BOOK REVIEW

The Future of Management

Gary HAMEL with Bill GREEN
Boston, Massachusetts: Harvard Business School Press, 2007 ISBN-13: 978-1-4221-0250-3
ISBN-10: 1-4221-0250-5

Book Review by
Andrea Carneiro¹
Júlio Mendes¹
Maria Simoni Soncin¹
Branca Terra²
(Rio de Janeiro State University)

¹Andrea Carneiro, Júlio Mendes and Maria Simoni Soncin are accountants and Master’s Degree students in the Accounting Sciences post-graduation program at the Rio de Janeiro State University.
²Dra. Branca Terra is a professor in the Accounting Sciences Master’s Degree program at the Rio de Janeiro State University.

The book The Future of Management, written by Gary Hamel and Bill Breen, was released in 2007 by the Harvard Business School Press, in Boston (Massachusetts, USA). Its subjects are management know-how, the technological management of innovation and knowledge management.

Author Gary Hamel is a world-renowned management expert, cited by The Economist as “the strategy guru” and by Fortune Magazine as “the world’s leading expert in business strategy”. Co- author Bill Breen contributes articles that explore key magazine topics, such as leadership, strategy, innovation and design. He addresses commercial audiences across the USA and has appeared on radio and television channels with global reach, such as CNN, Fox, CBS and National Public Radio.

The book was praised by the Financial Times as “a new route map for twenty-first century managers”, and is divided into four parts. The first addresses the reasons underlying innovation in management, the second looks at aspects of action to innovate in management, the third throws a light on what is imagined for the future of management, and in the fourth and final part, the book describes how to build the future of management.

In the Preface, written by the authors themselves, they reflect on the fact that, unlike the laws of physics, the laws of management are neither preordained nor eternal. They point out the major product developments, over the last decade – personal computers, mobile phones, digital music, e-mail and online communities – have changed the way we live. But when trying to think of a breakthrough in management practice that has had a similar impact on the business sphere, they admit that it isn’t so easy, thus indicating that management has become outdated. The authors also emphasize that this is a book for both dreamers and doers. It is for everyone who feels tied up by bureaucracy and fears the stifling management environment.

In the Acknowledgments, the author show his appreciation for the contributions of numerous collaborators, especially his co-authors Bill Breen, who provided the stories about innovation in management that are presented throughout the work. He also mentions the substantial contribution by Liisa Valikangas, who worked on a methodology for managing innovation that is described in the book. And he describes the pioneering research by Julian Birkinshaw and Michael Mol into the history of the management of innovation. The authors thanks Professor Roy Jacques, and note the contributions of companies, such as Google, W L Gore and Associates, IBM, Rite-Solutions, and their managements. The authors also thank colleagues Grace Reim, David Goehring, Hollis Heimbouch, and Jeff Kehoe, the editor of this book. And finally, mention the importance of the efforts of Stephani Finks, Marcy-Barnes Henrie and Dino Malvone, as well as the entire team handling the media, marketing and advertising.

The book is divided in four parts: Part I – “Why Management Innovation Matters” (Chapters 1, 2 and 3); Part II – “Management Innovation in Action” (Chapters 4, 5 and 6); Part III – “Imagining the Future of Management” (Chapters 7,8 and 9) and Part IV – “Building the Future of Management” (Chapters 10 and 11). The authors also present a section named Notes, another with the “Index” and the last one “About the Authors”.

In Chapter 1 – “The End of Management?”, the authors start off by pondering how the most successful companies of the future will be organized and managed. Considering how little management practices have changed over the last few decades, it is not surprising that most professionals find it hard to imagine how management might be reinvented in the decades to come. Management practice appears to have evolved at an extremely slow pace over the last fifty years. The hierarchy may have flattened out, but it hasn’t disappeared. Strategy continues to be determined at the top, and the important decisions continue to be made by executives who hold senior posts and whose pay grades have increased disproportionally.

They ask the question, “Why does management seem to be stuck in the past?” and proffers the response, “Perhaps we have reached the end of the management line”. Could it be that most of the really difficult management problems have already been resolved? And if modern management has still not attained peak effectiveness, given the challenges the lie ahead, are we actually trying to climb the right mountain? Having rapidly evolved during the first half of the twentieth century, management “technology” has now climbed to the top of the slope. Although institutional innovations such as the corporation and patent law paved the way for the current economic progress and the technological progress has been of great significance, it was the invention of industrial management in the early twentieth century that transformed intelligent policies and scientific discoveries into global prosperity.

However, over time, every great invention, including management practice, follows a path leading from birth to maturity and, on occasion, to senescence – the familiar “S” curve. Indeed, most of the essential techniques and tools of modern management were conceived by people born in the nineteenth century, not long after the end of the American Civil War. In order to thrive in a progressively innovative world, companies will have to be as strategically adaptable as they are operationally efficient, coming up with innovation projects and mechanisms, rather than trying to be organizations that are innovative from top to bottom. True progress requires a revolution that will have to rise above preconceived ideas, the world’s best practices, expert recommendations and one’s own doubts.

Chapter 2 – “The Ultimate Advantage”, looks at the ways in which innovation in management is rewarding. Compared to other types of innovation, it has unparalleled power to generate radical and long-lasting change that yields competitive advantage. Management innovation involves anything that substantially alters the way the management task is performed, or that significantly modifies the usual organizational formats and, consequently, advances the organization’s goals. In other words, management innovation alters the way in which management works and it does so in a way that enhances the organizational performance. Major progress in management practices usually brings about significant change in the competitive position that confers an enduring edge for pioneering businesses.

The innovation can take many forms, whether operational, strategic or administrative. At the base of the pyramid there is operational innovation. Moving up the production chain, there is product innovation. Revolutionary products rarely endow a company with enduring leadership of an industry. Higher up the pyramid there is strategic innovation – bold new business models that throw the entrenched ones on the defensive. Not all management innovation yields a competitive advantage. Some are incremental. Others are misguided. And many never bring an adequate return.

Chapter 3 – “An Agenda for Management Innovation”, questions whether management innovation has been mainly incremental in recent years. That could reflect a lack of courage in the choice of problems to be addressed by the entrepreneur. Innovation is normally an interactive process in which solutions arise on the basis of trial and error. And innovation is the only way for a company to renew its success. It is also the only way to survive in a fiercely competitive world. Falling entry barriers, hyper-efficient competitors, customer power – these are factors that will squeeze the profit margins over the coming years. So it is surprising that so few companies have made innovation a function of their projects. For the most part, innovation is still relegated to the organizational margins, the responsibility of specialized units, such as new product development and R&D, where the creative professionals are kept well out of the way of those who have to “run the business”. When it comes to mobilizing human ability, communities outperform bureaucracies, where the exchange basis is contractual – one is paid to do as one is told. In a community, the exchange is voluntary – one gives one’s efforts in return for the opportunity to make a difference or to put one’s talents to use. The ideal changes are those that would make the business feel less like a traditional hierarchy and more like a community.

In Chapter 4 – “Creating a Community of Purpose”, the authors ask the reader to imagine a company that doesn’t regard itself as such, but as a community of people working to make a difference in the world, where the mission is as important as the financial results. As an example, they look at Whole Foods Market, whose goal, from the outset, was to offer a broad range of natural food alternatives for ordinary shoppers. The commitment of Whole Foods Market to organic products and sustainable agriculture is not matched by any of its competitors. Nevertheless, the company has become the supermarket of preference for modern health- conscious individuals and could perhaps be considered the supermarket equivalent of Starbucks. Whole Foods Market runs

194 stores and has annual sales that amount to US$ 6 billion. Fifteen years on from its initial public share offering in 1992, the company’s share price has risen by almost 3,000%. Between 2002 and 2007, the growth in sales from the same store base averaged 11% a year, almost triple the industry average.

At Whole Foods Market, the basic organizational unit is not the store, but small teams with decision-making powers that enjoy a degree of autonomy that is almost unprecedented in retailing. Essentially, each team operates as a profit center and is assessed on the productivity of its efforts. Although the partners have considerable autonomy, they also have the obligation of accountability. Unlike many companies, the front-line employees at Whole Foods Market have the freedom to “do right by the customers”, as well as the incentive to “do right for the profits”. This strong link between business intelligence and decision-making authority ensures that small problems do not grow to major proportions at the company. Of course there is no guarantee that the growing success of Whole Foods Market will continue its smooth rise. As with any company in the twenty-first century, there are challenges from all directions. In such a scenario, the company will need to call on the imagination of all its employees to maintain profit margins that are ranked at the top of the category. Internal competition ensures that the strong sense of community does not regress into complacency. The excellent financial results enable the company to make a difference on a scale that most nonprofit organizations would find hard to match. Taking all this into consideration, it comes as no surprise that Whole Foods Market has been ranked every year since 1998 as one of the “100 Best Companies to Work For” in the list published by Fortune magazine. In 2007, Whole Foods Market was voted the fifth best workplace in the USA.

In Chapter 5 – “Building an Innovation Democracy”, the authors talk about how the company W L Gore and Associates was set up in 1958, with a diversified production range of fabrics, boots, shoes, gloves, etc, that were used on expeditions to the polar regions and in climbing Mount Everest, as well as medical products, including synthetic vascular grafts and surgical mesh. It became a market leader through its production of Elixir guitar strings and Glide dental floss, the latter sold to Procter and Gamble in 2003, following the implementation of an innovative management system that caused a paradigm shift.

Will L Gore’s management philosophy was influenced by Douglas McGregor’s bestseller, The Human Side of Enterprise, published in 1960, in which he termed as “Theory X” the conventional wisdom that saw employees as lazy, uninterested in the work and motivated by money. In contrast, he applied “Theory Y” to the supposition that human beings are problem solvers, self-motivated and find meaning in their work. Gore used “Theory Y” in managing his company, which had no hierarchy, but worked according to the network model. There was a CEO, Terri Kelly, who worked at the company for twenty-three years. There were four main divisions and each of these structures had a recognized leader in charge. But it was a flat company, like a pancake. There were no managerial levels or organizational charts. The personnel had no bosses and few actually held formal posts. The operating units were small and run by autonomous teams that shared two goals: to make money and to have fun. In a network you provide services to your colleagues, not to a boss. The words “boss”, “executive”, “manager” and “vice-president” were prohibited from conversations.

Although there are no hierarchical levels or job positions at Gore, certain partners have been given the simple title of “leader”, but leaders are not appointed. Partners become leaders. Leaders put together teams and attract followers: “If you call a meeting and people attend then you are a leader”. At Gore, new recruits are hired to perform a wide range of functions, not precisely defined roles. The main fuel of the innovation machine is the time (half a day per week) to devote to one’s own ideas. Most of Gore’s revolutionary products were born of that time, as in the example of the son of the founder, Robert W Gore who came across, by chance, a way to increase the potential of PTFE (polytetrafluoroethylene), which proved to be both durable and porous and provided the springboard for hundreds of products, including the Gore family of fabrics. Effectively, Gore is an ideas marketplace, where the founder has developed a keen understanding of the balance between fulfillment and commitment and nobody can impose commitment, only give orders. The commitment is voluntary and often much more valuable to the company than resigned compliance. At Gore, the tasks cannot be assigned, only accepted, and the pressure to contribute can be both exhilarating and exhausting.

Chapter 6 – “Aiming for an Evolutionary Advantage”, looks at the company Google, founded in 1996 by two doctoral students in computer science, Sergey Brin and Larry Page, as an example of an evolutionary advantage. Its brightly colored logo is a universal gateway to the worldwide web and has become one of the world’s most visible brands. The service Google provides consists of sorting pages on the basis of how many links they have to other pages. The service was inaugurated in 1998, providing advertising with a research base. In 2004 the company had revenues of US$10.6 billion and was valued at US$140 billion. In 2007 it covered 65.2% of all Internet searches in the United States, compared to 20.7% for Yahoo and 7.7% for Microsoft.

The management model at Google borders on chaos, with a hierarchy that is as level as possible and where the communication network is horizontal – its policy is to reward great ideas, as well as to encourage the employees to put the users first. In a discontinuous world, a competitive edge at a single moment in time is not nearly as important as the evolutionary advantage gained over time. So its desire is to build a company that can evolve as quickly as the Web itself. Its revenue is almost entirely related to searching supported by advertising, while its engineers are working to put other services into the market, in addition to the search engine, but they estimate that eighty percent of those new products will end up falling by the wayside. However, with an annual budget of US$1 billion, they have the luxury of being able to afford to make numerous bets.

However, the Google executives believe that increasing the revenue, regardless of its source, is only a means of assessing the company’s evolutionary progress. And they continue to insist that online searches and Web-based advertising are still just crawling. Google’s leadership in research is attributed to the large number of small autonomous teams, in contrast to Microsoft, which once had four thousand employees working on Vista, a Windows update that was released well behind schedule, in 2006. According to Google CEO Eric Schmidt, “the fact that Google is a virtual service makes all the difference in the world”. He compares the adaptability of the company to the game of basketball. Unlike American football, which relies on prepared maneuvers for success, in basketball there is little chance to pause and reorganize. Basketball players have to react instinctively to changes in the opponent’s tactics. He believes that most of the people in the company understand that tomorrow’s profitability depends on the evolution achieved today.

This idea that the company is adaptable is reflected in the changes in the business, which went through five interactive versions in a decade: from Google 1.0 to Google 5.0. Google has earmarked revenue explicitly for the purpose of ensuring continual innovation. Under the “70 / 20 / 10” principle, seventy percent of its engineering resources are devoted to enhancing its core business. Twenty percent goes into services to expand the core activities, and the other 10% goes into other ideas, such as helping the municipality to set up public wireless networks. In a letter addressed to the future shareholders, the founders stated that, “talented people are drawn to work at Google, because they have the power to change the world”. Google has the daring ambition to organize the world’s information, with its employees setting the “challenge” of increasingly democratizing knowledge and/or changing the way the world learns.

Chapter 7 – “Escaping the Shackles” provides reflection on the context of innovation. The authors are aware that there is not a complete script, but that there is the possibility of obtaining greater success by gathering together the right components. He introduces into management innovation new principles and approaches, such as:

a disciplined process to challenge and expose obsolete management orthodoxies where creative thinking is constrained;
new management principles that are able to clarify new approaches;
useful information extracted from positive divergent practices; and
unconventional ideas, original principles, and offbeat wisdom that lead to key foundations for reinventing the systematic approach to

As mentioned in previous chapters, there are two examples that followed such procedures and were successful. The doctors Barry Marshall and Robin Warren, who together discovered an unconventional treatment for ulcers, as they tested antibiotics to confirm their theories and then performed effective treatment on their own bodies, were branded as crazy by other doctors and by society as a whole, but they did something that no one else had thought of before and in this way they innovated.

So did Henry Ford, when he decided to introduce a new model in an industry in which one of the adopted strategies was to double the employees’ pay. That not only drastically affected the lives of the employees, but also transformed the world market. It is noticeable that skepticism and humility are important attributes for a management innovator, but on their own they are insufficient. It is necessary to break down the barriers that prevent people from perceiving new possibilities, working as a group and listening to the opinions of the employees. This is essential for the company’s ability to change, not to be held back by administrative attitudes and skills and by executive changes, since power is restricted to certain individuals the less resilient the system will be. Yet when executives hear the word innovation, it is summed up as relaxed employees, radical thinking, and experimentation, and this raises concern that such innovation may distract them from their efficiency and performance.

In other words, it generates the misconception that giving employees the freedom to innovate will lead to loss of discipline. However, we have seen that this is not true, because at Google, and Whole Foods and Gore, the employees have great freedom and yet are highly productive, but it is only possible to comprehend giving such radical autonomy to employees if one is able to distinguish the “what” from the “how”. Developing such discernment could be an excellent tactic to eradicate the dogma of management innovation.

Chapter 8 – “Embracing New Principles”, addresses the view that when control is excessive, supervision is rigid, and there is a detailed definition of every function, these become mechanisms that stifle innovation and creativity. It is from this point that the authors introduce the “how”. The result of innovative management at Gore, for example, brought a harmonization of results, remuneration and recognition, employee decision-making authority and accountability. This is only possible due to the deepening of the strong mantle of management orthodoxy that makes it possible to bring to the surface beliefs and questions that have previously not been analyzed.

Deepening also helps to gain a varied understanding of what is needed to reinvent conventional management practices. It has been noted that the adaptive process is essential even within species, with those that are unable to adapt quickly enough to changes in their habitat being threatened by the danger of extinction. Effectively, people change according to what interests them, which is why there are no adaptable organizations, only adaptable individuals. However, much of the processes may stimulate or inhibit adaptability, people’s willingness to change is what really matters. Applying this to the business sphere one can see that it is in the DNA of most companies to exalt conformity and abhor non-conformity. Successful diversity for innovators is clear and companies should extend the reach of their strategic experimentation, encouraging intelligent people to think about how to help the company to grow, just as the stock market does, and allowing each employee to express their opinion about the formulating of company strategy. One should not apply pressure to hasten the process nor label ideas as ridiculous, because innovative and revolutionary ideas are always met with incredulity to begin with. Lastly, one should always bear in mind that in every process, perfection is the enemy of progress.

In Chapter 9 – “Learning from the Fringe”, the authors urge the reader to seek inspiration in unusual places to innovate their company’s management. The book portrays the case of Mary Parker Follett, a twentieth century visionary who is considered a management prophet for her post-industrial ideas about management, which were presented in her 1924 work, Creative Experience. Let’s look at a couple of those ideas:

Leadership is not defined by the exercising of power, but by the ability to increase the sense of power among those who are led. The most important task of a leader is to create more leaders.
A large company is a collection of local communities. Individual and institutional growth is maximized when those communities are self-managed to the fullest extent.

Seeking the positive divergent lines, which are not at all conventional in management terms, may be one way. Indeed, these divergent lines are considered to be anomalies pointing to new truths that can reinvent management. The Grameen Bank is an example of a financial market anomaly, for having lent millions, without guarantees, to ordinary people who have never had any dealings with banks. The following are some of the challenges, considered anomalies within conventional structures that can enhance the management of a company, preparing it for the competitive market:

– The democracy of ideas: the solution to large problems can come about from a simple conversation with a janitor.
Inhibiting the opinions of any employees can lead to missed opportunities for improvement in the quality of management, as even if an employee knows how to help he or she will cease to care, because they do not have the freedom to express him or herself.
– Expanding the human imagination: giving wings to the imagination of the employees can be a valuable resource. Nowadays, all companies have personnel with the profile of a video blogger, mixer, hacker, masher, tuner or podcaster that, used wisely, can become an unlimited set of resources for innovation.
– Dynamic reallocation of resources: Gary suggests that companies have a fund of innovation or multiple sources of financing to fund new ideas, so no manager concerned about financial resource contingencies and no risk-averse boss will be able to bury a good ide
– Accumulating collective intelligence: IT managers should be seeking ways to collect and correlate the wisdom distributed throughout the organization.
– Minimizing the obstacle of old ways of thinking: in the traditional hierarchy, the executive has no obligation to justify his or her decisions. However, in the competitive market, serving leaders cannot make arbitrary decisions without extending the same right to every well-intentioned individual with plausible ideas.
– Give everyone the option to participate: if a company wants to prosper in the twenty-first century, it must create a management system that enables employees to participate in projects of their own choosin

Chapter 10 – “Becoming a Management Innovator”, inspires the reader to become a business management innovator, by showing some important lessons from the EBO saga at IBM and the Severts case, involving the vice-president of Best Buy, a consumer electronics retailer in the USA. IBM introduced a new management process in 2000, designed to promote emerging business opportunities (EBO). Through that process, IBM created a multibillion-dollar business, by providing sophisticated IT tools to customers in the life sciences field, who are engaged in the discovery and development of medicines, and most importantly, the EBO project helped the company to rebalance its own management systems. Summarizing the five lessons from the EBO process at IBM, we have:

To solve a systemic problem, you need to understand its systemic roots. They first identified the systemic impediments to IBM’s organic growth.
At least to begin with, it is easier and safer to run a new process in parallel with the old So, a new management process was developed that worked in harmony with the old ones and helped to offset the short-term tendencies in IBM’s management.
Commit to revolutionary goals, but adopt evolutionary measures, as new knowledge will emerge through a process of trial and error.
It is essential to develop well-defined metrics that can be used to assess and validate the impact of innovation.
Persist: when it comes to developing new management capabilities, persistence pays o

In the Severts case, instead of launching a major program for change, Best Buy’s vice-president developed two low-cost, low-risk management experiments. He persuaded his team to accept the gift card sales forecast made by other Best Buy employees, which he called “mass forecasting”, and then applied this strategy to all the company’s sales, attaining a precision rate of 99.9%. The five lessons from Severts are:

If possible, begin the experiment in your own backyard, where the political risks are as low as possible.
Whenever possible, turn to volunteer
Eliminate possible objections by keeping your experiments fun and inform
Run the new process in parallel with the old Here too, Severts did not try to eliminate a time-honored management process.
Practice the interaction: practice and learn. Severts sought a quick and inexpensive way to validate his hypothesis.

In Chapter 11 – “Forging Management 2.0”, the authors emphasize that, sooner or later, management innovation will become a popular concept and they therefore present some key elements that organizations will need to adopt:

The courage to lead: the manager must be willing to blaze an unconventional tr
An inevitable conversation: start out by asking participants in the annual budgeting and planning processes to select a major management challenge that, if tackled correctly, would give the company a performance advantage. If you can create opportunities for them to question the inherited beliefs, you will soon find yourself with an army of allies who are ready to help you create an enterprise that is appropriate for the twenty-first centur
Focus on causes, not symptoms: a careful, consensus-based causal analysis is essential to focus and sustain the management innovation efforts.
Accountability: start by asking your functional managers what proportions of their budget and workforce are earmarked for initiatives that could help the company to create a decisive management Encourage senior employees to meet every quarter to analyze each other’s performance, and link a portion of the remuneration to innovation performance.
Permission to change: allow ordinary employees and lower management the opportunity to add their suggestions to the management process. The most interesting ideas may get the chance to become directly involved in redesigning the
Working from the future to the present: ask yourself about the distinctive new features of the company’s management system five years from And then ask, how will we manage it so that it gives us a competitive advantage?
Management 2.0: with the Web 2.0, the internet has become a network of all the channels, from end to end, where everyone in the world is potentially connected. The power of the internet lies in its ability to facilitate coordination without the neutralizing effects of hierarchy and bureaucracy, and the Management 2.0 will look very much like the Web 0.

At the end of the book, the authors state that they did not want to predict the future of management, but to help organizations to reinvent it. And the only way to build a company that is suitable for the future is to build it in a manner that is suitable for human beings – to build a management system that truly deserves, respects and cherishes human initiative, creativity and passion, components that are essential to the success of the new millennium.

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The Future of Management