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The way things were, the way things are, and the way things… will be?

May 24, 2017

Hello my dear readers!

I’ve been on the literal and metaphorical road over the past few months, working in various corners of the globe. This week I’m writing to you from the United States and the beautiful Southern Appalachians Mountains of Tennessee, Georgia and North Carolina.

Ah, the soft dappled green that is spring in the northern hemisphere. Just out of frame to the right was a black bear! And, I should add, to the left, a few thousand tourists.

Given that I’m in the US, I figured that it was about time that I stopped putting-off writing about what I think is one of the most important American works on the origins of organisational management and structure, and one that I think we all could do with a basic understanding of. Whilst this might sound heinously boring, it’s actually rather interesting and, more importantly, it’s a foundation upon which we can stop, take stock and consider how the world of work got to be where it is today, and consider the direction in which it is most likely headed tomorrow.

In an earlier piece of writing, I noted that transformation is the current de riguer organisational development fad of the moment, and discussed some of the flaws associated with the traditional approach to transformation. I then suggested an alternative, contrarian approach that is based on three basic principles. In short, the three principles are as follows:

  1. work with what you’ve already got rather than what you’d like to have
  2. work from where you are rather than where you’d like be
  3. go about it with minimal fuss and energy expenditure rather than maximum fuss and energy expenditure.

As I’ve said before, my motivation for encouraging a higher level of awareness around the limitations of traditional, linear, complicated-domain approaches to the world of work and organisations and leadership—and the greater potential of thinking in the space of non-linear and non-traditional approaches to work and organisations in the complex domain—is born out of a searing frustration of seeing the same old and tired approaches and initiatives being rolled out time and time again that just don’t work. You know that quote, variously attributed to the likes of Albert Einstein, Ben Franklin and Mark Twain, the one about the definition of insanity as doing the same thing over and over again and expecting different results? Yeah, well, that one…

And so whilst there is an appetite out there for newer ways of organising organisations with reduced layers of management and bureaucracy and hierarchy, and decentralised and distributed leadership and decision-making, let’s not get too excited too quickly and screw it up.

So here comes a word of warning: we need to be very careful in making sure we have sufficient depth of understanding about the changing context in which these shifts in the world of work are happening. If not, we risk becoming victim to yet another organisational fad, such as this one based around artificially constructed network structures. In order to consider newer ways of organising organisations, not only do we need an awareness* of the current and likely future contexts in which we are and are-likely to be operating, but we equally need an awareness and understanding of the past context from where we’ve come: a past that, when are we prepared to look, reveals so much about the underlying factors that have contributed to the way that things currently are.

*which hints at why the concept of sensemaking has gained traction over the past few years. If you’re keen to find out more about sensemaking, you could start with the work of Karl Weicke. You might also like to check out this previous piece I wrote on the matter.

And so we must turn to one of my favourite—yet ultimately most difficult-to-read—texts on the origins of the modern organisation.

The book, which celebrates its 40th anniversary this year, is Alfred D. Chandler Jr’s  seminal work The Visible Hand: The Managerial Revolution in American Business. Although not originally intended as such, the book is an incredibly useful tool for us to use in an examination of the way that the organisational structure of enterprise has evolved, from the past (pre-19th Century) to the present (mid 19th to the early 21st Century) and to consider how it might continue to evolve into the future.

It’s very insightful*, and it won Chandler both the Booker Prize for History and the Bancroft Prize in 1978, a year after it was written. I describe it as a difficult-to-read book because at its roots it is a very detailed history of the one-and-a-half century period from the late 1700’s to post second world war in which the modern organisational structure for enterprise, the structure that you and I know intimately, came to be. To make it through its circa five hundred pages, depending on your predisposition, you will want to have either a strong desire to learn about the history of American and therefore global business structures and processes, or be well-versed with Seneca et al’s. notions of stoicism**.

*the title of Chandler’s book is a play on Scottish economic philosopher Adam Smith’s magnum opus An Inquiry into the Nature of Causes of the Wealth of Nations, generally considered to be the first work of modern economics. In that work, Smith explains his concept of the ‘invisible hand’, a metaphor describing the irony of how an individual’s effort to pursue their own self-interest influences broader market forces, which in-turn create unintended benefits for broader society. As an aside, if you’re in the UK and have a twenty quid note on you, you’ll see Adam Smith’s face on the back of it.
**erm that’s a joke.

The key premise

The key premise of Chandler’s book is that the emergence of new technology in the early part of the 19th Century led to a radical and lasting change in the way that enterprise was conducted and organised. The radicalness of the change we will consider in a moment, but most importantly for us is the lastingness of that change. The importance is because what was so new and so radical when it was introduced more than 150 years ago is, alas, no longer new and radical at all, and yet it still dominates the way that most modern enterprise and, hence, western society, functions today.

In short, Chandler describes how the rapid introduction of order-of-magnitude different technologies* into North America in the early part of the 19th Century led to the introduction of organisational hierarchy and management-as-a-profession for the first time in human history. He shows how these new technologies rapidly increased a business’s capacity for production and distribution, and in doing so, changed the invisible yet dominant forces** which had so powerfully shaped economies and societies until that point in time.

*including, but not limited to the steam engine, and the telegraph.
**the forces that Adam Smith described as market forces, or the ‘invisible hand’.

The way things were

Up until the late 18th Century, North American* enterprise still relied upon traditional methods of production and distribution which were relatively indistinct from those employed by the Venetians, Dutch and British traders 400 years earlier. Whilst a few larger organisations for enterprise did exist prior to the 19th Century, they were very much the exception, with the most common unit of enterprise being a small production-orientated and family-owned enterprise: think of either agrarianoperations (e.g. the family farm) or artisanshopfronts (e.g. a blacksmithery).

Coordination of the activities of these single-unit enterprises occurred across complexnetworks of trade conducted by the other main form of single-unit enterprise, the general merchant. The general merchant resided in port and river towns, and distributed and marketed the products of the family-owned farms and artisan shops, with distribution occurring predominantly via horse and cart or barge and canal. The most important concept to grasp here is that the key influencing force across these complex networks were market forces (such as supply and demand), and these market forces appeared naturally as a result of the interactions within the network, and were not artificially created or constructed by people.

*you might be asking why are we focussing on the United States, and why this period? Bear with me here: it was during this time that the US Constitution was ratified, which led to the underpinnings of a nation-wide economy, an economy which was to grow far faster than any other national economy before it. Along with this expanding national economy was a rapid increase in the size of the population of the US, from 4 million in 1790 to 17 million in 1840 (just think about that for a minute: in the space of just 50 years, that’s a population increase of 400%), which lay the foundation for a place for the US on the global stage. Following the United States’ success in the two world wars, and combined with a diverse influx of immigrants from around the globe and the ideal of individual liberty upon which the constitution was based, the US has become ground zero for most contemporary business and organisational-development thinking. This might also explain why everyone wants to go to Harvard Business School, quote passages from Jim Collins business books, and go on well-intentioned but quite-possibly waste-of-time Silicon Valley tours.

In short, single-units of family-owned enterprise such as farms, artisan shops and general merchants were the dominant business form, from which emerged complex networks of trade where natural market forces were the key drivers.

The way things are

All this, of course, was set to change.

During the 18th Century, numerous industries in North America—starting with transportation—were revolutionised by new technologies, the most apparent of which was the steam engine. Quick uptake of steam-engine technology resulted in dramatically reduced travel times and costs across the continent, and a massive railway-building boom. Travel times from New York to where I’m writing this piece right now in Georgia, for example, were reduced from four weeks in 1800 to just four days by 1860.

As I took this photo today, it occurred to me… this is a diesel locomotive, and not a steam train. Oh well. It’s the effort that counts, right?

In an effort to reduce the complexity of the network that had arisen from the integration of so many different regional railroads into a single national transportation system, large-scale administrative and managerial controls and shifts from single-unit to multi-unit enterprise structures were identified by the period’s leading engineers as the solution. This type and scale of enterprise administration and structure had never been seen before, and, due to corporate efficiency and economies of scale, enabled far greater productivity, lower costs, and higher profits. Thus multi-unit enterprises, complete with managerial hierarchies of salaried executives and middle management, quickly became ubiquitous.

The ubiquity of this development, described by Chandler in the following observation*:

“rarely in the history of the world has an institution grown to be so important and so pervasive in so short a period of time”,

means that the DNA of these multi-unit enterprises still provides the core blueprint that determines the structure and management methodologies of most of today’s organisations.

*a few more observations were made by Chandler, including that once a managerial hierarchy had been formed and had successfully carried out its administrative coordination, the hierarchy itself became a source of permanence, power and continued growth, and that as time went by, the careers of salaried managers who directed these hierarchies—Chandler calls them the new subspecies of economic man—became increasingly technical and professional.

The most important concept to grasp here however is that the key influencing force across these complex networks had shifted from naturally occurring market forces to artificially constructed managerial forces*, which, in other words, was a deliberately constructed shift from the complex domain to the complicated.

*this development begets what Chandler referred to as the ‘visible hand’, which is a play on Adam Smith’s invisible hand metaphor.

The way things… will be?

So… where am I headed with this?

Well, let’s backtrack for a moment. At the beginning of this piece, I suggested that if we are to consider newer ways of working and organising organisations, an awareness and understanding of the past context from where we’ve come can reveal so much about the underlying factors that have contributed to the way that things currently are. Taking this logic one step further, this awareness and understanding can help provide some clues as to how we might progress into the future, a future which is on an inexorable path to far, far greater levels of complexity than we have ever known.

We have seen that over the past two centuries, the forces controlling enterprise and the world of work have changed from market to managerial and the domain type from complex to complicated.  But what I think we are now only beginning to see are the limitations of the complicated approach of controlled managerial forces. The limitations of the approach are manifesting in many ways in the world of work right now—not to mention at broader societal levels—ways with which we’re all too familiar: complacency, high levels of employee disengagement, questionable leadership, failed response to industry-wide disruption, and destruction of shareholder’s value; the list goes on and on.

And this leads us to a rather grand irony:

The complicated approach of administration and management was devised as a means to reduce complexity, but it now finds itself being overwhelmed by complexity.

This, I think, is the driving force underlying* the current obsession with organisational transformations. Transformations are required because market forces and market complexity are overwhelming the capacity of artificially constructed managerial forces and complicated organisational structures to respond to these new levels of complexity, and organisational leaders know that something needs to be done—but they just don’t know what that thing is that needs to be done**.

*note I use the word ‘underlying’. In doing so, I’m suggesting that this force is not seen nor understood by enough folk.
**and so they launch yet another transformation initiative using controlled managerial forces, the likes of which I discussed in my previously mentioned piece on organisational transformation.

What this ultimately leads us to is an understanding that traditional organisational approaches to work are being overwhelmed because we have reached an inevitable tipping point, driven by ever-increasing complexity.

If you’re involved in an organisational transformation, it’s crucial to understand this. The good news is that once you understand this, you’ll then be in a fantastic place to begin work on how traditional organisations can reduce hierarchy and management structure to enable the emergence of naturally-shaped network topologies*, which mirror the complexity of the world around them.  In other words, you’ll be ready to begin work… on the way things will be.

*a fancy word meaning the landscape, or morphology of a network.

PS if this all sounds very interesting to you, then please register your interest with Geraldine in the contrarian’s guide to organisational transformation that I’m working on at the moment. We’ll be in touch when it’s closer to production.

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