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 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 whole doctrine of management based around that principle.
That premise has led to 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 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 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 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 cost. Optimisation of cost is what drove how companies saw people. In some companies that’s still the case. Gradually it is shifting to view of people as strategic resources. The company has vision or strategy, and people are 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 supporting role.
What about us as employees – how does it change the way we view our work?
This is accompanied by 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.
For that they expect return — both in terms of sharing the value created through their human capital, but also to continuously grow that capital just like owners of financial capital have done in the past – call it employability.
How will the day-to-day task of management change as result?
Historically, people were largely seen as seam of intellectual capital – employed for what they know. Increasingly we are beginning to see the importance of two other elements of human capital. One is social capital – the ability of individuals to build and maintain long-term relationships with other people. We’ve always known relationships are important in business but have not counted this in explicitly. From research, we now see it is one of the best indicators of superior performance.
And the other element of human capital?
The other area is action-taking ability. Companies still complain the vast majority of managers roughly know what they need to do but most don’t do it. We are talking about the capacity to act, to build personal energy to act, and to develop and maintain focus in the midst of distracting events of managerial life.
So to sum up, historically we have seen intellectual capital as the key resource, but we will increasingly recognise the importance of both social and emotional capital: the development and management of relationships, and action-taking ability – as the new important elements of competence that managers will need.
What challenges does that present for companies?
The moment you recognise that the value-creating resource are people, it affects everything from how to attract whatever is the best talent in our context; how to then convert individual intellects into collective intellects; how to link talent so that skills and knowledge of different people can be combined to create new knowledge; then, how to bond them into the company?
How do we create an alignment between those people and their individual aspirations as volunteer investors and the overall goals and purpose of the company? Accumulating talent; orienting talent; bonding talent – that goes right across in terms of recruitment, training and development, career path management, mentoring right across the spectrum of people management processes.
Does this in turn change the relationship between business and society?
Very much. Two things are coming together. People are recognising that to achieve superior performance, the social fabric of the organisation is absolutely vital. Even to the economic goals. The quality of the social fabric is at the heart of maximising the company’s wealth creation. That involves the individuals, their roles and the relationships that connect them. So that’s one side.
The other side is growing awareness that companies are the most important institutions of modern society. Much of the wealth of societies is created and distributed by companies – both economically and socially. With that recognition the amoral notion of management – businesses only as businesses – will gradually give way to the notion of the need to align the purpose of companies with the broader aspirations of those with which it is partnering. So both from outside and from within, the nature of the social fabric will become increasingly vital and is already becoming so.
What about at the more philosophical level? It seems that the real debate about globalisation is only just beginning?
At the philosophical level it has to be understood that business has to have role beyond what is just the most useful for me – whether it is short-term profits or even long-term shareholder value. They have to understand that historically, whenever the most important institution of the time has not understood its role then that institution has declined.
That happened with the monarchy, with organised religion and I believe it will happen to global corporations unless
