Unit 3 Micro: Impulses to Change Management Models

It is natural for large parts of our media to be obsessed with tracking the machinations of Greek politics and the frantic attempts by European politicians to shore up the fragile Euro Zone with palliative bailouts and stability funds. But the really interesting and significant discussions in economics and finance are taking place at a microeconomic level. As I reach twenty-five years teaching this fantastic and utterly fascinating subject, each day I am drawn more to the complex wiring of microeconomic decision-making and further from sterile debates about the direction of macro policy and the irrelevance of most of what passes along those dreadful ticker streams on Sky News, CNBC and Bloomberg.

That is why taking time out to listen to programmes such as Global Business, Analysis, The Bottom Line, Hard Talk and many other wonderful outputs from BBC radio provides fresh ideas for the classroom and one’s understanding of new directions in economic thinking.

A few weeks back Peter Day from the BBC met Professor Gary Hamel one of those highly-sought management thinkers who are at least prepared to challenge the conventional wisdom of university lecture halls and business schools. Are we now looking at radical shift in the nature of corporate organisation and behaviour? Will the business landscape look very different in the next few years as new models and strategies emerge post-recession and consumers are compelled to revise their choices? Hamel thinks that there is some important straws in the wind and Peter Day teased some of them out in a lively thirty-minute discussion.

For Hamel, over the last twenty years, there has been more and more centralization both in mainstream business and in government. Centralising tendencies have intensified in the wake of the crisis as fresh calls are made for tougher regulation in many domains. But as powers have become centralised so there has been a growing disconnect between people and those with the power to affect their daily lives. And this disconnect has prompted a loss of trust in big corporations. Are consumers now fighting back?

Every one of us today is a shareholder through our pensions and the way we have constructed executive compensation (options, bonuses et al) was fundamental in shaping the culture and behaviour of executives. For many senior boardroom figures, the highest value of an hour of a CEOs time is spent with the regulators shaping the regulatory environment in which they operate rather than getting down to the grass roots and connecting with the customer directly. Smaller businesses of course are more nimble and able to maintain direct relationships with their consumers.

But now we live in an age of ubiquitous social media and increasing social / network accountability: The web of today where consumers no longer see themselves as passive players has helped to make capitalism transparent - consumers can see the impact of business on society and many are upset about negative corporate footprints be it environmental or social. Hamel and others argue that n this new age, consumers have to mobilise when they see something they don’t like by changing their buying behaviour but that they must also face up to the unsustainable nature of consumption in most modern advanced economies.

The good news according to Hamel is that all kinds of new companies are being set up all of the time - we cannot be held hostage to monopolies for ever - but this has not really happened in financial institutions whose internal response to the crisis has been so sluggish and open to criticism from many quarters including the nascent protest movement on Wall Street, London and other places.

The Global Business discussion then moved onto management structures in a new age. Profitability and size are not correlated across a range of industries - and most large companies have defaulted to over-investing in their past successes rather than the riskier future, but there are alternatives with radically different modes of operation. Professor Hamel mentions Morning Star (one of the biggest tomato businesses in the USA) whose success has been built on a premise of self-management - there is not a single layer of management at all. Workers negotiate their own contracts and are held to account by their fellow employees.

Decentralisation is gaining momentum and not just in those fashionable social media businesses whose approach is ready-made for open plan offices and flat management structures. Hamel offers the view that, going forward, Biologists and Anthropologists may influence changes in management organisations and structures more than experts in business schools. What a refreshing idea! And a challenge to the tired default thinking on so many business courses!