By and large, current management principles and practice are a throwback from a relatively placid era long gone. Their intellectual moorings are largely the handiwork of legendary management guru Michael Porter whose Five Forces model of the business enterprise, to this day, continues to dominate management thinking and practice — three and a half decades since the publication of his classic work, “On Competition.”
However, for all their current popularity, these ideas and the management principles that they imply have become irrelevant in today’s fast-paced world of business.
THE EVOLVING WORLD OF BUSINESS
With the advent of the computer age in the early nineties, and with the increasingly global scale of the flow of economic goods, financial services and information, the business environment has become extremely and irreversibly complex, volatile and uncertain. Under these dynamic conditions, “solving” management problems in the usual manner is no longer feasible.
There are no lasting “solutions” to problems that shift by the day!
Today’s economy is best described by the following essential characteristics:
• High-intensity interconnectivity
• Knowledge-based production technologies
• Value creation on a global scale
• Non-linear instability, unpredictability and ambiguity
These features of the New Economy require a totally different approach in the way we manage, and by extension, in the way we teach business.
A TEN-POINT MANAGEMENT AGENDA
For the purpose of moving from where we are now to where we ought to be, we propose a Ten-Point Agenda for management in the emergent world of business:
1. On the concept of the firm: From one that seeks to maximize immediate profits or shareholder wealth to one that seeks to maximize the production of economic value.
It can be shown that, properly executed (i.e., by implementing appropriate strategies for allocating value to all other stakeholders), value maximization invariably leads to the maximization of profit or shareholder wealth, treated in our model of the firm as a residual.
2. On the nature of the business organization and its environment: From a given set of institutional arrangements and governance mechanisms to one characterized as continuously evolving Complex Adaptive Systems (CAS).
3. On the strategic goal of the firm: From establishing dominance in existing markets to prepositioning in emerging ones.
4. On the source of market strength: From competitive advantage to collaborative advantage.
5. On the major source of core competency of the business: From financial and physical capital to Human Capital, in particular, the knowledge and skills that are embedded in people.
6. The main implementing business model: From one that emphasizes revenue generation, efficiency and cost effectiveness to one that stresses innovative and creative business solutions.
7. The major sub-areas of strategy: From strategies in the specific managerial functions of production, marketing, finance, and human resources management to strategies for creating value for the firm’s major stakeholders — its customers, its workers, its suppliers, and the community of which it is an integral part.
8. Corporate Governance: From exclusivity, or one focused solely on the interests of owners or stockholders to inclusivity, or one that factors in the economic interests of all groups that contribute to the process of value creation, in particular, those who represent the poorest segments of society.
9. Corporate Social Responsibility: From social responsibility as altruism and philanthropy (doing good), to social responsibility as an integral part of strategy for the sustainability of the business (doing well).
10. Preferred analytical and decision-making tools: From statistical analysis and mathematical modelling for the purpose of predicting outcomes and finding optimal solutions to business analytics and agent-based modelling for the purpose of discerning patterns.
TOWARDS A NEW BREED OF BUSINESS LEADERS
The role of an organizational leader has traditionally been defined as one of setting a clear and unified vision of the organization and providing a sense of direction for achieving its goals. However, in today’s complex and unpredictable business environment, setting a well-defined trajectory for the organization has become an impossibility.
In today’s digitally driven world, running a highly interconnected business enterprise requires a new brand of leadership, that of managing interphase. This entails two sets of leadership skills:
• Those of managing interphase in complex and continuously evolving enterprise settings that consist of highly interconnected and interactive components and processes, and
• Those of managing interphase between the immense computational capabilities of Artificial Intelligence on the one hand, and the creative, instinctual and emotional faculties of humans on the other.
The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.
Niceto S. Poblador is a member of the MAP Corporate Governance Committee, a retired U.P. Professor, and until recently was Professorial Lecturer at the U.P. School of Economics.