As discussed in the previous post, the managerial capitalism of the Industrial Age succeeded because it produced growth through centralized planning and efficient deployment of a company’s assets.
In the age of industry, strategic planning and control were exercises in discipline and exactitude. Management could treat workers as semi-programmable robots. In fact, one of Henry Ford’s most famous quotes reveals much about this time: “What I want is a good pair of hands, unfortunately I must take them with a person attached.” At work, most people were nothing more than links in a vast, well organized, automated chain. Companies were built for stability, consistency, and predictability—not for change.
As we move into the Information Age, we leave the world of physical resources and relative stability, moving increasingly toward an environment of rapid change, where intellectual capital is far more valuable than physical capital. This evolution leads to a few key questions we should ask when we consider our organizations and managers.
Have we adjusted to a world where employees own the factors of production? In the industrial world, companies often exploited their workers, since individuals needed the corporate umbrella more than companies needed the individual. The corporation was the creator of wealth, and the importance of the human being was greatly diminished. Companies like Ford owned the factory, and thus the means of production, and they held the power of that ownership over their employees.
When the industrial economy gave way to the information economy, productivity of human capital became more important than productivity of physical capital.
For the first time in history, today’s knowledge worker owns the means of production. This simple fact changes dramatically the relationship between worker and company. In the industrial age, the worker was dependent on the company. Today, the company’s most crucial asset is knowledge, and a modern organization needs its knowledge worker far more than these skilled employees need a corporate structure.
To companies such as Microsoft or Google, the key resource lies not in physical capital such as production facilities, but rather in the minds of its programmers and managers. As such, capable individuals everywhere have become free agents. Some business journalists have termed them a generation of “knowledge nomads”. They are completely at liberty to take their skill and expertise—the company’s means of production—with them when they move on.
Recently, I read an issue of Fast Company that talks of “generation flux”, a category of worker that moves easily from one project and from one organization to another frequently, as new opportunities present themselves. Rather than seeking stable careers and long-term relationships with corporations, they change organizations or sectors often, taking their expertise with them.
In the information economy, it is incumbent on leaders and managers to motivate employees with interesting work, or they risk losing their most valuable resources.
Built for stability or built for change? In the fast-moving information economy, a company based on stability and alignment, one that searches methodically for a long-term competitive advantage, is not built for our world of rapid change. In many cases nowadays, the ability to change is far more important than the ability to execute plans and processes. Companies should be built to change from the outset, to anticipate and adapt.
In a built-to-change company, workers should be willing and eager to move from one project to another, lending their experience and expertise where needed, much like in a consulting firm. Everything should be fluid, including the work assignments and job descriptions.
The problem is that mentalities evolve slowly. Many managers are uncomfortable in the flatter and more fluid structures needed today; they are still more at ease in well-defined, more traditional relationships of boss and subordinate.
How must management structures and attitudes evolve? In the age of intellectual capital, bureaucratic control and vertical hierarchies make little sense. The problem is that many large organizations remain stuck in structures and management models that impede progress in a modern setting.
The bureaucratic organizations of the Industrial Age did not encourage the free flow of ideas or collaboration between individuals. On the contrary, this style of organization often engendered the opposite of cooperation, as corporations splintered into vertical subunits. Within one large enterprise, silo mentalities and withholding of information frequently prevailed. Above all, the industrial company certainly did not encourage people to take the initiative or to cross the silo boundaries.
Given the needs of the Information Age, it makes sense that the modern-day corporation would develop models with far flatter hierarchies than their predecessors. In a world where compelling ideas—rather than imposing physical resources—lead to success, the key to creating value lies less in top-down vertical efficiency than in motivating self-directed professionals to work with one another horizontally across the firm, across organizational lines.
Today, the biggest challenge is not managing or controlling the organization’s human resources, but rather maximizing the organization’s potential by inspiring its human resources. Therein lies the great challenge. Rather than constrain people with systems and structures, we need to find ways to release their energy, passion and creativity.