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Why business survival requires entirely new management

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Most of today’s big companies struggle with managing the industrial age. This management seriously undermines productivity, stifles innovation, demoralizes workers and leads to a steady decline. It cannot adapt to the pace of the emerging digital age and its rapid changes, in light of the economic recession.

The disease of management of the industrial age

If you have worked for a large company, its characteristics are familiar to you. The strategy is determined at the top, several levels above the client. strength decreases. The big bosses appoint the little bosses. Individuals compete for promotions. Salary is related to rank. Tasks are set. Managers evaluate performance. Rules limit freedom of action. Important innovations are not funded. The function of human resources is to control the employees. The key performance indicator is the quarterly earnings level. Executives are compensated handsomely in stock while employee compensation is stagnant.

It is the operating system of most large companies today. It is usually not written. No need for that. It is assumed in the teaching of most business schools and in the writings of most management journals. When reforms are proposed, it is a matter of modifying elements of the system, but without rethinking the entire system, so that they do not hold up.

This way of working as a whole is rarely discussed in boardrooms, trade schools, or on Wall Street, in part because there is no perceived alternative. It’s simply “the way things are done here”. It is so deeply rooted in everyone’s consciousness that it has become invisible. It’s hard for bosses to imagine any other way to run a business.

This type of management brought in a lot of money in the 20th century, but it is ill-suited to the emerging digital age. He is not responsive enough to deal with newly independent clients or a turbulent environment.

It is also not easy to change. It works like the human body’s autoimmune system: a change in one process triggers a combined response from the other processes to prevent the change from taking hold.

Companies managed in this way often extract value for shareholders and their managers by buying back stock and debt.

The emergence of management in the digital age

In the meantime, there is another, more productive, sustainable and profitable way to run a business. The idea is not new: Peter Drucker announced its basic principle as early as 1954. Like most revolutionary ideas in history, the Drucker Principle was neglected for half a century because its truth was counterintuitive: It was clear that the purpose of a business was to make money for society. It is only with the increasing importance and rapid growth of software development companies that the centrality of adding value to the customer, and bringing in big money, has begun to be recognized over the past two decades.

Today, customer-centered management is the way the largest and most dynamic companies in history operate. These companies have already changed many industries – and our lives, including the way we work, run factories, farm, communicate, travel, shop, play and watch games, deliver healthcare and education, raise our children, have fun, read, listen to music and watch plays and movies. and so on.

The need for change

As a result, most companies realize to varying degrees that the old way of doing business cannot adapt to today’s economy. Most of them continue the digital transition from the old to the new with varying speeds and intensity. However, most of these efforts are grafted onto industrial-age management. The result is usually a mixture of the principles and processes of the industrial age and the digital age. So change generally does not happen.

Two completely different ways of managing

In fact, managing the industrial age and managing the digital age are two different – and logical – ways to run a business consistently. In one—the dominant style of management in the twentieth century, refined over the past fifty years—principles and processes emphasize stable structures that operate from the top down, controlling people and containing costs.

On the contrary, managing the digital age is about empowering employees to deliver value to customers. Making money is the result of the business model, not its goal. Horizontal interactions are just as important as vertical communications. Leadership is present throughout the company and continuous innovation is key.

transformation journey

It is difficult for companies to understand what it means to transition from managing the industrial age to managing the digital age without a thorough understanding of the many different dimensions that need to change. It also requires a realistic assessment of the company’s current situation with respect to these two different management styles. Companies must also have an idea of ​​what multidimensional transformation entails. We must realize that the journey will take a number of years, perhaps 5 to 10 years, to be fully completed.

A diagnostic tool, such as the one shown in Figure 9, can help companies understand where they are now and what change will entail. This tool can provide a type of MRI scan of the organization. Leaders can see at a glance the health of the organization, or any part of it, with clear implications for where the problems are and how to fix them.

If managers or consultants operate without a diagnostic tool capable of producing truly relevant information, they risk compounding the effects of market disruption. Such actions are not meant to harm: these actions are often taken because there is no way to objectively assess the state of the business or the organizational imbalances that need to be addressed.

The diagnostic tool can help companies diagnose their current status against both management systems. It can be applied either to the entire organization or to a part of that organization, such as a management team, department, or individual team, at any time. If a business does not understand where it is today, it will never get where it wants to go.

Translated article from the American magazine Forbes – Author: Steve Denning

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