The mechanistic approach that is outdated for enterprise modeling
Looking back in history, the period from 1945-71, also known as the Golden Age of Capitalism [i], saw an unprecedented boom in business activity. The only major problem that businesses appeared to have in this period was how to produce more, to satisfy the ever-increasing demand for their products and services. Most enterprises had limited product and service offerings and custom-made offerings were an exception. Companies during this period were production- or inward-focused. Competition was not very intense and the business environment was largely stable and predictable, compared to today.
The focus of companies was largely on standardization and maximizing efficiency. Processes and tools were, by far, more important than people. People were mandated to adhere to processes and comply with "orders" from "bosses." Innovation and creativity were limited to research and development departments, if considered at all.
In this period, enterprises were modeled on mechanistic systems that were appropriate for manufacturing activity. According to The Law Dictionary:
"This type of organization is hierarchical and bureaucratic. It is characterized by its (1) highly centralized authority, (2) formalized procedures and practices, and (3) specialized functions. Mechanistic organizations are relatively easier and simpler to organize, but rapid change is very challenging." [ii]
This model works on the premise of control, that is, it implies that companies, like machines, can be designed to behave exactly as expected and every part of the enterprise will execute its functions in a repetitive and predictable way, without any variability. The business is expected to change its behavior only when there is deliberate intervention. The model follows the idea that the natural evolution of a mechanistic system only means wear and tear or obsolescence. Like machines, mechanistic organizations have no life and, therefore, little or no agility.
However, the most critical element of any enterprise is its people and unlike machines, people have feelings and aspirations, are curious and, being naturally social in nature, like to engage with other people. Employees get bored doing repetitive work. Machines do not. Machines, by definition, cannot be creative. People, by definition, are creative. People-centricity is the essence of agility and the mechanistic model hinders enterprises from becoming people-centric.
Taylor's scientific management theory – the roots of mechanistic modeling
It is important to understand the roots of mechanistic modeling so that its limitations can be addressed in the most effective manner. The roots of mechanistic modeling for businesses lie in Frederick Taylor's Theory of Scientific Management [iii].
Taylor's theory revolutionized the way that enterprises were run. It helped businesses to maximize efficiencies and to scale operations quickly. The theory helped companies to master the craft of manufacturing, which is about designing an object upfront and producing that object repetitively to exact specifications. Prior to this theory being adopted, there was no known systematic way of running a business, especially related to manufacturing. Taylor's theory points toward the following three key beliefs.
Managers should "think" and workers should "do"
This implies that the "doers" should "put blinkers on" and do exactly as they are told. Whatever information they gather from the environment, they are expected to pass it on to their managers, who are deemed more capable of making decisions.
Efficiency is the most important outcome to aim for
This implies that the work being done is repetitive in nature, thereby making it possible to apply scientific methods to improve productivity. The statement also implies that the doer should optimize their part of the work, without worrying about the overall outcome.
Processes and methods should drive ways of working
This implies that standardization is important, and not creativity, that most work-related circumstances and instances can be predicted in advance, and will have minimum variations or exceptions, and that people should not apply their own mind. Most importantly, the statement suggests that people are easily replicable like cogs in a wheel, and processes and methods are robust enough to smooth out the disruptions arising from people churn.
These beliefs, especially the "thinker versus doer" separation, are the primary reason for an organization to become mechanistic in nature, and thereby the people within the firm become mechanistic "resources" as well. While Taylor's theory was revolutionary in helping businesses to scale their activities, it is a huge impediment to enterprise agility in the following ways:
- The "thinkers," that is, the leaders and middle managers are removed from the customers, as they are largely kept busy preparing reports and plans and attending endless internal meetings.
- The "doers" have very little or no autonomy to make any decision that might please the customer. They are expected to follow the standard operating procedure and have to seek approval for deviations. Sometimes, the deviation has to traverse multiple levels up in the hierarchy for the decision to be made.
- It forces people to organize activities around specializations, rather than around outcomes and the delivery of value, which is almost always not optimal from the perspective of the customer and therefore for the enterprise as well.
- By the time the information has traversed the hierarchy and has reached the manager, it usually has become diluted and also outdated. Decisions made on information which may not reflect the context at that moment are likely to be suboptimal, especially considering that the manager may have very little information about the ground-level realities.
- The "doers" do not get a voice in defining and shaping strategy, which leads to them not feeling engaged with their work. There is no incentive for people to be passionate about their work, which severely limits excellence. Customers will likely feel the indifference of the "doers."
- If the number of managers becomes large, then more managers are needed to manage these managers, thereby adding more unproductive layers to the hierarchy of managers. The value these additional layers in hierarchy bring to the enterprise is highly questionable, as the managers in these middle layers are mere channels to pass information between the hierarchy layers.
- The extreme importance given to compliance and adherence to processes leaves no incentive to innovate.
Does this imply that we should simply abandon the scientific management theory? Of course not. It would be akin to "throwing the baby out with the bath water." Even living systems have some parts which work mechanically and which need to be treated as such, for example, in a human body, the heart works like a machine. Moreover, focus on optimizing efficiency will always remain a critical element of profitability for a company, for example, a global online retailer's fulfilment centers across the globe are run on principles of Taylorism, due to the repetitive nature of the work, so the teams in the offices are set up for enabling knowledge work and creativity.
What is needed is recognition that enterprises need to "live and breathe" in order to evolve with and adapt to change, and that continuing with the mechanistic model in its purest form, just because it has been widely successful in the past, is likely to severely impair agility.
Companies need to examine which aspects of this model have become outdated and therefore the impediments to agility in their specific context and address those impediments in order to infuse life into the business. Peter Drucker, considered to be the father of modern management, predicted the rise of knowledge work, which takes place in people's brains, as opposed to mechanistic work, which is primarily performed by machines. This has major implications as the primary resource used by businesses shifts from tangible assets such as land and labor to an intangible asset: knowledge.
In an article in the Harvard Business Review, Rick Wartzman, author of the book, Drucker: A Life in Pictures, states:
"Drucker had been anticipating this monumental leap – to an age when people would generate value with their minds more than with their muscle – since at least 1959, when in Landmarks of Tomorrow he first described the rise of knowledge work. Three decades later, Drucker had become convinced that knowledge was a more crucial economic resource than land, labor, or financial assets." [iv]
Businesses have always evolved and will continue to evolve in order to adapt to the changing environment. Some enterprises, such as Toyota, despite being a purely manufacturing-oriented business, began recognizing the importance of people much earlier than many organizations of that scale and size. This importance is reflected in The Toyota Way [v], which has several principles that are people-centric.
However, the issue is that the mechanistic model is so deeply embedded in many enterprises that they are finding it difficult to evolve at the speed at which the external environment is changing. This is creating a sustainability gap for companies, which is getting wider with the onset of the digital age. Businesses looking at a wide sustainability gap face a threat to their survivability.
Figure 3.1: The sustainability gap facing enterprises
The preceding diagram depicts the widening off the sustainability gap due to enterprises being unable to keep up with the pace of change of the environment. The gap has been widening at a faster rate, especially after the start of the digital era.
Empirical evidence suggests that companies are finding it difficult to bridge the sustainability gap. According to Wouter Aghina, a partner at McKinsey & Co.:
"When machine organizations have tried to engage with the new environment, it has not worked out well for many. A very small number of companies have thrived over time; fewer than 10 percent of the non-financial S&P 500 companies in 1983 remained in the S&P 500 in 2013. From what we have observed, machine organizations also experience constant internal churn.
According to our research with 1,900 executives, they are adapting their strategy (and their organizational structure) with greater frequency than in the past. Eighty-two percent of them went through a redesign in the last three years. However, most of these redesign efforts fail — only 23 percent were implemented successfully."
The only possible way that enterprises can bridge this gap is through enhanced agility, which will enable them to keep up with or even exceed the pace of change of the environment.