The management paradigm that powers the world’s most valuable companies

Today, the most valuable and fastest-growing companies (see Appendices 1 and 2) are managed very differently than average-performing companies. This change is being driven by practitioners. The average company hasn’t caught up yet. In 2024, follow Peter Drucker’s 1997 advice: “Look out the window and see what you can see. But see what you haven’t seen yet.” in management A paradigm shift is occurring. The new management method embodies at least five major changes.

1. “Humanity” comes before “the system”

The first and most important change was the reversal of Frederick Taylor’s 1911 maxim. In the future, systems must come first. ” Taylor believed that human needs, desires, and interests would be subordinated to a scientific system of management processes and methods.

Over the next century, Taylor’s predictions proved correct. Humanity was under the influence of a series of “systems” that drove behavior. “Systems” has been given various labels at different times and in different contexts, including Scientific Management, Toyota Production System, Lean Manufacturing, Lean Six Sigma, Total Quality Management, Business Process Reengineering, Scrum, Extreme Programming, and Competency Management. has been added. . This is reflected in the World Management Survey and ISO 9000.

Although the human factor was not completely ignored in the ‘system’, it occupied a subordinate position in implementation. Individuals were routinely subjected to processes and methods that sought greater efficiency and economic gain. In the 20th century, companies that implemented these ideas achieved extraordinary economic returns, and most of humanity benefited as customers, even as employee engagement remained low.

The world has changed since then. The Internet first gave businesses new possibilities for innovation and then gave customers more choice. As a result, in the past quarter century, major corporations have begun to implement the inverse of Taylor’s maxim. Because we found a way to drive our processes, practices, and methodologies with human concerns, we were able to grow much faster and create exponentially more value.

The terminology used by different companies varied. Apple talked about different “cultures”. Microsoft talked about “way of thinking,” “empathy,” and “values.” Amazon talked about “leadership.” principle. Some companies talked about “mental models” and “narratives.” The Agile Manifesto states that it emphasizes “individuals and interactions” over “processes and tools.” At LVMH, CEO Bernard Arnault spoke of giving designers “unrestricted freedom.” Whatever the vocabulary, the new breed of companies used subjective concepts to drive business processes. These mental models, goals, ideas, values, stories, passions, and purposes were exactly what scientific management rejected on principle.

2. The only valid purpose of business: to create customers.

“There is only one valid definition of business purpose,” Peter Drucker wrote in 1954. management practiceFor the next half century, companies paid lip service to his insights.Instead, companies implicit goal of making money explicit We aim to “maximize shareholder value.” This change was based on the advice of Nobel Prize-winning economist Milton Friedman in 1970 and the official approval of the Business Roundtable in 1997. Human factors were often mentioned, but in most large companies, human factors were organizationally subordinated to “systems.” ‘

In contrast, over the past quarter century, the most valuable and fastest-growing companies have embraced creating value for customers as their primary corporate goal.

· Amazon said, “Customer obsession…Long-term growth is best created by putting the customer first”: Colin Breyer and Bill Kerr work backwards (2021).

· As Microsoft’s new CEO in 2014, Satya Nadella set out to “build deeper empathy with customers and their unarticulated and unmet needs.” hit refresh.

· At Apple, “Customers love Apple because of the joy our products bring them.” inside of apple.

In fact, although these companies rarely mention the Agile Manifesto, there are all signs that they are implementing the Manifesto’s first principles, which apply to the entire organization, not just the software. “Our top priority is to satisfy our customers…”

3. Work is done by self-organizing teams

Given that traditional management is increasingly focused on maximizing shareholder value and that workers are unlikely to accept this, there is little choice but to impose strict management oversight of all operations. There wasn’t. Top-down bureaucracy. It continued despite increasing complexity and unpredictability.

In contrast, once the most valuable and fastest-growing companies have embraced the priority of creating value for customers, a goal that workers can embrace, they can solve big difficult problems in small batches. It was natural for the project to be broken down into sections and executed by autonomous cross-functional teams. Teams work iteratively in short cycles in a state of flow with rapid feedback from customers and end users.

· Satya Nader explains: hit refresh“The key was nimble, nimble, nimble. We needed to develop speed, nimbleness, and athleticism to deliver the consumer experience correctly, not just once, but every day.”

· Amazon discovered the importance of single-threaded teams to minimize dependencies within the organization.

Again, what companies are doing is closely aligned with the Agile Manifesto. “Build projects around motivated individuals. Give them the environment and support they need, and trust them to get the job done.” When applied to the entire organization, not just software development, the result is ” It becomes a company without a license.

4. Moving from hierarchies of authority to networks of competence

Given the traditional management objective of maximizing shareholder value, companies naturally adopted a centralized hierarchical pyramid structure with functional divisions that allowed for close supervision of individual employees. This structure applied to most companies, even though the Internet made large vertical pyramids less and less suitable.

In contrast, the most valuable and fastest-growing companies tended to move toward flexible competency networks with defined interfaces between self-organizing teams.

Traditional managers were confused. They knew that large networks would be disrupted and unable to get things done. Thousands of years of experience in the Greek, Roman, and Chinese militaries showed this to be the case. It wasn’t even worth thinking about doing anything different, at least until I saw how it would benefit the most valuable and fastest-growing companies.

5. How mindset changes company processes

Fundamentally rethinking corporate processes was unthinkable in a “systems-first” company. The “system” was the basis of his 20th century interests. Careers were built on it. I continued to teach it in business school. As mentioned above, adjustments at the limit were explored throughout the century. But through it all, process and method were paramount.

In contrast, over the past quarter century, the most valuable and fastest-growing companies have abandoned the primacy of the “system” and are now using everything to support new ways of thinking, mental models, and values. You are now free to rethink how processes and methods can be reused. .

· Leadership can be democratized. Everyone became a leader, not just the top.Link

· Strategy is no longer just about “dealing with competition.” This meant continuing to explore new business opportunities.

· Innovation has gone beyond upgrading existing products to meeting unmet customer needs.

· Human resources can move away from its traditional role as a controller for top management and become a function where individuals can create more value for customers.

· Budgeting can be rescued from an unproductive “battle between silos” to one that enhances value creation.

new management paradigm

In this way, the most valuable and fastest growing companies have created a new management paradigm. These companies innovate faster, operate more efficiently, mobilize more resources, attract and use more talent, acquire customers more easily, and We have shown that we can raise more money for new initiatives. We, the customers, have largely accepted their products and services, which have changed the way we work, play, and live. No one can predict the future, but change seems likely to be lasting.

The question is when, or if, the average company will be able to catch up.

Also read:

How did executive discipline become cool?

How the top 20% reinvented operations for the digital age

Appendix: Most valuable companies in the US, Europe, China and Japan

Appendix 2: Fastest growing companies in the US, Europe, China and Japan

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