Go Figure

As with law and medicine, management is a practice, not a religion.  Every situation is a unique opportunity.  Therefore, all relevant theories, methods and techniques must be considered to effectively plan, execute and control the making of effective decisions and the creation of desired value.

All managers please take note, the "benefit of value" and the "burden of cost" does not represent opposites in the functional spectrum of business; they are simply factors in an equation of short-term profit.  Real profits are the premiums paid by patrons for the performance of perceived promises.  Therefore, profits are a function of value alone, not cost.  Cost is the organizations speculative investment in its understanding of the consumers needs and its commitment to delivering the value it promised.

If it is true that great organizations under promise and over deliver.  Then it is equally true that great managers never manage profits by manipulating costs.

The Wisdom of Workers

Before I became a management consultant, I started my professional life as an electrician.  Developing from an apprentice to the level of journeyman in a little more than four years, I learned that craft unions are not the same as labor unions.  Craft unions add value by developing a balance of knowledge, skills and experiences of its members.  

Indeed there is a great deal management can learn from a little experience with a craft union.  For example, it is broadly accepted in the crafts and trades that a journeyman can do far more with old tools, than an apprentice can with the latest tools.  Most managers believe the opposite is true.

The relationship between management and workers has a long standing conflict that begins with the rationalization of slavery.  But times have changed.  Because workers bring knowledge, skill and experience to an organization, logically, the relationship with the organization must be that of a stakeholder providing a service partnership.

In 1995, both China and India, began investing in the development of the most powerful economic forces in history.  According to current IMF projections posted on Wikipedia, five short years from now, by 2017 the GDP for the world’s third largest economy, India,  will double; and the GDP for the second largest, China, will pass the United States as the world economic leader.  While this may seem extraordinary to some, it is not to those who study history.  In fact, it is the essence of what the United States did to come out of the Great Depression, win the Second World War and help rebuild the world economy following the war.  From the insights of famed author Malcolm Gladwell, we even know how to do it.  If we look close and we can begin to see a recurring cultural pattern – currently India and China have higher rates of capitalization on human potential than the United States.  That is a fancy way of saying they are developing their people.  It turns out, from small business to large nation, developing human capabilities is a must for entrepreneurial cultures, regardless of size.  However, if the culture has transitioned from entrepreneurial to bureaucratic, developing human capabilities is an economic burden on society.  True entrepreneurial cultures profit by adding value, bureaucratic cultures profit by cutting cost.  The powerful economic leverage of a capable value adding workforce is data that is often over looked by the bureaucracy of economic leaders.   Throughout history, economic leaders at the top do not focus on what is needed to get to the top or stay on top, they focus on the rewards from being on top.

There is another economic twist in the dichotomy of these two culture types.  For the sake of simplification, let’s convert our model of an economy from currency to calories.  Now let’s assume the average person needs 2,000 calories to survive each day.  If the average person only needs to work two hours a day produces 2,000 calories, as long as they remain able, they will survive without a problem.  However, if they wish to raise a family, they will need to produce extra calories for those who cannot produce their own calories.  So, a family of two parents and two children will need to produce 8,000 calories per day.  Some families will have more children and some may have none.  By pooling their capabilities, families discover that working together in teams they can produce 15,000 calories per worker.  So, in the name of survival, families join together to form social groups called clans.  It is safe to say the total economic output of any clan will be based on the number of able individuals that have developed the capabilities to produce calories and the capabilities to work in teams.  Individuals not capable of producing enough calories on their own are welcome to consume some of the excess calories produced.  As technology is introduced, we begin to see the power of tools (technology to enhance the human efforts) and machines (technology that replaces humans).  With tools, individuals can increase results by another 2,000 calories and teams increase their results by 5,000 calories.  A machine that consumes 2,000 calories and will produce 20,000 calories can be built to replace two productive individuals who will join the ranks of the unemployed population that draws on the excess calories produced by the clan.  As we add more and more machines, we send more people to live off the excess calories.  Humans are able to renew themselves developing and improving capabilities with new knowledge, skill and experience; machines are not.   Over time, as the machines age, they consume more and more calories, while producing less and less.

Today, in the United States, our cultural constraints limit our capitalization of human potential.  We manage our affairs by the subjective rules of accounting.  Therefore, we would rather invest in machines than in humans.  So we create social and economic constraints to education, training and opportunities to gain experience.  By restricting the development of individuals, we limit our collective their ability to contribute to the growth of the greater economy.  Because individuals with potential are not developed, they fail to become an economic benefit to the clan and are by default, condemned to be an economic burden to the clan.  For example, in the United States, women comprise more than 50% of the population and their contribution to the economy is hidden.  They represent the largest segment of the acting voting population, yet, they represent a small percentage of our government representation and our business management.  Yet, in a time of critical need, during World War II, it was a workforce of women that filled the economic void created when 16 million men left the workforce to fight in a two front war. 

As a fledgling nation we benefited from two very powerful forces, the new ideas generated by a vast cultural melting pot of immigrants and the growing development system of human potential.  As a culture, we are cutting off the flow both of those forces and becoming a closed culture.  If we are successful in converting to a closed system, cultural and economic entropy will continue.  The only way to reverse the process is to believe in collective development of human potential and economic capabilities.

The Wake-Up Call!

Throughout human history, the only economic force that has spanned the entire four million year spectrum of social development is labor – people working.  Labor has moved from tribes and clans, to various forms of slavery.  In less mature cultures it has evolved from a status of property, to that of resource.  In more mature cultures, labor is recognized as a stakeholder and partner.  The bottom-line, the oldest and most powerful economic force on this planet is not management, capital or technology; it is the combination of knowledge, skill and experience known as wisdom.  Within the next decade, China and India will pass the United States as the world’s economic leader.  These two economic powers will not accomplish this by inventing new technology; they will do this by investing in an education system that develops people.

A different kind of Viking leadership

Historically we have seen the work of great leaders – like Abraham Lincoln – who are inspired by a broad, macroscopic vision to do the right thing.  We have seen the work of great managers – like Alfred P. Sloan – who are driven by proven principles to do things right.  While either can impact the world, the ability to see the big picture or to be driven by proven principles is a function of an individual’s temperament.  Many individuals are happy with the preferences gifted them at birth.  Many practices evolved to these differences.  For example, by law, a manager must work within the constraints of a given organizational culture and purpose.  A leader tries to re-invent the law, the culture and the purpose.  Therefore, for a great leader to also become a great manager requires an amazing effort of human development and transformation.

For just a moment, let’s look at a big picture view of a subject that has plagued cultures since the beginning of humankind – slavery.  A slave is a human who has – by custom of culture – transitioned from a state of a person with rights into a permanent or temporary state of property to be owned by another person or entity.  When in a slave state, the results of all work and effort performed by the slave are considered the property of the slave owner.

Slaves could be held against their will from the time of their capture, purchase or birth, and deprived of the right to leave, the right to refuse to work, the right to perform certain acts or the right to demand compensation for their efforts.  Slavery was institutionally recognized by many societies; in more recent times slavery has been outlawed in most societies but continues through the practices of debt bondage, indentured servitude, serfdom, domestic servants kept in captivity, certain adoptions in which children are forced to work as slaves, child soldiers, and forced marriage.

It is important to know that slavery has been around for a very long time.  Long before the creation of money, slaves were individuals captured as the result of a conflict.  The vanquished people paid for the conflict through the labor of slavery.  Slavery has known no racial boundaries because it was an economic issue that produces discrimination.  From the beginning of humankind to this very day, slavery has grown because it was a byproduct of a cultural belief.  In the United States, from the advent of the industrial revolution and the birth of the factory system, our nation struggled with two facets of labor economics, slavery and employment.  Even free men, women and children worked 14 hour days, seven days a week.  Many American have no idea that our cultural attitude before the outlaw of slavery also recognized the relationship of employment as a property relationship.

The modern labor movement was born of the forces of economic slavery.  Economic slavery is a system under which the actions of labor and not the product of the labor are treated as property to be bought and sold.  The evidence of economic slavery can be found with people who are forced to work for substandard wages and compensation while their employer is earning fair market rates.

To understand the big picture relationship we must consider the ripple effect of the pre-American history of slavery and social evolution.  Many other cultures experienced the economic power of slaves.  For example, 780 AD marks the beginning of the Viking Age of colonization that lasted until the early 1100’s.  Following colonization, a process of social adaptation in the colonies begins a cultural transformation.  As the process of transformation reaches a level of maturity, the Nordic countries themselves begin to transform and as a result they begin to outlaw slavery.  First it was the Scandinavian colony of Iceland in 1117, followed by the Scandinavian countries of Denmark and Norway in 1274 and finally Sweden and Finland in 1335.

History repeats itself 400 years after the end of Viking Age of colonization in Europe, as Europeans began to colonize the aboriginal lands of the new world.  The European Age of colonization began in the 1500’s and lasted until the early 1900’s.  Then, 400 years after the Nordic countries outlawed slavery, the European countries began to outlaw slavery; France in 1794, Spain in 1811 and England 1834.  The United States, which socially represented many colonies of Europe, did not follow until 1865.  Partially as the result of colonizing the rest of the continent and finally as a result of a Civil War fought over the issue.

Parts of the discoveries in the Scandinavian transformation are the humanistic principles of cultures built on social-systems of pre-industrial age.  Parts of the discoveries in the main-land European transformation are the economic principles of cultures built on social-systems during the great monarch age.  The British and American transformations from slavery, also built on economic principles, were cultures built on technological-systems during the emergence of the factory age.

In cultures built on pre-industrial social-systems, economic profits are premiums paid for the performance of promises; in other words economic profits are a function of adding value, not opportunistic timing.  Humans add value through “techne” or knowledge, skill and experience.  Value added by the “techno” or technology is recognized more for “tool” value as an enhancement to human effort, rather than for “machine” value as a replacement for human effort.

With each economic crisis of a passing generation, each new generation carries forward the wisdom of experience.  Yes, from a macro perspective American culture is transforming.  We are opening to the realization that the concept of “united we stand, divided we fall” is not just a concept of rebellion, but a concept of social unification with economic ramifications.  The economic crisis of 2008 showed how much more we need to mature.  Sweden, a culture built of social-systems recovered from the event in six months.  Countries once colonized by Sweden are still struggling.

The big picture is shaped by major events over long periods of time and great leaders see those patterns.  The ability to plan and organize is not a function of great leaders; it is a function of great managers.  The progress of a nation, a culture and a people will require either teams comprised of great leaders and great managers working collaboratively; or it will require programs that help great managers develop leadership skills and great leaders develop management skills.

Women Know - Leadership is Only Part of the System

Michael Paul Ervick, MBA

“You don’t manage people.  You manage things.  You lead people.  We went overboard on the management and forgot about leadership.”

Navy Rear Admiral Grace Murray Hopper, 1986

The amazing wisdom of Grace Hopper is often lost in the misapplication of this quote.  It is the back story that provides the context that allows the audience to appreciate what she was sharing.  There are few individuals today that doubt the discovery, exploration and understanding of leadership is critical to the guidance and governance of groups.  This is true whether dealing with the endeavors of a family, a business or our planet.  In order to better understand such concepts, there is a very natural tendency of the general population to analyze by isolating and reducing the concepts.  Unfortunately, this process requires that we disconnect the concept from the context of the greater system; and it is here that our understanding begins to unravel.  With that said, history has demonstrated that to focus only on leadership in the context of collective endeavors is a dangerous mistake.

Since the early 1970’s there has been an abundance of quality literature published claiming leadership and management are two very different things.  In essence, leadership is about relationships and action; management is about responsibility and accountability.  Together they form our system of organizational guidance and governance.  The authority of a manager is given by law, and it is limited to the assets and resources.  The authority of a leader is given by followers, and it is limited by trust and respect.  Sacrifice one for the other and our system of guidance and governance fails.

While the practices of leadership are as old as humankind, the practices of management are relatively new.  Today, the rights and responsibilities of management are recognized and defined across the categories of commercial, corporate, agency, contract, and tort law.

The words and concepts of “managers” and “management” evolved from the much older word “manage”.  Manage is originally derived from Latin.  In fact, in Spain, Italy and France, the local version of manage still means to train or handle horses.  Originally the act of managing focused on using animals to get work done.  The transition of the term from animal work to human work evolved in two phases.  Slaves were considered property like animals, so it was common to manage slaves.  Managing craftsmen and artisans on the other-hand was not at all common.  That is because they developed their capabilities through apprenticeships in the guild system.  Once the apprenticeship was completed, workers became known as journeymen, which indicated they could travel and work without supervision or management.  It is not until the emergence of the English factory system that term and concept of managing workers emerges in its modern sense.

Since the end of the Civil War, the concept of management has been transformed by intense social forces.  Prior to this period, our nation struggled with slavery and employment; even free men, women and children worked 14 hour days, seven days a week.  Before the outlaw of slavery, our culture recognized the relationship of employment as a property relationship whether freeperson or slave.

With the end of slavery, our social system evolved rapidly on views of work, labor and family.  By the end of the Great Depression, our system of guidance and governance was the envy of the world, and Frank Abrams of Standard Oil was the poster-child for the power of “stakeholder” relationships.  As the Second World War ended, we were exporting the idea of balance between leadership and management through a program called “Training Within Industry”.

When the war was over, we found ourselves in a new role as a world leader; rebuilding the nations and cultures of friend and foe.  While teaching the combined principles of good management and leadership to the rest of the world, the American industrial system was inconsistently sacrificing the very same principles.  For eight decades following the Civil War, we learned that leadership was about doing the right thing, and unfortunately that interfered with goals of increasing capacity, economies of scale and lowering cost to feed and supply a world destroyed by war.  Because we stopped focusing on the discipline, competency, systems and people, from 1950 to 1970 the United States had diluted leadership training in the name of management training.  Almost overnight, management shifted from being “stakeholder” oriented to being “shareholder” oriented.

The imbalance between leadership and management sent the US economy on a journey of cultural destruction.  The stakeholder relationships between management and labor – 80 years in the making – were shattered in the name of short-term cost savings.  But labor was not the only stakeholder relationship sacrificed; relationships with suppliers, lenders and even customers all suffered in the name of lowering costs or increasing prices to find more profit for the bottom-line.

As a culture we failed to appreciate that management was a system built on a foundation of leadership.  After the Second World War, to strengthen our management system, we undermined the leadership foundation.  The imbalance of a nationwide system of guidance and governance is devastating.  No one knew this better than the software pioneer and Navy Rear Admiral Grace Murray Hopper quoted at the beginning of this paper; she understood that managers and leaders are different sides of the same coin.

By the end of the 1980’s, Jack Welch had proven Admiral Hopper to be right.  Following the success of his famous turn-around at General Electric, leadership development became very popular.  Now, more than 20 years after the business culture of America embraced the notion that we had fallen behind in our capabilities of developing leaders, we find another problem.  Between the years of 1990 and 1995, a wave of major organizations around the country began investing in leadership development.  Based on their culture of cost control, they assumed that GE replaced their investments in management development with programs in leadership development.  By trying to imitate GE, many organizations only compounded their problems.  They failed to realize that GE was actually trying to correct past mistakes by re-balancing by adding investments in leadership to the existing management development program.

As a result, today the average American managers know as much about the principles of management as their predecessors did in the 1920’s.  The lack of responsibility, accountability and authority of management for the performance of promises is a major issue in all organizations.  The tremendous tools of management, developed since the end of the Civil War, have been disregarded for the last 20 years.  The management processes of planning, organizing, directing, coordinating and controlling the assets and resources of the organization have been completely forgotten.  The management directives of purpose, mission and vision have all been reduced to meaningless window dressing.

When considering the current state of the world, our social and cultural evolution has come a long way.  The progress made by other nations following the Second World War can be linked to the fact that we taught the principles of TWI around the world.  As each nation embraced and adapted these principles to the strengths of their culture, we saw them in a whole new light.  We can see the breakthroughs from thought-leaders in Japan, Israel, Greece, Germany and Sweden, and all have demonstrated that in a system of guidance and governance, the role of leadership is necessary but not sufficient by itself.  Great leaders must also be great managers.

In the early 1980’s the United States was hit by a major wake-up call.  Three phenomena separated by thousands of miles totally shook the foundations of modern American business thought.  The first was airing of the documentary “If Japan Can, Why Can’t We?” about the recovery of post-war Japan, W. E. Deming and quality.  The second was the writing of the book “The Goal” about the idea of process improvement by an Israeli professor named Eliyahu Goldratt.  The third was the writing of the book “Moments of Truth” about the famous turn-around success of SAS airlines by Jan Carlzon.

Though very low profile, each event was so powerful that three schools of thought soon emerged.  The Asian School of thought offered concepts that became Six Sigma. Lean and Just In Time.  The Eastern School of thought produced the Theory of Constraints.  The Nordic School of thought produced the Information Technology Infrastructure Library (ITIL).  In the United States, the Asian School and the Eastern School of thought became very popular with the manufacturing sector; while the Nordic School became popular with computing and service sector.

Here we had what appeared to be three unrelated cultures giving birth to ideas that were international game changers all at the same time.  The Asian culture, oriented to discipline and honor developed a school of thought deeply rooted in competency and quality.  The Eastern culture, oriented to logical and independent thinking developed a school of thought deeply rooted in process and systems.  The Nordic culture, oriented to community and collaboration, developed a school of thought deeply rooted in relationships.

Though the schools of thought appear unique, many of the ideas found in these schools were from seeds planted in the post war recovery efforts led by the United States.  In an effort to help the world recover, we shared the secrets of our manufacturing success during the war.  The notion of practices moving between cultures and morphing is very common.  However, in this situation, this body of management secrets was developed in the United States between the end of slavery and the start of World War II by blending ideas from immigrants.

So imagine – during the latter half of the 1800’s and the first half of the 1900’s – the practices and ideas from around the world came together in one place, the United States.  Now add the pressure of a culture being transformed by the end of slavery, the end of child labor, the First World War, the great depression and the Second World War.  Then, take 80 years of refined management secrets and share them with the rest of the world, and at the same time abandoning each and every one of them.  Then, 60 years later, bring them back together into one body of management knowledge, three schools of thought, brought together to form an International School of thought.

In some areas, such as technological innovation, the United States leads the world.  Unfortunately, understanding people is not one of those areas.  Yes, it is true, the collective culture of the United States is not as mature socially as more established parts of the world.  The Nordic counties tend to lead in social maturity.  A look at history would support the trend.  

The Viking Age of colonization began in 780’s and lasted until the early 1100’s.  Following that period the Nordic countries began to outlaw slavery.  First it was Iceland in 1117, then Denmark and Norway in 1274 and finally Sweden and Finland in 1335.  400 years after the end of Viking Age of colonization in Europe, Europeans began to colonize.  The European Age of colonization began in the 1500’s and lasted until the early 1900’s.  Then, 400 years after the Nordic countries outlawed slavery, the European countries began to outlaw slavery; France in 1794, Spain in 1811 and England 1834.  The United States, which socially represented many colonies of Europe, did not follow until 1863, after a Civil War was fought over the issue.

The Nordic School of thought is breaking out as the new thought leaders of the western world.