Imagining the Future and the Second Curve.
I was recently given the gift of a really interesting book, written by Charles Handy, the author of many management books and an observer and commentator on broader issues that are impacting the quality of our lives as individuals and business people today. Handy grew up less than 14 miles from where I now live and I found it interesting to have him comment on the impact of growing up, in what was then rural Ireland, and observing the differences with the passing of 60 years.
Handy delivers some interesting insights in this recent book – “The Second Curve – Thoughts On Reinventing Society”. In 16 individual essays, he takes a look at how life and business have changed in his lifetime and the implications of us accepting the status quo compared to what might be possible. The problem is that the status quo is constantly changing whether we want it to or not, so standing still may not be a realistic option.
One of his observations is that “Governments twist and adapt but are more concerned to stay in power than to conjure up new visions and new possibilities”. This is evident in both Eastern and Western societies. It is quite clear that power can influence and corrupt, despite the best intentions of fair-minded leaders, politicians and public representatives. Then there is the law of unintended consequences, which is becoming more apparent for the political classes as we witness the United Kingdom’s disastrous decision to exit the EU in recent days.
When we look at the polarized positions of Donald Trump and Hilary Clinton and their battle to become president next November, we become acutely aware that voters will choose their preferred candidate on the basis of the one they dislike the least rather than on specific policies either politician is promoting. Couple this with a Congress that does not work because party politics overrule what may be for the common good, and it becomes impossible to implement sensible policies due to ongoing stalemates. Despite his controversial views, consider that Trump gets the majority of his support from low paid blue-collar workers and not from wealthy people like himself. It is the politics of discontent at work.
We tend to get the Governments we deserve and this is increasingly driven by the same politics of discontent we see in the United States and elsewhere. Earlier this year in Ireland, there was an inconclusive result in parliamentary elections, which meant that the balance of power was decided not on issues of importance for the country but on the basis of keeping the disliked politicians from previous elections out of power.
For the first time, a single large party along with a few power hungry coalition partners can no longer dictate policies and have them implemented without interference from a real opposition. Now we have a situation where all party support is required and independent members of parliament have a real say in what laws get passed and implemented. Not quite the stalemate we see in the United States, but not stable government either.
But getting back to Handy’s observations, he sees that new technologies and new values have changed the very fabric of how we live and that the future is more unpredictable and uncertain for our children and grandchildren. The day of having life long careers in a single employment are gone and he observes that forecasters are saying that half of today’s jobs will be gone within the next 15 years. So where is all of this rapid change leading us?
On The Power of Internet Giants
Handy draws attention to the fact that just 30 large corporations in the United States now control over half of all Internet traffic there. When the Internet was in its infancy in the 1990’s there were thousands of companies contributing to and competing in this new market. Also, organic search is starting to fade into oblivion with paid search now becoming the new norm if you want your business to feature anywhere near page one of search engine results.
The larger market-leading corporations now have the resources to buy out their competition and control the market and this is happening with increasing regularity. Microsoft purchased 53 businesses since 2010, including the acquisition of LinkedIn in recent weeks. Facebook has bought WhatsApp and 45 other competitors since early 2010. Google has made 136 strategic acquisitions since the beginning of 2010, including YouTube, according to Wikipedia
Handy observes that businesses used to last about 40 years on average before they collapsed or were taken over, but that this timeframe is now reduced to an average of just 14 years. Everything is going much faster.
On The Second Curve
In discussing the second curve, Handy explains that market participants cannot wait until a business or a market peaks before reinventing itself to ensure it continues on a successful path into the future. Instead, savvy business leaders need to anticipate the peak and fall off in the market for their products and have new products and strategies in place that kick in prior to reaching the top of the slope and certainly before the beginning of the downward slope for existing products and markets. Handy considers Steve Jobs to have been the master of the second curve.
In general, if the management team waits for the peak to arrive, the business will invariably be too late and perhaps a new executive team or new owners of the business will manage the second curve. The second curve starts prior to the peak of the old curve, and although dipping initially, it accelerates past the peak of the old curve and continues to ascend to a new peak of its own. Frequently, this requires a change of the top management team, as the old guard may not be willing or able to make the necessary direction changes to allow the business to continue in the required new direction.
On Creating Shareholder Value
Handy observes that there was a significant shift in the 1970’s when the concept of creating and enhancing shareholder value became the driving force in joint stock companies, following initial writings by Milton Friedman and later by Michael Jensen and William Meckling. This was a significant move away from the previous situation where all stakeholders of a business were deemed to be equally important. These writers advocated that directors and managers should align themselves with the shareholders, as if they were shareholders themselves, and maximize the return to the shareholders.
This culminated in directors and senior management receiving bonuses and stock options based on the performance of the share values. In fact, directors with options forming a significant proportion of their remuneration, heralded the arrival of the greed is good culture. A large disparity in the economic rewards earned by the senior management, when compared to the middle and lower level employees started to become the norm. The problem is that society as a whole has not benefited and just 1% of the population continues to get richer while the remaining 99% are no better off. This perhaps is a significant contributor to the age of discontent we see in the western world in recent years.
Handy postulates that we have got the balance terribly wrong and that companies are not just a creation of shareholders, directors and creditors but an association of all those working with and in the company for a common purpose. He believes that the responsibility of a business community is to do their job in the best possible way for all stakeholders and not just the elite at the top of companies.
On Management and Leadership
Handy says that “management is the glue that holds society and organizations together but it is leadership that decides where they are going and who will accompany them”. Similarly, he is of the view that management describes the organization of things or systems whereas leadership is all to do with people. Not many people like to be managed but they are content to be led. Nevertheless, Hardy believes that “well defined management systems need leadership within them to provide the heart and the energy”.
On Trust Versus Control
In the modern work environment, employees prefer to be trusted to take the right decisions in relation to how they do their jobs as opposed to being monitored and controlled to ensure they do their jobs the right way. Empowerment creates a powerful dynamic that allows employees to make decisions, which they believe are right for the business. Yes, there can be a cost when employees get it wrong on occasion but there is also a cost to tight monitoring and control. But which environment would the average employee prefer to work in and where will productivity be higher?
On Efficiency Vs. Effectiveness and Doughnut Management
In simple terms, efficiency starts from the input end whereas effectiveness works back from the end results, according to Handy. The application of efficiency practices has a direct bearing on effectiveness. If a business decides to cut costs to increase efficiency, they may inadvertently curb initiative from employees by removing their ability to take decisions without permission. The resulting confusion prompts management to exercise more control while eradicating initiative on the part of employees. As Handy puts it “efficiency becomes the enemy of creativity just when you need more and better ideas”.
Handy believes that doughnut management may be the answer to these conflicting imperatives. He describes the English doughnut with jam in the middle as a useful model for all jobs and team projects. The jam represents the core essentials of any job or project and the surrounding pastry is the empty space that allows for the inclusion of new initiatives. The jam is prescriptive whereas the surrounding pastry is open to interpretation and flexible inclusions by the employees charged with completing the task or project.
Doughnut management involves inculcating the employees with the values and core purposes of the organization and trusting them to make the right judgments and decisions within the undefined space surrounding the core essentials. A precursor to this is that the employees have the training, competences and the necessary costs and profitability information to make the correct decisions. It requires an initial investment is employee development but trust is cheaper than control in the greater scheme of things.
Naturally, it is impossible to synthesize an entire book into a few short paragraphs. That said, I have tried to share what I believe are the central tenets of Handy’s book and what they mean to me. Handy goes into lots of detail about his views and the implications for the future as he sees them. It is well worth reading and I would thoroughly recommend it. The publisher is Penguin/Random House and it is available on Amazon at the following link.