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The next big thing in business might come from within as companies do away with bureaucracy — and managers — and experiment with structures that are less like hierarchical workflow charts and more like the Web.
Looking out at the make-or-break challenges companies will face over the next decade, Gary Hamel, professor at the London Business School and director at the Management Innovation Exchange, said, “The single biggest leverage point is the systems, the processes by which you run your company.”
This story first appeared in the January 8, 2013 issue of WWD. Subscribe Today.
Hamel said most organizations are very bureaucratic and designed to force workers to conform to timelines and other standards. That makes companies based on century-old management ideals that, in Hamel’s words, “were trying to turn human beings into semi-programmable robots.”
And it’s not a system people love. Hamel noted there are not leaders out there pushing for more bureaucracy, but there has been a lack of alternatives.
That is starting to change.
Companies around the globe are beginning to experiment with new management techniques, giving line workers more control over the budget and getting them to choose their own leaders, or allowing them to test their business ideas in an internal market.
“One of the deepest dogmas we have about management is that you actually can’t manage without managers,” Hamel noted.
Increasingly companies are trying to get front-line workers more opportunities to make decisions, spend corporate money and set strategy.
These ideas perhaps couldn’t seem more foreign in a buttoned-up office, but Hamel said the stakes couldn’t be higher and that companies need to experiment with new structures.
“The single greatest constraint long term on an organization’s success today is probably leadership,” Hamel said.
The management expert said the traits of a leader are well known — visionary, analytical, creative — but so often heads of established companies fall short, pointing to Mercedes-Benz, Sony, Hewlett-Packard and even Microsoft as examples.
“We almost expect today that the future is going to be created by the insurgents,” Hamel said. “We almost expect that the future’s going to be made by guys who have no emotional equity in the past.”
The problem, he said, becomes, “How do you build an extraordinary organization when maybe you’re leader isn’t Steve Jobs? How do you build an organization that changes as fast as change itself without getting a new ceo?”
The answer is harnessing the collective brainpower of the workforce by engaging employees.
“We have organizations that, for most people there, are just not all that inspiring,” Hamel said.
He noted that most people in Manhattan have the ability in their personal life to go buy a new car, but not the pull at work to order a new desk chair.
“What sort of payoff would there be if we invested as much creative energy in how we lead and manage and organize as we do in brand and our store concepts and our customer experience?” Hamel said.
The Internet, technology and other global shifts are forcing change on companies.
“Year-to-year volatility in earnings has been going up for 40 years,” Hamel said. “The world is becoming more turbulent faster than most organizations are becoming more resilient, more truly adaptable. What lies behind that is almost an architectural-level problem” with how businesses are organized.
“We’ve been kicking bureaucracy in the shins, but we haven’t delivered a knockout blow yet,” Hamel said, adding that “we have to put a stake through the heart of bureaucracy.”
One example of a forward-leaning company is grocery chain Whole Foods, which Hamel said gives each store $150,000 each year to spend as it wishes.
In a move that might not have gotten the green light on a corporate level, one store put in a bar that turned out to be a big hit with women shoppers and a profit center. Sixty Whole Foods stores now have bars.
Hamel said leaders among the employee ranks rise to the top if they’re allowed.
“You get inside of a company, I can find out who the real leaders are,” Hamel said, noting they are people who naturally get others to help and follow them. “I can imagine not too far from now where we will be able to give every single employee a leadership score.”
Markets are another powerful tool companies could employ to make decisions and help the best ideas flourish. Some companies have experimented with letting employees hold “initial public offerings” for their ideas. Everyone in the company then invests fantasy money in the ideas they like best and the winners get real budgets and a chance to make a go of it.
“The New York Stock Exchange has outperformed any company on the New York Stock Exchange,” Hamel said. “Markets are really good at allocating resources from old things to new things. People who control resource allocation, they’re in love with what’s already there.”