23 Jul. 2014 | Comments (0) Share Follow @Conferenceboard
Among economists, business leaders, and others, the debate continues over what George Mason University’s Tyler Cowen calls “The Great Stagnation” of the U.S. economy — and what interventions might return it to growth. Cowen points to the fact that wage levels in America have plateaued. He argues more broadly that all the “low-hanging fruit” produced by some non-repeatable breakthroughs (including fundamental technological triumphs) has been plucked. Going forward, we’ll have to work harder for any gains in productivity and prosperity, and they will come slower.
An impassioned counterargument comes from Erik Brynolfsson and Andy McAfee of MIT, who reject the premise that technology’s big leaps are all behind us. The pace of innovation is still fast, they say, and we can still expect plenty of technological breakthroughs capable of producing extremely high returns.
It’s a lively debate, but here’s the perspective that isn’t being voiced: There’s more to progress than technological innovation. Breakthroughs can also result from innovations in management.
Past work by another economist, Paul Romer, helps make the point. He explains that the history of progress is a history of two types of innovation: Inventions of new technologies, and introductions of new laws and social norms. We can make new tools, and we can make new rules. The two don’t always march in lockstep. In a period of time where one type of innovation flags, the other type can sometimes forge ahead.
Managers, of course, are among the great rule inventors and implementers of the world. So we think some rallying is in order. Our sense is that the structures, processes, and compensation schemes of most organizations today are quashing more motivation and constraining more capability than they are promoting. (Note, for example the findings by recent surveys that very few employees are engaged in their work, and even fewer passionate about it.) What if managers changed their approaches and got that set of rules right? Could they unlock all the energy being held in check? Could we collectively innovate in the practice of management so much that we ushered in a new era of growth – something we might call the Great Transformation?
We are not the first to point out to economists that management makes a difference. Thirty years ago, in a period of hand-wringing over America’s economic competitiveness, Bob Hayes and Bill Abernathy published a clarion call of an article in HBR: “Managing Our Way to Economic Decline.” Looking around, they saw pundits blaming economic macro forces for America’s decline relative to Japan. Hayes and Abernathy laid the blame instead at management’s doorstep – citing in particular the short-termism that had infected the managerial community and caused them to underinvest in long-term innovation projects.
More recently, Clayton Christensen has outlined how managers’ acquired habits in allocating capital are putting capitalism itself at risk. Noting the difference between empowering and merely productivity-enhancing innovations, he shows how a pressure for short-term payoffs will always drive investment toward the latter, which tend to increase the efficiency of current operations. Unless at least some of the capital freed up by doing that is used to generate the truly “empowering” innovations – the ones that form the foundations of new businesses or even whole new industries – firms will not experience organic growth and society will not gain new jobs. (Christensen’s work is strong reminder that the most fundamental social responsibility of corporations and their managers is innovation, because it fuels not only their own future competitiveness, but the prosperity of the world.)
Both Christensen’s and Hayes and Abernathy’s indictments of management have a silver lining: even as they decry its current tendencies, they validate how much management matters to the course of history. If managers have the power to drive an economy into a ditch, they also have the power to drive it forward.
What new rules should managers be promoting? Clearly, investing in empowering innovations could be made more the norm, supported by revised approaches to everything from entry-level hiring to CEO compensation. We would also argue for a different managerial mindset toward productivity and the best use of technology – specifically to adopt what Peter Drucker called a human centered view of them. Cowen is right when he describes today’s technologies as displacers of human work, but that is not the only possibility. Managers could instead ask: How can we use these tools to add power to the arm (and the brain) of the worker? How could they enable people to take on challenges they couldn’t before? The greatest problems of the world – such as ensuring abundant fresh water supplies, energy, health care, and schooling – will not be solved by placing human work in opposition to machines. They will require everyone’s best thinking combined with the staggering capabilities of digital technology.
Drucker’s early insistence that the corporation is a social institution, which can harness the capacity and potential of its people only when it respects them, becomes increasingly valid every year as more of the work of the global economy becomes knowledge work. It is undoubtedly why his ideas have held up so well. We heard an echo of them again in recent conversation with Marc Merrill, president and cofounder of Riot Games. The job of managers in his organization, he says, is to eliminate obstacles and provide tools to their teams – the people on whose knowledge and collaborative energy the company depends.
That the leader of such a technology-driven company would be so thoughtful about the human system he needs to activate makes us all the more hopeful for a Great Transformation in management, and the resumption of strong economic growth. Technology has wreaked its transformations for centuries, as Cowen recounts. Management, by contrast, is still a very new discipline, still capable of making enormous leaps forward. In the practice of management, most of the low-hanging fruit remains to be plucked.
Myriad actors will shape the future, and among them, the people who lead enterprises can be pivotal. As Drucker wrote in The Ecological Vision: “Management and managers are the central resource, the generic, distinctive, the constitutive organ of society … and the very survival of society is dependent on the performance, the competence, the earnestness and the values of their managers.” That’s a heavy responsibility, but at the same time a cause for optimism. Our economy has hit a plateau, but we are not at the mercy of technology to produce a breakthrough. We can manage.
This blog first appeared on Harvard Business Review on 5/15/2014.
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