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The New Management

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A guide to the parallel revolutions in technology, organizations, and leadership
This practical yet thought-provoking book presents a wealth of evidence to show that the two recurrent themes of democracy and enterprise are transforming our institutions. Organizations are becoming changing clusters of entrepreneurial units working together to form "internal markets," while this diversity is being integrated into a "corporate community" that unites the interests of investors, workers, clients, business partners, and the public. Even fierce competitors are cooperating.
o "Serving enterprises" make customers working partners in the creation of value
o "Knowledge entrepreneurs" form teams of self-managed internal enterprises
o "Internal markets" and "Corporate community" harness external forces to drive continuous change
o The power of "inner leadership" unites liberated workers, critical clients, and temporary business partners
o "Intelligent growth" offers strategic advantage that is ecologically benign
Illustrative examples, survey data, trends, anecdotes, and exercises offer original insights into the use of New Management principles. In addition, mini-case studies of MCI, Saturn, The Body Shop, Hewlett-Packard, Johnson & Johnson, Southwest Airlines, Home Depot, IKEA, Wal-Mart and other great companies illustrate vividly how creative managers design and lead organizations in an era of global competition, constant change, and empowered people. The author also analyzes critical issues, such as the nagging old conflict between profit and society, to provide managers a comprehensive, stimulating guide to where their craft is heading.
Halal argues that the transition to a New Management is almost inevitable because it is being driven not by altruism or even good leadership, but by the relentless advance of the Information Revolution. Only small entrepreneurial teams operating from the bottom-up can master today's exploding complexity, and gaining stakeholder support is now essential because a knowledge-based economy has made cooperation a competitive advantage. Rather than fussing over quick fixes, The New Management points the way toward more fundamental solutions to the massive changes that will confront all institutions as the transition to a knowledge society rolls on into the 21st century.

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12 Chapters

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Contents

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Chapter 1 Management in Transition: Bridging That Divide Between the Old and the New

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Bridging That Divide Between
the Old and the New

Civilization today is poised at the brink of a great divide between an old way of life that is dying and a new way of life that is still being born. Behind lies an Industrial Age that lavished wealth on a world that was poor—but which also left a polluted planet, quarrelsome societies, and empty lives. Ahead lies the much heralded promise of the Information Age—but its growing contours continue to surprise and shock us. Who would have thought that a global economy would appear almost overnight? That the Soviet Union would just disintegrate? That the United States would slip into decline?1

There are many ways to examine such complex issues, but basically these are problems of managing social institutions. As a knowledge economy spreads around the world, the largest professional group today is the rising managerial class that guides a growing infrastructure of complex organizations.2 Most of the worries that dominate the news emanate from the interaction of corporations, governments, schools and universities, hospitals, news media, armies, and other institutions that support modern life. Peter Drucker described it this way: “Because a knowledge society is one of organizations, its central organ is management. Management alone makes effective all of today’s knowledge.”3

 

Chapter 2 From Hierarchy to Enterprise: Internal Markets Are the New Form of Organization Structure

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Internal Markets Are the New Form
of Organization Structure

It has become a cliché to note that business schools are notorious for their poor management. Mine was no exception. An especially irksome problem was getting the copy center to work properly. Professors thrive on paper, yet we couldn’t seem to get copies made in less than a week. We knew that our local Kinko’s could get them done in a day, but we would have to pay. Since the copy center was free, we kept using it despite bad service. In fact, that’s one reason why the service was bad: we overused this free good, clogging the system. Repeated attempts to get the copy center to improve its operations and the faculty to curb their excessive usage had little effect.

The problem was that we were relying on a hierarchical assignment of tasks that were too complex for this approach. We needed good service. We needed faculty accountability. We needed a copy center manager who was motivated to help us. We needed a choice of providers. In short, we needed a market.

 

Chapter 3 From Profit to Democracy: Corporate Community Is the New Form of Organization Governance

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Corporate Community Is the New Form
of Organization Governance

A division manager of a large corporation I know (Steve) was struggling with a chronic dilemma. He was under pressure from senior management to increase his unit’s profits, but all attempts failed. Raising prices and cutting corners to lower costs merely irritated his clients as they began to feel gouged. Making greater demands of employees backfired because they felt overworked. And negotiating tough terms with suppliers and creditors also provoked resistance. After discussing the problem at length with Steve, I suggested that he might be focusing too exclusively on profitability—any goal can become elusive if one tries too hard.

The idea seemed to catch his interest, setting off a serious reexamination of his goals and working relations. A few months later Steve’s division was absolutely humming with energy. He had redefined his unit as a “cooperative enterprise” jointly managed by himself, his employees, suppliers, and even his clients. This was the result of much serious soul-searching and frank discussion, leading to the realization that the best way to gain the support of people was to engage their interests.

 

Chapter 4 The New Management Synthesis: Uniting Internal Markets and Corporate Community

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Uniting Internal Markets and
Corporate Community

The two previous chapters showed that the foundation of the New Management is being built by extending enterprise and democracy into organizations. Just a few years ago, the typical large corporation was an authoritarian, top-down structure that behaved not too differently from the centrally planned economies of Communist nations. But today’s large organizations are disaggregating into loosely connected clusters of autonomous business units that form “internal markets.” And to gain the support of their stakeholders, managers are forming “corporate communities” that unify financial and social interests.

While these two major trends are unmistakable, they also elicit very strong, different reactions from people.

I find that “liberals” tend to consider the idea of internal markets unimaginably disruptive. I spoke to a group of sociologists who made it clear that they thought this was the “last straw” intrusion of capitalism into personal spheres of life. Folks with this orientation seem to dislike the messy, competitive nature of enterprise. The idea of corporate community is usually fine with them, however, because it favors human values.

 

Chapter 5 The Serving Enterprise: Relinquishing Our Grip on Self-Interest

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Relinquishing Our Grip on Self-Interest

Great battles are being joined in the marketplace today to decide which organizations will survive an onslaught of creative destruction. As rivals from around the world vie to meet growing demands for superior value and service, old allegiances to famous corporations of the past are being overthrown daily. Sears was replaced by Wal-Mart as America’s dominant retailer, the AT&T monopoly was shattered by MCI, RCA has been eclipsed by Sony, GM Chevrolets must now compete with Hondas and Toyotas, and even IBM is fighting for its life against Microsoft and Intel.

Despite business attempts to win the hearts and minds of fickle buyers, however, excellence remains an exception in America. Surveys find that roughly half the public thinks the value they receive is poor to fair, and a third thinks it is bad and getting worse. Swapping horror stories about terrible service and shoddy products remains a popular topic of conversation.1

A telling incident highlights the problem. On recent a trip to Russia, I had to fly on the Russian airline, Aeroflot. Although concerned about putting myself in the hands of a foreign flight crew flying outdated aircraft in a land where nothing works, I was pleasantly surprised to find that Russian flights were better because they departed and arrived punctually. Upon returning home, however, my American flights were so late that terminals were filled with irate passengers, hopelessly watching their connecting flights, meetings, waiting friends, and other carefully made plans disintegrate. The Department of Transportation reports that 25 percent of United States flights are late. Air travel in the United States has become a recurring nightmare, as passengers struggle through a bewildering maze of prices, connecting hubs, frequent delays, and lost baggage.2

 

Chapter 6 Knowledge Entrepreneurs: A Working Contract of Rights and Responsibilities

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A Working Contract of Rights
and Responsibilities

Not long ago, work life was a pretty straightforward affair. You found a job, did what you were told, and were paid a salary.

But recently this system began coming apart. Layoffs have shattered the bonds of employee-employer loyalty. Wages have been falling for two decades. Union membership has dropped to a fraction of its former levels. And one-third of the labor force has become lost in a “contingent” status of part-time or temporary work.

At the same time, other changes have begun introducing more enlightened work practices. Employees are encouraged to participate in major decisions. Many now own their companies. They enjoy broader rights to control their work. The labor force is becoming diverse. And most jobs are far more interesting than they once were.

These crosscurrents in the employment relationship flow out of a turbulent passage in our concept of work. The paternalistic system in which “bosses” supervised “employees” in running the machinery of an Industrial Age is yielding to a complex world of knowledge work where more is asked of us. Organizations today need the intellect, involvement, and creative ideas of everyone who works in them. The confusing changes noted above are searching steps toward redefining work life.

 

Chapter 7 Intelligent Growth: Balancing Ecological Health and Economic Progress

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Balancing Ecological Health
and Economic Progress

It is tempting to think that Mother Nature will be safe now that an environmental ethic has swept around the world. Even business firms are competing to prove how “green” they are. But recent events suggest that the problems remain formidable. The “Big Green” initiative in California was defeated soundly in 1994, and an antienvironment backlash is under way in other parts of the United States.1

These reactions represent more than resistance by growth advocates. In a wholistic world, they are another part of the whole, telling us that environmentalism is not easily reconciled with protecting jobs, improving living standards, avoiding government intrusion, and other issues that concern most people.

The “McDonald’s Clamshell Decision” offers a good example of the complexity involved. Environmentalists demanded that the company use paper packages rather than the plastic “clamshells,” which, it was claimed, cause pollution and do not decompose well. But the company had spent millions of dollars developing a biodegradable plastic package. Furthermore, studies published in Science concluded that plastic is less environmentally harmful than paper when all factors are considered, such as the loss of trees and the energy needed to make paper packages. Yet the public pressure became so intense when droves of children were organized to write letters of protest, that McDonald’s relented and switched to paper, against the better judgment of its managers.2

 

Chapter 8 Continuous Change: Rooting the Organization into Its Environment

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Rooting the Organization into Its Environment

All agree that coping with change is critical now that the Information Revolution is roaring upon us, yet attempts to manage change do not succeed very often. Look at the failed promise of nuclear power “too cheap to meter,” the AT&T PicturePhone, the Great Society, and many other formidable undertakings. If we hope to manage a complex future, it is best to have no illusions. Strategic change is an unusually difficult undertaking. Consider two roughly similar attempts to produce major social change in the USA and the former USSR that took very different, unexpected paths.

The health care system in the United States is suffering from skyrocketing costs, a large uninsured population, and mediocre performance.1 Eli Ginsberg, an authority on health care, says that “the system is likely to be derailed some time this decade,” and former Surgeon General C. Everett Koop claims that “there is something terribly wrong. We need a complete change.”2 Then why did attempts to reform the system fail when President Clinton aroused the nation to act? Here is a sophisticated nation that planned the success of World War II and landed men on the Moon, yet it seems unable to change a health care mess that is likely to grow far worse.

 

Chapter 9 Inner Leadership: How to Handle the Coming Power Shift

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How to Handle the Coming Power Shift

Reading the previous chapters, you’ve probably wondered how in the world managers like yourself are going to accomplish all these difficult innovations. The ideas may make sense, but how will you restructure today’s bureaucracies into market systems? Unite diverse interest groups into a political coalition? Reorient sales to serving people? Organize work teams that manage themselves? Transform operations so that they are ecologically benign? And keep this entire system constantly adaptive to change?

You are not going to do it using authority, but by drawing out the talents of others. I was privileged to witness a vivid demonstration of this type of leadership when visiting a manufacturing company. In contrast to the antagonism between various groups that was once rife in industry, this organization had learned to work together by confronting its differences in a constructive spirit. Seated at a conference table were managers, labor leaders, suppliers, distributors, and even officials from the local government. Most striking was that the president of the company did not seem a particularly imposing person. He had no commanding presence, was not a genius, and showed little charisma. How, I wondered, did he manage to pull this diverse group of big egos together into a harmonious team?

 

Chapter 10 Managing a Unified World: Global Order out of Local Institutions

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Global Order out of Local Institutions

While previous chapters have focused on the United States, similar economic transitions are under way in other countries throughout the world. East Europe, Russia, and China are struggling to make market systems work, and the European Union is beginning to dismantle its welfare state. Even Japan, once thought to be invincible, is being forced to free its economy from overregulation and social conformity.

Just as the New Management uses a wholistic perspective to view organizations as complete socioeconomic systems, these global changes can be best understood by seeing the Earth as a whole system in its own right. Today, a fragmented world is coming together as the electrifying force of knowledge, technology, and capital flows instantaneously around the globe. Throughout history the idea of a unified world was unthinkable. But just within the past few years the Earth has been integrating before our eyes.1

In 1994, the Asia Pacific Economic Cooperation (APEC) forum, which includes the United States, Japan, China, and fifteen other nations, making up half the world’s economy, agreed to eliminate all trade barriers over the next two decades. The European Union is planning to introduce a common currency by the year 2000 as it expands to include almost one billion people. And the leaders of thirty-three nations pledged to unify economically the American continent from Alaska to Argentina by the year 2005. In a decade or two, the same self-interested cooperation now driving the growth of these regional blocs should merge them together into a single global market. Akio Morita, former chairman of Sony, has called for the removal of all trade barriers between North America, Europe, and Asia.2

 

Appendixes

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This exercise is designed to allow participants to experience the effects of different tasks on organization structure.

The instructor should assign participants to groups of 3 to 7 people and have each group select a leader. The leaders are then asked to have their groups perform two different tasks, and the results are posted on a chalk-board or flipchart.

The first task is to add up a page full of random numbers and produce a total. (See Exhibit 1. The correct answer is 161,280.) The instructor should make it clear that group leaders are free to go about this assignment any way they choose and that they are competing against the other groups to obtain a reasonably close answer in the shortest time possible. After starting, the instructor notes the elapsed time as each group produces a good answer, and posts the time. Groups are then asked to describe how they organized themselves on a scale of 0 (mechanistic) to 10 (organic). These results are posted under the heading “Organization Structure.”

 

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