The view of manual employees as mindless machines dates back to the Industrial Revolution, when most workers were poorly educated, and was entrenched by Frederick Taylor, whose bureaucratic model institutionalized a caste system of thinkers and doers that still persists. Which is unfortunate, because that model allows a vast reservoir of human ingenuity to go untapped. As a result, firm performance suffers. But there is a path out of this trap, as the French tire manufacturer Michelin has found. Since 2012, under the banner of "responsabilisation" (French for empowerment), the company has dramatically increased the authority and accountability of workers on the front lines. The firm kick-started this change through a bottom-up process involving targeted experiments in a handful of plants and slowly scaled up successful approaches. The outcome: A workforce that's deeply knowledgeable and relentlessly inventive, and that had delivered half a billion dollars in manufacturing improvements by 2020.
While most business leaders recognize that bureaucracy squashes initiative, risk taking, and creativity, it continues to thrive. In a complex global environment, it's seen as a necessary coping mechanism. Many look to start-ups for an answer. But the most promising solution may have emerged in an unlikely place: the world's largest appliance maker, Haier. Under a renegade CEO, it has been divided into 4,000 self-managing microenterprises. About 250 are market facing ("users"), and the rest ("nodes") supply them with components and services like IT and HR support. Users can hire and fire nodes--or contract with outside providers--as they see fit, and nodes' revenues are tied to their users' success. Ultimately, everyone is accountable to the company's customers. Everyone is also encouraged to be an entrepreneur. All targets are ambitious, and rewards are tiered, performance based, and potentially hefty. So far that formula seems to be working beautifully, producing 18% yearly revenue growth for a decade and $2 billion in market value from new ventures.
Executives don't realize it, but a hierarchy of managers exacts a hefty tax on any organization: Managers are expensive, increase the risk of bad decisions, disenfranchise employees, and slow progress. In fact, management may be the least efficient activity in any company. Yet it's clear that market mechanisms alone can't provide the degree of coordination and control that many companies require. Is there any way to get the flexibility of a market system and the discipline of a tightly knit hierarchy--without a management superstructure? Morning Star, the global market leader in tomato processing, proves there is. Morning Star, which has seen double-digit growth for the past 20 years, has no managers. That's right--no bosses, no titles, no promotions. Its employees essentially manage themselves. Workers negotiate responsibilities with peers, anyone can issue a purchase order, and each person is responsible for acquiring the tools needed to do his or her work. Compensation decisions are handled by local committees elected by the employees, and pay reflects the contributions that people make--not their status. And if staffers find themselves overloaded or spot a new role that needs filling, they simply go ahead and initiate the hiring process. Morning Star's self-management model has two cornerstones: the personal mission statement, and the Colleague Letter of Understanding, or CLOU. In a personal mission statement, each employee outlines how he or she will help the company achieve its goals. The CLOU, which must be hammered out every year with colleagues, is an operating plan for fulfilling it. A CLOU covers as many as 30 activity areas and spells out relevant performance metrics. The system isn't without its challenges, and it isn't for everyone. But it has produced a dedicated workforce with exceptional initiative and expertise. And its success shows that it's possible for organizations to transcend the seemingly intractable trade-off of freedom versus control.
In May 2008, a group of management scholars and senior executives worked to define an agenda for management during the next 100 years. The so-called renegade brigade, led by Gary Hamel, included academics, such as C.K. Prahalad, Peter Senge, and Jeffrey Pfeffer; new-age thinkers, like James Surowiecki; and progressive CEOs, such as Whole Foods' John Mackey, W.L. Gore's Terri Kelly, and IDEO's Tim Brown. What drew them together was a set of shared beliefs about the importance of management and a sense of urgency about reinventing it for a new era. The group's first task was to compile a roster of challenges that would focus the energies of management innovators around the world. Accordingly, in this article, Hamel (who has set up the Management Lab, a research organization devoted to management innovation) outlines 25 "moon shots" - ambitious goals that managers should strive to achieve and in the process create Management 2.0. Topping the list is the imperative of extending management's responsibilities beyond just creating shareholder value. To do so will require both reconstructing the field's philosophical foundations so that work serves a higher purpose and fully embedding the ideas of community and citizenship into organizations. A number of challenges focus on ameliorating the toxic effects of hierarchy. Others focus on better ways to unleash creativity and capitalize on employees' passions. Still others seek to transcend the limitations of traditional patterns of management thinking. Not all the moon shots are new, but many tackle issues that are endemic in large organizations. Their purpose is to inspire new solutions to long-simmering problems by making every company as genuinely human as the people who work there.
For organizations like GE, P&G, and Visa, management innovation is the secret to success. But what is management innovation? Why is it so important? And how can other companies learn to become management innovators? This article from expert Gary Hamel answers those questions. A management breakthrough can deliver a strong advantage to the innovating company and produce a major shift in industry leadership. Few companies, however, have been able to come up with a formal process for fostering management innovation. The biggest challenge seems to be generating truly unique ideas. Four components can help: a big problem that demands fresh thinking, creative principles, or paradigms that can reveal new approaches; an evaluation of the conventions that constrain novel thinking; and examples and analogies that help redefine what can be done. No doubt, existing management processes in your organization exacerbate the big problems you're hoping to solve. To identify them, pose a series of questions for each one: Who owns the process? What are its objectives? What are the metrics for success? What are the decision-making criteria? How are decisions communicated, and to whom? After documenting these details, ask the people involved with the process to weigh in. This exploration may reveal opportunities to reinvent your management processes. A management innovation, the author says, creates long-lasting advantage when it meets at least one of three conditions: It is based on a novel principle that challenges the orthodoxy; it is systemic, involving a range of processes and methods; or it is part of a program of invention, where progress compounds over time.
In the early 1970s, when Canon took its first halting steps in reprographics, the idea of a fledgling Japanese company challenging Xerox seemed impossible. Fifteen years later, it matched the U.S. giant in global unit market share. The basis for Canon's success? A different approach to strategy, one that emphasized an organization's resourcefulness above the resources it controlled. In this McKinsey Award-winning article, first published in May 1989, Gary Hamel and C.K. Prahalad explain that Western companies have wasted too much time and energy replicating the cost and quality advantages their global competitors already experience. Familiar concepts like strategic fit and competitive advantage can foster a static approach to competition, while familiar techniques like portfolio planning and competitor analysis lead to strategies that rivals can easily decode. The sum total is a pathology of surrender that leads many managers to abandon businesses instead of build them. Canon and other world-class competitors have taken a different approach to strategy: one of strategic intent. They begin with a goal that exceeds the company's present grasp and existing resources: "Beat Xerox"; "encircle Caterpillar." Then they rally the organization to close the gap by setting challenges that focus employees' efforts in the near to medium term: "Build a personal copier to sell for $1,000"; "cut product development time by 75%." Year after year, they emphasize competitive innovation--building a portfolio of competitive advantages; searching markets for "loose bricks" that rivals have left underdefended; changing the terms of competitive engagement to avoid playing by the leader's rules. The result is a global leadership position and an approach to competition that has reduced larger, stronger Western rivals to playing an endless game of catch-up.
In 1998, the CEO of Whirlpool Corp. decides to change the company's strategy significantly to escape an increasingly unattractive "stalemate" in the appliance industry. The change he proposes involves a fundamental shift in the company's focus--from manufacturing to branding--and requires the development of altogether new organizational capabilities. Examines the full range of adjustments that the CEO must lead his management team to make throughout all the functions of Whirlpool. Distinguishes itself from other cases on strategic change by examining the challenge of change in a company that is not in crisis (yet).
Everyone knows that corporate growth--true growth, not just agglomeration--springs from innovation. And the common wisdom is that companies must spend lavishly on R&D if they are to innovate at all. But in these fiscally cautious times, where every line item of every budget in every company is under intense scrutiny, many organizations are doing just the opposite. They tighten their belts, subject nascent product development programs to rigorous screening, and train R&D staffers to think in business terms so the researchers will be better able to decide whether an idea for a product or service is worth pursuing in the first place. Such efficiency measures are commendable, say authors Gary Hamel and Gary Getz. But frugality is not a growth strategy, they point out and, in truth, there is very little correlation between corporate performance and the amount spent on innovation. Companies like Southwest, Cemex, and Shell Chemicals have shown that businesses don't have to spend a fortune on R&D to reap the benefits of innovation. To produce more growth per dollar invested, companies must produce more innovation per dollar invested. Hamel and Getz explain how businesses can dramatically improve their innovation yields. They offer these five imperatives: Increase the number of innovators among existing employees (whatever their job titles) by involving them in innovation processes and events. Focus on developing truly radical ideas--ones that change customer expectations and behaviors and industry economics--not just incremental ideas. Look for innovation sources outside the organization, as well as inside. Increase the learning from small, low-risk experiments. And commit to long-term, consistent development efforts.
In less turbulent times, executives had the luxury of assuming that business models were more or less immortal. Companies always had to work to get better, but they seldom had to get different--not at their core, not in their essence. Today, getting different is the imperative. It's the challenge facing Coca-Cola as it struggles to raise its "share of throat" in noncarbonated beverages. It's the task that bedevils McDonald's as it tries to restart its growth in a burger-weary world. It's the hurdle for Sun Microsystems as it searches for ways to protect its high-margin server business from the Linux onslaught. Continued success no longer hinges on momentum. Rather, it rides on resilience--on the ability to dynamically reinvent business models and strategies as circumstances change. Strategic resilience is not about responding to a onetime crisis or rebounding from a setback. It's about continually anticipating and adjusting to deep, secular trends that can permanently impair the earning power of a core business. To achieve strategic resilience, companies will have to overcome the cognitive challenge of eliminating denial, nostalgia, and arrogance; the strategic challenge of learning how to create a wealth of small tactical experiments; the political challenge of reallocating financial and human resources to where they can earn the best returns; and the ideological challenge of learning that strategic renewal is as important as optimization.
Large, tradition-bound organizations can make space for radical, low-cost (and therefore low-risk) innovations. Just ask executives at the World Bank. The story of this best practice begins in 1998, when a young new-products group at the international funding agency proposed holding an Innovation Marketplace to capture novel ideas within the bank for alleviating poverty. The forum, which eventually was opened to external participants, let people informally present their antipoverty ideas to potential funding sources. Funders could move among hundreds of booths and evaluate proposals. The marketplace concept met with some skepticism at the beginning. However, the marketplace team believed an open process for allocating grants would produce more breakthrough ideas in the long run than a centralized one. In this article, the authors describe how the new-products team brainstormed to create a market for ideas, how it got senior management's support, and how it has expanded on the original concept for these innovation marketplaces.
In the early 1990s, IBM was a has-been. Fujitsu, Digital Equipment, and Compaq were hammering down its hardware margins. EDS and Andersen Consulting were stealing the hearts of CIOs. Intel and Microsoft were running away with PC profits. Today, Big Blue is back on top, a leader in e-business services. This is the story of how the company, which had lagged behind every computer trend since the mainframe, caught the Internet wave. Much of the credit for the turnaround goes to a small band of activists who built a bonfire under IBM's rather broad behind. Together, building simultaneously from the top and the bottom of the organization through an ever-widening grassroots coalition of technicians and executives, they put IBM on the Web and morphed it into an e-business powerhouse. People who want to foment similarly successful insurrections can learn a lot from their example.
In 1998, Silicon Valley companies produced 41 IPOs, which by January 1999 had a combined market capitalization of $27 billion--that works out to $54,000 in new wealth creation per worker in a single year. Multiply the number of employees in your company by $54,000. Did your business create that much new wealth last year? Half that amount? It's not a group of geniuses generating such riches. It's a business model. In Silicon Valley, ideas, capital, and talent circulate freely, gathering into whatever combinations are most likely to generate innovation and wealth. Unlike most traditional companies, which spend their energy in resource allocation--a system designed to avoid failure--the Valley operates through resource attraction--a system that nurtures innovation. In a traditional company, people with innovative ideas must go hat in hand to the guardians of the old ideas for funding and for staff. But in Silicon Valley, a slew of venture capitalists vie to attract the best new ideas, infusing relatively small amounts of capital into a portfolio of ventures. And talent is free to go to the companies offering the most exhilarating work and the greatest potential rewards. It should actually be easier for large, traditional companies to set up similar markets for capital, ideas, and talent internally. After all, big companies often already have extensive capital, marketing, and distribution resources, and a first crack at the talent in their own ranks. And some of them are doing it. The choice is yours--you can do your best to make sure you never put a dollar of capital at risk, or you can tap into the kind of wealth that's being created every day in Silicon Valley.
This is an MIT Sloan Management Review article. Why has the strategy star begun to dim? Why is strategy no longer a "big idea" in most companies? According to the author, strategy innovation is key to creating new wealth. Only those companies that are constantly able to reinvent themselves will survive in a discontinuous world. Yet, no one seems to know how to develop innovative strategies that create wealth. The author calls for the development of a theory of strategy innovation and offers several propositions: that strategy is emergent, much like life itself; that strategists have been working on the "strategy," rather than on the preconditions that give rise to strategy innovation; that strategy is poised on the border between perfect order and total chaos; and that great strategy is both luck and foresight. The author goes on to offer five preconditions for the emergence of strategy: First, the entire organization, not just top management, should have a voice in creating strategy. Second, conversations about strategy must cut across industries and organizations so that knowledge can be combined in new ways. Third, people will embrace change when they see opportunities for rewards and growth. Fourth, managers must help companies reconceive themselves, customers, competitors, and opportunities. Finally, companies must do some market experimentation to determine which new strategies work.
In many companies, strategy making is an elitist procedure and "strategy" consists of nothing more than following the industry's rules. But more and more companies, intent on overturning the industrial order, are reviewing those rules. What can industry incumbents do? Either surrender the future to revolutionary challengers or revolutionize the way their companies create strategy. What is needed is not a tweak to the traditional strategic-planning process, but a new philosophical foundation: strategy is revolution. The author offers ten principles to help a company think about the challenge of creating truly revolutionary strategies.
Is your company a rule maker or a rule follower? Does your company focus on catching up or on getting out in front? Do you spend the bulk of your time as a maintenance engineer preserving the status quo or as an architect designing the future? Difficult questions like these go unanswered not because senior managers are lazy--most are working harder than ever--but because they won't admit that they are less than fully in control of their companies' future. In this adaptation from their upcoming book, Hamel and Prahalad urge senior managers to look toward the future and ponder their ability to shape their companies in the years and decades to come. Creating the future, as Electronic Data Systems has done, for example, requires industry foresight. Since change is inevitable, managers must decide whether it will happen in a crisis atmosphere or in a calm and considered manner. Too often, profound thinking about the future occurs only when present success has been eroded.
For many managers, being strategic means pursuing the opportunities that fit the company's resources. This approach is not wrong, but it obscures an alternative approach in which being strategic means creating a chasm between ambition and resources. Winners find less resource-intensive ways of achieving their ambitious goals. Managers at competitive companies can leverage their resources in five basic ways: by concentrating resources around strategic goals; by accumulating resources more efficiently; by complementing one kind of resource with another; by conserving resources whenever they can; and by recovering resources from the marketplace as quickly as possible.
In the 1990s, competitive success will come from building and dominating fundamentally new markets. Core competencies are one prerequisite for creating these new markets. Corporate imagination and expeditionary marketing are the keys that unlock the markets. Corporate imagination is unleashed when companies escape the tyranny of their served markets, think about needs and functionalities instead of marketing's more conventional customer-product grid, overturn tradition price-performance assumptions, and lead customers rather than follow them.
A company's competitiveness derives from its core competencies and core products. Core competence is the collective learning in the organization, especially the capacity to coordinate diverse production skills and integrate streams of technologies. First companies must identify core competencies, which provide potential access to a wide variety of markets, make a contribution to the customer benefits of the product, and are difficult for competitors to imitate. Next companies must reorganize to learn from alliances and focus on internal development. McKinsey Award Winner.