Approach to Business Management

A new perspective on human nature, particularly on human needs, allows us to develop a dynamic model of the organization and an integrated top-down-bottom-up approach to management. Some of the major benefits of the resulting holistic inside-out-outside-in view include expanding the boundaries of the organization, bridging the gap between plan and execution, and increasing the owner's power in the management process.

Problem

"As a society, we were simply advancing toward understanding how to successfully perform increasingly larger sets of activities over increasingly longer periods of time. Unfortunately, what should have been a natural progression of our general understanding of business was diverted by historical circumstances on a dead-end road of knowledge. The quest for a fundamental theory of business was replaced by the quest for a theory of sustainable competitive advantage. Consequently, every effort to understand what it takes for a company to achieve enduring success was hampered by limitations inherent to the concept of strategy." This quote from my 2009 essay "A Wake-Up Call for the Business Nation" provides a high-level overview of the problem.

"We are approaching the end of an era," said David A. Garvin of Harvard Business School in 2010, while talking about the future of business education (http://hbswk.hbs.edu/item/6363.html). Gary Hamel, who detailed many aspects of the "management 1.0" problem in his book "The Future of Management," has even taken the initiative to start this very project (Management Innovation eXchange) in an attempt to provide a fix. Also, it is important to mention that Henry Mintzberg has been sounding the alarm, so to speak, for a long time now -- he "wrestled" with Harvard's strategic planning champions (particularly, Michael E. Porter) numerous times in some of the top management journals. But simply pointing out to the problems associated with the top-down, plan-then-execute approach to management, without providing an alternative, has small chances of changing the status quo. And in this respect, Thomas Kuhn's concept of paradigm shift (http://en.wikipedia.org/wiki/Paradigm_shift) provides some insight into why we are dealing with a significant undertaking here.

Unfortunately, this is not just an academic sparring match. Many venerable companies are being destroyed in front of us not because of some unforeseen outside forces, but mainly because of their leadership team's surprisingly poor understanding of how businesses work. In the early two thousands, Motorola was riding high, primarily driven by the success of its cell phone RAZR. Just a few years later, the company had to be broken down into pieces in order to survive. Its management had aggressively pushed and discounted the phone, inadvertently accelerating its commoditization, while failing to follow up with a higher-value offering. It was an episode that shares many similarities with what happened to IBM in the early nineties, when they focused too much on the PC business. The list goes on and on, but lacking a sound understanding (read "theory") makes even the exercise of framing a mistake difficult. As a result, many executives get a "free pass" and continue to enjoy their mystical status, while the rest of the world has a hard time even perceiving that there is a problem (other than the rather-superficial problem of individual greed and lack of ethics).

While Prof. Hamel brought together a group of management thinkers to identify the moonshots that serve as guidance for the MIX initiative, I believe that the business world's main problem is its reliance on an obsolete way of thinking. A more comprehensive, more realistic theory of (understanding and doing) business would address most of the issues identified and articulated as the MIX moonshots, as most of them actually flow from the "philosophy" issue. (The list of moonshots is not mutually exclusive and collectively exhaustive, containing overlaps and causal relationships that should be discussed at one point.)

Solution

As indicated above, the solution presented in this hack is a theory of (understanding and doing) business that provides a more comprehensive and realistic explanation of how organizations fundamentally work. To concisely illustrate its value, it is useful to momentarily think about physics. So, we know that, to analyze and understand the dynamics of a system of objects, we need to analyze all the movements within that system in relation to the same frame of reference (http://en.wikipedia.org/wiki/Inertial_frame_of_reference). Think of two objects laying on the floor of an elevator. Relative to the elevator, the two objects are at rest; while relative to the ground, the objects are moving up and down, following the motion of the elevator. However, if we analyze one object in relation to the elevator and the other one in relation to the ground, we get a rather confusing view of the system formed by the two objects, with one being at rest and the other moving. Similarly, we use systems of reference in business, as we attempt to understand where things have been and where they are going. Products (as well as the competition or industries associated with the products) and a company's resources (also variations like competencies and capabilities) are the most common systems of reference. Unfortunately, while the former tends to have a short life and a limited scope, the later tends to have a fuzziness associated with it that severely limits its usefulness. The theory introduced here solves this problem by providing a system of reference rooted in human nature, thus transcending time, geographies/cultures, resources, as well as offerings (generic term for products, services, or combinations of the two).

I will describe the new theory as it was built block-by-block, using a few slides from my 2006 presentation "A Fundamental Theory of Business" (http://www.redefiningstrategy.com/TheoryOfBusiness.pdf). These slides are up for some slight refinement, but they should be enough to get the point across. I will also try to do my best in explaining the aspects that have been refined since these slides were put together in 2006.

1. A NEW THEORY OF NEEDS AND HUMAN BEHAVIOR

The foundation of the new theory is a new perspective on human nature. It was detailed in my 2007 article "A Business-Relevant View of Human Nature" (http://www.redefiningstrategy.com/HumanNature.pdf). Also, as I mentioned