A background for interviews
The flawed nature of modern-day ASX annual investor reporting remains locked in alignment with views of organisational management that are past their prime in adapting to the realities of the learning age’s post-industrial businesses.
These businesses’ underpinning enterprise logic, and that of industrial capitalism, was originally built on structural foundations of bureaucracy and functional hierarchy.
Based on military precedent, the traditional leadership model for business became that of command and control.
Under this model, power resided with the board and chief executive and devolved downwards through the senior executives and their reporting managers.
It filtered down through the hierarchy to the lowest rungs of the organisational structure, with those at the coal-face charged with interacting with the market, with customers, suppliers and rivals typically being excluded from decision making and strategy setting.
Against this view of the world, in hierarchical organisations, for those armed with it, the need to retain and lock down management control, can present a more powerful need and entrenched mental model than even the requirement that they produce profitable results.
Moreover, the change it is imposed to counter is not now just quicker but also unpredictable and discontinuous.
The challenge of an increasingly uncertain future
Insightfully, pre-internet even, in 1991, Charles Handy* contrasted discontinuous and incremental change in the following manner:
Thirty years ago [that company] saw the future as largely predictable, to be planned for and managed. Today they are less certain. Thirty years ago, most people thought that change would mean more of the same, only better. That was incremental change and to be welcomed. Today we know that in many areas of life we cannot guarantee more of the same, be it work or money, peace or freedom, health or happiness, and cannot even predict with confidence what will be happening in our own lives.
All these years on, such discontinuous, constant upheaval is clearly presenting ever greater disturbances for corporations and, as a consequence, on the theoretical frameworks we must apply to understand and operate in today’s organisations.
Moreover, there are those who still perceive digital innovation as a wave, when in reality the ride we are in for is most likely much more disruptive and as wild and capricious as the as yet unexplored edges of the collective commercial human imagination.
The “wave” view of digitisation suggests that once it subsides, everything will resolve to a new and predictable normal. Others, however, ourselves included, view internet-driven digitisation as a tide that is in perpetual and powerful motion, exacerbating precisely the discontinuity of which Handy wrote.
Through the combination of constant network connections, colossal cloud-propelled computing power, constant data streamed and marshalled by predictive analytics and the endless attraction of apparently infinite investment capital is emerging a new era for business, whose essential quality is of consistent innovation, pervasive data-driven insights and ever-faster cycle times.
As a new commercial force, pervasive digitisation is therefore not a wave that will pass, but a surge of enabled, connected human imagination which is picking up intensity as technology evolves. And, alongside this reality, the definition of managerial work must evolve.
Like Handy, even 30 years ago, in 1989, Rosabeth Kanter** argued that contemporary managers needed to rethink the ways in which they conceived of managing in the post-industrial era.
She wrote that:
- Strategy is no longer the exclusive province of top management and limited to officially sanctioned strategic plans. All organisational participants are now expected to think and act strategically in their day-to-day work.
- Position within a hierarchy has become a tenuous basis on which to build authority and power. Increasing numbers of organisational participants are expected to be – and expecting to become – empowered and responsible for their work. Moreover, many organisational participants have significant intellectual capital and expert forms of power.
- A master-servant mentality has little relevance for many management issues that now involve spanning and regulating inter-organisational boundaries, regulating transactions with long-term partners, contract workers and external stakeholders. Collaboration is becoming a new form of control.
As Kanter pointed out, the “distinction between managers and those managed is diminishing”; second, career paths have become “less intelligible”; and, third, “carrot and stick” models of motivation are no longer seen as the way forward.
Consequently, as the power of hierarchy and command and control structures are undermined by changing conditions and attitudes, managers need to re-evaluate their tool kit of resources for managing.
Efforts to put a lid on this force for change are unlikely ever to work out well for those who attempt to do so.
The reality is of managerial resistance to change
Against this, in established organisational cultures, in denial of the need to change, standard enterprise logic remains organised to reproduce itself at all costs, with executives aiming to protect their salaried self-interest through hierarchical status and position, and by adopting risk-averse and conservative positions and practices.
Where they exercise it, the primary source of effective resistance to change by managers remains the functional hierarchical structure, even when it may no longer make profit-generating, shareholder value-maximising commercial sense to do so.
The consequence is that structural and cultural inhibition of change persists in many organisations.
It is by adhering to established processes, so often undiscussed and beyond discussion, that even when they proclaim themselves to be changing, organisations defy the need for necessary root and branch adaptation to patent emerging circumstance.
Even when the world itself is transforming dramatically beyond the walls of the business, managerial articulation of change may remain rhetorical only.
In many organisations, such entrenched enterprise logic has become so deeply taken for granted that it is no longer visible.
And thus, when shared mental models of “how the world works” become embedded, and without curiosity being exercised and with orthodoxies remaining unchallenged, neither managers nor workforces are likely to question assumptions they no longer see.
This is even worse for external investors and owners who see even less.
This legacy model of organisation seemed fixed and eternal until the arrival of the internet and its accompanying technologies enabled the success of completely new and unimagined business disruptors – Amazon, Google, Facebook, Airbnb, Uber and so on – over the past 20 years or so.
Shareholders deserve better
Annual shareholder reporting, taking the unquestioning rearward view of congratulating such old style hierarchical behaviours, is still stuck in a bygone age.
And, just as those legacy structural forms, it too reflects an outmoded backward-looking form of enterprise logic, when change had the appearance that it was just more of the predictable same and an incremental extrapolation of the familiar past that could be controlled.
In spite of the increasing signs that functional hierarchical structures are inhibiting mission-pertinent learning in organisations, this organisational form persists.
Investors simply need to be warned that this thinking is clearly no longer appropriate to the current age.
In the new world of knowledge capitalism, such blockages to learning can not endure without killing the organisation they are designed to protect. In this world, it is the cancer of ignorance that is going to kill any business.
At a time of massive, fundamental, structural change in the digitising economy, any investor will want to know that the companies they have invested in are fit for the future, and are ready and constantly preparing for whatever change comes at them next.
As the world changes unpredictably and discontinuously around them, without a better expression of how companies are preparing for where they are going than of where they have been, investors are at risk of being shortchanged.
Just as the hierarchical structure is a legacy of past times, investors now need to understand how the companies they will invest in are preparing through learning for the structural upheavals and persistent evolution required to compete in the years of full-bore knowledge capitalism ahead.
Except for those that fail, the future for investors really does look nothing like the past.
* Handy C, 1991, ‘The Shamrock Organization’, The Age of Unreason, Century Business, Great Britain, ch. 4, pp. 70– 92.
** Kanter R M, 1989, ‘The new managerial work, Harvard Business Review, vol. 67, no. 6, pp. 85–92.