Management theory is increasingly obsolete

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com

I love the analogy to the Catholic Church before the Reformation:

The similarities between medieval Christianity and the world of management theory may not be obvious, but seek and ye shall find. Management theorists sanctify capitalism in much the same way that clergymen of yore sanctified feudalism. Business schools are the cathedrals of capitalism. Consultants are its travelling friars. Just as the clergy in the Middle Ages spoke in Latin to give their words an air of authority, management theorists speak in mumbo-jumbo. The medieval clergy’s sale of indulgences, by which believers could effectively buy forgiveness of their sins, is echoed by management theorists selling fads that will solve all your business problems. Lately, another similarity has emerged. The gurus have lost touch with the world they seek to rule. Management theory is ripe for a Reformation of its own.

Management theories are organised around four basic ideas, repeated ad nauseam in every business book you read or business conference you attend, that bear almost no relation to reality. The first idea is that business is more competitive than ever. Skim popular titles such as “The End of Competitive Advantage” (by Rita Gunther McGrath) or “The Attacker’s Advantage” (by Ram Charan) and you will be left with the impression of a hyper-competitive world in which established giants are constantly being felled by the forces of disruption.

A glance at the numbers (or indeed a trip on America’s increasingly oligopolistic airlines) should be enough to expose this as fiction. The most striking business trend today is not competition but consolidation. The years since 2008 have seen one of the biggest-ever bull markets in mergers and acquisitions, with an average of 30,000 deals a year worth 3% of GDP. Consolidation is particularly advanced in America, says a report in 2016 by the Council of Economic Advisers, which also showed how companies engaged in consolidation are enjoying record profits. Technology is high on the list of industries that are concentrating. In the 1990s Silicon Valley was a playground for startups. It is now the fief of a handful of behemoths.

A second, and related, dead idea is that we live in an age of entrepreneurialism. Gurus including Peter Drucker and Tom Peters have long preached the virtues of enterprise. Governments have tried to encourage it as an offset to the anticipated decline of big companies. The evidence tells a different story. In America the rate of business creation has declined since the late 1970s. In some recent years more companies died than were born. In Europe high-growth ones are still rare and most startups stay small, in part because tax systems punish outfits that employ above a certain number of workers, and also because entrepreneurs care more about work-life balance than growth for its own sake. A large number of businesspeople who were drawn in by the cult of entrepreneurship encountered only failure and now eke out marginal existences with little provision for their old age.

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