Management’s Three Eras: A Brief History

 Rita Gunther McGrath

July 30, 2014

Organization as machine – this imagery from our industrial past continues to cast a long
shadow over the way we think about management today. It isn’t the only deeply-held and
rarely examined notion that affects how organizations are run. Managers still assume that
stability is the normal state of affairs and change is the unusual state (a point I particularly
challenge in The End of Competitive Advantage). Organizations still emphasize exploitation
of existing advantages, driving a short-term orientation that many bemoan. (Short-term
thinking has been charged with no less than a chronic decline in innovation capability by
Clayton Christensen who termed it “the Capitalist’s Dilemma.”) Corporations continue to
focus too narrowly on shareholders, with terrible consequences – even at great companies
like IBM.

But even as these old ideas remain in use (and indeed, are still taught), management as it is
practiced by the most thoughtful executives evolves. Building on ideas from my colleague
Ian MacMillan, I’d propose that we’ve seen three “ages” of management since the industrial
revolution, with each putting the emphasis on a different theme: execution, expertise, and
empathy.

Prior to the industrial revolution, of course, there wasn’t much “management” at all –
meaning, anyone other than the owner of an enterprise handling tasks such as coordination,
planning, controlling, rewarding, and resource allocation. Beyond a few kinds of organization
– the church, the military, a smattering of large trading, construction, and agricultural
endeavors (many unfortunately based on slave labor) – little existed that we would recognize
as managerial practice. Only glimmers of what was to come showed up in the work of
thinkers such as Adam Smith, with his insight that the division of labor would increase
productivity.

With the rise of the industrial revolution, that changed. Along with the new means of
production, organizations gained scale. To coordinate these larger organizations, owners
needed to depend on others, which economists call “agents” and the rest of us call
“managers”. The focus was wholly on execution of mass production, and managerial
solutions such as specialization of labor, standardized processes, quality control, workflow
planning, and rudimentary accounting were brought to bear. By the early 1900’s, the term
“management” was in wide use, and Adam Smith’s ideas came into their own. Others – such
as Frederick Winslow Taylor, Frank and Lillian Galbreth, Herbert R. Townes, and Henry L.
Gantt – developed theories that emphasized efficiency, lack of variation, consistency of
production, and predictability. The goal was to optimize the outputs that could be generated
from a specific set of inputs.

It is worth noting that, once they gained that scale, domestically-focused firms enjoyed
relatively little competition. In America, there were few challengers to the titans in the
production of steel, petroleum products, and food. Optimization therefore made a lot of sense.
It is also worth noting that in this era, ownership of capital, which permitted acquisition and
expansion of means of production (factories and other systems), was the basis for economic
well-being.

Knowledge began accumulating about what worked in organizational management. While

Thus the seeds were planted for what would become the next major era of management,
emphasizing expertise. The mid-twentieth century was a period of remarkable growth in
theories of management, and in the guru-industrial complex. Writers such as Elton Mayo,
Mary Parker Follett, Chester Barnard, Max Weber, and Chris Argyris imported theories from
other fields (sociology and psychology) to apply to management. Statistical and mathematical
insights were imported (often from military uses) forming the basis of the field that would
subsequently be known as operations management. Later attempts to bring science into
management included the development of the theory of constraints, management by
objectives, reengineering, Six Sigma, the “waterfall” method of software development, and
the like. Peter Drucker, one of the first management specialists to achieve guru status, was
representative of this era. His book Concept of the Corporation, published in 1946, was a
direct response to Alfred P. Sloan’s challenge as chairman of General Motors: attempting to
get a handle on what managing a far-flung, complex organization was all about.

But something new was starting to creep into the world of organization-as-machine. This was
the rise of what Drucker famously dubbed “knowledge work.” He saw that value created
wasn’t created simply by having workers produce goods or execute tasks; value was also
created by workers’ use of information. As knowledge work grew as a proportion of the US
economy, the new reality of managing knowledge and knowledge workers challenged all that
organizations knew about the proper relationship between manager and subordinate. When all
the value in an organization walks out the door each evening, a different managerial contract
than the command-and-control mindset prevalent in execution type work is required. Thus,
new theories of management arose that put far more emphasis on motivation and engagement
of workers. Douglas McGregor’s “Theory Y” is representative of the genre. The idea of what
executives do changed from a concept of control and authority to a more participative
coaching role. As organizational theorists began to explore these ideas (most recently with
efforts to understand the “emotional intelligence” factor in management, led by writers such
as Daniel Goleman), the emphasis of management was shifting once more.

Today, we are in the midst of another fundamental rethinking of what organizations are and
for what purpose they exist. If organizations existed in the execution era to create scale and in
the expertise era to provide advanced services, today many are looking to organizations to
create complete and meaningful experiences. I would argue that management has entered a
new era of empathy.

This quest for empathy extends to customers, certainly, but also changes the nature of the
employment contract, and the value proposition for new employees. We are also grappling
with widespread dissatisfaction with the institutions that have been built to date, many of
which were designed for the business-as-machine era. They are seen as promoting inequality,
pursuing profit at the expense of employees and customers, and being run for the benefit of
owners of capital, rather than for a broader set of stakeholders. At this level, too, the
challenge to management is to act with greater empathy.

Others have sensed that we are ready for a new era of business thinking and practice. From
my perspective, this would mean figuring out what management looks like when work is
done through networks rather than through lines of command, when “work” itself is tinged
with emotions, and when individual managers are responsible for creating communities for
those who work with them. If what is demanded of managers today is empathy (more than
execution, more than expertise), then we must ask: what new roles and organizational
structures make sense, and how should performance management be approached? What does
it take for a leader to function as a “pillar” and how should the next generation of managers
be taught? All the questions about management are back on the table – and we can’t find the
answers soon enough.