Purpose, Process & People: The New Management Philosophy: He's Been Dubbed a "Euro Guru" by the Economist, Holds the Robert P Bauman Chair in Strategic Leadership at the London Business School and Says Traditional Management Philosophy Is Bankrupt. Sumantra Ghoshnal Talks to Des Dearlove
Dearlove, Des, New Zealand Management
Your work anticipates far-reaching changes in the way that companies organise themselves and their resources. Does this change the way we understand management itself?.
The dominant philosophy that has driven businesses for the past 50 years is based on the notion that a company is purely an economic entity. At its heart is the notion that ultimately the job of management is to leverage the scarce resource and that is financial capital. We have created a whole doctrine of management based around that principle.
That premise has led to a corporate philosophy based around strategy, structure and systems. The job of leadership is to get the strategy right; and to design the right structure--and to tie the strategy with the structure through highly defined systems to deliver performance. That philosophy came basically from Alfred Sloan and his experiments at General Motors. But that philosophy is no longer appropriate today.
What has changed?
Financial capital is no longer the scarce resource. In recent years we have seen billions of dollars chasing what is really the scarce resource today (and more so in future) which is ideas, knowledge, entrepreneurship, and human capital.
This shift from financial capital to human capital as the scarce resource has enormous implications. The core management philosophy--the strategy, systems, structure doctrine--becomes bankrupt because it is designed to maximise the returns on financial capital and manage financial capital. You can't manage talent and people with that philosophy.
So what will replace it?
A very different management philosophy is arising and will become dominant--what we call the purpose, process, people philosophy. We are moving beyond strategy to purpose; beyond structure to process; and beyond systems to people. This has occurred to allow companies to attract, retain and then leverage this talent. So management philosophy will change.
Does this fundamentally change the nature of capitalism?
This will shift the basic doctrine of shareholder capitalism, and moderate it so that if people are adding the most value, then people will increasingly be seen as investors not as employees. Shareholders invest money and expect a return on their money and expect capital growth. People will be seen in the same way. So they will invest their human capital in the company, will expect a return on it, and expect growth of that capital.
What does that mean for shareholders?
The notion that all the value is distributed to shareholders will have to change to accommodate this shift in source of value creation. It will be a very different model of distribution that will become dominant.
That sounds good in theory. But have companies really changed the way they see their people?
Traditionally people have been seen as a cost. Optimisation of cost is what drove how companies saw people. In some companies that's still the case. Gradually it is shifting to a view of people as strategic resources. The company has a vision or strategy, and people are a key strategic resource. So how to align the strategic resource to achieve our vision, to achieve our strategy?
At the same time, an even more radical view of the relationship between companies and people has begun to emerge--that of people as volunteer investors. With this view, it will be the individual employee who will be at the heart of the relationship--they will have to take responsibility for the development and deployment of their human capital, and for the company's performance. The company will play a supporting role.
What about us as employees--how does it change the way we view our work?
This is accompanied by a shift with the individual employee. Each individual employee takes responsibility for his or her own life--and that's where the people as volunteer investors fit in. They choose to invest their human capital--their knowledge, their relationships, and their ability to take action. …