingconsensushadlefttheneighborhoodimmobilizedintoinaction.Thesadstateofthecircleswasmerelyasymptomofthispoliticalparalysis.

Becomingdesperateoverthisgrowingjungle,twoneighborsandItooktheleadinrelandscapingit,whichledtoagreatadventurein

communitybuilding.Aftermuchdiscussion,thereseemedtobeagreementthatthecircleshouldbechanged.Butwhowasgoingtodoallthehardwork?Wherewouldthemoneycomefrom?Howwouldweeveragreeonanewdesignthatallcouldlivewith?Inshort,wefacedthetypicalobstaclesthatparalyzemostorganizations.

Itoccurredtomethatwecouldignitesomeenergybyorganizingasmallgroupofneighborhoodmentobeginbymovingthetreesandbushesinthecircle.Theideawasappealingbecausethereisasymbolic

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powerin"gatheringtheneighborhoodmentoworkontheircommonland."Thiswasahuge,difficulttask,butitwasalsoaveryvisiblegoalthat,ifcompleted,wouldmakeanequallyhugeimpactonthewayneighborsviewedtheircommunity.

Sureenough,itworked.AbouttenmenshowedupthefirstSaturday;theymadealargedentinthejobandhadagreattimetogether.Onceeveryonesawwhatcouldbedone,therestwasfairlyeasy.Iorganizedahalfdozensuchworkteams,whichtransformedthecircleintoanopen,usefulspace.Astheneighborswatchedthisprogressandcameouttodiscussit,theybecameconvincedwewereseriousandbegandonatingmoneytosupportthework.And,althoughwehaggledoverdetails,theseconflictswereresolvedalongthewayasweallowedtheprojecttoevolveofitsownaccord.

Thisformereyesoreisnowcarefullylaidoutwithpathsleadingtoshadedspacesforsittingandplaying,allenhancedbyappropriatelandscaping.Theeffecthasbeentoinjectavitalnewspiritintothecommunity.Peoplenowinteractinwaystheyrarelydidbefore,especiallybecausethisgorgeousnewpublicspaceinvitesthemtobetogether.Thegreatestachievement,however,isthatanempoweringexamplehasbeenset.Neighborsnowthink,"Ifwecandothis,whycan'twe?"

Thistaskwasnotaschallengingasmanybusinessprojects,butitnicelyillustratesthebasicelementsneededtocreateorganizationalsuccesstoday.Thefirstthingtonoticeisthatthisprojectwasnotinitiatedbyformalauthorities,butsprangupfromthegrassroots.Icannotimaginehowitcouldhavemovedsuccessfullythroughthecomplexstepsoursmallcommunityassociationrequiresforformalaction.EvenmorebizarreisthethoughtthatitcouldeverbedonebyGodforbidtheD.C.orfederalgovernments.No,itwasaccomplishedbythevoluntaryeffortsofasmallteamthathadabetter

idea.Iliketothinkthatthishighlightsmyskillsasanentrepreneur,althoughmywifecallsme"amadman"fortakingonsuchchallenges.Butmadmenareexactlythestuffthatallgoodentrepreneursaremadeof,andthegreatesttaskfacingmanagersacrosstheglobetodayistounleashtheentrepreneurialpowersofordinarypeople.

Theothermajorpointtoobserveisthattheentrepreneurcannotaccomplishthetaskalonebutisutterlyreliantonothers.Oureffortswouldhavefailedwithoutthewillingeffortsofmanymenwhovolunteeredtodothehardwork,withoutthefinancialbackingofmyneighbors,andwithout

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thecollaborativesenseofcommunitythatallowedustoreachtoughdecisionsamicably.DespitealltheattentionshoweredonheroicCEOs,therealityisthatmanagersandorganizationscandoverylittlebythemselves;localpocketsofcollaborativecommunityareneededtoprovidetheenergy,support,andvisionthatdriveallhumanefforts.

WecouldshowhowthissimpleexampleillustratestheotherconceptsoftheNewManagement,butIthinkthepointisclear.Managersaroundtheworldarestrugglingmightilytodiscovernewprinciplestocopewithachangedworld,yetthekeyideasthatareneededliewaitinginourcommonheritagewetakeforgranted.

Societyisadriftinvariouscrisestodaybecausebusiness,government,education,medicine,andallotherinstitutionslackawayofdealingeffectivelywithatechnologicalandeconomicrevolution,thatiscreatingadecentralizedglobalorder,of10billionindustrializedpeople,whoallshareafragileEarth.Isuggestthatthecommonmodelneededtomanagethishuge,far-flung,enormouslycomplexglobalsystemisthehumbleblendoflocaldemocracyandenterpriseatworkincommunitieslikeminearoundtheworld.No,itwillnotsolvealltheworld'sproblemsbyalongshot.Itwould,however,establishasolidfoundationoftwowell-established,easilygraspedprinciplesthatofferenormousnewprospectsbecausetheycanharnessthepowerofordinarypeoplespontaneouslyfromthebottomup.

ItAllBeginswithYou

Inviewofthestrugglethatgoesonwithinmostofusoversuchissuesandthemassivemomentumofthestatusquo,ImustadmitthatprospectsforcreatingaNewManagementdonotappearoverwhelming.Itmaybethatthereislimitedpotentialforthistypeofmanagement.Nobodyreallyknows.

Butthegeniusofmarketsanddemocracyisthatitisnotnecessaryfor

anyonetoreally"know"howtomanagethissystem.Thesystemmanagesitselfbydrawingoutthetalentsandenergiesofordinarypeople.Itisopenended,richinunlimitedpossibilities.Leadersonlyhavetocreatesuchasystemandthenallowpeopletodowhattheycanwithit.ThatbasicfreedomisresponsiblefortheremarkableachievementsAmericahasrealizedduringitsshort200-yearexperimentinself-governance.Ifthisprinciplecanbeextendedintoinstitutions,wemaybeevenmoresurprisedbythecre-

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ativetalentthatisunleashedastheseidealspenetratedowntothenittygrittyofdailylife.

Therearemanyformidableobstacles,ofcourse,butthepathtoaNewManagementstartswithmanagerslikeyourselfwhoarewillingtoreconsidertheirbasicideasaboutthewayorganizationswork.BusinessleadersinparticularhaveagreatopportunitytoshowthewaybydevelopingtheNewManagementforalltosee.ItissaidthatJohnAdamstoldThomasJeffersonwhathethoughtwasthepivotalfactorinthesuccessoftheAmericanRevolution:"TheRevolutionoriginatedinthemindsofthepeople."

Considertheexcitingpossibilitythatwecouldactuallymanageourinstitutionsinamannerthatisconsonantwithourmostcherishedidealsthebeliefthatmembersofallorganizationsshouldhavethefreedomtostartandmanagetheirowninternalenterprisesandtocontroltheircorporatecommunitiesdemocratically.Ifwecouldsimplyacknowledgethattheseidealsareasappropriatewithinorganizationsasissocietyatlarge,theworldcouldtakeagreatstepforward.

Somanagersarethepeopletotakeonthischallenge,andAmericanmanagersshouldleadthewaybecauseofourspecialheritage.Afterall,evenRussiaandotherpost-Communistcountriesarebeginningtoembracedemocracyandfreeenterprisenow.Canwedoanythinglessthanliveuptoourownideals?

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APPENDIXES

AppendixATheOrganizationExerciseThisexerciseisdesignedtoallowparticipantstoexperiencetheeffectsofdifferenttasksonorganizationstructure.

Method

Theinstructorshouldassignparticipantstogroupsof3to7peopleandhaveeachgroupselectaleader.Theleadersarethenaskedtohavetheirgroupsperformtwodifferenttasks,andtheresultsarepostedonachalkboardorflipchart.

Thefirsttaskistoaddupapagefullofrandomnumbersandproduceatotal.(SeeExhibit1.Thecorrectansweris161,280.)Theinstructorshouldmakeitclearthatgroupleadersarefreetogoaboutthisassignmentanywaytheychooseandthattheyarecompetingagainsttheothergroupstoobtainareasonablycloseanswerintheshortesttimepossible.Afterstarting,theinstructornotestheelapsedtimeaseachgroupproducesagoodanswer,andpoststhetime.Groupsarethenaskedtodescribehowtheyorganizedthemselvesonascaleof0(mechanistic)to10(organic).Theseresultsarepostedundertheheading"OrganizationStructure"

Groupsaretheninstructedtocompletethesecondtask,whichinvolvesamorecomplexassignmentofassemblingapuzzle,suchasthecutoutshowninExhibit2.Theinstructoragainnotescompletiontimesandobtainsdescriptionsofgrouporganizationrangingfrom0to10,andpoststheseresults,asbefore.

Results

Withthesedataposted,theinstructorthenmovestotheanalysisphaseoftheexercise.

Thedatafor"organizationstructure"areaveragedforeachtask,andgroupsareaskedtodescribehowtheyexperiencedthetwotasks,focusing

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onthetypeoforganizationstructurestheycreated.Basedontheassumptionthatthetwotaskspresentchallengesofdifferingcomplexity,thesedatausuallyshowthatthemorecomplextask(thepuzzle)encouragesmoreorganicstructures.

Theinstructorcanalsodemonstratemoresophisticatedresultsbyplotting"organizationstructure"versus"performancetime"andotherrelationships.Manydifferentandinstructivescatterplotsofthistypecanbeused,especiallyifadditionaldataareobtainedfromgroups,suchas"satisfaction"measures.Itisalsousefultoencouragegroupstodiscussandcomparetheirexperiences.

Conclusion

Thisexercisetendstoconsistentlydemonstrateafewcentralconclusions.First,morecomplextaskstendtorequiremoreorganicstructures.Second,peopletendtopreferworkinginorganicstructures.Finally,organicstructures,suchasnetworkingandinternalmarkets,shouldbemoreeffectivefororganizationsgenerallybecauseofthecomplexityofmosttaskenvironmentsandbecauseofpersonalpreferencesofmostworkers.

EXHIBIT1.ASIMPLETASK:ADDINGNUMBERS.

2856 2658 56399487 4979 47693756 3759 56387658 4579 34793467 4738 50484529 3602 49302389 4869 29584760 3960 47683406 4869 23855689 2649 47694579 9586 4768

2306 4869 2130

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EXHIBIT2.ACOMPLEXTASK:COMPLETINGAPUZZLE.

Apuzzleasshownbelowcanbemadeveryeasilybysimplycuttingsheetsfromamagazineroughlyasshown.Pageswithphotosandadvertisementsareespeciallyuseful.

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AppendixBTheStakeholderMeeting:ARole-PlaySimulationoftheOrganizationasaSocioeconomicSystemThisexerciseisdesignedtosimulateastakeholdermeetingthatapproximatestherealityoforganizationallifeasanextendedsocioeconomicsystemconsistingofvarious"subsystems,""constituencies,"or"stakeholders,"asdescribedbelow.Themanagersofthisorganizationshouldopenthemeeting,definetheagenda,conducttheproceedings,andclosethemeeting.Althoughmanagersshouldbehaveastheyseefit,thesimulationismostvaluableiftheyalloweachgrouptobeheard,addresstheissuesraised,andgenerallyencouragealotofinteraction.Totaltimefortheexerciseshouldbelimitedtoaboutthirtyminutes.

Theobjectiveistoengageinafreshlearningexperiencethatsimplyallowsustoexplorehowsuchasystemwouldwork,itsstrengthsandweaknesses,pointsofconflictandagreement,andhowthesystemcouldbemanagedmoreeffectively.Simplydowhatseemsreasonablefromtheperspectiveoftheroleyouareplaying.

SomeIssuestoConsider

Management

ThiswouldbetheCEO,president,orgeneralmanagerofacorporation;thesecretaryordirectorofapublicagency,andsoforth.Managershavethecentralroleinastakeholdermeetingbecausetheyserveasthehubofthisextendedsystem,soideally,theirjobistoreconcileallstakeholderinterestsanddrawthesegroupsintoaunified,productivecoalition.Todothis,itisusefuliftheycanpresent

acoherent,stimulatingvisionoftheorganizationthatwillinspirepeopletoworktogether,andthentohelpironoutdifferences:theneedforcapitalfrominvestors,productivityandserviceofemployees,needsofclients,assistancefromassociatedorganizations,regulatoryreliefandsupportfromgovernment,andsoon.

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Investors

Officersfromafinancialinstitutionmayrepresentstockholdersofacorporation;congressionalrepresentativeswouldstandupfortaxpayersinthecaseofagovernmentagency.Investorstypicallythinkthey''own"theorganization,sotheytendtoimposetheirconcernsaboutpoorperformance,focusingonprofitinthecaseofbusinessandtaxesinthecaseofgovernment.Management'schallengeistohelpinvestorstoacknowledgethatothergroupshaveequallylegitimateclaimsontheorganization'sperformanceandthattheseinterestsdonotnecessarilyconflictwithmakingmoney.

Employees

Employeesareusuallyrepresentedbylaborleadersand/orordinaryworkersinstakeholdermeetings.Thisgrouptypicallyfeelsabusedbymanagement'sauthorityandconcernedaboutlowwages,dulljobs,layoffs,andlackofdignity,sotheyusuallymakeunreasonabledemandsandopposemanagementproposals.Theirmainissueistofindawaytobeinvolvedasconstructivepartnersinraisingproductivity,quality,andthelike,inreturnforhigherpayandotherbenefits.

Clients

Thisgroupmightberepresentedbyaverageclientsorpossiblyaconsumeradvocate.Clientsareusuallycriticalandhardtoplease,oftenthreateningtotaketheirbusinesselsewhereiftheycan.Yettheycanbeasourceofcreativeideassincetheyusuallyknowtheirneedsbest,eveniftheyhavedifficultyarticulatingthem,andtheirfaithfulpatronageisessential,obviously.

AssociatedOrganizations

Inbusiness,associatedorganizationsaresuppliers,distributors,

partners,andthelike,whileingovernmenttheyareprivatecontractorsandotheragencies.Thesegroupstendtofeeldefensivebecausetheyaredependentuponthelargerhostorganizationfortheirsurvival,whereasthereverseisalsotrue.

ThePublic

Politiciansusuallyrepresentthepublicatlocal,state,andfederalgovernments.Theyprovidetheinfrastructurebutalsocontrolorganizations

Page268

throughregulationsandtaxes,soaconstructiverelationshipisneededthatenhancesthebenefitsforthevariouslevelsofgovernmentandtheorganization.

SomeQuestionstoConsiderFollowingtheExercise

Wasthissimulationrealistic?

Whatiscommontoalltheserelationships?

Istheinvestor'srelationshipunique?

Towhatextentarealltheseinterestscompatible?

Howcouldtheirinterestsbebetterserved?

Whatshouldbethegoaloftheorganization?

Whatinformation,typeofgovernance,etc.,isneededtomanagethissystembetter?

Howdoyoupersonallyfeelaboutthissystem?

Whatdoyouthinkwillhappenoverthelongterm?

Whataretheimplicationsofthistypeoforganizationalgovernancefornationaleconomies?Woulditstillbecapitalism?Freeenterprise?Socialism?Aworker'sdemocracy?Aconsumercooperative?

Areothertermsmoremeaningful?

Page269

AppendixCCorporationsinTransitionStudyThequestionnaireinthisappendixwasusedtosurvey426managersfromtheUnitedStates,Europe,andJapan.Resultsarereferredtothroughoutthisbook.

Thequestionnaireisreproducedheretoallowyoutoseehowthestudywasconductedandtoinviteyoutoextendthestudytoyourorganization.Sopleasefeelfreetocopythenextfewpagesinordertohavethequestionnairecompletedbyyouandyourcolleagues.Youcanthencompareyourresultswiththoseoftheentiresampleinthisbook,usethedatatoanalyzeyourmanagementapproachandthatofyourorganization,andconsiderwhatchangesyouwouldliketomake.Iwouldbeextremelypleasedifyoucouldsendmecopiesofyourresponsestoaddtomygrowingdatabase,alongwithanysuggestions,criticism,newquestions,oranyotherfeedbackyoucaretooffer.Alarger,moreup-to-datecollectionofdatawouldgreatlyhelpinunderstandinghowtheNewManagementisevolving.Icanbereachedatthefollowingaddress:

ProfessorWilliamE.HalalDepartmentofManagementScience,MonroeHallGeorgeWashingtonUniversityWashington,D.C.20052PHONE:202-994-5975FAX:202-994-4930E-MAIL:Halal@gwis2.circ.gwu.edu

Page270

CorporationsinTransitionStudy

Thissurveyisintendedtoassessthetransitionfromthe"OldManagement"tothe"NewManagement."TheOldManagementisdefinedasthehierarchical,authoritarianformofbusinessthatworkedwellintheIndustrialAge,whiletheNewManagementisdefinedastheentrepreneurial,collaborativeformofbusinessnowemergingforanInformationAge.Theresultsaretobeusedforuniversityresearch,whichmaythenbepublishedinbusinessjournals.Naturally,yourresponseswillbetreatedwithstrictconfidenceandonlyaggregateddatawillbeused.

Instructions:Eachquestionbelowdescribesa"NewManagementpractice"asclearlyaspossibleandasksyoutoindicatehowyourcompanyisnowmanaged.Circleonenumberalongthescalefor0to10thatbestdescribestheextenttowhichthistypeofmanagementis"NotPracticedatAll"versus''PracticedCompletely."Pleasetryyourbesttomakeanaccurateestimate,butleavethequestionblankifyoureallydonotknoworifthisdoesnotapplytoyourcompanyforsomereason.Wewouldalsoappreciateanycommentsyoucanoffertoexplainyouranswer,todescribeanewmanagementpracticethatdoesnotfitourcategories,offersuggestionsforimprovingthestudy,oranythingelse.Ifyouneedmorespace,usethebackofthisform.

MygraduatestudentsandIthankyousincerelyforyourhelp.Inreturn,wewillbehappytosharetheresultswithyou.

ProfessorWilliamHalal

Page271

BackgroundData

Nameofyourorganization:

Numberofemployees:

Annualrevenue:

Typeofindustry:

Yourposition:

Countryinwhichtheoperationsyouaredescribingarelocated:

OrganizationalStructure

1.Operatingunitsaretreatedassemiautonomousenterprisesthathavecontroloftheirownoperationsandkeepmostoftheirrevenue.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

2.Staffandsupportunits(HRD,Legal,IS,etc.)aretreatedasprofitcentersthatobtainrevenuebysellingtheirservicestootherunits.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

3.Operatingunitsaregenerallyallowedtobuyproductsandservicesfromanyorganization,insideoroutsideofthecompany.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

4.Staffandsupportunitsaregenerallyallowedtoselltheirservicestoanyorganization,insideoroutsideofthecompany.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

5.Apartfromproprietarysecrets,employeeshaveaccesstocentralinformationsystemsthatcontainallavailablecompanyinformation.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

Page272

GoalsandGovernance

1.Thecompanystrivestomaintaincooperativeworkingrelationshipswithimportantstakeholders.(Forinstance,investors,employees,customers,suppliers,distributors,thelocalcommunity,andpossiblyothergroups.)

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

2.Thecompany'sprimarygoalistoservetheinterestsofimportantstakeholders,includingmakingmoneyforinvestors.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

3.Inadditiontoprofitability,corporateperformanceisevaluatedbyaformalsystemthatassesseshowwellimportantstakeholdersareserved.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

4.Theboardofdirectorsincludesemployeesandotherimportantstakeholders.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

5.Apartfromproprietarysecrets,employeeshaveaccesstocentralinformationsystemsthatcontainallavailablecompanyinformation.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

MarketingandSales

1.Inadditiontosaleslevels,customersatisfactionisevaluatedbycustomersurveysandinterviews,monitoringcomplaints,andotherformalsystems.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

Page273

2.Theviewsofcustomersaresolicitedbyproductdesigners,managers,orotherpersonnelwhenmakingdecisionsaboutproductsandservices.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

3.Customerscanuseatoll-freelineforinformationandtohaveproblemscorrected.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

4.Advertisingisdesignedtoprovideusefulinformationratherthaninflatedclaims.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

5.Asignificantportionofoperatingmanagers'payisbasedoncustomersatisfaction.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

EmployeeRelations

1.Asignificantportionofemployeepayisbasedonperformanceincentivesystems.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

2.Employeeattitudesurveysareconductedperiodically.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

3.Employeesareencouragedtodeveloptheircreativeideasintonewventures.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

Page274

4.Employeesareorganizedintoself-managedteamsthatchoosetheirleaders,workmethods,equipment,hours,co-workers,andmostotheraspectsoftheirwork.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

5.Employeescanuseinformationsystemsto"telework"fromhome,inthefield,andotherlocations.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

EnvironmentalManagement

1.Environmentalimpactsarestudiedastheyaffectproductdesign,manufacturingprocesses,packaging,wastetreatment,recycling,andotheraspectsofoperations.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

2.Environmentalcostsandbenefitsareincorporatedinmanagementdecisions.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

3.Thecompanysolicitsadvicefromanenvironmentaladvisorycommitteeand/orvariousenvironmentalgroups.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

StrategicChange

1.Aformalstrategicplanningprocessisconductedperiodicallytodeterminehowcorporatestrategyshouldrespondtotechnologicaladvances,economicconditions,socialattitudes,andothercriticalissues.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

Page275

2.Unitmanagersarefreetopursuetheirownstrategiesfortheirunits.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

3.Topmanagementencouragesmajorstructuralchangeswhentheyareneeded.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

Leadership

1.Theleadershipstyleofmanagementisparticipativeinmostrespects.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

2.Thecorporatemissioniswelldefinedandgenerallyaccepted.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

3.Majordecisionsanddisagreementsarediscussedopenlytoreachconsensusamongthoseconcerned.

NOTPRACTICEDATALL 012345678910PRACTICEDCOMPLETELYCOMMENTS:

General

1.Generallyspeaking,doyouthinkthesepracticesmakingupTheNewManagement(TNM)areneeded?

NO YES UNSURECOMMENTS:

2.WhyaresomecompaniesnotusingTNM?

RESISTANCETOCHANGE

SHORT-TERMFOCUS

IDEASAREUNACCEPTABLE

UNSURE

COMMENTS:

Page276

3.WhatwillhappentofirmsthatdonotadoptTNM?

THEYWILLSURVIVE

MARGINALEXISTENCE

LIKELYTOFAIL

UNSURE

COMMENTS:

4.WhenisTNMlikelytoenterthemainstreamofbusiness?

1996 2000 2005 LATER UNSURECOMMENTS:

Thanksverymuchforyourtimeandthoughtfulresponses.

Page277

INDEX

A

Accountability:

empowermentand,7-8,140,220-221;

inhierarchies,30-31;

ininternalmarkets,36;

leadershipand,211;

organizationalstructureand,44

Ackoff,Russell,5,6,92

Advertising:

interactive,114;

truthful,114-116;

wastefulnessof,107-108

AetnaLife&Casualty,138

Agrariansocieties,leadershipin,206,207

Airtravelindustry:

ESOPsin,132-133;

problemsof,105-106

Alcoa,35,40

AndersonWindows,113

AseaBrownBovari,13,31,48,50

AsiaPacificEconomicCooperation(APEC)forum,227

Astra/Merck,113

AT&T:

internalmarketsin,40;

organizationalbalancein,92;

paysystemsin,142

AucNet,113

Authority:

inhierarchies,30-31;

leadershipand,11,16,17,221-223;

misuseof,220-223

SeealsoPower

Autoindustry:

electriccarsand,161;

environmentalmanagementin,164,169;

opportunitiesin,124-125;

paysystemsin,142;

problemsof,108-109,187;

subsidationin,162

Automation:

effectsof,85;

trendsin,136

Avis,121

B

Balance,organizational,90-95

Barnard,Chester,4,5

Bartlett,Christopher,92

Baseballstrike,60

BaxterLaboratories,118

Beliefs,limitationsof,222

BellAtlantic,37

TheBellCurve,148,150

Bennis,Warren,4,5

Berggren,Randy,214

100BestCompaniestoWorkFor,73

Biogenetics,trendsin,3

"biologic"concept,172,176n.40

Black&Decker,118

Boardsofdirectors,76,77,117-118

BodyShop,12,13,66-67,115-116,117,121,167

Boeing,138

Bolman,Lee,5,6

BonnevillePowerAdministration(BPA),193

Buildingindustry,opportunitiesin,125

Bureaucracy:

strategicplanningand,17,180,183;

theoryof,28

Business:

attitudetowardenvironmentalprotection,157,171;

conflictwithsociety,59-61,79;

cycles,133;

partnershipswithgovernment,239,248;

associoeconomicinstitution,63-79;

spiritualityin,10,217-219;

strategicalliancesin,85,248;

aszero-sumgame,56-57

Businessethicsmodel,59

BusinessforSocialResponsibility(BSR),63

Businessincubators,47

Businessschools,internalmarketsin,27-28

C

Caironetwork,190

California,greeninitiativein,155

Cancer,pollutionand,157

CanonComputerSystems,113

Capital:

decliningpowerof,86-87;

investment,63-68;

aswrongeconomicfocus,61,247

Capitalism:

comparedtomarkets,43,228;

comparedtosocialism,235-237;

dilemmaof,227-237;

lackofcommunityin,232;

newvs.old,18,245,247-249;

obstaclestoadopting,230-231;

problemsof,59-61,79,232-235

CBS,59-60

Centralplanning,31,34,39,49,179-183

Change:

continuous,16,17,19,195;

crisis-driven,211-212;

currentforcesof,12,14;

oppositionto,20;

organizationallearningand,185-186;

strategic,179-183;

top-down,8,183-185,192,197-198;

womenand,98

Chaostheory,49,85

Chiefexecutiveofficer,asenterpriseunit,38

Children,influenceoftelevisionon,108

China:

industrializationof,158;

politicaleconomyin,244,245;

roleinglobaleconomy,249-250

ChryslerCorporation,121

CITStudy:

NewManagement

conceptspracticed,xviii,19;

questionnaire,269-276

Civilrights,221

ClarkEquipment,35

CleanAirAct,163

Client-drivenmarketing,116-119,248

Clientrelations.SeeCustomerservice

Clinton,Bill,98,179,180,184

Communication,222

Communism:

conversiontomarketsystem,49,179-180;

strategicplanningunder,182-183

SeealsoPost-Communistbloc;

Socialism

Community:

undercapitalism,232;

creationof,69,72;

entrepreneurial,237,238,259-260;

vs.freedom,257-258

SeealsoCorporatecommunity

CompaqComputer,145-146

Compensationsystems,120-121,140-141,142,151

Competition,increasein,20,85,105,134,156,166-167,249-250

Complexity:

entrepreneurialfree-

Page278

domand,85-86;

ofglobaleconomy,241,243

Computers,2-4

Conflict,marketsystemsand,44

Conservativeandliberalsynthesis,83-84,89,212

Consumeradvisorypanels,117

Consumerism,sellingand,109-110

Contingencywork,146-148

Continuouschange.SeeunderChange

Contracts:

withAmerica,249;

employment,139-143,147,151,152-153;

betweenfirmsandstakeholders,67

Control:

inorganicorganizations,196-198;

oscillationsin,221

Convergenceineconomicsystems,240-243

Cooperation:

efficiencyof,86,188;

evolutionof,12,56-69;

inknowledgeeconomy,86-90;

trendsin,xvii,3,95

Coors,Peter,166

CoorsBrewing,138

Copernicanrevolution,68-69

Coming,47

Corporatecommunity:

adoptionofpractices,19,76,77,237-238,240,248;

benefitsof,77-79;

defined,ix,9;

exemplarsof,65;

limitsof,78;

maintaining,93-94;

managementeffectivenessand,90,92;

marketsand,14,84-90;

politicalviewsof,83-84;

principlesof,69,72-76

Corporategovernance:

democracyin,xii,8-9,11,12,13,55-79,76-79,87,93;

economiccooperationin,12,56-69;

globaltrendsin,7,246;

profit-centeredmodelof,57,58,59,68;

social-responsibilitymodelof,58,59,68;

stakeholdermodelof,63-69;

stakeholderpowerin,61-63

Corporateperestroika,47-50

Corporatesocialresponsibility(CSR)model:

environmentalmanagementand,159-160;

illustrated,58;

limitsof,59

CorporationsinTransition(CIT)study:

NewManagementconceptspracticed,xviii,19;

questionnaire,269-276

Creativitytraining,218

Crisis:

ideological,235-237;

livingwith,211-214

Culturaldiversity,85

Culturalvalues:

economicsystemsand,240-243;

evolutionof,207

Culture:

entrepreneurial,40;

organizationalstructureand,44;

inpost-Communistbloc,229-232;

revolutionin,209

Customerservice:

adoptionofpractices,123;

costsoflostcustomers,124;

evaluatingsatisfaction,120-121,129n.33;

partnershipsand,116-119,122-127,248;

publicopinionabout,105;

fromsellingtoserving,11,14,15,105-127;

truthfulnessand,114-116

SeealsoServingorganization

CypressSemiconductor,35

D

Deal,Terrence,5,6

Decentralization:

ofbusiness,37,39,40,42-43,98;

ofgovernment,229,233,239

Decisionmaking:

amongentrepreneurs,191-192;

shared,210

SeealsoParticipatorymanagement

DeclarationofInterdependence,96

DellComputer,93,114,119

Deming,W.Edwards,5,6

Democracy:

incorporategovernance,8-9,11,12,13,55-79,76-79,87,93;

global,237-243;

heritageof,xvii-xvii,255-257;

leadershipand,211,215-220;

powerof,188

Democraticcentralism,246

Democraticenterprise,11,16,18,89,99-100,242-249

DemocraticParty,233,249

Developingcountries,economicpoliciesin,241

Differentiationandintegration,88,97

Disease,pollutionand,157,158

Distributionchannels,112,114

Divergenceineconomicsystems,240-243

Diversity:

cultural,85;

unityoutof,95-100

DowChemical,160

Downsizing:

limitsof,8,29-30;

inmarketorganizations,46

Drucker,Peter,20,44,86-87,100

DuPont,159

E

Easterbrook,Gregg,159

EasternAirlines,132-133

EasternEurope:

inventingmarketsin,229-232;

NewSocialismin,243-245,246

EastGermany,socialistethicin,229-230

Ecologicaltransformation:

economicprogressand,16,158-162,166-168;

asglobaltrend,3,156;

intelligentgrowthas,11,16,168-173;

needfor,161

SeealsoEnvironmentalmanagement

Economiccooperation:

efficiencyof,86,188;

evolutionof,12,56-69;

inknowledgeeconomy,86-90;

trendsin,xvii,3,95

Economics:

goodmanagementand,20-21;

newroleof,86-87;

opposingtrendsin,240-243

Economy:

corporatecommunityand,78-79;

declinein,233;

ecologicalhealthand,16,158-162,166-168;

evolutionofpolitical,240-243;

governmentrolein,239;

greenGDPand,165;

informalvs.formal,224n.7;

obstaclestoprogressin,8;

restructuringin,45,85,227-228;

trendsin,131-137;

wastein,109

SeealsoGlobaleconomy

Ecorealism,159

Education:

internalmarketsin,31;

needforrestructuringin,94,247

Employeeattitudesurveys,151

Employeerelations:

entrepreneurshipand,11,14,15,45-46;

newcontracts,139-143,147,151,152-153;

problemswithinnovationsin,133;

redefining,131-137,248

SeealsoWork

Employeestockownershipplans(ESOPs):

growthin,62,246,248;

influenceoncorporategovernance,62;

layoffsand,7;

problemsof,132-133;

inRussia,246

Empowerment:

accountabilityand,7-8,140,220-221;

keytoachieving,256

Enterprise:

global,16,18,237-243;

heritageof,xv-xvii,255-257;

fromhierarchyto,11,13,38;

internal,8-9,36;

managementeffectivenessand,90,92;

powerof,188;

synthesiswithdemocracy,11,16,18,89,99-100,242-249

SeealsoInternalmarket

Entrepreneurialorganizations,28-35,46-47

Entrepreneurship:

complexityand,85-86;

decisionmakingand,191-192;

ininternalmarkets,

Page279

40;

powerof,33-34,258-260;

womenand,98

Environment:

organizationalstructureand,43-44;

strategicchangeand,179-181,196-198

EnvironmentalDefenseFund,165

Environmentalmanagement:

backlashagainst,155,159;

businessprojects,169;

collaborationin,165-166;

corporategreeningand,159-160,164,166,170;

economicsof,160-163,162-163,165,167-168;

governmentrolein,170,171;

growthofindustry,160,168;

interestin,155-158,171,173n.4;

needforcompromisein,159,171-172;

pollutionprevention,161,162-164,166-169;

principlesof,162-166;

recycling,163-165,169;

throughoutproductcycle,163,164;

useofinformationtechnologyin,165,170

SeealsoEcologicaltransformation

EnvironmentalProtectionAgency,157

Ethic:

achievement,110;

business,59;

enterprisevs.work,46,152-153;

socialist,229-230

EugeneWaterandElectricBoard,214

Europe:

Eastern,229-232,243-245,246;

economyin,235-237;

employeegovernancein,7

Seealsospecificcountry

F

FeedbackPlus,119

Fisher,George,74-75

Fisher-Price,116

Flexibility:

inplanning,191;

inself-managedteams,150;

workingwith,150-152

FordMotorCompany,121

Forrester,Jay,40-41

France,economicdilemmain,235-236

Freedom:

undercapitalism,232;

controland,221;

increasein,206;

vs.community,257-258

Frequent-flyerprograms,106

Frost,Peter,5,6

G

Gandhi,Mahatma,204

Gates,Bill,4

GeneralElectric:

clientparticipationin,116,118;

knowledgeworkin,138;

restructuringof,184;

strategicmanagementin,191

GeneralMills,142

GeneralMotors(GM),2,30,47,87

Germany:

economicdilemmain,235,236;

roleinglobaleconomy,249-250

Ghoshal,Sumantra,92

GiantFoods,121

Globalcorporations,238

Globaleconomy:

competitionin,20,134,156,166-167,249-250;

complexityofproblemsin,241,243;

featuresof,237-243;

maintainingorderin,98-99,240;

strategicchangein,180-181;

synthesisin,95,97,227-228

SeealsoEconomy

Globalnetworks,47

Globalwarming,171-172

GM-Satur,12,13,69,70-71,114,115,119,121

Gorbachev,Mikhail,180,221

Governance.SeeCorporategovernance

Government:

corporatecommunityand,78;

decentralizationof,229,233,239;

emergingrolefor,239;

asenterpriseunit,38;

environmentalmanagementand,170,171;

needforlocalcontrolin,233,249;

partnershipswithbusiness,239,248;

problemsofbig,212;

restructuringof,239;

revoltagainst,239

Grassroots,259-260

GreatDepression,244

GreenLightsProgram,165-166

Greenpractices,155,160,161-173

Growth,intelligent:

adoptionofpractices,19,166-170;

corporatecommunityand,78;

sustainabledevelopmentvs.,168;

transitionto,14,16,159

SeealsoEcologicaltransformation;

Environmentalmanagement

GTE,121

H

Halal,William,5,6,277-278

HallmarkCards,113

Harley-Davidson,121

Havel,Vaclav,96

Hawken,Paul,111,114-116

Hawthornestudies,208

Healthcarereform,125,179,180,184

HermanMiller,Inc.,118,164

Hewlett-Packard:

comparedtoIBM,49;

corporatecommunityin,65;

intraprisesin,36;

knowledgeworkin,138;

leadershipin,41;

marketsystemin,13,48,51;

organizationalbalancein,92;

participationin,76,116

Hierarchies:

formingintraprisesin,36-37,38;

asobsolete,28,43;

replacementsfor,11,13,30-31;

strengthsandweaknessesof,27-29,43-45

HomeDepot,116,119,120,121

HomeShoppingNetwork,114

Honda,118

HQInc.,147

HumanEnterpriseSystem,229

Humility,223

HyattHotels,121

I

IBM:

businessincubatorsin,47;

businesslosses,2;

comparedtoHewlett-Packard,49;

corporatecommunityin,65;

knowledgeworkin,138;

revitalizationof,76

Ideology:

crisisin,235-237;

political,83-84,89,212,241

IKEA,13,64

Income:

convergencein,241;

disparityin,232-233;

dropin,29,134;

expectations,134

IndustrialAge,1,18,97,109,135

Industrialization:

global,158,174n.13;

impactonenvironment,157,161;

leadershipand,206,207

Inflation,78

Informalorganizations,208-210,224n.7

InformationAge:

achievementethicin,110;

economicimperativesof,20,49,237-243;

marketsasfoundationfor,49;

spiritualityin,96-98;

synthesisin,97;

worklifein,148-153.

SeealsoKnowledgeeconomy

Informationnetworks,30,47,52n.8,63,190,196

Informationtechnology:

asenterpriseunit,38,40;

environmentalmanagementand,165,170;

global,3,238;

impactof,18,20,85-86;

inmarketing,112-114;

opportunitiesin,125;

organizationallearningand,188,190;

self-managedteamsand,137,139;

teleworkingand,143-146;

transactioncostsand,43-44;

unifyingpowerof,86-90,240

Infrastructures:

economic,creationof,37,40-41;

forintegratingmarketsandcommunity,93-94;

Page280

fororganizationallearning,188,190

Innerleadership.SeeunderLeadership

Institutions:

authoritariancontrolin,255;

confidencein,2;

failureof,1-2;

shareholder,62

Interdependence,96,157-158,172

Interestrates,convergencein,241

Internalmarket:

adoptionofpractices,19,34,43,49;

advantagesof,49-50;

inbusinessschools,27-28;

comparedtofreeenterprise,8-9;

corporatecommunityand,14,84-90;

defined,9;

employmentcontractsand,140;

entrepreneurialenergyin,33-34;

examplesof,31,35,37,39;

guidestoreorganizinginto,48;

inappropriatesituationsfor,45;

leadershipof,41-42;

mechanismsvs.economy,49;

politicalviewsof,83-84;

principlesof,33,36-42;

skepticismabout,33;

strengthsandweaknessesof,36,43-45

SeealsoEnterprise

Internet,30,85,209

Intraprises,36-37

Intuition,spiritualityin,218

Italy,economyin,235

J

Japan:

collaborationin,229;

corporatecommunityin,65;

downsizingin,29;

economicdilemmain,235,236;

NewManagementchallengesin,94;

roleinglobaleconomy,249-250

Jobs,lossin,29,85

Johnson&Johnson,35,41-42,65,69

Juran,J.M.,6

K

Kennedy,Allen,5,6

King,MartinLuther,Jr.,204

Kmart,111

Knowledgeeconomy:

developmentof,134-136;

leadershipin,206,207,208;

management'srolein,1,41-42,47,67,90;

needforcooperationin,86-90

SeealsoInformationAge

Knowledgework:

adoptionofentrepreneurialpractices,11,15,19,151;

employmentcontractsfor,139-143,147,151,152-153;

exemplarsof,138;

jobs,45-46,143-148;

newdemandsof,148-153;

self-managementin,137,139,141,143

KochIndustries,35

Kodak,74-75

Kondratieffcycle,133

L

Labor-managementconflict,132-134

LatinAmerica,economicdilemmain,236-237

Lawrence,Paul,4,5

Leadership:

evolutionof,11,206-208;

innerdomainof,16,17,19,203-205,216-220;

ofinternalmarkets,41-42;

needforglobal,229;

participative,17,201-203,206-210,223-224;

principlesof,203;

inservingorganizations,121-122;

stewardshipand,75-76;

strategicchangeand,184-185;

synergyfrom,42;

aswiseuseofpower,203

SeealsoAuthority;

Power

Learningorganization,111

LeFauve,Richard,12

Legalissues,incorporategovernance,62-63

Levi-Strauss,69

Liberalandconservativesynthesis,83-84,89,212

Lifestyles,ecologicalhealthand,171-173

Listening,problemsolvingand,215-216

L.L.Bean,121,122-123

Lockheed,138

Lorsch,Jay,4,5

M

Malone,Thomas,44

Management:

comparedtoscience,21;

conflictwithlabor,132-134;

confusionoverparadigms,6-8,18-19,23n.11,255-257;

employeeconfidencein,234;

evolutionof,2,4-6,11;

leadershipand,41-42,201-224;

mechanisticviewof,2;

organicviewsof,6,196-198;

risein,1,22n.2;

roleinknowledgeeconomy,1,41-42,47,67,90;

spiritualapproachto,217-219;

stewardshipand,74-76;

strategic,182-185;

useofdemocracyandenterprisein,8-11,255-257,260-261

SeealsoNewManagement

Marketing:

centripetalvs.centrifugal,111;

client-driven,116-119,248;

asenterpriseunit,38;

focusonsellingin,107-109;

high-technology,112-114;

niche,112;

truthful,114-116

Marketorganizations,28-35,46-47

Markets:

comparedtocapitalism,228;

entrepreneurialenergyin,33-34;

socialvaluesand,167;

sustainabilityand,169-170;

vs.centralplanning,34,49

SeealsoInternalmarket

Marriott,121

MarshallIndustries,142

M*A*S*H,209

Maslow,Abraham,4,5

Matrixorganizations,31,32

Matsushita,35

Mayo,Elton,4,5

McDonald's,121,155-156

McGraw-Hill,190

McGregor,Douglas,4,5

MCI,12,13,35,40,41

Media,59-60,107-108,114

Meditation,218

Men'smovement,209

MentorGraphics,221

MerckCorporation,35,65

MiddleEast,economicdilemmain,237

Miles,Ray,xi-xiii,5,6

MinnesotaMiningandManufacturingCompany(3M),164

Mintzberg,Henry,4,5

Motivation:

organizationalstructureand,44;

forwork,140-141,154n.12

Motorola:

internalmarketsin,35;

knowledgeworkin,138;

organizationalbalancein,92-93

Munger,Tolles&Olsen,142

Murray,Charles,149-150

MusicWriter,113

N

NationalBicycleCompany,138

Nations,disaggregationof,239

NCRCorporation,65

Networks:

global,47;

information,63,190,196;

managedbymarkets,46-47;

assuccessortohierarchies,30,52n.8

NewCapitalism,18,245,247-249

SeealsoDemocraticenterprise

TheNewCapitalism(Halal),xvii-xviii,6

NewManagement:

CITstudyquestionnaireon,269-276;

comparedtooldmanagement,6-8,10-12,78-79,89,270;

confusionover,

Page281

6-8,18-19,23n.11;

defined,270;

foundationsof,8-11,12,25;

guidingcriteriain,21;

managers'attitudestoward,236,237;

organizationtreemetaphor,14,88-90,91;

originsof,xvii-xviii;

synthesisin,11-12,14,88-90,242-249;

transitionto,10-21,260-261;

universalpowerof,258-260

NewSocialism,18,243-245,246

SeealsoDemocraticenterprise

Newspapers,59-60,107-108

Nike,93

NucorSteel,142

O

OldManagement,6-8,10-12,78-79,89,270

OldSocialism,229

Opportunities,problemsas,123-125

Organicorganizations,90,196-198

Organizationaldevelopment,185-186

Organizationallearning,185-186,188,190,192

Organizationalstructure:

conclusionsabout,47-50;

environmentand,43-44;

evolutionof,11,12,13,31,32,42-43;

exerciseon,45,263-265;

impactofinformationsystemson,85-86

Organizations:

balancein,90-95;

barrierstochangein,183,186;

economicroleof,67;

entrepreneurial,28-35,46-47;

informalvs.formal,208-210,224n.7;

innovationsin,4-6,18-21,85;

learning,111;

marketsaseconomicframeworkfor,31,33-34;

matrix,31,32;

organic,90,196-198;

serving,11,14,15,19,111-127;

virtual,94-95,143

Organizationtree:

described,14,88-90;

environmentalforcesand,187-188;

illustrated,90,189

Ouchi,William,5,6

Ozonelayer,thinningof,157,159-160

P

Participation,ageof,223

Participatorymanagement:

adoptionofpractices,210;

historyof,133;

informalorganizationand,208-210;

linkbetweenrightsandresponsibilitiesin,140;

needfor,220-224;

purposeof,211;

spiritualityin,203,209-210,216-220

SeealsoLeadership

Partnerships:

business/customer,62,116-119,122-127,248;

business/government,62,239,248;

withstakeholders,76,77,93,192

Paysystems,120-121,140-141,142,151

Peace,William,214

Peapod,114

Performanceevaluation:

CEO,74-75;

measures,36;

stakeholder,64,66,67,72-74

Performancepay,140-141,142,151

Personalcomputers,2-4

Peters,Tom,5,6,10

Pinchot,Gifford,5,6,36

Planning.SeeStrategicplanning

Poland,237,244

Politicaleconomy,evolutionof,240-243

Politicalideologies,83-84,89,241

Pollution:

automobile,161,162;

diseaseand,157,158;

prevention,161,162-164,166-169

Populationgrowth,159

Populism,234

Post-capitalistsociety,100

Post-Communistbloc:

inventingmarketsin,229-232;

NewSocialismin,243-245,246

Seealsospecificcountry

Power:

author'sexperienceof,204-205;

evolutionof,206-208;

misuseof,220-223;

natureof,203-205;

shared,201-203,206-211,223-224

SeealsoAuthority

Prayer,218

PriceClub,116

Problemsolvingprocess:

creative,215;

listeningduring,215-216;

livingwithproblems,211-214;

seeingopportunities,123-125,216;

spiritualityand,216-220;

instrategicmanagement,191,194-195

Processfacilitation,spiritualityin,218

Productquality:

keytoimproving,256;

publicopinionabout,105;

risingdemandfor,110-111

Profit:

environmentalperformanceand,156,166-168;

relationshiptosocialresponsibility,13,63,80n.17;

andsocialwelfare,conflictbetween,67-68

Profit-centeredmodel:

analogytoEarth-centereduniverse,68;

illustrated,58;

limitsof,57,59,78-79,86-87;

replacementfor,11,13,58

ProgressiveInsurance,113

Q

Quality:

keytoimproving,256;

publicopinionabout,105;

risingdemandfor,110-111;

totalqualitymanagement,46,119

Qualityandservicerevolution,119

Qualityoflife:

demandfor,110-111;

inUnitedStates,232,234;

inworld,241

R

Ray,Michael,5,6

Reagan,Ronald,212,215-216

Recycling,161,163-165,169

Reengineering,46

Reflection:

author'sexperiencewith,219-220;

spiritualityin,217,218

Republicanrevolution,233

Restructuringprograms:

guidelinesfor,48;

limitsof,29-31;

inmarketorganizations,46-47;

top-down,184-185,192;

varietyin,4-6

Return-on-resourcesmodel,64,66,67

Rightsizing,46

Roberts,Barbara,210

Roberts,Bert,12

Roddick,Anita,12,117,167

Russia:

inventingmarketsin,229-232;

NewSocialismin,243-245,246;

roleinglobaleconomy,249-250

SeealsoSovietUnion

S

Saturn,12,13,69,70-71,114,115,119,121

SchwabCorporation,113

Science:

globalprogressin,3;

managementcomparedto,21

Self-employment,146-149,152-153

Self-interest,servingvs.,14,15,126-127

Self-managedteams:

adoptionof,151;

compensationof,141;

informationsystemsand,137,139;

newdemandsof,149-153;

inRussia,246

Selling:

consumerismand,109-110;

focuson,107-109

Semco,35

Senge,Peter,5,6,40-41

Servantleader,74-76,202

Serviceeconomy,135,136,206,207

Page282

Servingorganization:

adoptionofpractices,19,122-125;

principlesof,11,14,15,112-122;

vs.selling,111-112;

yieldingself-interest,126-127

SeealsoCustomerservice

Shocktherapy,corporate,183-185,186

Shopping,high-technology,112,114

Singapore,economicprogressin,239

Smith,Raymond,37

Snow,Charles,5,6

Socialaudits,72-74

Socialinstitutions,corporatecommunityin,78,81n.30

Socialism:

comparedtocapitalism,235-237;

newvs.old,18,229,243-245,246

Socialneeds:

businessopportunitiesand,110-111,123-126,166-169;

forenvironmentalprotection,157;

inUnitedStates,232

Socialresponsibility:

corporatemodelfor,58,59,159-160;

profitand,13,63,67-68,80n.17

SocialVentureNetwork,63

Society,conflictwithbusiness,59-61,79

Socioeconomics,76,100

Soros,George,230,232

SouthwestAirlines,106-107,122,123

SovietUnion,157,221

SeealsoRussia

Spain,economyin,235

Spirituality:

ageof,96-98;

innerwisdomand,216-220;

innature,173;

inparticipativeleadership,203,209-210,216-220;

inUnitedStates,217,225n.15;

inworkplace,10,217-219

Sports,focusonprofitin,60

SpringfieldManufacturing,142,213

Stakeholdermodel:

analogytoCopernicanrevolution,68-69;

communityin,69-72;

examinationof,58,63-69;

stewardshipin,74-76

Stakeholders:

evaluationsystemsfor,64,66,67;

influenceof,61-63,73;

involvementinplanning,76,77,192;

performanceevaluationof,72-74;

provisionalrelationshipswith,93;

simulationofmeetingwith,75,266-268

StateFarm,121

Stewardship,roleof,74-76

Strategicmanagement:

bottom-uplearningand,185-186,192;

centralizedplanningand,179-183;

organicformof,190-196;

top-downchangeand,8,183-185,192;

visionand,217,218

SeealsoChange

Strategicplanning:

centralized,31,34,39,49,179-183;

organization-wide,191-192,195;

problemsof,181-183;

shifttocontinuouschange,11,16,17

Structureoforganizations

SeeOrganizationalstructure

Sustainability:

conceptualacceptanceof,156;

freemarketsand,169-170;

intelligentgrowthand,16,168;

limitsof,158-159

Sustainabledevelopment,162,168-173

Synthesis:

ageof,95-97;

balanceand,93-94;

energyreleasedby,97;

inglobaleconomy,97,227-228;

betweenliberalandconservativeviews,83-84,89,212;

inNewManagementparadigm,11-12,14,88-90,242-249

Systemsthinking,186

T

Teams.SeeSelf-managedteams

Telecomputer,144

Teleshopping,112,114,238

Television,advertisingand,107-108,114

Teleworking,143-146

Tisch,Lawrence,59-60

Toffler,Alvin,208

Totalqualitymanagement(TQM),46,119

Tourism,238

Toyota,121

TQM(totalqualitymanagement),46,119

Tradebarriers,eliminationof,227-228

Transactioncosts,inmarketsystems,43-44

TravelersInsurance,138

Travelindustry,238

Tuxedonetwork,190

U

Uncertainty,acknowledgmentof,197-199

Undevelopednations,industrializationof,158

Unification,asglobaltrend,3,16,18,95-100,227-228

UnitedKingdom,capitalismin,233

UnitedNations,239

UnitedStates:

ascrisis-driven,211-212,247;

indecline,1,21-22n.1,232-235;

NewCapitalismin,245,247-249;

NewManagementchallengesin,94,260-261;

roleinglobaleconomy,249-250;

spiritualityin,217,225n.15;

wagesin,29,134,232-233,241

V

Vaill,Peter,5,6

Value:

demandfor,105,110-111;

inhierarchies,30-31

Values:

economicsystemsand,167,207,240-243;

focusonhumanandspiritual,218;

powerof,188;

statementof,69

Violence,televisionand,108

Virtualorganizations,94-95,143

Vision,217,218

W

Wages:

convergencein,241;

disparityin,232-233;

dropin,29,134;

expectationsfor,134

Walesa,Lech,237

Wal-Mart,111-112,121

Wasterecovery,163-165

Waterman,Robert,5,6

Weber,Max,28

WeirtonSteel,7

Welch,Jack,184

WesternAirlines,43-44

WesternUnion,121

Westinghouse,118,214

Wheatley,Margaret,97

White-collarcrime:

costsof,57;

againstenvironment,157

Wholism,21,96,97

Women:

influenceoncorporategovernance,62;

managementroleof,98-99

Work:

contingent,146-149;

electronicallymediated,143-146;

evolutionof,11,15,135;

knowledge,137-153;

newdemandsof,148-153

SeealsoEmployeerelations

Workercouncils,246

Workethic:

enterpriseethicvs.,46;

self-responsibilityand,152-153

Worklife,newdemandsof,131-132

WorldBusinessAcademy,63

X

Xerox,35,121,192-193

Page283

THEAUTHORBillHalaldiscoveredtheinterestthatledtothisbookwhileworkingasanaerospaceengineerontheApolloprogram.HehadobtainedaB.S.inaerospaceengineeringfromPurdue,servedinEuropeforthreeexcitingyearsasanAirForceofficer,andthenjoinedGrummanwhenthecompanywasawardedtheNASAcontracttobuildtheLunarModule.Itwasthethrillofalifetimetoseethatfirst''spaceship"landontheMoon.Buthefeltakeenneedtobecomeengagedinsomethingthatconcernedpeopleandsociety,someasyetundefinedinterestclosertotheheartoflife.

WhentheFreeSpeechMovementeruptedatU.C.Berkeley,Billwascapturedbythefresh,intellectuallyprovocativespiritofthetimes.Collegestudentsjusthadnotactedthiswaypreviously.Drawntothissourceofchange,heattendedBerkeleyforsixyears,obtainingM.B.A.andPh.D.degrees,andawiderangeofexperienceinvariousorganizations.Hismostsignificantgain,however,wasalastingfascinationwithtoday'stransitiontoaknowledge-basedsocietythatstartedduringthosehecticyears,swungabruptlytotherightduringtheReaganadministration,andcontinuestoseekoutitsresolutioninanewsocialorder.

HalalisnowprofessorofmanagementatGeorgeWashingtonUniversityinWashington,D.C.,andanauthorityonemergingtechnologies,strategicmanagement,andinstitutionalchange.HehasconsultedforGeneralMotors,AT&T,InternationalDataCorporation,Japanesefirms,theU.S.government,andmanyotherorganizations.Hisworkhasappearedinavarietyofpublications,includingTheNewYorkTimes,TheChristianScienceMonitor,TheAcademyofManagementExecutive,TheCaliforniaManagementReview,TheFuturist,TheNewPortableMBA,andseveralbooks,includingThe

NewCapitalism.Oneofhispapers,"BeyondtheProfitMotive,"wonthe1977MitchellPrizeof$10,000.

Billisnotquitesurewhatthisodysseyreallymeansorwhereitwillend.Onethingthatdoesstandoutisthealmostunpredictablenatureof