[Music] [Music] business school first question Gary comes from the title of your book what matters now well I think there are five things I'll be very brief that matter now I think first of all values matter more than ever before I think around the world capitalism is on trial uh I think by and large by the way the problem is not with capitalism but with a few capitalists but as people around the world have looked at large organizations I think they're increasingly anxious distrustful of of power in business and also power in government and I
think we're on a cusp of really a deep sea change there because uh the web has empowered individuals as never for it makes every instance of corporate Mal feasance visible around the world so people are holding companies to higher ethical standards and I think that's appropriate but as a leader as a manager an executive we really have a choice if we don't fully step up to these new ethical responsibilities we will have more and more rules imposed upon us as as business people so we really have this choice of whether we have a rules based
control system or a values-based system and I would argue we need the latter that's the way we preserve the dynamism the enthusiasm of capitalism but capitalism has to become much more socially accountable than it's been let's let's explore a little more this issue how to face this capitalist crisis well I think I think a new ethic is required and I think um you know it's it's it's I don't believe that this generation of leaders is somehow less ethical than the generation that's come before but I think other things have changed uh first of all as
I said the web now makes any kind of corporate mistake so visible there are no dark corners on the web there's no place to hide if you have some suicides at a supplier in Asia 20 years ago no one would have known today even if that's not your company you have to send in a team you have to audit them you have to take responsibility for that I would say uh number two as organizations have become larger through Global consolidation uh their choices are much more consequential so people expect that these large organizations should be
held to a higher standard I think that's fair and then thirdly I think you have a a kind of an emerging Global Consciousness again thanks to the web where we realize that we breathe the same water we live on the same Planet the same environment we expect the same standards of work to apply around the world and so I think ethical standards are in a sense leveling up but that hasn't necessarily happened inside of most organizations if we don't kind of raise the ethical caliber in our companies if we don't think about the moral Capital
as well as our physical capital in companies then I think we're likely to find ourselves more and more constrained you already see this around the world you see it in banking more and more rules more more regulation so for sure capitalism is going to be bound the only question is do we bound it with our own values our sense of Ethics or do we wait for the regulators and the legislators to bind us in a way that diminishes the ability of capitalism to grow new businesses to reallocate resources and so on which I think is
critical you said that management was one of the best invention of last century but nowadays it stopped evolving could you explain that well I think so and and you know human Prosperity has been hugely um uh driven over the last 100 years by Innovations and management uh how do you bring people together to do things at scale all the scientific innovation wouldn't matter at all if we couldn't somehow produce these products and services in ways that were affordable to every human being around the world having said that my argument is management is also becoming a
an impediment to organizational success you know a lot of folks forget you know that that management really as as a discipline as a technology is only about a hundred years old uh of course we've had kind of hierarchical structures back to the Roman army and the pyramids but modern mans about 100 years old and it was built to solve a very particular problem it was built essentially to turn human beings into semi- programmable robots because you needed people who are as reliable and as precise as the machines and so in a way management was invented
to drive the variability out of organizations we wanted people to conform to work rules to quality standards to schedules and so on that was a huge accomplishment and yet today we find oursel in this world where where where wealth creation and growth comes from The Irregular people with irregular ideas creating irregular products and services that produce irregular profits so we have a management system that was all driven to to to all designed to ensure conformance and alignment and control and now suddenly we're in a world where you still need that but now you need the
creativity and the imagination the initiative and we're going to have to reinvent management so we can have both of these things in our organizations so control and alignment and conformance don't always win how the traditional company structure can cope with all these challenges well I think you know how do you reinvent a very complex social technology like management is a challenging uh a challenging question it certainly won't happen happen all at once you know if you go back and you think about the invention of of what I might call management one. that essentially happened over
about 25 years or so from n from 1890 to about 1915 and if you were living in most parts of the world in 1890 it was still an agrarian economy uh the average Manufacturing Company would have had four or five employees and yet 25 years later Ford was making 500,000 automobiles a year uh us steel had a market capital ization of a billion dollars and in in literally a very short period of time most of modern management was invented pay for performance task design divisionalization budgeting and I think we're now on the cusp of a
similar Revolution that is being driven by a lot of new challenges that are facing business around the world is being driven by a lot of new tools that we have principally from the web so new ways of organizing bringing people together and then also by the expectations of a new generation that's coming to if you if we if just 10 years ago we had asked the average chief executive around the world whether they believe that in a few years it would be possible for a group of volunteers with almost no management structure to build something
as complex as a computer operating system with millions of lines of code most managers would have said that is impossible to do without the traditional management system the hierarchy the organization the control uh the project management and of course here comes the open source uh movement open Innovation uh at the moment there are about uh 300,000 open-source projects around the world about 3 million people contributing and they are creating enormously complex things without any managers at all so I think you know we have to get our heads around these new possibilities you know all of
us as human beings we are prisoners of the familiar and and most of us grew up in and have been around these tradition hierarchical structures for all of our life at school uh at church uh the government in the workplace and it's very hard to imagine other ways of coordinating controlling bringing human beings together that are not based on that old model but when you look at the web and you look at a few of these Vanguard companies you start to see that yes there really is an alternative to open more space to freedom of
the workers inside the companies it's a hard task to old model structure isn't it well I think it's very hard because in a way we've had an assumption that in in in an organization discipline and freedom are mutually exclusive that you can have one without another with you could you can't have one and the other both that somehow they're always uh uh in competition and you know to an extent that's true but I would argue uh that you can have both if you're creative about how you get control I mean let me give you a
very simple example uh uh from a uh in Brazil uh it's a company that's organized into small profit centers uh small businesses each business would have 30 or 40 employees a lot of their compensation is tied to the profitability of that business well a few years ago they got rid of all of their controls on travel and they said every employee anytime you want to travel on business you don't have to ask any permission fly on any Airline you like first class no problem stay in any hotel whatever you want to eat or drink it's
fine and they got rid of all of their Auditors all the people who are watching and controlling these travel budgets well what they did instead is now when you come back from your trip they take all of your expenses and they put them up online so all of your colleagues can see them so if you came back with a big order and you had a nice bottle of champagne nobody complains if the business is losing money and you had only a bottle of beer someone may say we can't afford that next time you have to
stick to water so there's the control is still there but in that that case the control comes from my peers the people around me and from the transparency everybody knows rather than one supervisor or or or or a senior executive so the question is not do we get control but can we get it in ways that don't force you to sacrifice the freedom and the accountability that I think is critical if you want people to innovate if you want them to be truly engaged do you think the old structure of control has to move to
another type of control like peers control I think I think that's very true and you know we saw this in the financial crisis so let me share a little bit of data between uh 2001 and 2008 the value of the outstanding credit default swap contracts around the world which were behind the financial meltdown the value of those contracts rose from a few hundred million to more than 60 trillion us so you think think about that I mean almost nothing in human history has grown at that kind of rate and the Dilemma in a world where
many things are changing much more rapidly the top- down Control Systems don't work so if if I'm in a bank and I have a risk management function or I'm a regulator and I'm watching these banks by the time I realize what has happened someone has already blown up the global economy so so that old top down you know audit measure then put in the rules that system is too slow to respond to the pace of change what I need instead is people have that internal sense of control who have that responsibility to behave ethically who
have you know who are who are responsible for the impact their decisions are going to have on the profitability of that business and who who are who are held accountable held to account so that control has to come more from within and more from around and no longer simply from above because those traditional control systems are not Nimble enough not fast enough in a world where change uh is shaken rather than stirred it just can't keep up so Gary do you think the financial crisis 2008 crisis was a proof that the old scheme of control
is not working anymore I I think so but we've seen a lot of other crisis it's not just the financial services crisis we've seen a lot of ethical crisis I think around the world in business we saw a sale of of Wireless Spectrum in India recently it was marred by corruption this is not unique to any part of the world or any particular industry but as as as I said I do think it points us to the need for a new sense of ethical responsibility you know there's there's been a debate recently around whether corporations
are really people and they have all the rights of individuals and my argument is they are not people they do not have in in the words of you know the US Constitution they do not have inali rights granted to them by their creator corporations are social constructions and Society can rewrite those rules rewrite the contract any time they like and and you see a lot of pressure today from all kinds of groups whether it's Occupy Wall Street or environmental groups saying we are dissatisfied with the traditional contract between these corporations and Society we are going
to hold you more accountable for your impact on your environment for your labor practices around the world for your impact on human health and I think you know Society has a right to hold business to account so yes the old Control Systems you know were rule-based the rules were always written after the crisis and so the fire brigade arrived after the house was burn down that's simply not good enough anymore and I think it is it is changing and it will change and I think the companies that win are going to be the ones that
recognize this and start to really uh take a leadership role rather than being pushed into it or forced into it biggest Brazilian companies are commodity exporters iron or soybeans Etc do you think in inovation is also key for them you know I think interestingly every business around the world is now a creative business because even in those commodity businesses the differential between you know commodity profits average profits and extraordinary profits is going to be Innovation now that Innovation isn't always on the demand side it's not always around the product that Innovation can also be on
the cost side there there is no way no way to outperform your competitors financially unless you out innovate them and I think that applies in organizations of every type and every size indeed the only way to to escape the curse of commoditization is through Innovation and I think often in companies we've had almost the kind of creative apartheid and we've had a belief that there are few people who are very creative but most people are not and of course you know the the the great Insight that Toyota had all of those years ago was that
you can teach people how to be creative problem solvers you know in a typical year in Japan Toyota will get 500,000 suggestions for improvement from their Frontline employees and uh you know obviously that's not enough but that's where you have to start you have to start by training every employee to be an innovator creating opportunities for them to share those ideas creating opportunities for them to get the experimental Capital they need to work with those ideas and actually test them out and very few companies have put this put this effort in yet you know the
the analogy I would give you is this over the last decade most companies around the world have spent a lot of time Reinventing their business processes for efficiency so their supply chain their Logistics their customer service they've put those things up on the web they have these Erp enterprise resource planning systems CRM you know they have all of these systems all the technology now what we need to do is reinvent our Management systems for Innovation so that means looking at the way we train people what kinds of people we hire how we promote people how
we allocate our Capital but if the things that get in the way of innovation in a company it's not the supply chain it's not your Logistics it's all of these management systems that reward conformance reward discipline reward control but don't encourage Innovation don't encourage risk-taking don't encourage experimentation and so that that is something that has to be done systematically it takes time it takes effort it takes a CEO who's going to be there for the long run it takes hard work another idea from your blog is to empower the Renegades it sounds revolutionary or dangerous
how could it work you know it's already happening if you look around the world basically the web is creating an unprecedented shift of power from institutions to individuals so those Renegades are there and today they have a voice right in the old days management controlled the conversation no longer if employees are not talking inside of the firewall they'll be on Facebook talking to each other or they'll be talking somewhere else and tweeting back and forth so I think the only question is how do you give those people a productive voice I I'll give you an
example I was a few weeks ago I was talking to one of the world's largest consumer goods companies I won't mention the name but they had all of their senior marketing people together from all over the world hundred and more countries about 400 people uh for a kind of top management meeting now in the old days those people would have gotten together there would have been AG disagreements and agreements but at the end of that meeting somebody would have written kind of a formal report here's what happened and announced it as if there was a
lot of consensus and everybody you know is on the same page what this company did in the most in this meeting is first of all they streamed that meeting live to the whole worldwide organization so anybody who wanted to come see what was going on could see it number two they invited in about 20 young people who are very good with Twitter and these kids through the whole meeting were tweeting and these were all aggregated also you could go and see all of the tweets almost once a minute a new tweet is coming up because
these people are like this is rubbish I don't agree or this is brilliant and so you could not only see this meeting but you could see this instant reaction of these young folks the internal Rebels the next generation of leadership as they were reacting to these ideas real time because today you know no longer can any leader rely on their position people have very little respect for Authority they will follow you only if you have ideas that are worth following only if you are willing to empower them and you know it's it's an idea you
find on the web in a very interesting way there's a lot of hierarchy on the web uh wherever you go to discussion form you'll see some people who've posted more often you know they have higher ranking in terms of the quality of their posts um and within the whole you world of social media some people have more influence than others but on the web all of these hierarchies are built by bottom up so if I have influence on the web it's because people want to follow me because they think I have something worthwhile to say
I'm adding value and the moment I stop adding that value my influence stop starts starts to to wne starts to disappear so I think this next Generation when they come to work they know that there's some people have more expertise more wisdom have more to add but they don't think that that correlates with the formal hierarchy and they believe that every hierarchy should be built bottom up by virtue of your service to the community rather than because somebody appointed you as a leader so managers and leaders we're going to have to learn to live in
this new reality where every idea is going to have the chance to compete on an equal footing nobody is going to give my idea more credibility simply because I'm a senior vice president or I'm a director and if and if you're not willing to lead and work in that world then you need to get out because that's the world that's coming and and the next generation is going to insist on that as I understood internet tools are are key for the new model of management aren't they well you know interestingly the web already has the
characteristics that we need to build into our organizations the web is very adaptable it's a platform for Innovation it is very engaging and inspiring to people and our organizations don't really have those capabilities so I think the web tools are key but I think even more than the tools you have to look at what are the principles underlying the web CU because I would argue that if management was the most important social innovation of the 20th century the web is the most important social innovation of the 21st but they're built on completely different principles even
different ideologies control on one hand freedom on the other standardization specialization alignment conformance that was management the web transparency Freedom meritocracy collaboration Mash ability ability to combine quickly different things so I think the real challenge for management going forward is is not so much to use the web tools which of course are valuable but you also have to say what are the fundamental principles that have made the web so adaptable so Innovative and how do we take those principles and weave them into our organizations so that could be as simple as when you sit down
you know next next year you sit down to do your planning you know open that your planning process up to every single employee Indian company I know HCL Technologies in their last planning round they had 8,000 employees commenting on the company's strategies it used to be strategy was something a few people did kind of off in the dark I used to say that the strategy process was like sex a few people you know in the dark somewhere now it has to be like a family picnic where it's open and everybody has the chance to to
share their ideas so taking those principles one at a time and saying if we want to be more open more transparent more meritocratic more collaborative what do we change in the way we hire in the way we promote in the way we measure in the way we plan that for me is now the critical work leading is less and less about making the big decisions and more and more about being a social architect and thinking about how you create the social environment in which people are motivated to contribute they find ways of collaborating without centralization
without hierarchy and that's going to require you know maybe a new generation of leaders but for sure if you're a leader today and and and you're over about 30 years old you better make sure that that you have some young people who are mentoring you you need to spend a lot of time on the web understanding how these new social Technologies are changing expectations think about how do you leverage them creatively inside of your business because I think this is you know those tools and those principles are the fulcrum on which we are going to
see management change thank you very much you're very good thank you pleasure [Music] okay and then manage.com and
