Leadership and management need to be integrated. Image: GETTY

CRA Business Leadership Explored – USA 

By Steve Denning

In a world with too many disengaged, dissatisfied, and disaffected employees, as well as bumbling governments unable to deal with destabilizing change, and too many people putting misplaced trust in populist leaders, it’s sad to note that even leadership experts concede that the multi-billion-dollar leadership industry has been of little help.

The never-ending array of conferences, books, workshops, and training programs on the theme of leadership has not only failed to generate appropriate leadership behavior, or even agreement on the concept of leadership: they have often made things worse.

A different, more pragmatic, and more agile concept of leadership is needed to cope with the complex, rapidly changing world of the 21st century.

The Leadership Disease

A key part of the problem of leadership is that leadership itself is suffering from a lethal disease: the concept of leadership has become disconnected from getting stuff done in the world. The well-meaning efforts of business school writers, like Warren Bennis and Abraham Zaleznik, to inject an ethical element into leadership has ended up with leadership becoming separate from execution, while management is looked down on as something mundane, tactical, empty of ethics, and beneath the serious attention of genuine leaders. On this view, leaders set direction: getting there is up to someone else. Leadership is increasingly seen as a set of attributes rather than a function of getting results.

It is as if these writers on leadership have been embracing an upstairs-downstairs concept of leadership, in which corporations are not too different from the fictional Edwardian estates of Downton Abbey or Manderley, in which the executives set direction, enjoy the privileges and extravagant compensation of titled lords and ladies, and converse and dine in comfort and splendor, while only occasionally giving attention to the activities in the kitchens, sculleries, workshops, and garages below, let alone to the activities of the tenant-farmers whose toil in the fields finances these great ancestral estates. The fact that these properties were steadily losing money and at risk of becoming bankrupt was no more than a minor anxiety amid the charm of the luxurious lives upstairs, until financial reality eventually came crashing in on everything.


A Wrong Turning For Leadership

One might have expected that this ongoing catalogue of absurd management actions and practices would have prompted business school thinkers to revisit the underlying concept of management and put forward something more constructive. But in fact, the opposite happened.

Like their fictional Edwardian forbears, business school writers like Zaleznik accepted this stunted two-class structure as inevitable and asserted that managers were inherently different kinds of people. Leaders, it seems, are a higher class of human being, suitable to be compensated extravagantly for carrying out their reflections in the comforts of executive suites and jets, where they might set direction and rectify the errors of their menial brethren—the managers and the workers.

Business school writers like Zaleznik, and later John Kotter, promoted the notion of dual tracks. Leaders set direction and inspire people to change, while managers are busy grinding out execution. Two very different kinds of tasks. Two very different kinds of people. Two grotesquely different levels of compensation.

Unsurprisingly, in this schema, leaders and managers operate at cross-purposes. As much as leaders can conceive and inspire new ideas, managers dispirit the employees with their Dilbert-cartoon style management. The results are counter-productive, in a conflict that continues in many firms, even to this day.

The Root Cause: Maximizing Shareholder Value

Behind the scenes, what is driving acceptance of the bizarre conceptual schema and the ensuing strange behavior, is the enthusiasm with which big corporations have embraced the goal of maximizing shareholder value as the overriding goal of the firm. Launched by the future Nobel-Prize-winning economist Milton Friedman in 1970, and conceptualized by business school professors, Michael Jensen and William Meckling, in 1976, the idea became the gospel of big business in 1990s and beyond.

For the last 30 years, big corporations have been preoccupied with a single-minded goal—to maximize shareholder value. The goal led to a very specific way of running the company that fits Zaleznik’s concept of management. Since the executives received extraordinary compensation from pursuing the goal, they are understandably enthusiastic about it. Because the goal is uninspiring to those doing the work, lower level managers and workers need to be closely monitored. So, the goal leads inexorably to a structure of work that is bureaucratic—individuals reporting to bosses—and the organizational dynamic of top-down hierarchy of authority, as shown below in Figure 1.

These three 20th century principles—shareholder value, bureaucracy and steep hierarchy—in turn lead inexorably to the familiar 20th century management processes. Thus leadership has to come from the top because it is only the top that is deeply committed to the goal of making money; as a result, leadership is inevitably transactional rather than transformational: it has to resort to carrots and sticks, rather than inspiration. Strategy inevitably turns into “coping with competition”, as Michael Porter wrote in both 1979 and 2008; it is defensive and aimed at building moats against competitors. Innovation slides into enhancing existing products and services, because generating truly innovative products and services is risky, and may threaten the existing marketing hierarchy. Sales and marketing are devoted to maximizing profits by inducing customers to buy the firm’s current products and services.

Since the staff tend to be disengaged, HR necessarily involves controlling them as resources; workforce creativity and risk-taking are not systematically valued. The annual budget often turns into a battle for resources among the organizational silos that are generated by the vertical hierarchy of authority. The financial focus of the firm is on short-term share value, and compensation is heavily skewed towards the top. 20th century management fits together as a coherent and internally consistent of running a company. Its problems come from an inability to adapt to a complex, rapidly changing external environment.

In Jim Collins’ memorable image of the firm in From Good To Great (2001), the firm is full of “disciplined people, disciplined thought, and disciplined action… The process resemble[s] relentlessly pushing a giant heavy flywheel in one direction… The huge heavy disk flies forward, with almost unstoppable momentum.” Therein lies the problem. When the marketplace changes, these giant unstoppable flywheel can’t easily change course, even when it is heading in the wrong direction. Not surprisingly, far from having above-average returns as promised, most of Jim Collins’ supposedly “great” firms have under-performed the S&P 500.

Principles, processes and practices of 20th and 21st century management. STEVE DENNING

Glimmers Of Light From Time To Time

The thought that chaos could be averted by diverging from such a dispiriting concept of management has been around for some time. Toyota appeared to have pulled off the trick through “lean manufacturing”. Companies like W.L.Gore & Associates seemed to have found a way to use self-organizing teams to produce scalable efficiency without bureaucracy.

But although, as explained Art Kleiner in The Age of Heretics (1996), a lot of this work produced extraordinary results—huge gains in productivity and engagement—few of the changes scaled up or spread. Most of these efforts were ultimately aborted or marginalized. As Gary Hamel explains, “In the end, the empire struck back.”

The need for a comprehensive theory of management was made explicit in Gary Hamel’s excellent article, Moon Shots for Management (HBR, 2009), in which 35 management gurus spelled out the more than twenty criteria that a new theory of management would need to meet. However, it has taken some time for such a comprehensive theory to emerge.

The Emergence Of 21st Century Management

Just over ten years later, a coherent and internally consistent theory of 21st century management has begun to appear, as shown in Figure 1. One source has been the Agile management movement with self-organizing teams implemented in thousands of organizations around the world. Another has been firms in Silicon Valley which have prospered with a very similar management model with extraordinary financial success. In China, Haier has triumphed with transforming the firm into small self-managing teams of entrepreneurs, as did Vinci in France.

As shown above in Figure 1, 21st century leadership and management adopts the opposite set of principles and processes from 20th century leadership and management. The goal of the firm is now to create a continuous stream of value for customers and users. Making money is the result, not the goal. This goal requires a different structure of work to enable the full talents of those doing the work, often through small self-organizing teams working in short cycles, focused tightly on delivering value for customers. Instead of a steep vertical hierarchy of authority, there is a flat network or hierarchy of competence, in which ideas can come from anywhere.

These three principles in turn require radically different processesLeadership has to be inspirational rather transactional, and, given the distributed nature of work, it is required throughout the organization. Strategy tends to include not only coping with competition but also creating new businesses that attract new customers. Innovation encompasses systematic efforts to find new needs and new ways of meeting them, including the creation of interactive ecosystems. Salesand marketing involve making a real difference in the lives of customers and users. Given the new role of talent, people management must attract and enable the talent required to deliver value to customers. Because the firm operates as a network of teams tightly focused on creating customer value, the budget typically reflects decisions already taken in strategy; there are often no organizational silos to fight over it.

The uptake of these principles and processes remains slow, for the reasons explained here. Established organizations are staffed with people schooled in traditional management principles. Management textbooks continue to assert that this is the way to manage. Business schools grind out thousands of graduates who have imbibed the philosophy. Armies of consultants are afoot in established organizations, following the principles of traditional management and continuously searching for expenses to cut, rather than how they can add value. All this is necessary, it is said, to avert chaos. And so Dilbert-style  management continues, as Scott Adams gets richer and richer.

The Ongoing Battle Over Maximizing Shareholder Value

Meanwhile, the goal of maximizing shareholder value—which even Jack Welch called “the world’s dumbest idea”—eventually came under such heavy fire that, in August 2019, more than 200 chief executives of major corporations signed a statement of the Business Round Table (BRT) publicly renouncing it. The BRT declaration stated, “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities, and our country.”

Yet since the declaration was issued, researchers have found no indication of significant change in corporate behavior. Harvard Law Professor Lucian Bebchuk and colleagues found that few of the signatories obtained the approval of their boards to sign the announcement. Nor has there been any apparent effort to change the many processes and practices that reinforce the goal of maximizing shareholder value. And in cases where the firm has had to make a clear choice between shareholders and other stakeholders, these firms have invariably chosen shareholders ahead of other stakeholders. Massive share buybacks that benefit shareholders, particularly executives, continue to flourish, even where there has been a collapse in profits. Bebchuk concludes that the BRT statement was signed “mostly for show.”

Beyond Fragmented Reform

Many individual management writers are of course aware of the shortcomings of 20th century management. But their efforts to deal with it have tended to deal with fragments of management. Even leading thinkers tend to pick on a single piece of the management jigsaw puzzle and then put it forward as “the solution.” Often there is little indication of how the other pieces of the jigsaw puzzle may prevent the chosen solution from being widely successful or what can be done about them.

For instance, the leading thinkers W. Chan Kim and Renee Mauborgne, with their books Blue Ocean Strategy (2004) and Blue Ocean Shift (2017), offer an excellent process for creating new businesses. The problem? Better management of strategy just one piece of the jigsaw puzzle of management, as shown in Figure 1. In most big corporations today, all the other the principles and processes of 20th century management are systematically operating to thwart the creation of “blue oceans” so that they risk becoming no more than “tiny muddy pools”.

Similarly, management guru Gary Hamel zeroes in on the bureaucratic structure of work, with his excellent new book, Humanocracy (2020), which however offers little guidance on all the other shortcomings of 20th century management are to be overcome.

Rescuing Leadership At The Expense of Management?

In 2019, life-long leadership scholar, Barbara Kellerman recognized that the problems of leadership remain significant. “The distinctions between the words ‘leader’ and ‘manager’,” she wrote,  “have remained frustratingly opaque. Well into the 21st century we are still failing in the main to define ‘leadership’ and ‘management’. We are still neglecting in the main to distinguish between them.”

“The solution,” she suggested, “is not a problem requiring a rocket scientist. The way to distinguish between leadership and management is to declare once and for all that, by definition, the former implies a service component while the latter does not. In other words, ethics plays a part. There should be no leadership education, training, or development that does not require a demonstrable commitment to serving others.”

The notion that leadership should contain an element of service cannot be contested. But the notion that management should remain empty of ethics is problematic.

What’s exciting about the concept of 21st century management is that the goal is: an obsession with creating more value for customers. In effect, management becomes: people creating value for other people—an inherently ethical concept.

Rescuing leadership by damning management as unethical is not a solution. Unethical management will systematically undermine any ethical leadership.

Why Management Eats Leadership For Breakfast

That’s because trying reclaim leadership without rethinking the concept of management won’t work. The idea that strong leaders can overcome the processes of management is absurd. The reality is that management is much more powerful than leadership.

  • Management is systematic; leadership is episodic.
  • Leadership depends on individual effort. Management runs on processes that are like a machine that grinds forward, regardless.
  • Management builds on unstated assumptions that are difficult to eradicate. Leadership depends on one-off explicit statements and actions that are easy to ignore.
  • Management is like the operating system of the computer. Leadership is like the apps that run on top of the operating system. Leadership can embrace technical solutions like ecosystems, lean, engagement, customer is number one, innovation but if management is not in sync, change will never happen.

If 21st century leadership is to have an ethical dimension, then 21st century management must have a concern for others too. 21st century management achieves this through its single-minded obsession with delivering value for customers and users.

In effect, to salvage both leadership and management, we need single integrated and coherent view of the role of organizations in society.

Integrating Leadership And Management

We need to recognize that the impoverished Dilbertian concept of 20th century management promoted by Zaleznik, Bennis, and Kotter, leads to the same kind of failing corporations as the Edwardian estates of Upstairs-Downstairs and Downton Abbey.

Rather than separating leadership from management, we need to integrate the two. We need to retire the obsolete notions that we may have about 20th century management, and replace them with dynamic life-giving concepts of integrated leadership and management.

Instead of work and organizations being seen as mechanistic, spirit-crushing, deadening, dreary, dead-end death-traps, focused on making money, and requiring people to do things that limit the spirit and the initiative, we need an integrated  concept of leadership and management that embraces the light and the quick ahead of the heavy and the deadening. We need thrilling agility rather than rather ponderous bureaucracy. In the workplace we must be able to say what we really believe and feel, not just what we are expected to say. We need to become our inauthentic selves, not just playing roles we don’t own or feel comfortable in.

We must become the true authors of our own words and actions. 21st century leadership and management must both become something aspirational, dynamic and life-giving.

The primary goal of both leadership and management is to enable common people to achieve uncommon things for their customers and users, while also generating great workplaces and value for society. It is a matter of bringing talents and creativity to bear on the challenge at hand. Instead of being controlled and contained, they must be inspired, enabled, and uplifted. The role of leaders and manager is to remove, than create, impediments. We need to look at jobs, not just as jobs, but as opportunities to exercise talents and creativity, an opportunity to do the extraordinary.

Article Credit to Forbes.