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Agile Marketing Series: A Deep History of Business Management, Part 1

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“Agile” describes a deeper trend in business management: to concentrate on a new way of doing business that strives for innovation while minimizing the risks of traditional all-or-nothing strategic approaches. It’s what I’ve called the anti-Mad Men approach: try anything, but never failing the same way twice.

Systematic innovation is at the core of all agile practices, even though the term is somewhat of an oxymoron. Sparks of innovation don’t easily coexist with a systematic approach; systematic approaches don’t necessarily produce sparks of inspiration.

They are somewhat at odds, but agile practices make them complementary opposites—not mutually exclusive. In fact, the agile process is what allows for the innovation.

History Has Put Innovation at the Forefront

The goal of innovation dominates modern business, following a long history of business management eras that began over 100 years ago.

The history of business management in the U.S. has evolved through several distinctive eras—

  • The Efficiency Era: Business management begins as a quasi-engineering efficiency study in the wake of late 19th century monopolies and robber-baron greed
  • The Social Era: A time of great prosperity and hope, where businesses served as collective mechanisms for social reform and widespread increase in living standards after World War II
  • The Shareholder Value Era: Beginning with the deregulation in the 1980s, American business went through a period of sacrosanct ideology about shareholder value, greed is good, and the rise of great income disparities between management and workers.

And now, I would add to that list, a new era we are entering:

  • The Agile Era: A combination of all of remnants of all those past management era, but one dominated by a rising need for real, global innovation using what we have come to call agile business practices.

Along with this need for innovation, agile has embedded within it a new management ethic—emerging from the independent undertones of the software industry—which seeks to promote networks over hierarchies, creativity over uniformity, human over mechanism, and customer need over political agenda.

How did we get here?

The Birth of Modern Business Management

As author Walter Kiechel III summarized recently in Harvard Business Review, historians generally point to one event as the symbolic birth of business management:

The meeting of the American Society of Mechanical Engineers, Chicago, May 1886, where Henry R. Towne, cofounder of the Yale Lock Manufacturing Company, proposed the idea of codifying a “management of works” as a way to apply engineering principles to business production.

Towne’s presentation was significant because he formalized two main points of business management:

  1. Management consists of a set of practices that can be studied and improved.
  2. Management should be rooted in classical economics and the efficient use of resources

Towne’s audience was almost exclusively engineers.

The Efficiency Era, 1880s—1940

The first decades of business management were dominated by aspirations of scientific exactitude. Notable companies from this period were American Sugar, American Telephone and Telegraph Company, General Electric, Allied Chemical, International Harvester, U.S. Steel, Union Carbide, Sears Roebuck, Western Union.

The efficiency era came on the heels of a “robber-baron” period in American capitalism, a climate dominated by monopoly, corruption, and exorbitant wealth from men whose last names still conjure the image of obscene wealth: Carnegie, Vanderbilt, Rockefeller, Morgan, Mellon, Stanford, Astor.

A rising middle class began to push against these political bosses and robber barons, with progressives wanting to bring the wisdom of science and process to business.

“The One Best Way”

Frederick Taylor, in his Principles of Scientific Management (1911), advocated for applying the scientific method to business.

Taylor first outlined the difference between “numbers people” and “people people” and pointed to it as the key tension in the workplace, but he also asserted that the differences between the quantifiable and the human in relationships shouldn’t be “cartoon” adversaries, but rather, complementary.

There was a belief that all businesses could be operated in the “one best way” if scientific processes were followed, but studies also uncovered the human psychology at work as well.

Example: A study on worker productivity showed that turning the lights in a factory up or down increased worker productivity. Up or down, it did matter. It wasn’t the light level; it was the fact that management was paying attention at all as perceived by the workers. Apparently, any attention from management was good for productivity.

Later studies showed productivity would also increase most during two significant workplace occurrences:

  1. When workers forged into a group, and
  2. When management solicited feedback and suggestions.

This period was also marked by overt classism, where those in management believed their ascendancy to power was the ultimate answer to The Great Depression, inept government, and the changes being brought on in the world by social upheaval.

The Social Era: 1940—1980

This era of business management, following World War II and ending with the Reagan presidency, was marked by overall confidence, public support, and good feelings about the potential for business to improve life, with employment linked to social stability, health care, housing, and the social contract with labor unions.

Notable companies during this period were General Foods, Eastman Kodak, Proctor & Gamble, United Aircraft, 3M, Chrysler, Woolworth, Goodyear.

Kiechel also notes the rise of some important business management scholars during this time, saying, “Entering into these stuffy rooms [of efficiency] blew a blast of fresh, cleansing air. Call it Hurricane Drucker.”

Peter Drucker

Many consider Peter Drucker the father of modern management, with several important publications during his life, including:

  • Concept of the Corporation (1946)
  • The Practice of Management (1954)
  • Managing for Results (1964)

Concept of the Corporation was the first book of its kind, delving into how large corporations impact society on a broad level, and Managing for Results, 18 years later, may have been the first book on business strategy.

Drucker said, management is not adaptive only—it must push objectives to affect and change environment. “Business exists to produce results,” and the work of management should be to always look for opportunities.

Drucker saw the corporation as a social network, and believed business had two functions: innovation and marketing, ideas that remain critical to agile business practices in our own time.

His strategy was a throwback to Taylorism and strict measurement, not just of worker productivity, but of everything. And it worked. By the end of the 1970s, the 200 largest firms in the U.S. accounted for over 60% of total business sales, employment and income.

Win-Win

Also influential during this time of great promise for American business was Mary Parker Follett, a social worker, management consultant and pioneer in the fields of organizational theory and organizational behavior. Her ideas of “constructive confrontation” and “win-win’ remain with us, as well. Follett coined the term “win-win” as a mechanism of integrated solutions rather than simply compromising.

Along with Lillian Gilbreth, Follett was one of two great women management gurus in the early days of classical management theory. She admonished micromanaging as “bossism,” and she is regarded by some as the mother of scientific management.

X and Y

Douglas McGregor’s Theory X/Theory Y set up a philosophical dichotomy between pure control and pure autonomy.

In simple terms, Theory X posited “people are lazy and need policing” in the workplace. Theory Y countered, “People seek meaning in work and contribute based on positive design.”

The two schools of thought still struggle against one another.

The Shareholder Value Era: 1980—current

The 1980s brought on a retreat of business from broad social involvement to market specialization and servitude to market forces. Business declined in its moral ambitions, with a decline in union power, globalization, the rise of MBA degrees, and an overall obsession with shareholder value.

The 1980s ushered in an era of deregulation in transportation—airlines, railroads, and trucking—as well as deregulations in telecommunications and finance. The importation of cars, steel, and consumer electronics rose sharply, followed by an unprecedented age of technology with the rise of personal computer hardware and software.

Junk bonds and financial takeovers became standard practice without constraints, percolating through a “greed is good” societal undertone. Management began to change, with heavier and heavier emphasis on shareholders, often to the detriment of stakeholder interests.

Corporate management’s clearest goal since the 1980s has been to create wealth for their shareholders, and rewards for managers who played by those rules grew in ownership incentives and stock options. By 1999, stock options accounted for 50% of executive pay, and the ratio of CEO pay to average worker pay went through the roof in the U.S., peaking at over 500:1 in 2000 according to research from the Institute for Policy Studies.

Value Creation

In 1985, the terms “value creation” first arose in business strategy circles to justify exorbitant corporate paychecks. CEOs, the logic went, created the value and therefore should enjoy the spoils of the business profit—as measured by the increase in company stock price.

This period also saw the rise of information technology, growing from small data management expert firms to the all-pervasive sea of data that runs through every department of modern business today.

More than just networks and servers, IT connected businesses directly to billions of customers in an easily measured and trackable way, an ability that has only increased with more social media outlets and mobile technology.

That Brings Us to the Present Day.

And that brings me to the close of Part 1 of this post.

Read Part 2, coming soon!

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