The main myths of management

Ptolemy, a Greek intellectual who lived in Egypt from 90 and 168 AD, was recognised as an expert in many things, including astronomy and astrology. There had been long debate about the status of the earth and its relationship with the universe and particularly the sun. As early as 230 BC another Greek by the name of Aristarchus came to the conclusion that the earth revolved around the sun. However, homo sapiens well aware of the emerging importance of the human race could not come to grips with the fact that the Gods had evicted the human race to a minor role in the mystery of the universe.

Accordingly, it became more and more popular, without any supporting evidence, to come to the conclusion that because of the pre-eminence of man (which was the term they used in those days) it was inconceivable that the earth was not the centre of the universe.

For 1,500 years, the Ptolemaic theory persisted that the earth was the centre of the universe. Despite demonstrable evidence of the absurdity of this theory, Galileo had to recant his beliefs in the face of the threat of torture and execution. Gradually science prevailed, but it took the better part of 1,600 years for people to come to grips with the fact that our tiny planet is insignificant in the hierarchy of the universe and we are less than a blip in this incomprehensibly enormous space in which we live.

This is how myths can distort reality and direct people down paths that are dead ends. This phenomenon has its current iteration in the never-ending emergence of the current snake oil for successful management such as “Quality Assurance and ISO conformity”; “Empowerment”; “Diversity”; “360 degree”; “Performance appraisals”, etc.

There is absolutely no evidence that any of these wonderful concepts achieve any measurable success across the market place. Indeed, there is evidence that in many cases, their adoption, in the mistaken belief that they are the salvation of a business, actually cause more damage than good.

One myth that did come into existence in the first decade of the last century was that of “scientific management” as a result of the work of an engineer by the name of Frederick Winslow Taylor. Despite protests to the contrary, Taylorism is alive and well today in that employees of organisations are too often looked upon as mechanisms for achieving KPI’s.

Taylorism, as it has come to be called, was the forerunner of the managerial method of deploying people as “human resources” to achieve the objectives of management. This, despite the discovery as early as 1930 that people in the work place were primarily motivated by societal and emotional phenomena and that material or mechanistic paradigms had little influence on productivity. And yet corporations still persist with this concept of people as disposable when not wanted and reusable when they are. This may well be called the Ptolemaic principle at work in the field of management and it pulls in suckers year after year while the fundamental reason for human existence is ignored.

Some corporations are awake and doing well, but the devastation of the global financial crisis saw a re-emergence of this undying belief in a flawed managerial philosophy.

In 24 months in the US there were approximately 54,000 massive layoffs of nearly six million people and that doesn’t cover the smaller layoffs of small businesses across the country. As a result, the American consumers went on strike and with the downturn of America consumption, the economy went into tailspin. All because of a Ptolemaic myth that the function of the corporation is to enhance shareholder value at whatever cost; even at the cost of cutting one’s own throat.

And so myths become public doctrine and continue to influence people down these cul-de-sacs of history.

Myths continue to fill pages of management literature as well as the work place. Business schools around the world are not exempt from these practices of perpetuating myths and should be subject to much greater circumspection and scrutiny.

The other day I was walking past a class room at a major management school and the lecturer had the serious attention of the students as he was passionately explaining the various theories of pricing. This stuff was straight out of the textbooks written by academics who are very smart people but they have never sat in the cockpit.

I felt like walking into the room and yelling “Stop for heaven’s sake, stop!” because there is now only one theory of pricing and that is how to produce goods and services for customers at a cost less than your competitor. Businesses can no longer control prices. The world has changed and businesses have to find new ways of bringing products and services to the market with ever increasing quality and at ever reducing prices.

The law of price elasticity no longer has general application and indeed, its application only relates to diminishing resources such as oil, and even that is doubtful.

The ancient so called law of supply and demand based as it was on an assumption of scarcity of supply in the face of abundant demand is flawed and yet business schools still cling to it as the mantra because Adam Smith discovered it over two centuries ago. Adam Smith was brilliant and one of the great economic thinkers but he did not envisage the onslaught of technology, competition nor the internet that has educated even the least astute shopper.

All of the assumptions that have formed the basis of the modern corporation are now under scrutiny and many of them are being found wanting in much the same way as the Ptolemaic theory of the universe failed to withstand rigorous scientific investigation.

In all of this, one of the worst legacies of ancient times still pervades the business environment and it is the legacy of hierarchy anchored in the ageless culture that perceived some to deserve privilege and some to serve. This cultural phenomenon is directly associated with another Ptolemaic myth that emphasises that the principle purpose of the corporation is to enhance shareholder value.

No matter how enlightened we say we are as a people, the fact remains that the majority of the people in the work force today are considered instruments of managerial strategy rather than resources rich, with knowledge and experience which could be invaluable to the corporation. There will be many who dispute this but from conducting thousand of interviews in the work place over the past quarter of a century, it is depressing to consistently come across the invariable story that “I know when I have done something wrong because I get a kick in the behind but no one ever tells me when I am doing something right. The fact that I don’t get a kick in the behind every day suggests that I must be doing something right”.

How terrible for the human condition to descend to this, when each person has aspirations to have their own place in the sun.

Sadly, so many people tell me the story of their frustration to the point that they go home at night and want to tell their husband, wife, mother, father, brother, sister or friend about their problems and they are met with the response “Don’t tell me about your problems, I have enough of my own”.

Corporations are strewn with incompetent management that bring about frustration, loss of production and the inability to access ideas from people who have a rich source of information. That is not to say that all corporations are incompetently managed but the persistence of the stories of frustration, irrespective of the industry is so consistent as to be compelling that management is not living up to the expectations of people in the 21st century.

Despite, or perhaps because of, the proliferation of business schools, we are still experiencing shock waves in our economies; huge defaults due to dishonesty; massive unemployment and dislocation of communities; serious dependency upon diminishing resources such as oil without any substantial plan “B”; an American economy that is increasingly dependent upon external borrowings with debt levels in the trillions and a mood across the Northern Hemispheric Western Countries of sobriety in the face of massive unemployment and industrial under utilisation.

Nevertheless, there is a new genre emerging of corporations based on a business model that rejects the traditional concept of the law of supply and demand and increasingly seeks the ability to create an abundance of supply so that there will be an abundance of demand.

Google chalked up $6.5 billion in profits on revenue of $24.0 billion in 2009 and the corporation only came into existence in 1998. There is a tendency for these corporations to be associated with a wider justification for existence which involves the recognition of societal needs and the worth of the individual.

While at the moment, the traditional theories of markets and pricing prevail at business schools and major corporations and that these theories are inextricably involved with the concept of shareholder value, there are more and more companies that understand the theory of abundance and they will be the corporations to succeed in the next 10 years.

I believe we are going to see a profound change in the commercial landscape in the next 10 years in which we will see severe competition with increasing quality and service and decreasing prices in a wide variety of industries. In Australia, it will behove governments and local governments, as well as the construction industry, to be aware of this phenomenon because sooner, rather than later, businesses will emerge that can build properties much more cheaply than is the case today. Others will be able to identify the inefficiencies in the planning process and finally storm the citadel to force dramatic changes.

We are entering a period where the only businesses that survive will be those that discover the new paradigm that creating an abundance of supply of quality will lower costs to levels unprecedented. This, after all, is the 21st century.

Louis Coutts is a Research Fellow at Thunderbird School of Global Management in Phoenix Arizona. He is currently writing a book on the enduring principles of management.