People involved in business today – whether the new generation joining the workforce, investors and leaders – are looking for a new sense of purpose, one broader than simply the single-minded pursuit of profits.
Steve Denning’s recent book ‘The Age of Agile’ is in part a damning critique of the late 20th century, when, pursuing a distorted idea of value creation, capitalism started to eat itself. He gives examples such as teachers’ pension funds being used to asset-strip and destroy viable family-owned business in their own communities.
He argues that there is a recalibration of the business compass underway – refocusing it towards creating value for customers and communities rather than only money for shareholders. This is supported by the growth in ESG – environmental and social governance. It is a measurement of the ethical status of a business and its whole supply chain and increasingly demanded by pension fund investors, workers and policy makers.
Denning talks about principles and practices being united in what he calls the “Agile mindset”. But in a recent article he makes the point that many businesses today which claim to be agile either have never had or have lost this mindset and are just using this as a buzzword without making real changes.
When applied to managing an organisation, it involves recalibrating the business compass – orienting it towards encouraging innovation and providing sustainable value for customers, rather than setting a course in the direction of the single-minded pursuit of profits/shareholder value.
As a way of working, it stresses small, self-managing teams, organised in particular ways, designed to be flexible and adapt swiftly to change rather than stick to any blueprint. Many organisations from behemoths like Amazon to nurse-run health network Buurtzorg in the Netherlands aim to work like this.
A sceptic will take some of these claims with a pinch of salt – for instance, Amazon’s highly-paid developers, primed to find new propositions and products that will appeal to customers, work in “two-pizza teams” (a reference to the fact that the ideal team size can be fed with two pizzas) and set their own priorities. But the lowly-paid workers who staff Amazon’s warehouses and delivery operations have a very different experience.
The Age of shareholder value
Denning’s theory is that in the 1970s, business went down a blind alley which led to the 2008 crash. Since then, business leaders like Marc Benioff of Salesforce and others have been rethinking how companies should operate, looking for a new raison d’être and pushing for a restatement of principles and priorities. The result: The Age of Agile.
In the 1970s, a particular group of economists led by Milton Friedman convinced the business world that if a company was not creating value for shareholders, it was failing. In an article in the New York Times in 1970, in which Friedman began to popularise his existing work, he castigated any corporate leader who was not totally focused on making profits for shareholders. They were, he said “spending someone else’s money for a general social interest”. (Age of Agile p 167).
Prior to this, business leaders had seen themselves as attempting to balance a number of different competing priorities such as the interests of employees, customers and their communities (‘stakeholders’). Friedman argued that focusing on shareholder value to the exclusion of all else would lead to other good results for society. To increase their incentives to work this way, executives were given a piece of the value.
The resulting Zeitgeist was perhaps best captured in the 1987 movie Wall Street when Gordon Gekko gives the speech:
Greed, for lack of a better word, is good. (He argues that greed is a clean drive that) captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.
But instead of this philosophy resulting, as predicted by Friedman and others, in healthy businesses and healthy societies, it led to short-termism; asset-stripping by predatory hedge fund activists which destroyed many viable firms; share buybacks and other attempts to manipulate share price; and an over-reliance on off-shoring which sucked the life out of communities. Discredited derivative swaps and unsustainable (‘sub-prime’) mortgage lending were also the fruit of this tree.
After the crash of 2008, trust in business – especially big business – declined. Steve Denning writes in ‘The Age of Agile’:
It’s hard to remember that, for several centuries, banks had generally been the bastions of morality. Today, insiders say that Wall Street’s culture focuses on short-term gains for the sake of it, paying scant attention to the impact of its actions on other people or society. Financial managers no longer act as stewards of the financial system. The long tradition of finance as a principled, life-affirming and morally worthy occupation is today less apparent than a scramble for cash.
Meanwhile – in the valley
Meanwhile, in San Francisco, a new way of working was emerging, pioneered by geeks at the forefront of the technology that would lead to the age of disruption. Having a mixture of sought-after skills and creativity they were in a strong position to change things. They devised a way of working captured in the Agile Manifesto of 2001. Instead of a top-down model where the C-suite sets out the specifications and everyone else had to show up for work and do what they were told, they insisted it should be the people on the ground who set the scope, making the decisions, iterating, re-planning and delivering the results.
This created a style of working that – to give an analogy – is more like evolution than creationism. A top down approach to the smartphone you have in your pocket would have taken centuries to deliver and probably would have broken in the process. What Apple did was to make the phone into a platform which allowed independent software vendors to offer apps – this led to the phone as navigation device, fitness monitor, library etc. That shift is at the heart of agile thinking in software, and it has subsequently morphed into other areas.
The Agile approach prioritises small teams, largely self-managed, joined together in networks rather than in a hierarchy, driven by a focus on delivering value to customers. In the agile world, the customer or prospective customer is the boss, not the shareholders. Value for shareholders will still be created – but as a by-product of getting other things right.
These sorts of ideas were also being developed in more traditional industries. In 2011 Gary Hamel wrote the seminal “First, Let’s Fire All the Managers” which looks at the work of a tomato-processing plant in California where the day to day operational management is handled by small, self–managing teams.
After realising he was disengaged from his work, , another pioneer, Frédéric Laloux, a management consultant, gave up his job and spent three years living frugally in his home in Belgium and researching what became an immensely successful work ‘Reinventing Organizations” which he self-published in 2014. Laloux went out to find companies he felt were working in a better way, creating the possibility of really fulfilling work to make the world a better place. He found a dozen, describing how they do it.
In “Putting the Soul Back Into Business,” a New York Times reviewer wrote: “Laloux’s distillation of the common practices that characterize these companies provides a rich road map for organizational reinvention.”
Businesses take stock
The financial crash and its aftermath, revelations of virtual slavery in the sweatshops where consumer goods were being created, a garment factory fire in 2012 in Bangladesh where more than 100 died, increased understanding of climate change and environmental damage compounded the damage to business reputation. Business today is desperate to rediscover a reputation for probity and social responsibility.,
Many influential organisations in the world today, including Fortune 500 companies and global institutions, are now moving away from the dominant business idea of the last half century. Recently, one of the US’s biggest corporate lobbies, the Business Roundtable, which includes many of the largest companies and represents an annual revenue of $7trillion, dropped the creed of “shareholder primacy” which has informed capitalism since the 1970s.
Instead, it now places shareholders on the same level as other important groups whose interests should be taken into consideration – customers, workers, suppliers, the environment, communities (aka stakeholders). In an editorial, the Financial Times welcomed the move:
Fifty years of shareholder primacy has fostered short-termism and created an environment of popular distrust of big business. A new corporate purpose has the chance to generate wealth more sustainably and to share prosperity more evenly.
Editor of Fortune magazine Alan Murray, in an article on this move by the Business Roundtable, quotes poll results to argue that the shift is being driven in part by a generational change in social attitudes, with millennials keen to work for businesses with a broader sense of purpose. “Though fewer than half of Americans overall (46%) say that CEOs should take a stance on public issues, support for such action is overwhelming among those ages 25 to 44. Millennials, in particular, may be driving the change more than anyone and, more importantly, they’re choosing to work at companies that are driving change too. Among those ages 25 to 34 in the Fortune/NP Strategy poll, 80% say they want to work for “engaged companies.”
Wartzman of the Drucker Institute notes that the current focus has a “back to the future” quality to it. Many American corporate leaders came out of World War II with a profound sense of the need to put social goals and workers’ needs high on their corporate agenda. But that commitment broke down in the last quarter of the 20th century, in part because globalization broke the bond between many companies and their local communities.
Just as this was happening, another radical financial notion came into vogue. It was called the theory of shareholder primacy, and it turned out to be more powerful that anyone could have predicted. Who knows? Maybe the new corporate philosophy will too.
Will it? We shall see. The growth of interest in ESG – Environmental and Social Governance – where companies open themselves and their supply chains to checking, to prevent modern slavery and guard against environmental degradation is a start. Many companies in Europe and the US now measure their ESG status – in part to build a better reputation, in part because people involved in the business in various ways demand it.
Big business is not going to abandon greed as an organising principle any time soon. There is a long way to go in terms of recalibrating the moral compass. Unethical use of data, pollution of the environment, failure to deal with climate change, modern slavery…the list goes on.
But the digital age creates possibilities of working in different ways, some positive, some negative. The most technologically savvy generation in history – the ‘Zoomers’ – are about to join the workforce. They have different priorities, one being better stewardship of the planet. Building a better future depends on embracing the positive.
Harvard Business Review, “Embracing Agile” by Jeff Sutherland of Scrum. Sutherland was one of the authors of the ‘Agile Manifesto’ His writings include “Scrum: The Art of Doing Twice the Work in Half the Time” ;“First, Let’s Fire All the Managers” by Gary Hamel, ‘Reinventing Organizations” by Laloux
Denning’s ‘’The Age of Agile” draws on his experience over the last few years of helping a group of firms, which includes Barclays, Ericsson, and Microsoft, form the SD Learning Consortium (SDLC), a non-profit corporation with the goal of separating fact from fiction about Agile management. Denning also writes a weekly column in Forbes in which he often consider issues of Agile practice, such as this recent piece entitled: “Why Agile Often Fails: No Agreed Metrics”.
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