Tag Archives: Steve Denning

Denning and the Death of Hierarchies

Steve Denning, the “radical management” and leadership guru, published a post at Forbes.com yesterday about the shift taking place within many organizations, away from hierarchical models of command and toward more fluid, flexible and agile setups. Drawing on Fairtlough’s The Three Ways of Getting Things Done — which argues that the only “effective” organizational models are hierarchy, heterarchy and responsible autonomy — Denning argues that hierarchies “must sign their own death warrants to survive” in what he likes to call the Creative Economy.

In this post, Denning’s interested in why business leaders cling to hierarchy even in the face of evidence that it’s no longer the most effective way of getting stuff done (if it ever was), and in the paradox that in all the examples he can find, “it’s the hierarchical management itself that has led the shift away from hierarchy. The shift didn’t occur as a kind of bottom-up movement. It was the top that saw that there was a better way to make decisions and went for it.” Flatter organizations tend to cleave to the status quo and work within established frameworks, he observes.

Of course plenty of other people within an organization might see that there is a better way. Those atop the organizational hierarchy are the ones permitted or entitled to say it aloud or do something about it. Hierarchy isn’t just a way to get things done; it’s also a way of distributing power, and the power relations hierarchy maintains are a daily fact of life for subordinates. They usually don’t have a place at the table when the organizational models are being drawn up or redrawn. In order to effect change within a hierarchy, those at the bottom – and the middle – would need to be enlisted as stakeholders, entrusted with real power and respected as equals (which would itself require some undoing of the organizational hierarchy).

I am a little puzzled why Denning here doesn’t present a more considered and nuanced view of the way power actually works within organizations – and the way in which concentrated power can actually hamper performance and kill ideas or even the motivation to present ideas about how to do things better.

That aside, and no matter how or why or by whom “the shift away from hierarchy” is brought about, Denning’s article is a good place to start talking about what this shift will really entail and require of people at every level of a hierarchical organization. It seems fair to say that as organizations get flatter and try to operate with more creativity and agility, the way things are coordinated – the way we use language to order the world, get things done and coordinate action — will itself have to undergo a radical change. The way I’d put it is that coordination will have to shift from the power of command to the power of asking.

Indeed, how we use language – how we make claims and demands on others, how we talk and listen to others about what to do — can itself help effect a shift from hierarchical command structures to the more fluid structure associated with the give and take of serious conversation (the rough equivalent, to my mind, of what philosopher T.M. Scanlon calls “co-deliberation”). I’ll have more to say about what constitutes a serious conversation in a future post.

Strategy’s Eclipse and the Big Chief

One of the more provocative business articles I’ve read lately appeared just last week, on forbes.com. It’s a piece by Steve Denning about the collapse of the consulting firm Monitor. The article has already generated thousands of comments and what its own author, in a follow-up post, calls a lot of “social media brouhaha”.

Most of the discussion so far focuses on Denning’s analysis of Monitor’s collapse. He traces the firm’s demise to Michael Porter’s flawed idea that “sustainable competitive advantage” could be gained in markets “by studying the numbers and the existing structure of the industry.” Monitor, in Denning’s view, was selling an “illusory product” that merely “supports and advances the pretensions of the C-suite.” Where Monitor’s approach to strategy failed was where it matters now more than ever: helping businesses connect with or “delight” customers, or innovate, or do things that customers (or, for that matter, society as a whole) want them to do.

Not everyone agrees with this analysis, of course, and Denning has been responding to criticism and comment on the Forbes site and on Twitter. I am more intrigued by what Monitor’s downfall might signify – whether it indicates that there are larger changes afoot.

Denning himself wonders if the firm’s collapse marks the end of an “era”. Several of his readers and Tweeters (including me) have suggested that pure strategy plays are simply no longer viable. But that observation only scratches the surface, I think. The downfall of Monitor may indicate something else as well – a larger change in the configuration of CEO or executive power within the enterprise, and the end of a certain idea or iconography of the CEO.

Denning approaches this very thought as he lays out his historical argument, which is basically the story of how Michael Porter got lucky and launched Monitor at precisely the right moment. When Monitor first appeared on the scene in 1979, writes Denning, a new era was dawning:

Pursuit of shareholder value (“the dumbest idea in the world”) was just getting going with a vengeance. The C-suite was starting to realize that they could cash in, big time. Along comes Michael Porter with a rain dance that justifies their cashing in. Porter arrived at just the right time. Hopefully that era is now coming to an end. People are starting to see the rain dance for what it is.

I would hasten to add that the dumbest idea in the world, the doctrine of shareholder value, helped usher in another very bad idea that is still very much with us — the idea of the “CEO” that started to take hold at roughly around the time that acronym first appeared on the scene, in the early 1970s. The CEO is largely an invention of that period.

I’ve taken up this theme in a few posts (here and here and here). A number of journalists and academics have addressed this same point, directly and indirectly. For Rakesh Khurana, the cultish construct of the CEO emerges out of the transition from managerial to investor capitalism. In response to the growing power of institutional investors (like pension funds, bank trusts, insurance firms, endowment funds, and money managers), boards had, by the 1980s, come to focus almost exclusively on the search for an outside celebrity CEO “savior” who would not only appease and appeal to newly-empowered institutional investors but also make a big splash in the newly-emergent American business press.

Needless to say, this further consolidated decision-making power at the top of the corporate hierarchy. At the same time, the newly powerful CEO had become a cultural icon of celebrity and success. We made a totem of corporate executive power.

If the mantra of investor capitalism was “shareholder value,” the central mystery of the new faith was the “agency” problem (as described in a now-canonical 1976 paper by Jensen and Meckling [pdf]). The interests of shareholders and managers were now to be “aligned.” Results have been mixed: a myopia set in, putting the “focus more on the short-term management of the share price,” writes Christopher Bennett on a Conference Board blog post, “and less on the long-term management of the business.”

In a Washington Post Op Ed, Michael Useem (who’s written the book on investor capitalism) takes it one step further. He connects the “unrelenting pressure of the equity market on company leaders to meet quarterly TSR expectations” with the offshoring of operations, “regardless of the impact on the domestic workforce.” Worse, it’s invited leaders to behave like sociopaths, or at least irresponsibly: “an incessant equity-market demand on company leaders to focus on their own advantage whatever the disadvantage for others” has made “fewer executives and directors…able to step forward to advocate what is required for a vibrant economy, not just what is required for their own prosperity.”

Shareholder value may have not have been the dumbest idea ever, as Denning would have it, but it was, at best, a Faustian bargain for American society. It was an important article of faith — and not just for the believers, but for society as a whole, during the period in which the celebrity CEO took on his (yes, usually his) unique features and cast, all the trappings of his office.

Strategy, especially Monitor’s brand of strategy, played a crucial role here. Denning refers us to a passage in Matthew Stewart’s The Management Myth:

Porter’s theory thus played to the image of the CEO as a kind of superior being. As Stewart notes, “For all the strategy pioneers, strategy achieves its most perfect embodiment in the person at the top of management: the CEO. Embedded in strategic planning are the assumptions, first, that strategy is a decision-making sport involving the selection of markets and products; second, that the decisions are responsible for all of the value creation of a firm (or at least the “excess profits,” in Porter’s model); and, third, that the decider is the CEO. Strategy, says Porter, speaking for all the strategists, is thus ‘the ultimate act of choice.’ ‘The chief strategist of an organization has to be the leader— the CEO.”

With the passing of Monitor, this concept of strategy may start to go by the board. And so, with any luck, will the idea of the CEO as the “superdecider” (Denning’s word) or super-anything. The rain dance is over, and we can now see the Big Chief as he really is.

Doing Business With Bad Regimes: Vodafone in Egypt

Last Friday, Access Now put out a link to a petition urging Vodafone, Orange and all ISPs and mobile operators in Egypt to “get Egypt back online.”

We call on you to immediately open the Egyptian telecommunications networks. We ask that you stand firm against the Egyptian government and allow the people, and your customers, to communicate freely and openly at this vital time.

On the face of it, putting pressure on ISPs and telecoms companies operating in Egypt seems to make good sense. One might assume that appealing to Western companies might be more effective than putting pressure on Mubarak, which is what President Obama tried to do last week when he urged the Egyptian government “to reverse the actions that they’ve taken to interfere with access to the Internet, to cell phone service, and to social networks that do so much to connect people in the 21st Century.” (The President failed to persuade Mubarak, but inspired Steve Denning to float the idea in a column on Forbes.com that Internet access may be “a basic human right.”)

It’s unclear, however, how much the ISPs and mobile telephone companies operating in Egypt can do. On Saturday, for example, Vodafone Egypt announced that they had resumed services but expected further interruptions, and they explained their decision to take the network down as a pre-emptive move:

Statement – Vodafone Egypt
Saturday 29 January 2011. Vodafone restored voice services to our customers in Egypt this morning, as soon as we were able.
We would like to make it clear that the authorities in Egypt have the technical capability to close our network, and if they had done so it would have taken much longer to restore services to our customers.
It has been clear to us that there were no legal or practical options open to Vodafone, or any of the mobile operators in Egypt, but to comply with the demands of the authorities.
Moreover, our other priority is the safety of our employees and any actions we take in Egypt will be judged in light of their continuing wellbeing [sic].

Salil Tripathi at the Institute for Human Rights and Business takes issue with this official statement, saying that Vodafone could have done more before “instantly” complying. Why didn’t they “push for answers” by asking the Egyptian state to provide instructions in writing and explain its rationale? Why didn’t they more forcefully argue the case for keeping service uninterrupted? At the very least, he says, they should have warned their Egyptian customers before shutting down.

These recommendations would seem sensible enough, but for the fact that the Egyptian authorities, according to Vodafone, have the “technical capability” to shut down the mobile network. (I am unclear why it would be even more difficult for Vodafone to restores service after a government shutdown, but I imagine it has to do with the fact that a government shutdown would not exactly proceed in a careful and methodical way.) If this is true, and Vodafone is not just taking refuge in technical hocus pocus, then no amount of protesting or arguing or pushing for answers would really matter, when push came to shove. It’s easy to imagine that defying the Mubarak government, refusing to comply, or delaying would put Vodafone employees at risk. Affiliation with a Western company is no guarantee of safety or immunity; consider the fate of Google’s @Ghonim.

John Morrison, Executive Director of the London-based Institute, followed up on Tripathi’s remarks with a letter to the Financial Times in which he pointed out that Vodafone’s “dilemma could hardly have been unexpected,” and telecoms and ISPs should exercise due diligence before doing business in a place like Egypt (or China, Iran or Sudan). “The clash between local law, albeit that of an authoritarian regime, and international law will be a key theme for the information and communication technologies sector for years to come,” he writes.

These companies will need to exercise comprehensive human rights due diligence before signing contracts with the governments or joint venture arrangements with national companies. The risks need to be managed as effectively as possible in the wording of the contracts themselves, something that is rarely the case at the moment. Without such action by the industry, some will say that UK or European Union law should be amended to require them to do so.

It is not too much to ask a company wishing to do business with an authoritarian regime to balance concerns about human rights and international law with its business interest. But that balance may be very difficult to strike, and due diligence should also take into account the crucial role mobile telephony and information technology have already played in opening closed societies.

Let’s say, for example, that Vodafone did human rights due diligence before signing a contract with the Egyptian government, and decided that the risks were too great – or that it could not include meaningful human rights agreements in its contract with the Egyptian government. Would it then have been better for the company to decide not to do business in Egypt? Would Egyptians really be better off today if Western mobile operators had decided, long before the events of January 25th, that it was just too risky, or too difficult, to do business in Egypt?

To ask the question is not to apologize for Vodafone. But it is worth asking what sorts of compromises are acceptable, especially since mobile telephony and mobile-based services like SayNowhave stepped into the breach now that Egyptian ISPs are offline, allowing Egyptians to communicate – albeit not without interruption – with each other and with the outside world.