Too many business books are scarcely-disguised marketing materials for the authors’ services. All too frequently, they pick on some facet of what’s involved in running a company and trumpet that as “the solution.” Even worse, some are hymns of praise to obsolete 20th century management practices: they argue that firms would succeed if only they applied these obsolete practices more relentlessly.
The books chosen here shed light on the necessity to do things differently. The selection reflects the shocking difference between the management practices of the heroes of the 20th century—like GE, IBM, Exxon, and General Motors—compared to the way the most successful firms of the 21st century are being run—such as Amazon, Netflix, Tesla, and Haier. The books shed light on the different ways in which these new firms are able to prosper in a context of destabilizing change and increasing complexity, even if many older firms may opt to take the path to oblivion: Ten Reasons Why Big Firms Stick With Obsolete Management.
These ten books should be read by anyone interested in the real thing—the principles, processes and practices of 21st century management and leadership. The common thread of all the books is an ability to thrive in a world of overwhelming change. This quality is sometimes called agility, or adaptivity, or innovation, or even a strange name like Rendanheyi. The perspective is global: the firms covered are American, European and Asian. A couple of the books were published before 2020, but their prescient insights are well worth reading today.
Doing Agile Right
While many books on Agile management focus on particular Agile methods and practices in software development, Doing Agile Right: Transformation Without Chaos (Harvard Business Review Press, May 2020), written by Bain consultants Darrell Rigby, Sarah Elk and Steve Berez, addresses the broader topic of becoming an agile enterprise. It shows how Agile thinking is being applied to every aspect of its business: to innovation, to operations, to the back-office functions, to corporate headquarters, to top management, and even to the agile transformation process itself. The book shows how a large firm can apply the Agile mindset and methods to transform itself in an orderly fashion.
In some ways, the book is an instance of corporate anthropology. It offers insights on human behavior in the Agile enterprise, including cultural meaning, norms and values. It documents what life is like for the executives and staff in an Agile enterprise. It reflects the kind of things that are said and done in those enterprises, while noting how they differ from a 20th Century bureaucracy.
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In 20th century firms, planning typically looks at competitors and then seeks to create a future that will enable them to stay ahead of the competition. By contrast, 21st century management does the opposite: it starts with the customer and works backwards, as Amazon-insiders Colin Bryar and Bill Carr explain in their forthcoming book, Working Backwards: Insights, Stories, and Secrets from Inside Amazon by
(Macmillan, February 2021). The authors both held important leadership roles at critical moments in Amazon’s history. They bring out not only what is the unique corporate culture of Amazon but also illustrate how this culture was built through the fundamental principles, processes and practices of 21st century management. It’s a deep dive into one of the world’s most interesting firms.
In No Rules Rules: Netflix and the Culture of Reinvention (Penguin, 2020), Netflix CEO Reed Hastings and Erin Meyer proceed to lay down some pretty unbreakable rules. They begin with talent. “This is the most critical dot for the foundation of the whole Netflix story. A fast and innovative workplace is made up of what we call ‘stunning colleagues’—highly talented people, of diverse backgrounds and perspectives, who are exceptionally creative, accomplish significant amounts of important work, and collaborate effectively. What’s more, none of the other principles can work unless you have ensured this first dot is in place.”
They continue with more no-rules-rules: “increase candor,” “remove controls,” “fortify talent density,” “pump up candor,” “release more controls,” “max up talent density,” “max up candor,” and “eliminate most controls.” In effect, Hastings and Meyer make the case for anti-bureaucracy, and hammer away like, annoyingly persistent headmasters, at enhancing talent and candor and removing controls. It’s not as simple as that, but along the way, the book makes a powerful argument for the principles, processes and practices of 21st century management and leadership.
It’s amusing to listen to Wall Street pundits talk about “tech” companies, as though technology firms constitute a separate sector. It resembles how someone in the early 20th century would have sounded if they were talking about “electricity companies.” Just as all companies in the early 20th century had no choice but to become “electricity companies”, so all firms today have no choice but to give priority to bytes over atoms and become technology companies. Bytes are quicker, cheaper, lighter and ultimately more valuable. Change or die.
Thus, a car has gone from being a transportation device to becoming a computer on wheels. The quality of the car’s infotainment system has become at least as important as its driving characteristics in determining a car’s interest to customers. The automotive industry is at an inflection point in which software-based innovation is beginning to take over the electromechanical aspects of the automobile.
While executives all see that the future is electric and digital, they often miss that the new technology has to be managed differently.
Although they missed this insight for many years, the stock market has now made it embarrassingly clear. Thus Tesla’s market capitalization ($554 billion) is greater than that of Volkswagen, Daimler, BMW, and Toyota combined ($445 billion). How Tesla is able to move so much more nimbly than its much larger competitors is the story told by Charles Morris in his book, Tesla: How Elon Musk and Company Made Electric Cars Cool, and Remade the Automotive and Energy Industries (September 2020).
It is preposterous to some that Tesla, which has been making no more than 300,000 cars a year, could possibly be more valuable than firms that collectively make around 25 million cars per year. The stock market, which measures future profits more than past performance, is signaling its belief that the future of the car industry rests with Tesla, not the current major players. While the stock market is sometimes wrong, this book explains why that thinking, in the case of Tesla, might well be right.
The Flow System
While Morris tells the story of Elon Musk and Tesla in detail, a more systematic account of why even a perfectionist firm like Toyota is having to change the way it is managed is given in The Flow System: The Evolution of Agile and Lean Thinking in an Age of Complexity (Aquiline Books|UNT, 2020) by John Turner, Nigel Thurlow and Brian Rivera.
Building on the experience of the Toyota Production System, the authors explain how auto firms must rethink their whole approach to operations with a “flow system” designed to enable organizations to manage and operate in complex environments. It is a framework for creativity and innovation, for tackling highly complex problems (even wicked problems), and for providing the highest level of value to the customer with the quickest turnaround time possible. The book highlights the centrality of the customer. It shows the role of complexity thinking, distributed leadership and team science.
Household appliances were the quintessential 20th century product and the sector was among the most commercially boring, until the Chinese firm, the Haier Group in China, showed what is possible when entrepreneurship and innovation are taken seriously at scale. Starting from a tiny bankrupt refrigerator factory in 1984, Haier is now the world’s largest appliance manufacturer. It has an estimated brand value of $16 billion and revenues in 2019 of $28 billion. How did that happen?
One might have expected in communist China that the management model would be even more top-down than in the West. Yet it’s actually the opposite. In The Haier Model: Reinventing A Multinational Giant In The New Network Era (LID Publishing, 2018), Cao Yangfeng explains that Haier is a hotbed of innovation, decentralized entrepreneurship and customer focus. Yangfeng not only gives the details of the Haier story, but also explains the underlying blend of Western and Chinese philosophy that drives Haier’s founder and chief executive Zhang Ruimin and his belief that “the team should be developed before any product is produced.” A company without culture, chairman Zhang says, “is like a human without a soul: culture should precede strategy.” The trick is “seamlessly combining culture, strategy and execution.”
The guiding principle or philosophy for Haier is the RenDanHeYi model. The book explains that “Ren” refers to entrepreneur, with the spirit of entrepreneurship and innovation; “Dan” refers to customer value; “HeYi” refers to the integration of entrepreneurs’ value realization and customer value creation. “The basic meaning of the RenDanHeYi Model is that each entrepreneur creates value directly for customers while also realizing and maximizing his or her own value.”
In his article for Harvard Business Review, “Innovation For Impact:, Curt Carlson tells the story of how in 1998 he became the CEO of the almost-bankrupt firm, SRI International, the famous Silicon Valley research center. Under his leadership SRI launched an avalanche of innovations, including Siri (now on the iPhone). When he left in 2014, SRI’s revenue had more than tripled, and world-changing ideas had generated tens of billions of dollars of new marketplace value.
In this path-breaking article, Carlson describes the approach that turned SRI into a serial innovator. The methodology is applicable for creating both disruptive and incremental innovations, and versions of it are used in major universities, national laboratories, and large global companies. It works for people in all positions and all professions because value creation is everyone’s job.
The Silicon Valley Model
In The Silicon Valley Model: Management for Entrepreneurship (Springer, 2016). professors Annika Steiber and Sverker Alänge describe the management model of firms in Silicon Valley in California that have scaled globally. They note that the model is no longer confined just to Silicon Valley.
“Most [firms] today,” the authors explain, “are run on the basis of ‘legacy’ management systems that have become obsolete. The problem can persist even if a company is quick to adopt the latest managerial tools and techniques, because usually these upgrades don’t go deep enough; they serve mainly as add-ons to an underlying system that is no longer right.”
In these Silicon Valley firms, the authors found a remarkable convergence on very different management principles and practices: dynamic capabilities, a continually changing organization, a people-centric approach, ambidexterity, an open and networked organization, and a systems approach.”
For those who want more detail, there are also two related books by professor Steiber: The Google Model: Managing Continuous Innovation in a Rapidly Changing World (Springer, 2014) and Management in the Digital Age: Will China Surpass Silicon Valley? (Springer, 2018).
Innovation On A Small Scale
From the giants to the tiny. The management revolution is most obvious with huge global firms, but the revolution is also happening in small firms. In 500%: How Two Pioneers Transformed Productivity – The First Truly Self-Leading Organisation (Magic Sieve Books, 2020) Andrew Holm and Julian Wilson explain how they took a struggling 30-person industrial firm in the U.K. (Matt Black) that was steeped in a traditional way of working and increased productivity by 500% through “a truly bottom-up approach.”
The authors found that “the bottom-up approach means that autonomy and influence is preserved throughout the organisation. The devolved Profit & Loss accounts and Balance Sheets become a reflection of the impact that individuals have upon their particular circumstances. When an employee can clearly see and benefit from their contribution, engagement follows.”
After the fractal model proved itself at Matt Black, the authors say they have “since applied it elsewhere, with equal transformational impact. They are spreading their investments and decreasing their dependence on the aerospace industry. They look for opportunities in organizations with high labor content and with local costs and competition.”
Seeing The Common Patterns
These are all exciting books. In all of them, the firms have been successful because they have done things in the opposite way from how they were done in the 20th century. Instead on focusing on selling products, these firms are obsessed with adding value to the customer. Instead of bureaucracy, there is a great deal of self-organization. Instead of steep hierarchies of authority, there are network-like arrangements based on competence.
Implementation of these principles over time leads to distinctive corporate cultures. Because the different cultures and contexts are on the surface so strikingly different, it is easy to miss seeing underlying patterns that are common to all of them. Yet it is only when those common patterns of management and leadership are discerned, understood and fully digested, that the invaluable lessons of these firms can be fully applied in other settings.
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