Ten Reasons Why Big Firms Stick With Obsolete Management
One of the great puzzles of the corporate world is why big corporations are still being run on obsolete 20th Century management principles when there is an obvious better alternative—21st Century management—that is producing unprecedented financial returns and market capitalizations.
“Most [firms] today are run on the basis of ‘legacy’ management systems that have become obsolete,” writes Menlo College professor Annika Steiber in The Silicon Valley Model. But why?
Even though 20th Century management is a coherent and consistent way of running a company, it is an increasingly poor fit with today’s fast-moving customer-driven marketplace. It has difficulty changing direction. It lacks agility. Here are ten reasons why 20th Century management still dominates.
1. 20th Century Management Operates As An Unstoppable Flywheel
Since 1970, 20th Century management has been preoccupied with a single-minded goal—to maximize shareholder value. The goal leads to a very specific way of running the company. Because the goal is uninspiring to those doing the work, workers need to be closely monitored. So, the goal leads inexorably to a structure of work that is bureaucratic—individuals reporting to bosses—and the organizational dynamic of a top-down hierarchy of authority, as shown in Figure 1.
These three 20th Century principles—goal, structure of work, and firm dynamic—in turn lead inexorably to the familiar set of 20th Century corporate processes. Thus leadership has to come from the top because it is only the top that is deeply committed to those principles; as a result, leadership is inevitably transactional rather than transformational: it has to resort to carrots and sticks, rather than inspiration. Strategy inevitably turns into