By Brian Lucas
“Good management consists in showing average people how to do the work of superior people.” -John D. Rockefeller[1]
“Employees who believe that management is concerned about them as a whole person – not just an employee – are more productive, more satisfied, more fulfilled. Satisfied employees mean satisfied customers, which leads to profitability.” -Anne M. Mulcahy[2]
“Having ONLY[3] the right people in the right place at the right time doing the right thing is fundamental to running an agile enterprise. Ubiquitous vision, knowledge and empowerment are the keys to making this happen.” –Brian Lucas[4]
In modern history, there have so far been three eras of management:
- Management 1.0 – The Process Centric Era
- Management 2.0 – The People Centric Era
- Management 3.0 – The Knowledge Centric Era
The three quotes at the beginning of this article are representative of the three eras of modern management. Each represent a leap in management thinking. Between these leaps, there was a considerable amount of incremental development. For example, specific strategic management[5] theory and planning has always had a significant effect on these management eras. Since the early days of Capitalism which drove a Product/Service Oriented Strategy, each decade since the 1960s has brought forth a new approach:
The 1960s – The Sales Oriented Strategy
The 1970s – The Marketing Oriented Strategy
The 1980s – The Active and Interactive Oriented Strategy
The 1990s – The Value Chain and Optimization of Resources Strategy
The 2000s – The Living Company Strategy
The 2010s – The Learning and Agile Strategy
Note the psychological shift[6] from being reactive and negative to proactive and positive. For those of you who lived through these decades in business, you will realize that these theories don’t quite fit into nice, neat windows as this list implies. Nothing academic ever does. Some companies are still back in the 60s and surviving somehow, others are trying to practice a Learning and Agile Strategy (as I call it) and are failing for various reasons. But rather than cover these strategies atomically, I am defining here the large sweeping eras of basic modern[7] management thought.
First, let’s take a quick peek at where we are. We are now in the Learning and Agile Strategy phase. In this era, businesses must change their structure fluidly in response to ever changing customer needs and market pressures. Jack Welch says in Straight from the Gut, “Change before you have to”. The need to precede market demands with organizational adaptability, which can anticipate those demands and meet them at the beginning of a cycle, is the difference between enterprise success or business failure.
The market turbulence of the last 5 years has clearly shown the influence of globalization and volatility. This will remain constant for the foreseeable future. Even with a rebuilding economy, the underlying fluctuations in commodities, currency rates, energy and the emergence of a vast array of new and non-traditional competitors will constantly challenge traditional business and operating models making them obsolete. This is what has driven the change to the era of agile management.
Now let’s take a step back in time for a moment and see how this all developed. Management 1.0 began in the very late 1800s and early 1900s with Frederick Winslow Taylor, the father of scientific management. Taylor was one of the intellectual leaders of the “Efficiency Movement” and his ideas were highly influential in the Progressive Era. Taylor was the first man in recorded history, who deemed work deserving of systematic observation and study. The basis of this theory is that the ideal process could be devised upfront through much thought and analysis and then people had to be taught the process and managed tightly to enforce the process. Price control was an important focus.
In his book Management 3.0, Jurgen Appelo defines this period as the era of hierarchies:
Some people call it scientific management, whereas others call it command-and-control. But the basic idea is the same: An organization is designed and managed in a top-down fashion, and power is in the hands of the few. Those at the top of the hierarchy have the highest salaries, the biggest egos, and the most expensive chairs. Those at the bottom have little money, few responsibilities, and no motivation to do a good job.
To compensate for the danger of their high positions, the top executives are allowed to play with the bonuses that, in many cases, have far more effect on personal wealth than organizational performance. As a side effect, dangerous bonus schemes also contributed to a worldwide financial implosion. Oops.
We can safely conclude that Management 1.0, even though it is still the most widespread version of management in the world, has a number of serious flaws. It is old, outdated, and in need of an upgrade.
It is difficult to argue with the fact this technique is 50 years out of date. Some CEOs are still heavily entrenched in this concept, however, as is most middle management. I call this era, the process centric one because of all the work done by the pioneers Taylor[8], Gantt[9], Fayol[10], Shewhart[11] and Walker[12]. This was a necessary era, but one that lasted too long, due to a poor understanding of early adopters and the perennial stragglers who had to be dragged kicking and screaming along.
Management 2.0 began in the 1980s. I like to credit Blanchard[13] for ushering in this era, but it is highly argumentative and really somewhat arbitrary whomever you pick. The following body of work helped shift the focus from process to people:
- The book the One Minute Manager in 1982 by Ken Blanchard[14]
- The Theory of Constraints in 1984 by Eliyahu Goldratt[15]
- Total Quality Control/Total Quality Management in 1985 by Edwards Deming[16] and Kaoru Ishikawa
- Six Sigma in 1986 by Motorola
- Balanced Scorecard[17] in 1990 by Robert S. Kaplan
Appelo defines this era as people centric[18] (as I do) in the following excerpt from his book:
Some people realized that Management 1.0 doesn’t work well out-of-the-box, so they created numerous add-on models and services with a semi-scientific status, like the Balanced Scorecard, Six Sigma, Theory of Constraints, and Total Quality Management. Being Add-ons to Management 1.0, these models assume that the organizations are managed from the top, and they help those at the top to better “design” their organizations. Sometimes it works; sometimes it doesn’t.
In the meantime other models and services focus on the craft and the art of management. Many books, such as the One Minute Manager, the 21 Laws of Leadership, and the Good to Great, have presented basic principles and guidelines for managers, and tell them to practice and build experience. Again, they are sometimes right, and sometimes not. And they replace each other faster than the diapers on a toddler.
Management 2.0 is just Management 1.0 with a great number of add-ons to ease the problems of an old system. But the architecture of Management 2.0 is still the same outdated hierarchy.
We agree on the title, but I don’t see these techniques as really Add-ons to Management 1.0. During this era it was recognized that processes were becoming more complex and the environment was changing. The focus of management shifted to people[19] rather than process. Treating people as idiots and drones, as in the Management 1.0 philosophy, produced mindless results. Those with initiative quit and became the competition. Quality[20] became more important replacing process as a focus.
From my perspective, Management 3.0 is the knowledge[21] centric era. It began, strange enough, with the agile software revolution symbolized by the Agile Manifesto in 2001. While it was software related, this manifesto combined with the low requirement for capitalization to start a new business made possible by the internet revolution spurred on a new era of market environment and demand as predicted by Alvin Toffler as The Third Wave.
Appelo defines this era as follows:
The last few decades saw the birth and rise of complexity theory, first applied to mathematics and biology and later to economics and sociology. It was a major breakthrough. Stephen Hawkings thought it was so important that he called the 2st century the “century of complexity.”
One important insight is that all organizations are networks. People may draw their organizations as hierarchies, but that doesn’t change that they are actually networks. Second, social complexity shows us that management is primarily about people and their relationships, not about departments and profits.
Many of us already knew that “leadership” is just a trendy name for managers doing the right thing and doing things right. But complexity thinking adds a new dimension to our existing vocabulary. It makes us realize that we should see our organizations as living systems, not as machines.
It is nice to have a new name. Names can be powerful. The “3.0” version means that management needs changing. It usually takes Microsoft three major releases of a product to get things right. I believe that management has, in the third incarnation, finally found a solid scientific foundation. The earlier add-ons are still valuable. But we have to replace assumptions of hierarchies with networks because the 2st century is the Age of Complexity.
I agree with his assessment that this is a time of complex systems. In this era, we recognize that processes, products and services are always changing because technology is always changing. People are still the most important part of the equation. But the only time people can operate at their highest efficiency is when you empower them and have the right person, in the right place, at the right time, doing the right thing and they are acting like a virtual corporation. Since the environment changes so frequently, the only way to enable this is through ubiquitous knowledge and decentralized authority.
Today we realize that business agility is based on a responsive lattice organization structure that networks itself to an ever changing business environment and market demands. People are not managed in hierarchies; they are empowered to take responsibility in self-forming teams. Products and services are not defined and built by ridged process, they are evolved.
So the question we must ask ourselves from a Management 3.0 perspective is, “does this mean that since we are now in Toffler’s third wave and the environment we live in is complex and constantly changing and that our organization structures must change with this; that we cannot successfully plan?” The answer is no! You need to use strategic planning techniques as a starting point and then make them both ubiquitous and dynamically fed and matured from ALL elements in the organization[22]. That is the golden opportunity and the nirvana for which everyone has been searching in this Management 3.0 era.
Some CEOs and CIOs will simply dismiss this concept as a fad. That is a shame because in addition to hurting themselves[23]; they are hurting their employees, the company in general, the stockholders, the customers and business in general[24]. Unfortunately for them Management 3.0 is not a passing fad, but the evolution and maturing of thinking from process to people to knowledge without dropping any of the valuable lessons learned along the wayside. The progression through the Management 3.0 era will be marked by a closer and more intelligent symbiosis of person and information system with a markedly greater influx of business intelligence. That is a goal whose bar will continually move higher. To meet this challenge you must, of course, remember to keep agile!
[1] John Davison Rockefeller was born July 8, 1839 and died May 23, 1937. He was one of the great iconic American industrialists and philanthropists. In 1870, he founded the Standard Oil Company and aggressively ran it until he officially retired in 1897. Standard Oil began as an Ohio partnership formed by John D. Rockefeller amongst others. Standard Oil dominated the oil industry and was the first of the notorious U.S. business trusts. Rockefeller revolutionized the petroleum industry using business tactics, technology and pioneered the use of byproducts. As kerosene and gasoline grew in importance, Rockefeller’s wealth was astronomical, and he became the world’s richest man; the first American worth more than a billion dollars. Adjusting for inflation, he is justly considered the richest person in history. Rockefeller spent the last 40 years of his life in retirement. He also defined the structure of modern philanthropy. His fortune was mainly used to create the modern systematic approach of targeted philanthropy. He did this through the creation of foundations that had a major effect on medicine, education, and scientific research. His foundations pioneered the development of medical research, and were instrumental in the eradication of hookworm and yellow fever. He was the founder of both the University of Chicago and Rockefeller University.
[2] Anne M. Mulcahy was born October 21, 1952. She is former chairperson and CEO of Xerox Corporation. Mulcahy joined Xerox as a field sales representative in 1976. From 1992-1995, she was vice president for human resources. She served as vice president and staff officer for Customer Operations, covering South America and Central America, Europe, Asia, Africa, and China. She became chief staff officer in 1997. In 1998 she was named corporate senior vice president. Named CEO of Xerox on August 1, 2001, she became chairwoman on January 1, 2002. She was selected as “CEO of the Year” in 2008 by Chief Executive Magazine. Late in her tenure, she cut the workforce by 30% and eliminated the desktop portion of Xerox. Mulcahy claims she never intended to run Xerox. She announced her retirement as CEO on May 21, 2009.
[3] ONLY is really a key word here. It means being lean and not having middle management and senior management bloat. Far too many organizations could cut their middle management and senior management teams by as much as 90% and improve products and services as well as reducing costs drastically by empowering teams.
[4] I always let my work (such as it is) speak for itself.
[5] Strategic Management Theory – Hill
[6] Reactive from the standpoint that you were meant to sell a product after the fact of manufacturing and negative in that you sold it any way you could; generating demand often psychologically. Proactive in the sense that you are focused on finding out what the customer really needs or could use to their life advantage and positive in that you are delivering it with a solid value proposition.
[7] Strategic Management theory grew out of project management theory. Project management, in fact, has been practiced since early civilization. The building of the great pyramids, the Great Wall of China and Hadrian’s Wall in Great Britain all required the successful application of project management. Until the 1900s, civil engineering projects were generally managed by creative architects and engineers. It was in the 1950s, organizations started to systematically apply project management tools and techniques to complex engineering projects.
[8] Frederick Winslow Taylor was an American mechanical engineer known for industrial efficiency who became the father of scientific management. Taylor was one of the intellectual leaders of the “Efficiency Movement” and his ideas were highly influential in the Progressive Era. Taylor was the first man in recorded history who deemed work deserving of systematic observation and study.
[9] Henry Laurence Gantt was an American mechanical engineer and management consultant who developed the Gantt chart in the 1910s. Gantt charts were employed on major infrastructure projects including the Hoover Dam and the Interstate highway system.
[10] Henri Fayol was a French mining engineer and director of mines who developed a general theory of business administration independently of scientific management. He proposed that there were six primary functions of management:
- Forecasting
- Planning
- Organizing
- Commanding
- Coordinating
- Monitoring
[11] Walter Andrew Shewhart was an American physicist, engineer and statistician, known as the father of statistical quality control. He created the basis for the control chart and the concept of a state of statistical control by carefully designed experiments.
[12] Morgan R. Walker developed the Critical Path Method (CPM) as a project modeling technique in the late 1950s while at DuPont. It was used to contribute to the success of the Manhattan Project.
[13] The actual roots of performance management have seen a great deal of play in management literature and practice. Management historians, like the great Alfred Chandler, suggest the origins of performance management can be seen in the emergence of the complex organization. This predominately occurred in the 19th Century in the USA. Recently this has been influenced by the pioneering work of General Electric on performance measurement in the 1950s. Practical work in this period using performance management dashboards is based on the ideas of the ‘resource based view of the firm’ first proposed by Edith Penrose.
[14] Kenneth Hartley Blanchard was born May 6, 1939. He is an American author and management expert. His book The One Minute Manager, which he co-authored with Spencer Johnson, has sold over 13 million copies. He has coauthored over 30 other best-selling books.
[15] Eliyahu Moshe Goldratt was born March 31, 1947 and died June 11, 2011. He was an Israeli physicist who became a business management guru. He originated the Optimized Production Technique, the Theory of Constraints (TOC), the Thinking Processes, Drum-Buffer-Rope, Critical Chain Project Management (CCPM) and other TOC derived tools.
[16] William Edwards Deming was born October 14, 1900 and died December 20, 1993. He was a pioneering American statistician, professor, author, lecturer and consultant. He is perhaps best known for his work in Japan. American business men and manufacturers originally derided Deming’s work while the Japanese embraced it. From 1950 onward, he taught top management how to improve design, service, product quality, testing, and sales in a global markets through various methods, including the application of statistical methods. Deming was at the forefront of Japan’s later reputation for innovative high-quality products and its economic power. He is regarded as having had more impact upon Japanese manufacturing and business than any other individual. Despite being considered something of a hero in Japan, he was only just beginning to win widespread recognition in the U.S. at the time of his death. President Reagan awarded him the National Medal of Technology in 1987. He received the Distinguished Career in Science award from the National Academy of Sciences in 1988.
[17] Organizations have used systems consisting of a mix of financial and non-financial measures to track progress for quite some time. One example of such a system was created by Art Schneiderman in 1987 at Analog Devices, a mid-sized semi-conductor company; the Analog Devices Balanced Scorecard was similar to what is now recognized as a “First Generation” Balanced Scorecard design. Subsequently Schneiderman participated in an unrelated research study in 1990 led by Dr. Robert S. Kaplan in conjunction with US management consultancy Nolan-Norton, and during this study described his work on performance measurement. Subsequently, Kaplan and David Norton included anonymous details of this use of Balanced Scorecard in their 1992 article on Balanced Scorecard. Kaplan and Norton’s article wasn’t the only paper on the topic published in early 1992, but the 1992 Kaplan and Norton paper was a popular success, and was quickly followed by a second in 1993. In 1996, they published the book The Balanced Scorecard. These articles and the first book spread knowledge of the concept of Balanced Scorecard widely, and has led to Kaplan and Norton being seen as the creators of the Balanced Scorecard concept.
[18] The giant Adam Smith, in 1776, defined four types of fixed capital. The fourth type was Human Capital. He defined Human Capital Management as “managing the acquired and useful abilities of all the inhabitants or members of the society”. So far we have concentrated on maximizing the capabilities and efficiencies and exploiting the first three while ignoring the possibilities of the fourth. The use of the term “Human Capital Management” in modern literature dates back to Jacob Mincer’s article “Investment in Human Capital and Personal Income Distribution” in 1958. A great book on the application of the idea is “Human Capital”, by Gary Becker.
[19] At the beginning of the last decade, Human Capital Management finally gained recognition with Watson Wyatt’s Human Capital Index study in 1999 which stated that, “Superior Human Capital Management is a leading – rather than a lagging – indicator of improved financial success.” A 2002 study showed that when businesses concentrated on processes and treat people as a secondary concern, their investment in process improvement has disappointing returns. We were learning that keeping the human element informed and having its input into the operational processes is vital to business process management success. Numerous subsequent studies have confirmed that human capital management investiture is a prerequisite for the successful implementation of business process management improvements.
[20] Kaoru Ishikawa was a university professor and influential quality management innovator best known for his cause and effect diagram (AKA fishbone diagram) created in the late 1950’s. These were used in the analysis of industrial processes based on the work of W. Edwards Deming. This later became the basis for concept – Total Quality Management.
[21] I could have easily called it the agile centric era, but I was asked to not use agile in this way by some individuals who were confusing the term with agile software development. Quel dommage!
[22] See my article the Imperative of having an Agile Organization Structure.
[24] I have always maintained that business in general is improved by healthy competition. When companies are deliberately backward or not innovative they dumb down the market. Too few companies are driven by the constant premise that being number one in sales or just better than your competition is not enough, that each enterprise should strive to be the best they possibly can be.
Keeping Agile™ with Brian Lucas 
I believe as it appears you do as well that understanding history is rather important, if we are to understand ourselves and not repeat previous mistakes. I also believe that it is more important to understand where we are going and how we want to get there than it is to document where we are. That a somewhat round about way of asking you to write more on the subject of Management 3.0 as you call it and what defines a business that embraces that concept in more detail. You have painted the eras of modern management with a sweeping brush and remarkably accurately for the amount of succinctness you have practiced. You pose a bit of a cliffhanger to us all in that you don’t paint a more detailed picture of an agile organization or how an enterprise can get to that state. Such a article from a blogger of your stature would prove most illuminating.
I would be interested in that as well!
Good post on modern management theory! My fellow managers take heed we are in the 3.0 era! Thanks for sharing Brian! Keep up the great work!
Brian,
It is such a relief to read an informed, well researched, properly documented, superbly thought out and wonderfully written article on modern management theory. I have read and heard so much utter nonsense on the subject of current management theory that it is simply appalling! There are many exaggerated claims from vendors of software. Proponents on ludicrously trivial theories where a minor change is touted as a significant and profound thought. Sadly the worst is executives striving for greater levels of command and control thinking they are being revolutionary, when in reality it is based in the old scientific era of the 1920s. These managers just don’t comprehend the basic principle of living in an agile world and being an agile organization. I often think that the very term “management” is wrong and should be replace. Agile efforts are by their nature self-managing, if they are operating as they should. What is necessary is enablement and administrative support. -Nathan
Still waiting for it to arrive at my jerkwater company! It’s nice to know though it is arriving somewhere. I would love to see a list of agile management companies. Guess why!
Finally someone has taken all the bull out of this management era claims and clearly explained and defined the eras in a way that makes sense. There is so many nonsensical claims and descriptions that I have heard at conferences and seminars by windbags trying to promote themselves or their products that I was ready to give up finding some clarity here. The way Brian describes Management 3.0 makes sense and is understandable. I wish I had found this earlier!
Mr. Lucas as a business professor with 31 years of teaching experience, I must complement you on your analysis of management eras. It is brilliant in its simplicity. Your effort to condense the myriad of management theories and the unfortunate plethora of hype into three broad categories has brought considerable clarity to management education. You state in this article at the end, “You need to use strategic planning techniques as a starting point and then make them both ubiquitous and dynamically fed and matured from ALL elements in the organization.” I find this to be an amazingly deep thought with highly significant implications which you do not explore in this article. I did follow your footnote’s link to you article The Imperative of having an Agile Organization Structure and was intrigued by your approach to agile organizations via a hybrid structure. You do not explain how the flow of strategic planning information is created. Nor do you describe how it is fed and matured from ALL elements in the organization, to use your own words. Also if you would care to expound on how specifically this era will be, “marked by a closer and more intelligent symbiosis of person and information system with a markedly greater influx of business intelligence,” I would be most appreciative. With your permission, I intend to use your article in a class lecture and would like to develop this theme more fully with greater specifics.
This is an excellent presentation on the eras of management. Having lived through much of this, I find Mr. Lucas’s perspective, both valid and clear. Though it is somewhat simplified, I believe he captures the true thrust of each era. More importantly, the era of agile management as he describes it, is absolutely the direction management needs to take in this century.
I finally checked out your blog. Sorry it took so long. We met at the AI seminar in NY last fall. I’ve thought a great deal about your view of AI and agile changing the face of management. I am a little surprised you haven’t included any of those thoughts here in your blog. It seems as if you re not posting anymore and that’s shame. The combination of quality opinion, useful information and colorful writing is rare.
I retired last year from an executive management position and have thought about running some free management workshops at our local community college. It is past time outdated practices of the past are abandoned. I suspect most of the successful businesses have moved to some form of this management. You seem to see it most in the startups that grow rapidly into dominant market forces. I completely agree with this post and would like to know if I could use some of this content. Please let me know if you approve.