Can an economy be too healthy in traditional terms? It seems it can if we consider it in isolation from the society it is meant to serve. By David James
Improving productivity has always been the holy grail of business, a goal considered unambiguously good and beneficial for all. Raising productivity means better standards of living, higher levels of employment, burgeoning economic growth, healthy markets and robust enterprises. But, at the turn of the millennium, questions are being asked in developed economies that would have previously been unimaginable. Are efficient management methods resulting in the production of too much stuff? Is there a limit to which markets can be saturated with industrial products?
That such questions could even be posed is in part a measure of the failure of the global economy to distribute its riches fairly: it is certainly not the case that there is too much stuff in the developing world. But there are many signs that profusion, and the increased complexity it brings, will be the greatest managerial challenge of the new century.
Consider some of the more obvious statistics. Every North American car plant could be closed now and there would still be too many cars for the world market. Each year, more than 30,000 compact discs are pushed on to the United States market. The number of books published in the past decade is greater than all the books published previously since the invention of the printing press. Procter & Gamble has more scientists on its payroll than Harvard and Berkeley universities and MIT have on their campuses. Seiko and Sony release more than 5000 products a year: about two every hour. Disney can do even better: it is estimated that the company turns out a new film, comic book compact disc or other item every five minutes.
We are awash in industrial products, a big factor behind the low levels of inflation in the 1990s, as intense supply depressed prices. The same is true in less industrial spheres of activity. The British commentator Melvyn Bragg, when asked if the quality of modern art, literature and theatre had fallen, responded that it was not that there was no longer any good art, but that there was much more ordinary or second-rate art than ever before, so it is getting harder to distinguish the good from the mediocre.
Then there are the less obvious statistics. One aspect of the “excess stuff” phenomenon is the rising number of transactions, the increased degree to which all aspects of life are being subsumed into market exchanges. Jonas Ridderstrale and Kjell Nordstrom write in Funky Business: “There are now more markets for more things, covering a larger geographical area than ever before. Deregulation and trade liberalisation have unleashed market forces on virtually every human activity. At the turn of the 20th century some 10-15% of the world population lived within a market system … today, we are talking about 90%.”
This increased emphasis on exchanges is fundamentally changing the industrial landscape. For one thing, there is a tendency to focus on the moment of exchange and not on the system as a whole. Social commentator Geoff Mulgan writes in Connexity that money and work are being altered by the increased focus on transactions. The manager of the future will have to deal with a workforce of people who style themselves as sellers of skill packages, not with a social organism. Instead of education we have career training; instead of enterprise we have useful exchanges.
Mulgan writes: “For much of the industrial era the dominant image of work was that of the employee, working for much of their life in a single firm, and with a single set of skills. In the post-industrial era, by contrast, the dominant image is of the individual as a seller of packages of labor time to a range of different purchasers. The most desirable attributes are not loyalty and commitment, but rather flexibility, adaptability and the willingness to sell yourself.”
Such worker indifference is a natural response to the callousness of the downsizing phase of the 1990s and illustrates the negative effect that such utilitarian self-centredness will have on the work environment of the future.
The emphasis on exchanges also means that anyone not included in the market is marginalised to a previously inconceivable extent. This is a factor behind the rise of feminist sentiments in developed economies: a society obsessed with market exchanges tends to downgrade activities that are not exchanges, such as child rearing and home making. The predictable response to that is resentment and a desire to be considered equal in the market (although this tends to intensify that focus on the market). Mulgan writes: “When one becomes a buyer or seller, the old labels of status or class become irrelevant. Where money is concerned, everyone can be equal.”
Not all downside
It is hard to see this emphasis on transactions as entirely positive, but neither is it entirely negative. There is a half-baked democracy in the market, even if the underlying assumptions are intensely materialistic and productive of envy.
The danger lies in the effect that too much market activity has on the institutions that underpin the market. For example, there is a proliferation of a new type of money in the international capital markets: so-called “derivatives”, or secondary transactions that represent 10 times the world economy and that have contributed to currency volatility and international instability. The market has created so much stuff, it has threatened to destabilise the very system of sovereign controls on which it depends.
Neither is this a local phenomenon: the very global structure of money is at stake. As Paul Volcker, former chairman of the US Federal Reserve comments, the international business community will become intolerant of such uncertainty. Volcker says: “The consequence of globalisation is globalisation”. He might have added: “The consequence of too much stuff is more stuff.”
Another sign of over-abundance is the increase in information, and in the media of its transmission.
Sir Gil Simpson, chief executive of the New Zealand IT company Arioka, says that the computer revolution has been through three phases: the invention of data storage, initially in linear form; the development of random access memory, which allowed far more information to be stored and provided new ways to interrogate the data; and e-commerce, connecting customers directly to an organisation’s database and connecting businesses to each other’s databases.
The first revolution transformed data collection and computational power, the second altered back-office functions and delivery systems, and the third will change the front office, radically transforming the shape of organisations. Instead of enterprises being discrete entities delivering products to customers, they will become nodes on a network of suppliers, customers and other businesses, all with connected activities. The game is not separate ownership or individual efficiency, but increased connectedness.
We will see virtual companies in which only one or two employees are actually on the payroll and the company sources its products and distribution services from outside alliances. Companies are already so interconnected that 25% of the revenue of the top 100 US companies comes from such alliances.
Simpson says that, in the future, companies will be connected to customers on the internet, which will be their front office, and the back office will be a seamless supply chain with other enterprises to guarantee speedy delivery. He predicts a new order of magnitude for emerging companies.
More power = more stuff
The transformative power of the new network technology is immense, but there is a catch. More stuff. Computers are able to store ever-larger volumes of information. With random access, the ways of using the information increased sharply – the equivalent of adding a further dimension.
The revolution in electronic commerce will add yet another dimension of complexity. There was more information stored, then more ways of using it, and now more ways of connecting it. The result is a maze of interconnections.
Mulgan observes: “Our societies are beginning to behave in ways that run directly counter to the laws that govern most natural ecologies. … more and more of the systems we live with have runaway properties, in which changes feed on themselves rather than being cancelled out.
“What does this mean for managers? The first thing is that it forces them to define for themselves a new type of simplicity. In a world with too much stuff, the organisation that can identify exactly what it has to focus on will win. The catch is that it has to be unique; just as competitive advantage for a company comes from distinctive characteristics, so the pathway through the abundance must be unique.”
The spate of management “solutions” of the past 15 years — another example of too much stuff — can be seen as an attempt to define such simplicity.
Management of stuff
Consider some of the instances.
Re-engineering was an attempt to develop a simplicity of process by removing operational divisions and creating a continuous thread from the customer to the suppliers. The removal of organisational layers (delayering) was an attempt to create simplicity in the functions of a company so as to make it more adaptable. The identification of “core competencies” and strategic intent was an attempt to isolate an easy way of defining exactly what companies do that will be unique and durable (as distinct from what products they produce).
Participative management attempted to make organisations simple by empowering people in relation to their tasks and removing the impediments of organisational power structures. Time-based competing methods attempted to impose one stricture — the time from inception to sale — on the whole organisation. Quality-assurance programs were an attempt to impose on organisations a single imperative, the pursuit of quality, in the belief that this would provide the simple focus needed. Value-based management attempted to unify the organisation under a single system of values.
In the event, many of these ideas were implemented simplistically rather than simply, although most managers derived some value. Nevertheless, they have not stemmed the rising tide of complexity. A manager needs other intellectual qualities to deal with the profusion: synthesis and parsimony.
What does this mean? Synthesis is the ability to move between fields of knowledge without necessarily having an intimate understanding of each. Parsimony is the discipline of finding the simple things that matter: the “differences that make a difference”. This is different from the previous view of what managers should do, which was more a case of implementing controls based on comprehensive analysis.
Whereas managers were formerly expected to be familiar with all aspects of the relevant subjects, issuing orders based on full information and a complete understanding, the new type of manager is more likely to be someone who has only a basic understanding of all the details of the field in which they operate but will instead be able to scan all the “stuff” and draw out what matters.
It is rather like the difference between a gold explorer mapping out territory then systematically mining it, and a skater steering through an obstacle course by identifying what most has to be avoided. In a world of expanding stuff, it will be no longer possible to have control, but it will be possible to skate fast.
Another important emphasis in the management of “stuff” will be one on values. Values are like a snapshot of what people would like the world to be. They are simple and can provide a useful course through complexity.
The same stuff syndrome
But there is a downside. One of the consequences of excess is that there is a high degree of sameness in the products being offered. The proliferation of markets in developed economies is a sign of production methods becoming predominant, and such methods tend to produce repetitious output.
Too much stuff tends to be too much of the same stuff. In part, this is the result of a shortage of one thing – time. Because of the compression of product cycle times and the frenzy of industrial output, the time for reflection and for creation of the new is not available.
Ridderstrale argues that the solution is to look for more aesthetic value: qualities that lend products more emotional appeal. He told Management Today: “We are entering a period when art is blending with industry. That means having people in the organisation with creativity. If you look at it, there is always a balance between the organisation and the market. At the moment the balance is in favor of the market. It means that you have to find new ways of adding value, and that often means not listening to your customers but trying to do something different, to become an artist.
“Efficiency and new products are now givens; location is no longer an advantage. You have to find ways of creating emotional values.”
Managers will have to become more refined in their understanding of the markets. Demographics will no longer suffice. For one thing, many new market segments are not related to age and distance: the emerging global consumer “tribes” can come from anywhere and are held together by common interest, not age or gender. In conventional markets, it is becoming more difficult to find points of differentiation, but in the global markets of the online environment, new possibilities of differentiation are emerging.
Managers will also have to value the cerebral more highly than obedience or even effort. Sayling Wen, vice-president of the Taipei IT company C&C Inventec Corp, even suggests that there will be new forms of “knowledge stocks”. Investors will receive a pre-arranged return and knowledge workers will be apportioned ownership according to their level of success. Such a proposal seems unlikely to materialise, but it indicates the extent to which the ability to think differently is becoming crucial. It is the only thing that cannot readily be imitated or swamped by other options. This is an immense challenge to the very practice of management, which emphasises finding successful processes and repeating them. One of the casualties of excess stuff may be managers themselves.
Economists might object that this problem will be sorted out by price mechanisms; that there cannot be long-term excess, as things will be sorted out by changed prices. But economics rarely takes account of demographic trends, and the unshakeable belief in price mechanisms is not always borne out by reality.
Kenneth Courtis, president of Goldman Sachs, Asia, says that, in 1990 in Japan, 31% of the population was over 60. By 2020, 64% of the population will be over 60. This ageing has simultaneously depressed demand and put pressure on savings institutions to generate high returns on capital (to fund retirement). As future retirees have become more anxious, there have also been higher levels of saving, further depressing demand. The result in Japan was a disinflationary spiral as consumer demand dried up and the country�s financial institutions started to implode.
Japan is the most extreme example of the trend, but it will hit most economies in the developed world, most of which now have birthrates below what is required to maintain their population. The only solution is to find new customers.
The implication is that managers must find ways of generating new markets or find profitability in declining established markets. This is not easy: finding new markets has for Australian companies resulted in high failure rates, and managing profitability in declining markets takes great skill in utilising resources effectively.
The clear implication is that managers can no longer rely on “doing what they do best”. In a world of too much stuff, they must find the unique and the surprising, and create workforces that are more like artists than drones.
So far, the full implications are yet to hit Australia. But as technology continues to reduce the significance of distance, the economics of excess will put potent and potentially dangerous pressures on Australian managers.
Mulgan, Geoff. Connexity. New York: Vintage, 1998.
Ridderstrale, Jonas and Kjell Nordstrom. Funky Business. ft.com, 1999.
The hour approaches when less is more implementation will be non-negotiable
Digital technology is increasing the retention of information and speeding up access, but this is creating greater time pressures, according to a study earlier this year of United States and Australian workforces by consultants Kepner-Tregoe. The report, Decision-making in the Digital Age, says most managers believe that the increased speed of decision-making is reducing quality.
The report says: “Managers and workers are being called upon to make an increasing number of decisions in the same or less time. Sixty-five per cent of workers and 77% of managers say that, over the past three years, the number of decisions they are called upon to make during a typical workday has increased. At the same time, 82% of workers and 85% of managers say that the average amount of time they are given to make each decision has either decreased or stayed the same.”
This is a disturbing figure, because managers have rarely spent a long time on decision making. The Canadian management theorist Henry Mintzberg, in a seminal 1973 study, found that half the management tasks conducted by chief executives lasted less than nine minutes, and only 10% exceeded an hour. A manager’s time was constantly fragmented by interruptions, creating the illusion of achievement.
But everything has its limits, and the profusion of information is reducing the time spent on decisions even further. The Kepner-Tregoe study says: “Although speed has become the defining quality of successful decision making, nearly three-quarters of workers and four-fifths of managers say that they miss opportunities because they don’t make decisions quickly enough.
“Workers and managers also believe that their organisation misses opportunities as a result of top management’s inability to make timely decisions. Decisions are only as good as their implementation. By this measure, many of today’s decisions are in trouble. Sixty-eight per cent of workers and 69% of managers say that the decisions they make sometimes or often fail because they aren’t implemented quickly enough.”
Underlying this urgency is the assumption that more information and greater speed are better. Increasingly, however, the jazz paradox “less is more” seems to be a better way of viewing management in the new economy.