Through the fog of history we can see at least six moments in management which define its past and shape its future. Three of the moments define the ascent of modern management. Three of the moments symbolise its decline.

Modern management has helped transform the world since Newton’s time. Newton was born in 1643 in the early stages of another revolution: a civil war which led to the execution of King Charles I. King Charles lived without iPods, i, MTV, electricity, running water, cars, planes, dental care, fridges, freezers or central heating. Modern management has helped turn unimaginable luxuries into everyday necessities. To understand how this came about, we need to step forwards another 100 years or so to the dawn of the Industrial Revolution.

Adam Smith helped introduce the Enlightenment disciplines of observation, measurement, analysis and improvement into the world of commerce and management. Once started, the treadmill of progress appeared to be unstoppable.

If Henry Ford represented the practice of modern management, Frederick Taylor represented the theory. In 1911 he laid out Scientific Management. In the tradition of Newton and the Enlightenment, Taylor used observation and measurement to understand how productivity can be maximised. He developed time and motion studies, saw that work breaks raised productivity rather than interrupted it, and recommended that different sorts of people should do different sorts of job. These are commonplace ideas which were so revolutionary in their day that Taylor was dismissed from his first employer, Bethlehem Steel.

At this point, the science of modern management went into overdrive. GM, under Alfred Sloan, upstaged Ford with effective market segmentation. Sloan responded to Ford ’s idea of a single type of car “for the great multitude” with “a car for every purse and purpose”: market segmentation had arrived on an industrial scale with Chevrolet, Oldsmobile, Buick and Cadillac all carefully organised into different business units targeted at different customer age and wealth groups. By the time Sloan published My Years at General Motors in 1963 it appeared that the apotheosis of modern management had been reached.

By now, the West seemed to be on an inevitable, unstoppable ladder to prosperity. It would only be a matter of time before we would all be commuting on personal aircraft and possibly on personal spacecraft to our holidays on the moon. Something, somewhere, went wrong.

Akio Morita is one of several possible standard bearers for the assault on modern management as the West perceived it. He is joined by Soichira Honda who saw that not all bikers were Hell ’s Angels on Harley-Davidsons: he produced smaller motorbikes for families, fishing and fun. The motorbike was the first step to global success in engines and autos. Just as Honda and Toyota assaulted the auto market, so Canon assaulted the copier market by turning it on its head. Canon did not follow Xerox with big, expensive centralised copiers which had to be leased. Instead they produced small, cheap, slow copiers which could be at the side of every executive.

The Japanese revolution blew away vast swathes of Western industry: consumer electronics, auto manufacturing and computers. This was not meant to happen. Giants like Ford, GM, Westinghouse, Philips, Wang and DEC should not have been threatened by tiny upstarts from the East. To make matters worse, they were not just competing on the basis of cheap labour. Anyone who has eaten in a Tokyo restaurant recently will wonder if they are buying a meal or buying the restaurant when the bill is ever so politely presented to them. Japan has not been cheap for the last 20 years. These upstarts were using the very methods of modern management that the West had discovered: moving production lines, market segmentation and quality systems devised by an American: Edward Deming.

China is now following in the footsteps of Japan, but with eight times the population. In 2004 an unheard of Chinese company, Lenovo, bought the PC business of IBM, which had been the godfather of the modern PC industry. The world has tilted on its axis from west to east. Already China and Japan own $1.5 trillion of US government debt, or about $5000 for every US citizen. The US had a trade deficit with China and Japan of $338 billion in 2008 (over $1000 for every US citizen). These imbalances show that the days of American hegemony are under threat: other countries and other ways of doing business are challenging the old order.

In the right hands (Western, if you are Western), modern management was the road to riches. In the wrong hands, it seemed to be the highway to hell. The first cracks in modern management were starting to appear. The universal rules of strategy and success suddenly seemed either not to apply, or to be a very double edged sword. Uncertainty began to intrude into a world which had been very certain and self-assured to the point of complacency.

Both the dot.com bust and the credit crunch raise the same question: who has the power? Marx firmly believed that power lay with owners of capital who would so fully exploit the workers, that the workers would eventually rise up in revolt and usher in a Communist paradise (complete with labour camps, bread queues, pogroms and secret police on every doorstep). Writing in 1867, Marx might have been right about where the power lay. But power has shifted. Power no longer resides with the owners of capital: it resides with the controllers of capital, with the top managers and key executives of public companies. The dot.com bust and credit crunch have shown that managers have become very good at maximising their rewards while offloading all the risk onto the shareholders: that is an arrangement which would have been unthinkable both to Marx, and to his archetypal enemy, the evil mill owner.

The workers’ revolution did not come about through violence. It came about through education and skills. No longer could workers be coerced: command and control management started to give way. Employers found that employees had options. The days of the one-company towns, such as McDonald, Ohio (Carnegie Steel), Port Sunlight (Unilever) or Bourneville (Cadbury) were over. Employees had choices about where to work and welfare if they could not or would not work. Managers lost power: they had to discover the subtle arts of motivation and building commitment, a far remove from the time and motion studies of Frederick Taylor.

The dot.com bust and credit crunch showed that the organisational certainties of modern management could no longer be taken for granted. The key assets of the business were no longer the plant and the equipment but the people. Unlike machinery, employees can walk away if they do not like the company. Managers were learning to manage in fundamentally different ways from before. Managing people is far harder than managing machines.

The auto manufacturers were not alone in their misery. The banks were in an even worse state. Investment banks disappeared as a species within a few months: Lehman Brothers went bust, Bears Sterns and Merrill Lynch got taken over and Goldman Sachs and Morgan Stanley quickly made themselves into commercial banks. The bill to the taxpayer for the bailout is $700 billion and rising.

When one company runs into trouble it reflects one company’s mistakes. When two entire industries go under something bigger is going on. Part of the “something bigger” is recession, which exposes all the malpractice and mistakes of boom time. But that is not the whole story. There is another theme which links the dot. com bust, the problems of the auto makers and the demise of the investment banks.

In each case smart managers were all doing smart analysis and coming up with smart solutions. But the solutions which were smart individually were suicidal collectively. They had not discovered the alchemist’s formula for turning base metal into gold. They had found the opposite, the formula for destroying vast amounts of shareholder wealth. This was the Enlightenment dream turned nightmare: universal laws which promised so much, delivered the opposite of what they promised. Universal laws seemed to turn prosperity into poverty.

The credit crunch not only exposed malpractices of the previous boom. It exposed some of the fundamental flaws of modern management. When every company does the same rational analysis and arrives at the same rational solution, you do not discover competitive advantage: you discover competitive suicide. In science it helps when the same different people apply the same rules and arrive at the same solution: it confirms the validity of the scientific theory. The knowledge economy is based on innovation, diversity and myriad small failures. Simplistic formulas for strategy, finance and leadership encourage conformity, not innovation. Communist conformity helped bring about economic collapse in Eastern Europe: corporatist conformity brought about economic chaos in the West. When managers all arrive at the same solution and do the same thing, in financial markets or elsewhere, disaster ensues. Competitive advantage does not come from being the same as everyone else: it comes from being different in a relevant way.

During boom times, it does not matter that everyone is doing the same thing. If demand is strong, then all the competitors can make money. When the tide is in all ships float. When boom turns to bust and the tide of demand turns, many ships will find themselves stranded. Formulas for success become formulas for failure.

If the credit crunch illustrates the danger of formulaic strategies, that is good news for management. Managers should not be slaves to a theory: they need to create their own future, decide their own rules and control their own destiny. This world of disorder is liberating and unnerving in equal measure.