Make No Mistake: The New Management Has Arrived

Tom Peters

As a long-time student of the history of management, I am astonished to see the coincidence of viewpoint emerging on the management scene. Practitioners, pundits, and reporters alike are quickly homing in on the models of management required for the new shape of competition in utilities, financial services, and healthcare, as well as in steel, autos, computers, and retailing.

Consider so-called vertical integration (owning all elements of production, from the iron mine to the auto assembly plant, for example); it has long been a bedrock American business belief. Yet a recent Industry Week magazine cover story was titled “Doing It All Yourself. … and Ensuring World-class ‘Underperformance.'” It starts, “The demise of highly vertically integrated manufacturing companies is upon us. The wisdom within industry is that the failure to disintegrate could lead to true disintegration. Now, less is more. Minimization is in.”

That is, inefficiency, not efficiency, turns out to accompany owning too big a chunk of the action. The article declares, “When manufacturers were in oligopolies or monopolies, they didn’t have to worry about cost as much as they do when there’s loads of competition. … Now, those companies that are highly integrated have an inherent disadvantage. Their costs are typically higher …” That’s hardly the logic of yesteryear, when vertical integration was undertaken specifically to yield cost efficiencies. Moreover, says Industry Week, “The trend in manufacturing is toward developing a competitive niche, and that’s related to less vertical integration.”

But to de-integrate, in many minds, means shipping jobs offshore, probably to Asia. That is not necessarily the case, as Joel Kotkin makes clear in the current issue of Inc. magazine. In “The Great American Revival,” Kotkin observes that big manufacturing has indeed been in decline, shucking 1.4 million jobs between 1974 and 1984. At the same time, however, small manufacturing firms with 250 or fewer people have grown in number by 41,000, and have added 1.5 million jobs. “People have developed a mythology about size,” notes one venture capitalist Kotkin quotes. “In sharp contrast to the mass-production-oriented giants of the last industrial era,” Kotkin adds, “the new stars of manufacturing are small, highly focused companies whose fortes are flexibility, customization, and market sensitivity.”

If these two coincident, unconventional assessments of management practices weren’t enough, turn to Peter Drucker’s provocative “The Coming of the New Organization,” the lead article in the current issue of the Harvard Business Review. Drucker, too, turns his back on the excesses of large scale. He touts flexibility and even suggests that the new organization, featuring new information technologies, may have “no middle management at all.”

Meanwhile, similar radical themes emerge in Jack Grayson’s (founder of the American Productivity Center) and Carla O’Dell’s just-released and well-received American Business: A Two-Minute Warning—Ten Changes Managers Must Make to Survive Into the 21st Century. The authors’ new success requisites, derived from exhaustive observation and research, include “small operating units with fewer, more highly skilled people per unit,” “few management levels,” and “flexible product mix …” Grayson and O’Dell wax heretical as they exhort us again and again to replace our traditional emphasis on hardware with a new emphasis on human capital.

The real world simultaneously chimed in with clear-cut confirmation of the findings I’ve just reported. On January 28, IBM announced a reorganization that Chairman John Akers described as “a fundamental change … as significant as any we have ever made.” The reason, said the the Wall Street Journal, was IBM’s “being too unwieldy to exploit market niches and develop new products quickly.” The hallmark of the new organization will be radical (by past standards) decentralization.

But the most unsettling assessment of management practice comes from another article in February’s Inc. that discusses several management gurus’ favorite business biographies, including My Years with General Motors, by Alfred Sloan. Respected University of Southern California professor Jim O’Toole, who also is editor of a magazine appropriately called New Management, explains why Sloan’s book is his favorite: “[It] is internally so consistent, so well argued, so convincing that it became the model for how managers should think … The intriguing thing is that it’s all wrong. For example, for the first 300 pages or so, Sloan seems oblivious to the fact that there are any employees in the company. …[The book] helps me understand what’s wrong with the management of large companies in America. … By reading this book, [my business students] learn which management practices to avoid.”

And if such an assessment seems too far out, refer to Fortune‘s February 15 cover story featuring a haymaker aimed at General Motors by former director Ross Perot. Before launching his litany of charges, including inflexibility and inattention to people and customers, Perot blurted, “We’ve got to nuke the GM system. We’ve got to throw away Sloan’s book.”

Any one of these out-and-out attacks on core management beliefs would have raised eyebrows just 36 months ago. To have them all besiege us in the space of just a few days is startling confirmation that the for-so-long comfortable world of management practice has truly been turned upside down.