While every corporate culture is unique, the corporate cultures of the digital-age winners (i.e. the top 20%) exhibit patterns of assumptions that are markedly different from those of the bottom 80%, as shown in Figure 2. Corporate cultures thus include key assumptions that drive the choices as to which processes and mindsets should be adopted. Understanding key assumptions that comprise the relevant corporate cultures can thus shed light on why the digital-age winners are crushing the other firms like a tsunami, as well as why firms that are still implementing industrial-era management have such difficulty in evolving.
The Key Patterns of Assumptions Of Corporate Culture
As Edgar Schein pointed out in his seminal book, Organizational Culture and Leadership (Wiley, 5th ed, 2016), barely-conscious assumptions can become embedded in the culture of a firm. They are simply “the way things are done around here,” and are difficult to question or change. Some aspects of corporate culture have little bearing on performance, e.g. “where we eat” or “how we dress.” But other assumptions, particularly those in Figure 2, can have a vital impact on performance. Seven assumptions stand out.
1. Organizations are seen as living organisms, not machines
Firms implementing digital-age management tend to grasp that firms are complex adaptive systems, whose pieces operate interactively: any individual decision or action can have unpredictable reverberations and counter-reactions throughout the whole organization. The consequences of actions emerge, and cannot be reliably forecast. Continuous experimentation is necessary. By contrast, firms in the grip of industrial-era thinking often act as though a firm is like an inert machine that can be understood and managed with simple cause-and-effect thinking.
2. Organizations are interactive networks, rather than vertical hierarchies
Digital-age winners typically understand that the organization is an interactive network that is held together by mindsets and processes. Considerable autonomy can be permitted to different nodes of the network, which can receive mandates to pursue particular aspects of the firm’s activities, with agreed goals and performance outcomes, criteria, and interfaces. By contrast, industrial-era firms usually operate as steep hierarchies, with information and decisions flowing up and down the vertical system of permissions and authorizations.
3. Management Is Multi-dimensional, Not One-Dimensional
Industrial-era firms often pursue solutions to problems within a single dimension of the organization, (like strategy, budget, HR, technology, or risk management) without realizing that the success of making improvements to any single dimension will be mainly determined by the interaction with other dimensions of the management in operation, Introducing digital-age management reforms into a firm run on industrial-era assumptions will have a hard time because of the incompatibility of the underlying assumptions. Thus, efforts to reimagine HR or Agile typically fail to take hold in an industrial-era firm, because the reforms are at odds with the other dimensions of industrial-era management (Figure 4).
4. Management Combines Mindsets And Processes, Not Just Processes
A key advance of the digital-age winners has been to embrace explicit mindsets as necessary to success, particularly the primacy of creating value for customers within a valid business model, the autonomy of self-organizing teams, and the expectation of change.
By contrast, industrial-era firms, and their advocates, tend to view management as a set of objectively observable processes as shown in Figure 4, thus treating subjective mindsets, mental models, and values, as outside management. The view is often held tenaciously, as “obvious,” “plain common sense”, “what everyone knows”, and “not open to question.” Anyone who does question the view is at risk of being labeled “a troublemaker.”
5. Management Is Done By Everyone, Not Just Appointed Managers
In digital-age firms, the 20th century assumption that “managers know best” has given way to the reality that key expertise occurs throughout the organization. Some of the most important contributors do not have managerial titles. Leadership can, and should, come from everywhere.
By contrast, in industrial-era firms, the management function tends to be hoarded by those with managerial job titles, thus drastically limiting the potential capabilities of the firm.
6. Management Concerns Enablement More Than Control
Firms practicing digital-age management recognize that the central challenge for the future is to grasp new opportunities, and draw on fresh technical expertise—expertise that existing managers may not yet fully understand. It is thus increasingly important to draw on talent wherever it is located in the organization, and not assume that managers have a monopoly on knowledge.
By contrast, in firms practicing industrial-era management, management is assumed to be something that done by managers to workers. Management is personified in the people occupying managerial positions, often with a kind of two-class “Downton Abbey” social structure. Not surprisingly, firms run in this manner have great difficulty in coping with new technology or grasping the new opportunities that new technology offers.
7. Management’s Role Is To Make Competitors Irrelevant
Apple’s iPhone didn’t just defeat Nokia’s market-leading phone in 2007: the iPhone made Nokia’s phone, and almost every other phone, irrelevant. The iPhone was able to do so many things, much better, more quickly, more easily, and more elegantly, than any other device. As a result, it has ruled the smartphone marketplace ever since, and Apple has become the most valuable firm on the planet. Tesla appears to be on a similar track with its electric vehicles and the associated ecosystem.
Firms being run in an industrial-era manner typically start from Michael Porter’s famous 1979 dictum “The essence of strategy is coping with competition.” GM, Ford, and Chrysler compete with each other on traditional gasoline based vehicles, and struggle to do the rethinking necessary to evolve.
The Concept Of ‘Management’ Must Include Assumptions
The key underlying assumptions of a culture are so important for understanding and mastering the discipline of management that they need to be incorporated in the very concept of “management”, as shown in Figure 6.
Discovering A Firm’s Assumptions: High-Tech Anthropologists
The underlying assumptions of a firm, particularly older firms, are often barely conscious. They are frequently at odds with the explicitly declared goals and values of the firm. Assumptions reflect what firms actually do, and how they act, when difficult decisions have to be made. Such assumptions are usually well understood by longstanding members within the firm as “the way things are done around here.” They are reinforced via encouragements and reprimands for newcomers. As Richard Sheridan at Menlo Innovations has pointed out, understanding such assumptions requires what he calls ‘high-tech anthropologists’ who go inside the firm and understand what is really going on.
And read also:
How The Top 20% Reinvented Management For The Digital Age
The Joy Of Work: Menlo Innovations
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