Putting The Man Before The System Drives The World’s Most Valuable Firms

by Steve Denning

​Steve Jobs holds a new mini iPod om 2004 GETTY IMAGES

One of the most famous statements in management is Frederick Taylor’s dictum in his 1911 book, The Principles of Scientific Management, "In the past, the man has been first; in the future, the system must be first." The Academy of Management voted it “the most influential management book of the twentieth century.”

Yet today, Taylor’s dictum has been upended by financial reality. The most valuable and fastest growing firms now increasingly put ‘the man’ ahead of ‘the system.’ How this remarkable turnaround happened reveals much about the future of management.

Scientific Management Dominated For A Century

Taylor’s scientific management drove management practice in the 20th century. It involved managers identifying the most efficient processes, training the workers to implement them, and monitoring and controlling the implementation to ensure gains in efficiency and make more money.

The gains were enormous. As Peter Drucker noted, “Ever since Taylor's principles took hold at the tum of the century, productivity has increased some 50-fold in all advanced countries. On this unprecedented expansion rest all the increases in both standard of living and quality of life in developed countries.”

Key milestones of success included:

• Henry Ford’s assembly line for mass production of cars. By 1918, half of all cars in the U.S. were Ford Model Ts.
• Around 1960, the Ford and Carnegie Foundations began conditioning their funding of business schools on stricter adoption of scientific management.
• In the 1970s, Nobel-Prize winning economist Milton Friedman inspired adoption of the system of “maximizing shareholder value” (MSV) as the sole goal of a firm.
• In 1997, the Business Round Table endorsed MSV as the purpose of a corporation.
• Scientific management drove business process re-engineering and Lean Six Sigma in the 1990s.
• It is implicit in evidence-based management.
• It Is assumed in ISO standards of both management and innovation and the World Management Survey.

Even today, it is treated as self-evident by leading management gurus. “Management is simply the tools, the methods, process and structures that we use as human beings to do together what we couldn't do alone.“

Critics Of Scientific Management Emerged In Droves

Meanwhile, critics repeatedly argued that human factors (‘the man”) were being undervalued, including Mary Parker Follett (1920s), Elton Mayo (1940s) Douglas McGregor (1960s), and Smith and Katzenbach (1990s) and currently, Amy Edmondson and Rita McGrath among many others.

Yet the proponents of scientific processes typically operated like the human body’s autoimmune system in dismissing such pleas as “fuzzy”, “unscientific”, and lacking the “objective. tough-minded discipline of quantitative rigor”.

Then Suddenly, Everything Was Reversed

As the new century began, firms run as a system of processes began making less money than a new breed of firms driven by the very subjective concepts—mental models, values, attitudes, narratives, passions, empathy, and purpose—that scientific management dismissed in principle.

Initially, there seemed little for scientific managers to worry about. The 2000 dot-com crash showed that these firms were merely “technological advances in computing and telecommunications “ Firms like Apple and Amazon were “not making contribution to the real economy.” They were mere figments of “their own mighty propaganda machines.”

Yet, by 2011, the financial world noticed that something more fundamental was up. Marc Andreessen’s 2011 WSJ article “Why Software Is Eating the World” signaled that some “high-flying startups” were becoming remarkably profitable.

By 2024, when firms like Microsoft and Apple insisted on the centrality of human factors like empathy and culture, particularly for customers and knowledge workers, they were worth several trillion dollars.

At first, traditionalists said it was “just technology,” overlooking the fact that the successful firms were in multiple sectors like automobiles, retail, pharmaceuticals, and even fashion.

In any event, all firms have access to the same technology. Calling the firms “tech firms” would have been like calling the successful firms of 1900 “electricity companies.” The key difference isn’t electricity or technology. Gains in each era depend on how electricity or technology was used.

Game Change: The End Of Scientific Management

What had gone wrong with management as a system of processes?

One set of reasons was economic. Peter Drucker explained in 1997:  “The Productivity Revolution… has come to an end. When Taylor started propounding his principles, nine out of every 10 working people did manual work… By 1990 this group had shrunk to one-fifth of the work force. By 2010 it will constitute no more than one-tenth. Increasing the productivity of manual workers … can no longer create wealth by itself. The Productivity Revolution has become a victim of its own success. From now on what matters is the productivity of non manual workers. And that requires applying knowledge to knowledge.”

Happily, the Internet came to the rescue. The Internet gave first, to firms, new possibilities for innovation, and then to customers, more choices, and finally to firms again, the potential of new business models that built on network effects.

As a result, in the last quarter century, when leading firms began implementing the converse of Taylor’s dictum, and let human concerns drive their processes, practices, and methods, they were able to grow much faster and generate exponentially more value.

Scientific Management Was Also A Moral Failure

Yet the collapse of Taylor’s scientific principle wasn’t just an economic failure. Subjecting mankind to an abstract system for some unspecified purpose was potentially a coercive, even fascist, idea. Its defenders argued that it could be implemented differently so as to pay attention to human concerns. Indeed Taylor hoped that most of the gains would go to the workers. But as the 20th century wore on, concerns for workers and even customers declined as managers became steadily more interested in gains for shareholders, financial intermediaries, and themselves.

In politics, we understand these issues very well. We insist on democracy, not some abstract system imposed on us. We do our best to prevent any minority getting control of democracy and imposing their will on us. We don’t always succeed but that is the clear goal.

In management, humanity accepted the idea of subjecting itself to a system because the financial gains seemed so high. In effect, we bought into the tyranny of a management system in return for a pot of hot broth. When the hot broth stopped coming, it was natural to re-examine the deal.

A Discipline Doesn’t Change Overnight

The change in management now under way is mainly practitioner-led and finance-driven. In effect, once a new level of performance is possible, it starts becoming necessary. Unless a firm can deliver this kind of performance, it risks being put out of business by those firms that can deliver it.

We are now looking at a fundamental change in the discipline of management. As explained the American physicist and philosopher Thomas Kuhn,, these kinds of changes don’t happen quickly. They proceed in three phases. First, work proceeds under agreed approaches. In a second phase, a new paradigm begins to emerge. In a third phase, support starts to gather around a new set of assumptions.

Acceptance of the new paradigm in the third phase is difficult. Kuhn explains. “This stage entails both resistance to the new paradigm, and reasons for why individual scientists adopt it. According to Max Planck, ‘ new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.’"

In management, we are now in this third stage. The most valuable and fastest growing firms have created a new management paradigm. The question is when, or even whether, average firms will be able to catch up.

And read also:

• The Management Paradigm Driving The World’s Most Valuable Firms 
• Understanding The Dark Side Of The World’s Most Valuable Firms

Original article from Forbes, written by Steve Denning and authorized to be published in the World Management Agility Forum by Steve Denning.

Original Article: https://www.forbes.com/sites/stevedenning/2024/02/04/putting-man-before-the-system-drives-the-worlds-most-valuable-firms/