The future of management

Gary Hamel is the strategy guru's guru. The visiting professor of strategic and international management at the London Business School has been described as a "management innovator without peer" by Financial Times and ranked among the 25 most influential business thinkers of the 20th century by Journal of Business Strategy.

He is the author of Leading the Revolution and coauthor of Competing for the Future, seminal works that have spent weeks on all management bestseller lists. In The Future of Management, launched last fortnight, Hamel puts forward a provocative, new theory: management as it is now practised has outlived its utility. In fact, legacy beliefs prevent organisations from overcoming new, 21st-century challenges. The way forward is management innovation: new ways of mobilising talent, allocating resources and building strategies. An exclusive excerpt:

From innovation to advantage

Management innovation tends to yield a competitive advantage when one or more of three conditions are met: the innovation is based on a novel management principle that challenges some long-standing orthodoxy; the innovation is systemic, encompassing a range of processes and methods; and/ or the innovation is part of an ongoing program of rapid-fire invention where progress compounds over time...

...Why, after decades of trying, have America's indigenous automakers so far failed to duplicate Toyota's hyperefficient manufacturing system? This was one question I put to a senior executive group in one of America's big car companies a few years back. We had just finished a sumptuous dinner at an elegant hotel when, over coffee, one of the carmaker's top finance executives mentioned that the company had just completed its 20th annual benchmarking study of Toyota.

What, I wondered aloud, had the company learned in year 20 that it hadn't learned in years 19, 18, 17, and so on? The blunt subtext to my question hung in the air like acrid cigar smoke: Why are you still playing catch-up? After a moment of embarrassed silence, a senior staffer spoke up, and offered an explanation that went something like this:

Twenty years ago we started sending our young people to Japan to study Toyota. They'd come back and tell us how good Toyota was and we simply didn't believe them. We figured they'd dropped a zero somewhere - no one could produce cars with so few defects per vehicle, or with so few labor hours.

It was five years before we acknowledged that Toyota really was beating us in a bunch of critical areas. Over the next five years, we told ourselves that Toyota's advantages were all cultural. It was all about wa and nemwashi - the uniquely Japanese spirit of cooperation and consultation that Toyota had cultivated with its employees. We were sure that American workers would never put up with these paternalistic practices.

Then, of course, Toyota started building plants in the United States and they got the same results here they got in Japan - so our cultural excuse went out the window. For the next five years, we focused on Toyota's manufacturing processes. We studied their use of factory automation, their supplier relationships, just-in-time systems, everything.

But despite all our benchmarking, we could never seem to get the same results in our own factories. It's only in the last five years that we've finally admitted to ourselves that Toyota's success is based on a wholly different set of principles - about the capabilities of its employees and the responsibilities of its leaders.

Amazingly, it took nearly 20 years for America's carmakers to decipher Toyota's advantage. Unlike its Western rivals, Toyota believed that first-line employees could be more than cogs in a soulless manufacturing machine...In contrast, US car companies tended to discount the contributions that could be made by first-line employees, and relied instead on staff experts for improvements in quality and efficiency.

Such was the disdain for the intelligence of frontline workers that Henry Ford once wondered querulously, "Why is it that whenever I ask for a pair of hands, a brain comes attached?"

...As this example illustrates, management dogmas are often so deeply ingrained as to be nearly invisible, and so devoutly held as to be virtually unassailable. When it comes to management innovation, the more unconventional the underlying principle, the longer it will take for competitors to respond. In some cases, the head-scratching can go on for decades...

Management innovation in action

If you have ever shopped at Whole Foods, you know it is not your grandma's supermarket. Stuffed full of organic and natural products, a Whole Foods store is a commodious, eye popping, mouth-watering temple to guilt-free gastronomy. Whole Foods' business model is built around a simple but powerful premise: people will pay a premium for food that's good for them, good tasting and good for the environment....

At every turn, this inventive company has taken the road less traveled. Whole Foods' commitment to organic produce and sustainable agriculture is unmatched by any competitor. Its stores are laid out to make shopping feel less like a chore and more like a culinary adventure.

And unlike its hide-bound rivals, which compete with promotion-driven, loss-leader pricing models, Whole Foods charges a premium for its super fresh, environmentally friendly products, a fact that has led some critics to re-brand the store, "Whole Paycheck." Nevertheless, Whole Foods has become the grocery store of choice for the hip and the health conscious - the supermarket equivalent of Starbucks.

Today, Whole Foods operates 194 stores and generates nearly $ 6 billion a year in sales. It is also America's most profitable food retailer when measured by profit per square foot...

Whole Foods' approach to management twines democracy with discipline, trust with accountability, and community with fierce internal competition. It is the skillful juxtaposition of these counterpoised values that makes the company's management system both uniquely effective and hard to duplicate

At Whole Foods, the basic organizational unit is not the store, but the team. Small, empowered teams are granted a degree of autonomy nearly unprecedented in retailing. Each store consists of roughly eight teams that oversee departments ranging from seafood to produce to checkout.

Every new associate is provisionally assigned to a team. After a four-week trial, the team mates vote on the applicant's fate: a newbie needs a two-thirds majority vote to win a full-time spot on the team.

This peer-based selection process is used for all new employees, including those hoping to join teams at Whole Foods' head quarters, such as the national IT and finance squads. The underlying logic is powerful, if unconventional: Whole Foods believes that critical decisions, such as whom to hire, should be made by those who will be most directly impacted by the consequences of those decisions.

...Small teams are responsible for all key operating decisions, including pricing, ordering, staffing, and in-store promotion. Consider product selection. Team leaders, in consultation with their store managers, are free to stock whatever products they feel will appeal to local customers. This is a marked departure from standard supermarket practice, in which national buyers dictate what each store will carry, and big food manufacturers pay thousands of dollars in slotting fees to get their products on the shelf.

At Whole Foods, no executive sitting in Austin decides which products will appear on what shelves. Stores are encouraged to buy locally as long as the items meet Whole Foods' stringent standards. As a result, every store carries a unique mix of products. Teams also control staffing levels within their departments, a prerogative that is elsewhere usually reserved for the store manager.

In essence, each team operates like a profit center and is measured on its labor productivity. While associates are highly empowered, they are also highly accountable. Every four weeks, Whole Foods calculates the profit per labor hour for every team in every store. Teams that exceed a certain threshold get a bonus in the next pay check.

Each team has access to performance data for every other team within its store, and for similar teams in every other store. The fact that no team wants to end up as a laggard adds to the motivation to do well. All this explains why the hiring vote is such a big deal at Whole Foods. Vote in a slacker, and your paycheck may take a beating...

This exceptional degree of autonomy conveys a simple but invigorating message: It is you, rather than some distant manager, who controls your success. The fact that this freedom is matched by a high level of accountability ensures that associates use their discretionary decision-making power in ways that drive the business forward.