Twenty years after the start of the leadership craze in the early 90s, it should now be abundantly clear to anyone following this topic that it has very little to show for all the investment that has been made. Yes, we have gained a much better understanding of what makes a great leader, but I would venture that the overall quality of leadership in organisations has not improved. The Gallup surveys on employee engagement have hardly moved over that time frame and other studies have similarly failed to see an improvement in employees’ satisfaction with their managers. It’s time to ask why and what needs to be done, as employee expectations of their leaders continue to increase and Gen Y and Millenials are seeking a completely different style of management.
I believe that in order to resolve the disconnect between the massive focus and investment into leadership and the lack of results we need to go back in time and look at the model of the modern corporation and where it stems from. The evolution of the modern corporation started with the invention of steam power and the railways. In the 1840s and 1850s railroad companies invested massive amounts of money in the laying of tracks, locomotives and railway stations. These projects dwarfed anything before them both in terms of both capital requirements and complexity. A new organisation structure had to be invented to pull this feat off – a model that separated ownership from management and control. The need for vertical integration also demanded centralised decision making and top-down command and control. The result was a work breakdown based on precise definition of roles and tasks together with systems ensuring repeatability and measurability of outcomes.
The second stage of the evolution of the modern corporation came with the onset of oil and electricity – Standard Oil and Ford/General Motors refined the business model of the mid 19th century by further divorcing ownership from control, by creating ‘professional managers’ and by building their organisations around policies, systems and structures. The reason was again that the capital requirement of these new industries was truly astronomical and that they had to create new markets, which they did through vertical integration. The key factors that informed organisational design where the speed of transport (cars/trucks) and the speed and bandwidth of communication (telephone and print). The bureaucratic business model they implemented suits both vertical integration and these technologies to a tee.
What has happened since is that we have created an information revolution that has vastly increased the speed and bandwidth of communication and we have enlarged the geographic scope of company operations to span the globe for multinational corporations. What hasn’t happened is that we are still essentially running on the same business model perfected in the 1920s. Taylor’s scientific management may not mean much to anyone unfamiliar with the history of management, but we are still using most of his principles today (define the most efficient way to do tasks; match workers to jobs based on skills and train them; monitor performance and correct when required; manager’s job is to plan, train and supervise the workers). From what I can see we have added matrix management, teamwork and leadership and we have flattened hierarchies a bit, but that’s about it. The reason it’s not really working is that the changes have simply not been enough to keep up with both rising skill levels (and therefore expectations – Taylor assumed workers were motivated by money only) and increasing communication speed and volume.
So how can this brief historical overview explain the failure of the massive investment in leadership development? Leaders exist within a context and what I am alluding to is that the context has not changed. We may have been talking a lot about the need for leadership, but the organisational design principles are still largely straight out of the 1920s cookbook. Individuals with a real talent for people leadership (around 10% according to Gallup research) have basically zero chance of being recognised and promoted for their specific talent. As long as we organise work based on task/measurement and command/control principles, leadership will always come off second best. Leadership is about motivating, inspiring, purpose and change and all of these words really don’t go along well with our still hierarchic and bureaucratic business model.
Have there been sufficient changes to move to a new, better organisational design beyond the recent improvements in communication? In many industries, it would appear so. For a start, most companies today no longer have huge capital requirements. Car and aircraft manufactures, mining and oil companies are the exception today, not the rule. Yet most other industries still seek to replicate a business model that was predicated on vertical integration and massive capital outlays. We can see the development away from this model in the outsourcing and freelancing trend of the last 20 years. This is not just about taking advantage of low-cost locations and talent-on-tap, it is also a reflection of the fact that we now have instant, global scale communications which does away with the need for top-down hierarchical control.
I would venture that we are living through the last phase of a transition period to a new business model for organisations. Beyond the reasons I have already given, we are now seeing the emergence of the sharing economy (Open Source, Airbnb, Uber, etc.) which will further reduce capital requirements in many sectors. We are also seeing the emergence of what Aaron Hurst calls the Purpose Economy, in which meaning, purpose and values become the organising principles of organisations. It becomes immediately obvious that authentic leadership, not management, is central to such an organisation model. Further we have seen the emergence of tiny organisations that control global markets (Facebook has just 6,500 employees, Twitter has 2,500). Together, these trends imply the possibility of creating a new organisation model, based on less capital, bureaucracy and management; instead on purpose, autonomy and leadership. Now that would be truly exciting!