So what will the future of management look like?  Read on to discover what sort of management innovations Hamel is proposing, why their implementation might have prevented the financial crisis and could be a critical element in resolving challenges such as health care and even climate change.

Interview by Chris Stanley

You describe management as one of humanity’s great achievements.  Put this into context for us.  What are some of humanity’s other great achievements and why does management bear comparison with them?

I’d say anything that allows us to connect human beings in new ways – for example moveable type, publishing, and modern communications such as telephone, telegraph, automobiles etc.  Or something like electric power that allows us to distribute the means of production – all of these things have been very critical. 

Generally economic progress is a product of four types of innovation:  There’s social innovation, institutional innovation, technology innovation and finally management innovation.  It was management innovation that delivered actual economic progress.  Until we learned how to bring people together, to do things at scale in highly productive ways, all that other innovation was great but it didn’t fundamentally result in anything that actually changed our standard of living.

We’ve had a hundred years of increased capital and labor productivity.  Initially that was the problem that management was invented to solve – how do you get people to do the same things over and over again with minimum variance and ever increasing efficiency. 

Now whilst efficiency is still critical, it’s very difficult to build a long lasting advantage on the basis of operational efficiency alone.  You’re always going to have some new competitor that has no legacy costs or a rival who can locate their activities in a country with lower labor costs or energy costs.  Those advantages tend to be relatively fleeting.  The evidence would suggest that management innovation – fundamental breakthroughs in how we motivate, organize, plan, allocate, evaluate those things - tend to produce longer lasting advantages.

Would you be able to highlight any companies that are applying new management principles that are allowing them to get ahead of the game?

I think it’s very dangerous to pick out any particular company, because since these challenges are new.  I don’t think there’s any company that I’d say:  “Yeah, these guys have sorted this out”.  There are, however, organizations that are more aware of the challenges than others, and are maybe thinking a little bit more explicitly about them. 

I think Google is one of these companies.  If you are a betting person you’d still bet that Google will surrender to hubris and arrogance like other great companies before it.  But at least they are thinking about the problem of how you build an evolutionary advantage - a company that never falls in love with the status quo, and where the old guard never wins internally at the expense of the vanguard.

I think there are a lot of companies that are experimenting at the fringes with new management models.  A lovely little company is the Bank of New Zealand.  They have 189 branches and are conducting an interesting experiment with employee freedom.  They have given every branch manager the right to set their own opening hours.  It doesn’t sound like a big deal, except I don’t think any bank has ever done that.  They wanted to make sure that every one of those branch owners felt like a business owner, and to do that you have to give them that kind of freedom. 

How would you characterize these new management principles?

There are several core principles around which we are going to have to build our new management models.  One of the principles is freedom.  You cant have a highly adaptable institution that is overly controlled from the top.  When you look at systems that have proved their adaptability over decades and centuries – biological systems, democracies, markets, cities etc – the thing that strikes you about all of them is that by the standards of the typical multinational, they are all dramatically undermanaged.  The question is how do you give people more freedom without chaos ensuing? 

A second critical principle is variety.  As the world becomes more uncertain, it’s harder to see farther ahead.  You can’t make ten or twenty year strategies.  What becomes more important is trying lots of new things - experimenting in low cost ways continuously - and seeing what works and what doesn’t. 

The third principle is that we are going to have to apply the logic of markets inside our organizations more and more.  Markets are not infallible, but unless they are distorted by bad public policy for example, markets are much more effective at allocating resources at new ideas than hierarchies.  In a market if I decide I want to sell my shares in company X and invest in company Y, you don’t have to ask anyone else, you just do it.  So over longer periods of time, markets on aggregate tend to out perform any company individually.  One of the things we know from social systems is that the more concentrated political power the less resilient it’s going to be.  In markets, power is widely distributed, a lot of people are making choices everyday, what to buy, where to invest.  In hierarchies we tend to give a relatively small minority of people a monopoly on setting strategy and direction and that can be fatal in a highly discontinuous world.

You say management needs to learn lessons from other disciplines.  You’ve already mentioned markets as one example.  Which other disciplines would you highlight and why?

To succeed in the future, organizations are going to have to find ways of energizing people, so that they bring not only their skills, expertise and diligence to work, but they bring their passion and their initiative as well.  So you think:  What are people passionate about?  What drives this deeper commitment?  And the answer is some kind of a cause - some kind of a purpose that’s bigger than you and which is bigger than just making money. 

One of the places we have to look to, therefore, is faith.  You go back through all of human history and faith has been a hallmark of human beings.  Even now in a highly materialistic, scientific world, if you ask people around the world, the percentage of them who still believe in some kind of a higher power has changed very little.  They may be less overtly religious, but they haven’t given up this spiritual longing.  The reality is that people still need a sense of meaning.  We often say we want more change in organizations.  Well people change for things they care about.  If you want change to be more proactive and reactive, an organization has to be in the thrall of a truly worthy purpose. 

You talk about reducing bureaucracy, hierarchy and traditional control systems.  Didn’t the financial crisis indicate a fundamental lack of controls?  Wasn’t it “innovative” bankers that got us into this situation?  How would you respond to that criticism?

My argument is not that we didn’t need more control.  We certainly needed more regulatory control.  There was all this talk about this crisis being completely new in form, it was global, it was based on all these interdependencies between these institutions, that we couldn’t have seen it coming.  It’s complete nonsense.  We had all the regulatory powers and frameworks that were required to manage this but they weren’t used.  The FCC has the power to monitor and audit the investment banks.  They didn’t do it.  The House Finance Committee in the US Congress had the power to reign in Fanny Mae and Freddie Mac who were behind the subprime crisis.  They didn’t do it for political reasons.  Behind the financial crisis there is a deeper political crisis.  The reality is that all of these politicians and regulators were in the pockets of the banks. 

So could governments and politicians learn from some of the management innovations that you have been talking about?

All these principles apply.  If you look at some of the big challenges that we are up against as governments – issues around climate, health care, security etc, a lot of these problems can’t be solved top down.  That doesn’t mean that you can’t put certain frameworks in place, but let’s take the internet as an example.  It’s clearly the most creative undertaking that human beings have ever been involved with.  So what do we learn from that?  What are the most far reaching impacts?  You had to have a few standards and principles to begin with about interoperability and platform independence etc.  A group of people had to get together and spell out what does html and xml mean and so on.  But beyond that you basically create a platform where you can have lots of local innovation. 

I find it interesting that every policy maker I’ve ever met, they all argue that entrepreneurship, places like Silicon Valley are really, really important for economic vitality.  So why don’t we have a Silicon Valley of public policy?  It’s coming.  You see a lot more social entrepreneurship coming.  But every major government bureaucracy around the world, they should set aside 10 – 20% of their budget every year basically to fund social entrepreneurship startups.

One thing is for sure.  You don’t solve systemic problems top down.  You solve them by getting a lot of local experimentation, seeing what works, and then you can start to scale that up.  The world is so complex and these problems are so complex, that no small group people at the top can design an optimal solution.  What tends to happen is that because they are highly centralized and hold a lot of power, whatever solution they come up with almost you can guarantee that it’ll have almost as many unintended side affects as it has positive benefits.   If you’re at the center, you can’t see all the local variation and complexity.  So you come up with some crude blanket policy that you discover has all kinds of unanticipated costs to it. 

I think the same principles regarding variety, using market mechanisms rather than hierarchy, having a clear sense of purpose but being very unorthodox around the means to get there – these principles may be even more important for governments than they are for firms.   Because in governments you have legal monopolies without the pressure of competition, without the possibility of bankruptcy.  They have even fewer control mechanisms on them if they come up with a policy that is simply stupid.