Management Matrix for the 21st Century
(29 April 1997)

There is a technique to easily recognize stellar management (and not from reading the annual surveys conducted by business magazines—they are too highly correlated with the stock price performance of the preceding five years to have much forecasting ability).

As with investment styles, management styles evolve across countries, usually starting in North America. Business education, largely an American invention by universities and management consultants, spreads outward from the US to other developed countries, and then to the developing ones. The entire progression of each phase is five to ten years. When a company in Brazil starts mimicking the best of Japan from ten years earlier, there is a phase shift.

Currently, companies in the developing world are re-engineering to flatten their organizational span of control. Layers of middle management, who processed information without making major decisions, are eliminated. Even though the charts are flatter, control from the top is strong—control has shifted from controlling people to controlling data. Now it is expressed with adherence to budgets, benchmarks’ short-term measurements, and an attempt at short-term predictability. (Alas, the transmission of a style usually carries its faults as well as benefits.)

The more speculative task is to identify outstanding management at the source…the US. Of great interest to me, there is a new style in the US at the cusp of inception.

To identify some clues, look at the activities of the thought-leaders of business and the companies that seem quick to unshackle themselves from past practice. Today's best example may be Microsoft whose inclination to remake itself while still successful is a model for others to follow.

The mark of a successful company in the 21st century will be the ability to decouple locality for almost any business decision, except point of sale in a few isolated cases. Production, organization, marketing, and finance can all be global, even for a non-global company. Information is the glue that binds commerce together, and capital is just information in another form. Information is converted into hard product, sometimes, but it is still information. And it can come and go from anywhere.

The virtual company is a reality. The modern company does not distinguish between insiders, suppliers, customers, or even competitors (these are potential customers and always sources of important information). Customers have a big stake in the success of their suppliers and help them to prosper. Suppliers stay at the plants of assemblers and even assist in engineering future products, whether or not these products might use items they supply. Automatic language translation, at the brink of being cracked, will make these arrangements commonplace.

To understand this new and complex mix of entities, we need a new science that deals with the whole system, not just each part. Complexity, or complex adaptive systems (CAS), draws upon insights from physics to help us cope with an ever-dynamic mix of parts whose characteristics are new in today's vocabulary. Santa Fe Institute and the implementation of CAS by almost all management consulting firms is likely to be the language of the next new management system.

Today's managers manage project not process. When we deal with change and flexibility, we necessarily deal with temporariness. Groups of people come together from inside or outside an organization to solve a problem, then disburse. It seems unstable by conventional standards but it reflects the way the world is.

Brand image is vital. With information that is global, instantaneous, and free, evidence of integrity by branding becomes paramount. The name of an individual or a company must convey a "Good Housekeeping Seal."

And lastly, companies are organizing around concepts that promote the individual, the "unity of one." Lifelong learning, job stimulation, and self-esteem become more important components of compensation than money in the new companies.

The matrix is horizontal, tracing the path of management styles across countries, reflecting their stage of development according to Western models. Aside from the cultural clues of whether companies are successfully applying US-originated principles, one tangible measure is the borrowing cost of a company. Curiously, the more successful a company is in adopting management principles, the lower its borrowing cost may be (largely because it can borrow in global markets rather than exclusively local ones).

The matrix concept forces us to be sensitive to the ideas being used by early adopters in the US. These ideas will propagate elsewhere in the future, perhaps in a shorter time frame than now. Together with a technique for analyzing global companies, we have a framework to help us organize our companies and make better investment decisions.

- Dean LeBaron