SOURCE: Forbes.com, 2013-07-05
See also: The Origin of 'The World's Dumbest Idea': Milton Friedman
In the deluge of comments-pro and con-on my article, "The Origin of 'The World's Dumbest Idea': Milton Friedman", a question by Josh Sanderson caught my eye: "What's your over/under in years until it's a minority view?" Not being a betting man, I had to look up the meaning of "over/under" and found that an over/under bet is "a wager in which a sportsbook will predict a number for a statistic in a given game and bettors wager that the actual number in the game will be either higher or lower than that number."
So here's my wager on how long it will take for what even Jack Welch sees as 'the world's dumbest idea', i.e. maximizing shareholder value, to become the minority view: "Major thought leaders: end 2014. All major businesses and business schools: 2020." Here's my reasoning.
Why will it take businesses so long to embrace what looks like an overwhelming case for change, supported even by original proponents like Jack Welch? The sad fact is that the shareholder value idea is still a very widely-held view in both businesses and business schools.
If we read through the many comments and tweets on the Milton Friedman article, what's striking is that the proponents of shareholder value stick to it as tenaciously as the believers in a religion. They recite the propositions of the shareholder value ideology as though communicating absolute truth and are puzzled, even furious, as to why anyone might think differently. It is clear that their whole understanding about how the world works is embedded in that ideology. Views held so deeply are not going to disappear rapidly.
A further reason as to why it will take so long is that the shareholder value theory is not the only obsolete idea that needs to be replaced. In fact, shareholder value is part of a web of obsolete management ideas that no longer fit the 21st Century. As I noted in an article last week, other once-sacred and self-evident truths are also falling by the wayside:
The search for the holy grail of strategy-sustainable competitive advantage-is recognized by Professor Rita McGrath of Columbia Business School as futile: competitive advantage is at best temporary.
The "essence of strategy" seen as "coping with competition", as argued by legendary guru Professor Michael Porter, is now obsolete: the essence of strategy is about adding value to customers.
It transpires that the raison d'être of a firm is not only, as Nobel Prize winner Ronald Coase argued, because it can reduce transaction costs, but also because it can add value for customers.
The uni-directional value chain-the very core of 20th Century management thinking developed by Professor Porter-is being replaced by the concept of multi-directional networks, in which interactions with customers play a key role.
The extraordinarily generous compensation afforded to senior executives is recognized in an HBR article by Professor Mihir Desai, the Mizuho Financial Group Professor of Finance at Harvard Business School to be a giant "financial incentives bubble", accompanied by an unjustified sense of entitlement.
The short-term gains of large-scale off-shoring of manufacturing are recognized to have caused massive loss of competitive capacity: new heuristics for outsourcing have emerged.
Supposed distinctions between leaders and managers, as argued by leadership guru Professor John Kotter, are dissolving: managers are leaders and leaders must be able and willing to get their hands dirty and manage.
As a result of a failure of many firms to recognize and respond to these changes, a study by Harvard Business School has concluded that the US has lost much of its capacity to compete.
Whereas the traditional management pursued an ethos of efficiency and control, a new paradigm is being pursued by many firms that thrives on the ethos of imagination, exploration, experiment, discovery, collaboration and self-organization.
Whereas traditional management often treated both employees and customers as inanimate "things" to be manipulated, the new management paradigm respects employees and customers as independent, thinking, feeling human beings.
The new management embraces the increased complexity inherent in the shift as an opportunity to be exploited, rather than a problem to be avoided.
Absorbing even a couple of these fundamental shifts would take time. Absorbing them all, and then acquiring the skills and attitudes necessary to implement them, will not be easy or quick. Moreover the financial incentives that seemingly preserve the status quo will be a further constraint to change.
Against this entrenched resistance to change, what could enable the management revolution to happen sooner? What's encouraging is that so many thought leaders are already getting behind the change. Thus in the last few days, we have had the Google's executive chairman, Eric Schmidt referencing the Milton Friedman article, and support from many others, including Tom Peters and Eric Ries. There are now thousands of firms implementing the new paradigm. These developments have been chronicled in a whole canon of books that articulate and embrace the paradigm shift.
A number of thought leaders will be joining the Global Peter Drucker Forum in November 2013 in Vienna Austria to explore how the management revolution can be accelerated. A preparatory blog is already under way, with a very lively conversation. The closing session of the Forum this year, will be explicitly focused on exploring whether a paradigm shift in management is under way and point to the Forum in November 2014, which is expected to be devoted entirely to this issue. Based on current dialogues under way in various forums, it's not unreasonable to think that there will be consensus among major thought leaders by end 2014 that a paradigm shift in management is indeed under way.
Josh Sanderson was sufficiently encouraged by my wager to suggest that "hopefully the leading business schools will come around before 2020." Clearly, some of the professors noted above are already leading the charge for transformation. In fact, the speed with which a business school makes the transition will be a determining factor whether it should be considered "a leading business school." Just imagine if the Financial Times, US News & World Report and Bloomberg BusinessWeek were to add this as a criterion of their business school rankings?
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