On the failing religion of business
What Martin Luther did to the Catholic church needs to be done to business gurus, the columnist Schumpeter writes in Management theory is becoming a compendium of dead ideas. The similarities between medieval Christianity and the world of management theory may not be obvious. But seek and ye shall find.
“Management theorists sanctify capitalism in much the same way that clergymen of yore sanctified feudalism. Business schools are the cathedrals of capitalism. Consultants are its travelling friars. Just as the clergy in the Middle Ages spoke in Latin to give their words an air of authority, management theorists speak in mumbo-jumbo. The medieval clergy’s sale of indulgences, by which believers could effectively buy forgiveness of their sins, is echoed by management theorists selling fads that will solve all your business problems. Lately, another similarity has emerged. The gurus have lost touch with the world they seek to rule. Management theory is ripe for a Reformation of its own.”
Business schools are the cathedrals of capitalism. Consultants are its traveling friars. Just as the clergy in the Middle Ages spoke in Latin to give their words an air of authority, management theorists speak in mumbo-jumbo.
According to Schumpeter, management theories are organised around four basic ideas. These are repeated ad nauseam in every business book you read or business conference you attend, that bear almost no relation to reality.
The first idea is that of a hyper-competitive world in which established giants are constantly being felled by the forces of disruption. Yet, a glance at the numbers should be enough to expose this as fiction, Schumpeter argues. The most striking business trend today is not competition but consolidation.
A second, related ‘dead idea’ is that we live in an age of entrepreneurialism. Again, the evidence tells a different story. The rate of business creation in the U.S. has been in steady decline for decades: more companies die than are born. In Europe, the situation is even worse.
The theorists’ third ruling idea is that business is getting faster. “There is some truth in this,” Schumpeter writes. “Internet firms can acquire hundreds of millions of customers in a few years. But in some ways this is less impressive than earlier roll-outs: well over half of American households had motor cars just two decades after Henry Ford introduced the first moving assembly line in 1913. And in many respects business is slowing down. Firms often waste months or years checking decisions with various departments (audit, legal, compliance, privacy and so on) or dealing with governments’ ever-expanding bureaucracies. The internet takes away with one hand what it gives with the other. Now that it is so easy to acquire information and consult with everybody (including suppliers and customers), organisations frequently dither endlessly.”
The fourth, and final, wrong notion is that globalisation is both inevitable and irreversible — the product of technological forces that mere human decisions cannot reverse. “But a look at history shows that it is nonsense. In 1880–1914 the world was in many ways just as globalised as it is today; it still fell victim to war and autarky. Today globalisation shows signs of going into reverse.”
“The backlash against globalisation points to a glaring underlying weakness of management theory: its naivety about politics. Modern management orthodoxies were forged in the era from 1980 to 2008, when liberalism was in the ascendant and middle-of-the-road politicians were willing to sign up to global rules.”
But today, the world looks very different. Productivity growth is dismal, companies are fusing at a furious rate, entrepreneurialism is stuttering, populism is on the rise and the old rules of business are being torn up. “Management theorists need to examine their church with the same clear-eyed iconoclasm with which Luther examined his. Otherwise they risk being exposed as just so many overpaid peddlers of dead ideas.”
“The learned fool writes his nonsense in better language than the unlearned, but it is still nonsense.” — Benjamin Franklin
“In effect, [Schumpeter] is just scratching the surface,” Steve Denning writes in Understanding The Failing Religion Of Business: 18 Management Fallacies. The ‘compendium of dead ideas’ is vastly larger. “Until we understand the depth and breadth of the problems we are facing, we will never be able to resolve the issues.” And so, Denning adds eight more management fallacies and six more flawed economic dogmas to Schumpeter’s four moribund business ideas.
One of today’s fallacies is the idea that innovation is flourishing. In reality, as Jeffrey Pfeffer, Professor of Organizational Behavior at the Stanford Graduate School of Business and author of the excellent Leadership BS, pointed out at the recent Global Peter Drucker Forum, the rate of new business formation in the USA has fallen by 50% since 1978. Today, there are more deaths of businesses than there are new business births. Many speakers lamented the fact that many, if not most, workers continue to plod on as wage slaves, their talents locked in bureaucratic silos or eking out a precarious existence in the emerging gig economy, while big organizations spurn innovation and increasingly focus on exploiting existing business models. Firms are stuck on the treadmill of producing quarterly returns, often to be achieved through financial engineering, rather than exploring new opportunities through innovation.
Instead of a golden age of entrepreneurship, Denning writes, most speakers at the Drucker Forum recognized that there is widespread evidence of a global decline of innovation:
- Existing firms are genetically unable to cope with disruptive innovation; the only solution is to set up a new organization (Clayton Christensen)
- The search for certainty through data and analysis has fostered exploitation at the expense of exploration. (Roger Martin, Director of the Martin Prosperity Institute)
- Only 20% of R&D has any value, because most big firms lack a coherent approach to innovation. (Curt Carlson, former CEO of SRI)
- In big organizations, being a promoter of innovation is often career suicide. (Alex Osterwalder)
This isn’t anything new of course. So, the question is, what’s holding us back from addressing these issues? Denning believes, and I can only agree with him, it’s the inter-connectedness of the ‘mistaken faiths.’ They can’t be solved by focusing on each issue individually. Unfortunately, that’s what most companies (still) do.
Denning suggests “to nail the list of management’s big bad ideas to the door of the cathedral of capitalism, and jump-start the reform process, just like time Martin Luther did back in 1517.” If you can find that door, please follow his advise. In the meantime, I would like to suggest a slightly less dramatic step. Simply bring the list of management fallacies to your next innovation (or whatever) meeting, and see how many of these fallacies apply to your company. I wouldn’t be surprised if you ‘tick all the boxes.’
A few random finds …
“The strategy ends up being focused on the shareholders versus other stakeholders. If ultimately the purpose of a company is maximizing shareholder return, we risk ending up with many decisions that are not in the interest of society.” — Paul Polman, the CEO of the British-Dutch conglomerate Unilever, in How to Stop Short-Term Thinking at America’s Companies.
“But sharing-economy companies exist in the same economy that McDonald’s and Starbucks do. Uber, Airbnb, and the like ultimately depend on profit, not generosity. Ownership is still private; everything is rented, not truly shared. The sharing economy might be a significant step toward more efficiently tapping into the wealth of physical things owned by individuals — as opposed to corporations — but it’s still vastly different from the kind of sharing that defined humanity for tens of thousands of years.” — Elana E. Strauss in The Original Sharing Economy.
“Complexity means a different theory of causality. It is about emergence. The future of a complex system is emerging through perpetual creation. Complexity is a movement in time that is both knowable and unknowable. Uncertainty is a basic feature. It is a dynamic in time that is called paradoxically stable instability or unstable stability. Although the specific paths are unpredictable, there is a pattern. The pattern is never exactly the same, but there is always some similarity to what has happened earlier.” — Esko Kilpi in The essential skill of pattern recognition.
“After opening to much fanfare three years ago, Coca-Cola is shutting down The Founders program, according to a published report in Innovation Leader. […] While the idea was to create companies that would be independent and hopefully find other sources of funding (and customers), Coca-Cola was trying to gain something by bringing these startups into the fold. The problem becomes giving the startup enough love without smothering it. A small company can’t always cater to the needs of its corporate benefactor, precisely because early stage startups by their nature lack the resources to take on too much too soon.” — Techcrunch.
“Conventional wisdom says that start-ups are better at launching and growing a new business than large companies. But the evidence shows that companies with a strong core business, a repeatable formula, and a founder’s mentality are ideal places to found a new business. In fact, they are much more likely than a start-up to produce profitable growth.” — Chris Zook in When Large Companies Are Better at Entrepreneurship than Startups.