Table of Contents
Title Page
Copyright Page
Six snapshots and a movie of the revolution
From snapshots to a movie
The fog of the future
An unstoppable revolution
Chapter One - Strategy: From Following the Rules to Making the Rules
Strategy theory
Strategy in practice
Chapter Two - Marketing: From Selling Benefits to Selling Dreams
Chapter Three - Power: Shifts to a New World Disorder
Chapter Four - Money: From CAPM to the Road to Ruin
Financial theory and the road to ruin
Alternative approaches to financial theory
The budget process
Chapter Five - Information: From Deficit to Hyperinflation
How to manage technology effectively
How to manage the application of technology to business
Chapter Six - Knowledge: From Ignorance to the Disintegration of the Firm
The knowledge economy and the knowledge worker
Chapter Seven - Organisations: From Compliance to Commitment
The end of excellence: the search for fit and balance
Managing complexity and coordination, especially in a global firm
Chapter Eight - Change: Why Dinosaurs Can’t Dance
The nature of disruptive or revolutionary change
Chapter Nine - Employees: From Slavery to Freedom (and Back Again)
Become employable, not just an employee
Compartmentalise your life
Avoid the hedonic trap
Chapter Ten - Managers: Power and Making Things Happen
The Enlightenment and Industrial Revolution: the rise of rational management
The twentieth century and the rise of humanity
The twenty-first century: back to the future
Developing IQ, EQ and PQ: a sea change in management development
PQ: welcome to the revolution
Chapter Eleven - Leaders: No More Heroes
The cult of the leader
The Anglo-Saxon leader’s sell-by date
Leadership development, and the MBA in particular, is a broken model


A central theme of this book is that we are all small islands of expertise in a vast ocean of knowledge. However much we may know about our own area, we depend hugely on the talent of other people to make things happen. This is especially true of authors. If we make any sense, which some will dispute, it is because we are able to call on a huge hinterland of people and experience who contribute their knowledge and talent.
This book is based on 30 years of working with nearly 100 of the best, and a few of the worst, organisations on our planet: from Japan, across Asia to Saudi Arabia, through Europe and to North America, I have been very fortunate to work with inspiring and insightful leaders who have helped shape the views in this book. It is impossible to assign any order to their contributions, so I will list them in the order in which I have worked with them.
Tony Johnson is largely to blame for me writing any books at all: he inspired me to first put pen to paper. Over decades, James Kelly has been an extraordinary mentor and supporter, whose contribution I will never be able to repay fully. Although this book is not kind to academics, there have been some exceptional professors who have been very kind to me. Philip Kotler went out of his way to help me with my career and my writing. He is a role model for the constant renewal of intellectual capital. Nigel Nicholson always brings me back to earth when I get too big for my boots, adding insight and humour as he does so.
My not-for-profit work has opened my eyes to different ways of working. Sally Morgan and Heath Monk of Future Leaders; Sharath Jeevan of Teaching Leaders; Brett Wigdortz and Julia Cleverdon of Teach First; and Juliet Hope and Mari Simpson of Start Up all show what can be achieved with a great deal of passion and remarkably little resource. They are the antidote to resource rich corporate thinking.
More recently, I have had the pleasure of working with some wonderful colleagues who have continued to help me with my learning journey: Laura Watkins and Shani Ospina of Cognitas are outstanding; Stephen Mansbridge of AGM has been more than generous with his time, support and patience. Mary Powell and Nithi Anandan have, in their respective ways, saved what is left of my sanity on many occasions.
Inevitably, a book like this is not possible without a publisher who shows belief and confidence in new ideas: I am hugely grateful to Wiley for their commitment and in particular to Tom Clark and Ellen Hallsworth for backing the book and to Ellen for some very diligent and effective editing. Also at Wiley, Nick Mannion, Julia Bezzant and Louise Cheer have led a whole firm effort in bringing this book to market. Finally, I am always indebted to my family for supporting me and tolerating my mutterings and ramblings as I have pursued my various ideas, so my thanks to Hiromi, Gaie, Toby and Jane.
As ever, wherever there are faults, they are all mine.

How We Got Here and Where We Are Going
Modern management is dying under the weight of its own contradictions.
This book does not predict a revolution. It maps the revolution that is happening before our eyes. The old world of simplistic formulas for strategy, finance and leadership no longer works. The credit crunch exposed fatal weaknesses in finance. It also exposed a deeper crisis which has been brewing for longer: a crisis of management. The easy certainties of the past are over. Producer power is being challenged by consumers; shareholders are losing out to managers and the West is losing ground to Asia. As with all revolutions, this revolution is about power. The old order is giving way to a new world disorder. For some, this represents great risk; for others, it represents great opportunity.
Modern management promised progress through science, efficiency and insight. Since the Industrial Revolution, this has led to huge progress and prosperity. But modern management is now reaching its end game. There is no more advantage to be gained from doing the same as everyone else. We may run hard to improve our operations, but if everyone else is improving at the same rate we find we have run hard to stay still relative to the competition. If we all do the same analysis and enter the same markets, we are collectively doomed to fail. The universal truths which modern management sought have led to self-defeating conformity.
We are now embarking on the third wave of management. The first, pre-modern, wave of management was barely capable of making progress. Management, to the extent it existed, was the product of tradition carefully handed down from master to apprentice and jealously protected by the closed shop of craft guilds. The Renaissance and then the Enlightenment paved the way for the Industrial Revolution by freeing minds to question, measure, analyse and improve. This was the revolution which led to the second wave of management: modern management.
The third wave of management is quietly burying the certainties and assumptions that have been inherited from the previous waves of management. Organisations are moving from command and control to cooperation and commitment; we are struggling to manage the change from deficit to surplus of information, knowledge and communication; customers are fragmenting and globalising at the same time; firms are hollowing out and reconfiguring themselves; accounting and capital is floundering as value shifts from tangibles to intangibles.
The new world disorder is with us now. Changing technology is a small part of it: changing the way we think is the big part of it. Some businesses and managers intuitively understand what it takes to succeed in an increasingly uncertain world. Others do not understand and simply see the change as risk. This book will help you chart your way through the revolution, turning risk into opportunity and challenges into success.

Six snapshots and a movie of the revolution

From the Boston Tea Party to the storming of the Bastille and the uprising on the battleship Potemkin, every revolution has its symbolic moments. Management revolutions are slower and less bloodthirsty than political revolutions, but they also have their symbolic and defining moments.
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.
Snapshot One: an apple falls on Isaac Newton’s head
Isaac Newton is not normally seen as the godfather of modern management, but he is. Legend has it that an apple falling on his head led him to enquire why apples always fell downwards, not upwards. The consequences of his enquiries shaped the world of science and the world of management. In 1687 he published Principia. Once Newton had discovered the laws of classical physics, he opened up the floodgates of the Enlightenment. For sure, the seeds of the Enlightenment had been sown by Copernicus, Galileo and others who challenged the orthodoxy of the Church, but it was with Newton that the Enlightenment finally bloomed into an unstoppable force. Following Newton, scientific enquiry became the spearhead of progress, not just in science but also in agriculture, industry and management. Everyone wanted to discover the universal rules which would help us understand and improve the world around us.
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.
Snapshot Two: Adam Smith observes the pin makers of Gloucester
1776 was a revolutionary year. America declared Independence and, just as revolutionary, Adam Smith published Wealth of Nations. What Isaac Newton did for physics, Adam Smith attempted to do for economics. He succeeded where no alchemist had ever succeeded before: he discovered laws which created wealth out of nothing. His most famous breakthrough was to observe pin making in Gloucester. One skilled pin maker would struggle to make 20 pins a day if he did every task himself. Ten semi-skilled workers, each focused on one small part of the task, could produce “upwards of 48,000 pins in a day”. Adam Smith had observed division of labour, volume production, de-skilling and specialisation. This was not just an economic revolution, it was a management revolution. The resulting Industrial Revolution swept away the old craft guilds and swept in unprecedented poverty, prosperity and progress.
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.
Snapshot Three: The first Ford Model T rolls off the production line, 1908
From Adam Smith to Henry Ford is a small intellectual step and a huge economic leap. Ford ’s revolutionary moving production line changed the economics of car making. Out went all the hand built cars made by skilled craftsmen: in came semi-skilled, highly specialised workers producing a standard product at low cost. Ford took cost reduction to the limit, integrating the business all the way from owning forests for the wood he needed, through to offering customers any colour, as long as it was black.
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.
Snapshot Four: Akio Morita hears the ghetto blasters
The young Akio Morita, founder of Sony, was in New York and observed gangs of teenagers with boom boxes on their shoulders. Most people saw nuisance, heard pollution and felt fear when the gangs appeared. Akio Morita saw opportunity. He saw that young people wanted to be with music all the time. He made their dreams come true with the Sony Walkman, the first truly personal music system. The Walkman leads in a straight line to iPods and all the other basic necessities of modern teenage life.
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.
Snapshot Five: the dot.com bust
In 2000, the dot com boom turned to bust. All the brave talk of a new paradigm turned to dust. The only winners from that bust were the senior executives of the top 20 corporate busts who took out a cool $2.6 billion in compensation for bankrupting their start ups and losing all their shareholders’ money: it was a play which was going to enjoy a big revival when the credit crunch came along. In the credit crunch, senior bankers took the place of dot.com executives in cashing in at the expense of the shareholders they ruined.
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.
Snapshot Six: Ford and GM go begging to Congress, 2008
In December 2008, the Chief Executives of the Big Three auto manufacturers went to Washington to plead for bail out money. It was a humbling experience. They had been forced to ditch their fancy private jets and had to drive to Washington. If Ford and GM had been at the vanguard of modern management, they now found themselves in the vanguard of its demise. Over decades, talented management had streamlined processes, improved quality, reduced costs, reorganised, innovated and introduced new models. They had done everything modern managers were meant to do. And yet their CEOs had been reduced to corporate beggars looking to survive on government welfare. For Rick Wagoner, the CEO of GM, this was particularly galling: Alfred Sloan had been the pin-up boy of modern management and GM. In March 2009 Wagoner was ousted: he had turned into the fall guy for GM, and possibly for the failures of modern management.
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.

From snapshots to a movie

When a revolution happens over 300 years, it is hard to see the changes from day to day. Like Charles Darwin, we need a long perspective. Darwin trained as a geologist. Thinking in geological time, which allows for continents drifting and the sea bed to rise into mountains, gave him the time perspective to see that animals could evolve and change dramatically over millions of generations. In geological time, a 300-year revolution happens faster than the geological eye can blink.
In that spirit, we will now paste our snapshots from the past together to create a movie: we need to pick out the direction and movement of change, rather than focus on isolated moments in history.
The first three snapshots show the relentless rise of modern management. From Newton through Adam Smith, Henry Ford, Alfred Sloan and Frederick Taylor there had been a relentless pursuit of the formula for success: formulas for strategic success, competitive success, operational excellence, managerial success and the formula for managing people.
The last three snapshots show how the orthodoxy of modern management has been fatally undermined, both for strategy and for organisation. The result is liberation for management. Instead of being slaves to a formula, the challenge for management is to create their own rules and their own destiny. To some, this freedom is terrifying: it eliminates the old certainties. For the brave, the new world is one of opportunity.

The movie: In search of magic

The search for magic success formulas in modern management has a long history. To this day, there are academics and consultants churning out their latest theory on how to achieve success: BCG grids, Porter’s Five Forces, Hamel and Prahalad on Strategic Intent and Core Competences, Prahalad ’s protégé Chan Kim on Value Curves. The hunt for universal strategy formulas is a legacy of the Enlightenment quest for the universal laws of everything. There are two main problems with all these strategy theories:
Apples falling upwards
All the theories are based on cases where the theory has been retrofitted onto reality: none of the success stories used to illustrate the theory actually applied the theory that was being touted. Second, each theory is highly selective: they ignore all the exceptions which disprove their theory. If Newton had found even one apple falling upwards, he would have had to change his ideas. Most strategy formulas being touted in the marketplace are full of the strategic equivalent of whole orchards of apples falling upwards. Quite simply, the theories are lousy science which would embarrass any science undergraduate, let alone a professor.
A thousand lemmings can’t be wrong …
Universal strategic formulas are, by definition, self-defeating. When everyone does the same analysis and does the same thing, the result is collective suicide. This is the origin of the dot.com bust, the credit crunch and other industry disasters such as the 3G telco auctions and the rush into market making for UK government bonds after liberalisation in 1986. In each case, there was room for a few players to make money. When everyone did the same analysis and chased the same market all the players were acquiring licences to lose money. The problem arises when strategic formulas become a substitute for thinking, instead of an aid for thinking. Then the frameworks become a prison from which there is no escape.
As with strategy, so with organisation. The search for universal rules of success have turned out to be a mirage. All the paradigms of organisational excellence have turned to dust. GM may have represented the summit of best management practice under Alfred Sloan: few managers would care to copy GM nowadays.
One of the most famous attempts to codify and bottle organisational success came 30 years ago. Two McKinsey consultants, Peters and Waterman, decided to decode the formula of successful management by looking at the best companies of the time. They carefully selected those companies which showed sustained and sustainable marketplace success and shareholder value creation. The result was published as In Search of Excellence. For a moment, compare these two lists of companies:
A list B list
DECAmerican Express
WangSouthwest Airlines
Data GeneralFedEx
AmocoCoca Cola
DanaGeneral Electric
There is a myopia about both these lists: they both assume that the only successful organisations which are worth studying or copying must be American. This is a myopia which has been sustained by books such as Good to Great which demonstrates an inability to look seriously beyond America. All 11 “Great” companies carefully selected by Jim Collins were American. Since the book was published in 2001, his great companies have suffered: Circuit City has gone bankrupt; Gillette has been taken over; Nucor is struggling to break even and Fannie Mae has been bailed out by government at huge expense. Once again, we find that success is ephemeral: the elixir of corporate youth does not exist. And if we want to find models of success, we need to look beyond America. US markets are being taken over by Japanese and Chinese companies with many more jobs being outsourced to India. No company and no nation has a monopoly on excellence or success.
The A list companies are the ones which In Search of Excellence held up as paradigms of excellence. The B list companies, although in existence at the time, were ignored. The problem was not faulty analysis, because the McKinsey analysis was very thorough. The problem is that excellence is ephemeral. What works today may not work tomorrow. What works in America may not work in China. What works in banking may not apply in auto manufacturing. What worked for American companies in the 1970s may not apply to global companies today, because the world has changed. Technology and the internet, globalisation and the rise of Asia are just a few of the changes that means yesterday’s formulas do not apply today.
To understand just how ephemeral success is, look back 25 years. In 1984, the FTSE 100 was created: it consisted of the top 100 public companies in the UK. These were the invincible titans of British industry. 25 years later, just 33 of them have survived in the FTSE 100. All the others have been demoted. In the United States, there is a similar story. Only 40 of the Fortune 100 from 25 years ago are still in the Fortune 100. Well over half of all the top companies have been overtaken or taken over inside a generation. Looking slightly further back, just 87 of the original S&P 500 companies from 1957 still exist: less than 20% have survived near the top for 50 years. That is a survival rate which confirms the ephemeral nature of success. We can be sure that many of the paradigms of success which are being celebrated today will be quietly forgotten tomorrow.
Searching for excellence has become as futile as searching for smoke signals in the fog. Excellence, if it exists, is defined only by what works for one company at one time. Excellence is not universal: it is about what fits and what works at any one time. Excellence therefore changes from time to time and from company to company.
At first glance, we appear to be watching a disaster movie: great companies collapse and our roadmaps to the future lead us not to excellence and success, but to ever greater perils. So now let us turn disaster into triumph and see how the death of modern management is a cause for celebration, not for mourning.
For each company that stumbles, there is another eager to take its place. If we focus on the stumbling companies, we are in the disaster movie. If we focus on the companies that are taking their place, we are in the triumph movie. As you look at the list of incumbents and challengers below, there are a few points to hold in mind:
• Many of the challengers were not even on the competitive radar screens of the incumbents 20 -30 years ago.
• The challengers lacked all the resources, skills, market power and financial muscle of the incumbents, and yet they have still succeeded.
• Success is not just about new technology: it is about management as well.
• Many more success stories have succeeded by occupying new and uncontested territory: FedEx, Google, Microsoft and MTV have all dominated new or nearly new competitive space.
Incumbents Challengers
GM, FordToyota, Honda
BA, AASouthwest Airlines, Ryanair
ATT, BTVerizon, Vodafone
Barnes and NobleAmazon
By turning our attention from the setbacks to the successes, we can see that the end of formulaic modern management is not a problem: it is an opportunity which opens up a whole new world of management. No one knows where this revolution will finish: we are clearly still in the middle of it. We do not know how, or even if, this movie will end. The purpose of this book is to map the revolution to date, and to suggest how managers and organisations can adapt and thrive in the new world of uncertainty and opportunity.

The fog of the future

Through the fog of uncertainty we can see five major strands of the revolution emerging:

Strategic revolution and the challenge of the new world disorder

The collapse of success formulas is the result of the rise of asymmetric competition where challengers do not play to the rules of incumbents. Challengers are playing to their own rules: they create their own market space; they open up new market segments and new ways of looking at the market; they offer new ways of selling through new channels. Technology helps and supports such innovation, but when technology leads innovation the dot.com bust is the result. The strategic revolution is about markets and management, not just technology.

The shift of power

We are witnessing four fundamental shifts in power:
• From shareholders to managers
• From the West to the rest of the world
• From producers to consumers
• From the unskilled to the skilled
Marx would be spinning in his grave: workers are not rebelling against the evil mill owner. Now the media breathlessly report when shareholder dare to “revolt” against managers and vote against them at an AGM. Risk and rewards have moved hugely in favour of skills versus capital: owners take the risk, managers take the reward. Just as managers have more power at work, they have more power and more choice as consumers: power is shifting from producers to consumers. The seismic shift of power from the West is well documented, and is only just starting. These power shifts have far to go and are changing the landscape of business for good.

Knowledge and the disintegration of the firm

Ideas and knowledge, like skills and management, are becoming more important relative to capital. A good idea beats the dull weight of money every time: the great entrepreneurs of today, from Branson to Gates, started with nothing. The importance of knowledge is forcing firms to focus even more on what they are good at. Firms are shifting from high integration to disintegration as they specialise along the value chain. Apple may control production of the iPod, but of the 19 000 people who produce iPods in Asia, only 30 are employed by Apple. The rest work for contractors in Korea, the Philippines, China, Korea and Japan. Increased specialisation across a global value chain creates huge challenges of coordination and integration within and beyond the boundaries of the firm.

Organisations and the collapse of structure

Traditional organisation structures are collapsing, both internally and externally. Internally, command and control functional organisations are giving way to matrix organisations. These are more flexible, but more challenging. For managers, it is easy to hide but hard to shine in a matrix, which requires learning new political and interpersonal skills to make things happen. Externally, the boundaries of organisations are blurring. From the one-company town, which was like a self-sustaining medieval walled city, we have arrived at organisations where many of the critical functions are outsourced.

The world of work: freedom and slavery

Employees are no longer like indentured workers at the mercy of an all-powerful employer. Through skills, affluence, welfare and choice employees have found freedom. With freedom comes responsibility. Employees can no longer count on jobs for life or a paternalistic employer to look after their welfare. Employees and managers have to look after themselves. This uncertainty creates a new slavery, where managers are tied to the technological shackles of email and are expected to be on call 24/7. Having achieved freedom and power, we need to learn how to use it.
In the following chapters we will explore each of these themes. We will show how the change has come about, what it means to managers and how managers can make the most of each change. The depth and breadth of these changes are huge. To understand the scale of the revolution, consider the abbreviated summary below.
Modern management and the new world disorder compared Modern management New world disorder
1. Strategic revolution
StrategyAnalysis, certainty Competitive warfare Follow prescriptive rulesExperiment, uncertainty Asymmetric warfare Change the rules
MarketingSell tangible benefits Make and sell Single channelSell intangible values Co-create Competing channels
CustomersNational class segments Attitudes Monolithic, static segmentsGlobal lifestyle segment Behaviour Mass markets of one
2. Money, information and the shift of power
AccountingDepartments Standard reporting Tangible assetsActivities Custom reporting Intangible assets
InformationDeficit Producer biased Central mainframe, copiersSurplus Democratic, internal and external Distributed computing and copying
PowerFormal Hierarchy Capital owners: investorsInformal Networks Capital controllers: key staff
3. Organisations and the collapse of structures
StructuresTall hierarchies Command and control FunctionsFlat matrix Lead and empower Processes
CommunicationTop down One channel, once360 degrees Multiple channels
Value and cost chainIntegrated, insourcedFragmented, outsourced
4. The world of work
Work time9 to 5, standardised Slow Single task24/7, flexible Fast Multi-tasking
Work space EmploymentOffice certainty Employment Standard contract Loyalty and sacrificeHot desk uncertainty Employability Whatever you can get Employee comes first
SkillsLow/technical Explicit: know whatHigh: people and political Tacit: know how
StaffCompliance Manage sickness, absence Salary and promotionCommitment Manage wellness Recognition and status
LeadershipTraditional heroesTeam sport
Clearly, not all organisations have made the transition from modern management to the new world. There are still plenty of organisations which the revolution has yet to reach. The life insurance industry, much of the public sector and other machine bureaucracies are still stuck in the fading world of modern management. Isolated from intense competition, they do not face the same pressure to change. But when change comes, it is sudden: by then, it is too late for the legacy organisations to adapt. Elephants do not learn to dance.
The abbreviated list shows that the revolution reaches into every corner of management. In that sense it is a true revolution, because revolutions change everything. The French Revolution was not just a change of regime: it changed the calendar, introduced the metric system and introduced a new flag. It even introduced a new way of executing people efficiently, courtesy of Dr Guillotine. The management revolution has changed everything short of executing people, although even firing people has to be done very differently today from a generation ago.

An unstoppable revolution

“Stop the planet, I want to get off” was the slogan of disaffected hippies in the 1970s. You cannot stop the planet, and you cannot stop the management revolution. There are at least five drivers of the revolution which will keep it moving forward to the new world disorder.


We are inevitably dazzled by the brilliance of new technology and it is tempting to think that the revolution is all about technology. But the technology revolution has been with us for at least 200 years. In 1835, the Duke of Wellington was greatly alarmed by the advent of railways which would “only encourage common people to move about needlessly ”. Railways were revolutionary: they encouraged mobility, reduced the cost and increased the speed of freight, and even obliged nations to adopt a common time, or railway time, so that timetables could be standardised. Railways were not just revolutionary in their own right: they enabled a much wider revolution of communication, mass production and mass consumption.
The technology revolution has not stopped and will not stop. Each generation thinks that it is facing exceptional technological change. In 1963 Harold Wilson, then Prime Minister, grandly announced that Britain was “to be forged in the white heat of this (technological) revolution”. Looking back, it is not clear what exciting technology he was thinking about. Railways, electricity, telephones, cars, planes, nuclear power, computers and the internet can all lay claim to be the greatest change of all. The next generation will be convinced that the next round of technology innovation is greater than anything we have seen.
For management, technology means new ways of working, new ways of organising and new ways of competing.


We may or may not be smarter than our ancestors, but we are certainly more educated. Fifty years ago, less than 10% of the workforce would have gone through higher education. Across the OECD, an average of 58% of young people now go through higher education. Education sustains the management revolution in at least three ways:
• Better educated employees have ever higher expectations about the nature of their work, their conditions, their pay and their prospects. Managing them can be a high maintenance activity. Managing people has moved from ensuring a compliance culture to building commitment.
• Better educated employees not only want more, they can do more and achieve more. They expect, and need, to be engaged in higher value and higher skilled activities.
• Better educated employees are shifting the balance of power from investors to workers: ownership of capital is less important than control of capital. Once the credit crunch is past, we will re-discover that the war for talent is even more demanding than the hunt for capital. The cost of talent now exceeds the cost of capital.


We are all getting richer, even although it may not seem so in a recession. But we are far better off than our parents and our grand-parents in material terms. Rising affluence changes both supply and demand.
On the demand side, more affluence creates new markets and new opportunities. Mass tourism and international travel are highly visible examples. Consumer goods which used to be luxuries for the few, from cars to fridges to computers to mobile phones, have now become necessities for the masses. Affluence enables whole new industries to be called into existence.
On the supply side, the affluent consumer becomes the expensive employee. This encourages employers to move up the value chain, to focus on higher value activities. This in turn drives fragmentation of the value chain, outsourcing and new ways of competing and of managing.


Globalisation, like technology, has been with us a long time. Britain’s merchandise exports were 27.3% of GDP in 1890: by 1990 they had fallen to 20.6%. For the USA the equivalent figures are 5.6% and 8.0%. Advanced economies have long been globalised. What is now changing is that more countries, especially Asian countries, are entering the global economy. As a result world merchandise exports as a proportion of GDP more than doubled from 1890 to 1990 from 6% to 13%.
Globalisation reinforces the effects of affluence. On the demand side, globalisation allows for the creation of far larger markets and far more specialised segmentation of markets. Niche markets which would not have been viable at a local level become viable at a global level, allowing for ever greater innovation and competition.
Scale also accelerates technology innovation: new chip fabrication plants costing up to US$3 -4 billion can only pay for themselves if they are able to serve global markets.
On the supply side, globalisation forces the pace of competition. Affluent countries have to migrate to higher value industries as low cost countries suck out all the lower value jobs which can be outsourced, from assembling shoes to managing data centres. The existence of comparative advantage has long been recognised. In 1817 the economist David Ricardo observed the possibility, but folly, of growing grapes in Scotland and of producing cloth in Portugal: globalisation allows each country to specialise in producing what it does best and then trading for the rest.