By Jules Goddard
Listening to executives over the last 10 to 20 years, you cannot help but notice that managerialism – the art of getting things done by other people – is the main source of frustration, disengagement and underperformance in most organisations. As a 19th-century social technology for controlling and coordinating large numbers of relatively unskilled people, managerialism is delivering ever-declining value. We are trying to create wealth in a knowledge economy by relying on structures and processes designed for the industrial age.
The language is of planning and control, targets and KPIs, metrics and benchmarks, efficiency and excellence, specialisation and standardisation: all these things betray a way of thinking wholly unsuited to the challenges confronting firms today.
The agenda has moved on. More management is not the answer. Tweaking the managerial model by opting for outsourcing, deleveraging, re-engineering, disintermediating, offshoring and other administrative processes beloved of consultants is a classic case of ‘doorknob polishing’ when the stately home has long since fallen into disrepair.
The problems facing business have much less to do with internal systems and processes and much more to do with external and organisational variables, such as the institutions and structures within which companies are expected to perform. The employment contract, the five-day working week, the job description, the office hours mentality, the lifetime career, the long-hours culture, the limited liability company, the quarterly reporting cycle, the regulatory mindset: all contribute to a culture of indecisive management, compliant employees and passive shareholders.
For years, we have been witnessing diminishing returns to management. We need to pioneer alternative models that can motivate and inspire those coming into the workforce and re-energise those already in it. To borrow a telling phrase from Charles Handy’s most recent book, we need to invent a “second curve” – a new way of working – if we are to attract millennial talent to the world of business and put it to work for a better world.
Increasingly, the role of senior management will be to redesign the organisational context in which work is done, rather than supervise the content of the work itself. Ideally, a competitive market in employment practices and ownership rights will develop where, for example, firms will experiment with the length and composition of the workweek, the incentives attaching to different classes of shares, and the opportunities for employees to become entrepreneurs in mid-career.
John Maynard Keynes predicted that we would be working for just 15 hours a week by 2030. Yet, if anything, people are working longer hours now than they did in the 1930s. This is a paradox. Presumably, Keynes’s logic was that, as the wealth of the world increased, so the marginal utility of income would fall relative to the marginal utility of leisure. Yet the wealthier we get, the harder we work, the longer we stay in the office and the later we retire – if ever. The notion of the five-day workweek needs a radical rethink, just as the notion of a career – that is, working for 45 hours a week for 45 weeks a year for 45 years, often for the same employer – was radically challenged by Charles Handy in the 1980s when he wrote about “portfolio working”.
The gig economy, the pop-up shop, the farmer’s market, the boot sale, the innovation hub, the zero-hours contract and so on are all manifestations of the fact that work can break out of the straitjacket and try on different apparel.
Zero-hours contracts have come in for a terrible pasting by the media, yet ironically 80% of those on such contracts are delighted with them, such is the freedom and flexibility they can afford. The real problem is the formulaic nature of the everyday employment contract. We talk a lot about corporate agility, yet we persevere with one of the most inflexible institutions in modern society.
So why not move to a four-day workweek? Why not “Thank God it’s Thursday”? There is an entirely plausible argument against the idea of cutting working hours: there’s always going to be a trade-off between hours worked and income earned. If everyone worked fewer hours, surely the economy would shrink and salaries and wages would suffer?
Yet this same argument must have been used 100 years ago when a New England mill – to the delight of the labour movement but perhaps to the consternation of the entrepreneurial class – became the first American factory to treat Saturdays as off-limits to employers. Those defending the long-hours culture make two linked assumptions: firstly that there is a positive correlation between the length of the working week and the productivity of the workforce; and secondly that very few people would prefer to take a pay cut in exchange for a longer weekend. But there is some evidence that this may not be the case, for four main reasons:
1 – Fewer hours to perform a task means less time to waste.
As Ryan Carson, founder of Treehouse, an online education company, observes, “You get all Friday off, instead of pretending like you’re working when you’re not”. The more hours that are made available for a job to be done, the more the job-holder will find ways to distract him or herself, if only to break the monotony. This is an echo of Parkinson’s Law: work expands to fill the time available. Twice the hours doesn’t mean twice the output. In the case of knowledge workers and creative tasks particularly, forcing longer hours is counter-productive. The workaholic is a menace in the office. Legend has it that German military leader Field Marshal von Moltke sought intelligent and lazy officers for his commanders because they looked for the easiest way of achieving a task; stupid and energetic officers made many things happen, but almost all of them were wrong-headed. Many of us will immediately recognise this type of manager; the one who is endlessly setting targets, measuring effort, cutting costs, re-engineering processes, judging others – and working long hours.
2 – Longer weekends refresh and stimulate the creative mind.
Creative problem-solving, innovation and critical thinking are more likely to thrive under conditions of trust and patience than supervision and urgency. Quality work happens best when uninterrupted. Jason Fried, the founder of Basecamp, a software company whose employees take Fridays off in the summer, discovered that “Better work gets done in four days than in five”.
3 – More free time makes for a happier work environment.
Those countries that work shorter hours tend to be happier and more convivial than others, with no apparent loss of prosperity. A 2013 OECD report found that, among full-time salaried workers, the Netherlands enjoys the shortest workweek in the developed world, at an average of 29 hours per week, followed by Denmark (33), Norway (33), Switzerland (35) and Sweden (36). Is it coincidence that the same countries were also the five happiest, according to the ‘World Happiness Report 2013’? The report provided evidence that happiness is positively correlated with productivity, health and longevity.
4 – A four-day workweek attracts and retains talent.
Adding an extra day of freedom to each week is a magnet for talent. Any mention of a shorter workweek, even when this entails a cut in take-home pay, usually excites even the most industrious and sober of managers, professionals and working people.
The extraordinary growth of the finance sector since deregulation has contributed remarkably little to the creation of new wealth. Instead, it has discovered ingenious ways of expropriating the wealth created elsewhere in the economy and rewarded itself handsomely for doing so. Once upon a time, or so our memory tells us, the investment landscape was populated by a small number of prominent fund managers looking after a selective share portfolio on behalf of a rather larger number of influential private investors. The investment chain was short. The fetish for index-tracking or index-hugging had not yet been adopted and the fashion for hedge funds making ultra-high frequency trades had not been invented.
Many observers of the world of business and finance, and indeed many within it, have long had concerns about short-term decision-making and the perverse incentives that seem to reward it.
The response by US authorities to the 2008 crash was to invent ever more voluminous and intricate regulations, such as Dodd-Frank. John Kay believes this to be precisely the wrong response. In his view, “There has not been too little regulation, but far too much … we should put an end to the seemingly endless proliferation of complex rule books.”
Nor can we count on virtue. In the last few years, we have learned that any change in behaviour that relies on good faith, noble declarations, ‘social responsibility’, value statements and well-meaning commitments is unlikely to materialise. Something much tougher is needed.
A report by John Kay in 2014 made four significant recommendations:
- Release companies from the obligation to report their quarterly financial performance;
- Adopt instead a “stewardship code” and make asset managers who are responsible for other people’s money personally (not corporately) subject to civil and criminal penalties
- Ban all short-term cash bonuses to executives; and
- Encourage greater communication between shareholders and companies.
Progress is being made on all these fronts, but there is one area where the pace of change needs to quicken. It starts with the distinction between ‘investors’ and ‘traders’; between those who buy shares on the basis of their understanding of the fundamental value of the company, and those who buy on the basis of their expectations of short-term fluctuations in the share price. A certain level of trading is needed to maintain liquidity, but the volume of trading in today’s capital markets is far in excess of that.
A dramatic change in the incentive environment is needed if short-termism is to be reversed. How about firms offering different classes of shares with proportional degrees of power, so voting rights are related to how long you have held the shares – not to how many you own? When buying the more ‘powerful’ class of shares, for example, shareholders would register the length of the time they intend to hold them: the longer the time, the greater the number of votes; selling prematurely would incur a financial penalty.
Life after career
In 30 years time we will look back on today’s employment habits and customs as the last vestige of a kind of feudalism in the workplace. This is not to suggest that today’s employees can be compared to serfs, but simply to reveal the cynical and dispiriting assumptions about human nature that underpin so many practices in the workplace.
Most of those coming into the workforce can reasonably hope to live to 100, but they are not going to plan for a 70-year career – certainly not with a single employer. Those who are imaginative, energetic, optimistic or adventurous will want to create some form of independence for themselves by the age of 45.
But understandably, most young recruits into business will still expect and require an ‘apprenticeship’ in business acumen before they go it alone and establish their own start-up. The firm’s role will be to act as a kind of incubator in which employees in their 20s and 30s acquire the skills and confidence to design their own successful new ventures.
The employee who wishes to remain within the firm after the age of 50, say, will be rare. Our societies will gradually come to be characterised by a network of entrepreneurs, co-owning businesses with friends and colleagues. They will create job opportunities for those younger than themselves, rather than occupying those jobs. Firms will increasingly treat their employees less as loyal citizens over the course of their career and more as potential entrepreneurs whose businesses they help nurture and in which they invest capital. All employees will, effectively, have two jobs: the ‘day job’ delivering value to the core business and the ‘development job’ preparing to launch their own new venture. These activities will be intimately linked. The day job will offer the experience from which the employee learns about business: how customers are won, how leadership works, how people are motivated and how wealth is created. The development job will translate these emerging skills into nascent businesses.
Let’s illustrate the argument with some numbers. A firm of 10,000 employees will typically contain 2,000 in their 40s, an age ripe for the adventure of entrepreneurial innovation. Say half of them – about 1,000 – are up for this. And assume they have come together in teams averaging five members around a strong idea for a start-up. So the firm has the opportunity to invest in 200 new businesses every decade. Let’s say half of those survive and grow. In other words, every year the firm is investing in 10 spin-off organisations, each led by five former employees.
My prediction would be that within 10 years the aggregate market value of these new ventures would be greater than that of the parent company that spun them off. This is the reward for moving the company from being a place to build a career to becoming a place to invent a business. We could name this new form of company ‘a venturesome enterprise’.
The evidence for the viability of this model is growing all the time. It is well documented, for example, that the new ventures founded by Hewlett-Packard ‘alumni’ since 1990 are now more valuable than Hewlett-Packard itself. The tragedy for HP, of course, is that it didn’t foresee the turn of events and therefore didn’t invest in the new businesses. The real inequality in society is the disparity between those exercising power and those submitting to it. Yet most of us endorse this disparity by choosing employment over self-employment. The economic health and vitality of a society can be measured by the proportion of people who resist the lure of employment and opt instead to manage their working lives themselves. To be employed when young is fine – so long as the purpose is to grow out of the need for it. Rather in the way that parents bring up their children to grow out of childhood and become adults, so employment should develop young adults to move beyond dependency into self-reliance.
Title of 1961 musical by Leslie Bricusse and Anthony Newley
Uncertainty, novelty, surprise, complexity, incongruity and absurdity all spawn creativity. The oft-repeated platitude “business hates uncertainty” not only misrepresents business; it is also a slur on business and the creativity of business people. In fact, good businesses thrive on unpredictability. Markets reward firms that detect opportunities in ambiguity and complexity that other, less creative firms do not. If we could predict the future, entrepreneurs would not exist.
It is nonsensical to describe business as having to accommodate – or respond to – a ‘VUCA’ world, as though volatility, uncertainty, complexity and ambiguity were unwelcome visitations rather than the natural and perennial ambience of business activity itself. Volatility is what business is about. Business, intrinsically, is restless.
Gifted business people like nothing more than the uncertainty out of which innovative strategies are crafted. Most competitive advantages, most entrepreneurial breakthroughs and most sources of wealth creation arise from different interpretations by different people of the same data.
The market itself is a filtering device for removing businesses that are fearful of the VUCA world or who do not have the wit and energy to discover amid the chaos opportunities for disruptive innovation. Businesses themselves can amplify and exploit the VUCA world in which they compete and thereby disproportionately enhance their abundant opportunities for wealth creation.
Jules Goddard is a Teaching Fellow at London Business School.
Featured Image Courtesy: Visual Hunt