12

NUCLEAR WINTERS AND GOLDEN AGES

If you will it, it is no dream.

—THEODORE HERZL¹

So far in this book, we have been on a journey through two different worlds.

In one world—described in the first seven chapters—we saw people and organizations in which there are healthy investments, energized workforces, continuous innovation, and strong returns. These people and organizations are at ease in a VUCA world where everyone is connecting with everything, everywhere, all the time. With the right mindset and through pursuing the Law of the Small Team, the Law of the Customer, and the Law of the Network, these organizations are progressing toward instant, intimate, frictionless value for large numbers of customers, and ultimately value for themselves and for society.

The principles they are applying to succeed in this world are simple to understand. People do best when what they do is in the service of delighting others. When they are able to work on something worthwhile with others who love doing the same thing, the group tends to get better. By working in short cycles, everyone can see the outcome of what is being done. When communications are interactive and everyone is open about what is going on, problems get solved. Innovation occurs. Customers are surprised to find that even unexpressed desires are being met. Work becomes fun. While none of the organizations we visited are flawless embodiments of these principles, they are all on a journey to get there.

In the other world—reviewed in Chapters 8 through 11—we saw people and organizations following very different principles. They are ill at ease in a VUCA world where everyone is connecting with everything, everywhere, all the time. They find themselves having to run faster and faster just to stay in place. With their disengaged workforces being told what to do, they are structurally incapable of meeting today’s market requirement: continuously delivering instant, intimate, frictionless value at scale. They are mainly focused on defending the status quo and protecting their existing businesses. They are preventing themselves from moving into the future by falling into the traps of short-term shareholder value, share buybacks, cost-oriented economics, and backward-looking strategy. To hide the shortfall in real performance, there is a frequent resort to financial engineering to create a semblance of success.

In the latter group of organizations, work is deadly serious. People don’t come to work with a spring in their step. Spending most of their waking hours making money for the boss doesn’t bring out the best in them. In this world, some individuals and firms end up as winners, but society as a whole loses.

In terms of the relative size of these two worlds, the picture is discouraging. Today, there are many more public corporations operating in the latter mode—traditional top-down bureaucracy—than in the former mode—the emerging way of running organizations. And there are many more people at all levels of society still believing in, supporting, and promoting the traditional mode than the emerging one. This thinking, and the behavior involved in it, are reinforced by the widespread support for its assumptions and the soaring stock market that spirals ever higher.

Yet the important news is that the two worlds are on very different trajectories. The emerging world is prospering, growing, and thriving in real terms while inspiring and energizing those involved in it, and continuing to evolve and reinvent itself.

The other world is declining in real terms, and dispiriting those involved in it, even those few who are enjoying its large but ephemeral financial fruits. The true measures of its progress are not the booming stock market or the short-term benefits to shareholders but rather the sputtering real economy, the despair of large segments of the population who no longer see an improving future, the unraveling social fabric, and the political stalemate in the face of grave issues.

Even more interesting news is that within most large public corporations, there are now significant islands of practitioners of the different way of doing things and who are advocating change. Some of the islands are very large. In some global companies, there are massive divisions that explicitly see themselves as “sleeper cells” for corporate transformation.

Despite the angst with which top management sometimes views these islands of dissent, they cannot be ignored because it’s simply not possible to manage modern software with traditional bureaucratic practices. In software development, there is no option but to pursue Agile management: The shift is nonnegotiable. If management won’t support Agile management, the best developers go elsewhere. And since software is “eating the world” and becoming an ever more central aspect of every business model, the pressure for change from within the organization is never-ending.

The passion and ambition with which these islands advocate change can sometimes set traditional managers’ teeth on edge. The issues are partly social: It’s as if the servants have forgotten their place and are taking over the chateau. The resulting culture clash is amusingly described by Paul Ford in a Bloomberg Businessweek article. It begins with the quandary of a previously successful executive whose experience and skills are useless in coping with languages he doesn’t understand, management practices he cannot grasp, people he doesn’t feel comfortable with, and threats to his survival as a manager that are all too real. Software development is consuming an ever-larger part of his budget while it is becoming ever central to his, and his organization’s, future. Although the article depicts a happy ending as the manager gradually grasps what is going on, in real life the outcome is often otherwise.²

Yet over time, as top executives themselves are coming to recognize the need for the organization to up its own game to cope with the fast-changing marketplace, the pull for Agile management increasingly comes from the top. In effect, the question shifts from “Why do we have to change?” to “Why can’t we have what they’re having?”

Leading management journals such as Harvard Business Review, The Economist, and the Financial Times have also taken up the cause.³ Boards and asset managers are showing an increasing interest in the genuine health of the companies they invest in—not just the companies’ share price.⁴ As large parts of the business ecosystem heads off the rails, business is increasingly recognizing the need to act out of enlightened self-interest. Business leaders are thus not simply practitioners of capitalism. They are its stewards, with a responsibility to enhance the sustainability of the market system.

Why is the transition taking so long? Why is there such a large gulf between these two worlds? Why, at a time of unparalleled technological innovation, are so many organizations protecting the status quo and propping themselves up with financial engineering, rather than promoting real growth with rapid transformation? We have already seen some of the reasons, including the deep nature of the change, the challenge to existing habits, attitudes, and practices, and the massive financial incentives to the C-suite to maintain the status quo.

From a historical perspective, it’s no surprise that these two different worlds exist side-by-side for extended periods. After all, this is not the first time in history that the world is encountering the emergence of “new technology,” resulting in a “new economy” that requires “a new kind of management” and that is accompanied by “a financial frenzy,” while many firms are in denial and stick with “more of the same.” Professor Carlota Perez’s book Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages gives us a brilliant description of similar phenomena occurring in earlier historical periods that shed light on our current situation and the potential outcomes that lie ahead.⁵

“History doesn’t repeat itself,” as Mark Twain allegedly quipped, “but it does rhyme.”⁶ The specific challenges of our own age are of course unique to the current period—globalization, deregulation, knowledge work, and astonishing new technology, particularly the Internet and the growing role of software in all businesses. While in these respects, our current situation is unprecedented, history has lessons for all those interested in accelerating the transition to a better way of running organizations, whether they be Agile managers, business leaders, or simply concerned citizens.

Thus, over several hundred years, we have seen recurring patterns. As explained in Box 12-1, clusters of innovations came together to create technological revolutions. There were successive transitions in the 1790s (canals), the 1840s (rail), the 1890s (steel), the 1920s (mass production), and the 1990s and beyond (computers and communications). In each case, there were astonishing new profit possibilities for those with eyes to see and money to invest. In the process, new ways of running organizations were developed to cope with the new technology. These changes in turn gave rise to successive waves of financial frenzy, with an expectation of high returns and an overinvestment in the new profit possibilities. In each case, the prospect of vast new fortunes was too tempting to resist.

Hot money flowed in. Investors not only exploited the real opportunities created by the new technology but also set out to make money out of money when investment in the real economy proved scarce. The financial sector then took over the economy, as firms lost interest in the real economy of goods and services, favoring the casino economy. For a period, the extraordinary returns of the overheated “new economy” and “making money from money” were the central preoccupation. Everyone thought that the gains would continue.

The winners in an economy based on making money out of money got richer while average citizens saw few benefits. In the financial frenzy, investors pursued chimeras. Eventually a big financial crash—or series of crashes—occurred and large parts of the economy were laid waste. In the more productive bubbles, genuinely better ways of organizing, managing, and consuming had been put in place. Investments had been made in new technology and infrastructure. New kinds of organizations had been created and new ways of running them had been discovered.

When the crash or crashes were severe enough, and the national leaders were wise enough, new institutional arrangements were put in place to stabilize the economy and bring the rampaging financial sector under control. The provision of real goods and services for real people was put back at the center of the economy, while the financial sector and the preoccupation with making money out of money were assigned supporting roles. When this happened, a kind of “golden age” could follow, with moderate but steady economic growth and widely shared benefits. Broad segments of the population prospered. The economy was back in a virtuous circle.

But when the crash was not severe enough to awaken society from its illusions of exponential returns from making money out of money, or when society’s leaders were not wise enough to put in place the institutional changes needed to rein in the rampaging financial sector, then various kinds of national decline ensued. Instead of a “golden age,” there was a “nuclear winter.”

In some cases, the casino economy rolled on and the financial sector continued to rampage, with a deterioration of the real economy, persistent financial crashes, and worsening income inequality. In other cases, there was an overreaction to the excesses of the financial sector with excessive regulation that prevented the healthy functioning of the banks, thus crippling the future evolution of the real economy. In still other cases, the events led to a state-run economy with disastrous political consequences.⁷

Where are we today? The technology bubble of the 1990s was driven by a kind of opportunity pull, whereas the bubble of 2001 – 2007 was driven by the push of easy credit. “In the first case,” writes Perez, “it was the excitement about new technology that attracted the money into the casino, almost regardless of cost; in the second it was the excitement about abundant easy money that pushed investors to seek new ways of making money out of money.”⁸

Today, following the government bailout of the banks after the crash of 2008, the casino economy rolls on. After the meltdown, massive efforts were made to clean up the banks and put in place regulations aimed at restoring trust and confidence in the financial system. But the net result in terms of dealing with root causes has been mixed.⁹ The financial sector is still oversized and the financial regulations create excessive bureaucracy for the banks without providing effective protections against wrongdoing. There is now talk of rolling back the protections that were put in place. In effect, society is at risk of perpetuating the egregious behavior that brought on the crash of 2008.

The current boom in both corporate profits and the stock market at a time of lackluster economic growth reflects a combination of opportunity pull (the Internet of Things), and the push from the continuing abundance of easy money. As of mid-2017, investors are salivating at the prospect of tax relief and the possibility of bringing back several trillion dollars held overseas by corporate America and transferring that to shareholders through share buybacks. Many public corporations are caught in the traps of short-term shareholder value, cost-oriented economics, and backward-looking strategy. There are many exceptions, and in most cases, there is agitation for change from within. But the prospect of continuing economic stagnation, growing income inequality, further financial crashes, and a prolonged “nuclear winter” still looms.¹⁰

Getting to a new “golden age” for society, with steady economic growth and widespread prosperity, will require strong leadership from many actors across society. (See Box 12-2.) A large part of the challenge must be met by the private sector rededicating itself to creating fresh value to customers with real goods and services, thus contributing to the growth of the economy, rather than financial engineering, extracting value, and making money out of money.

One object of this book has been to draw attention to the body of knowledge that is available to those involved in running organizations and who want to do so more productively. Our understanding of how to do this is already substantial and is reflected in the practice of tens of thousands of organizations around the world. We now have deep knowledge about what is involved. We know what to do differently.¹¹

In effect, a new way of getting work done and running organizations has emerged. It’s not just a big idea—it’s a transformative idea.

It is different in kind, scale, and impact from big ideas that are aimed at improving the world, such as a robot that can outperform students or an ultraviolet light that can kill superbugs.¹² These important ideas form the fodder of conferences and TED talks. They are important ideas, but, even when embraced, they don’t fundamentally change the way we think about the world. They are added to and woven into our existing way of life without basic change. They don’t upend our worldview. We embrace them within our existing frame of reference.

Transformative ideas are ideas that change our frame of reference. They can’t be evaluated within our existing frame of reference because they create a new way of understanding and interacting with the world. They lead on to ever more productive hypotheses as to how to improve the future.

We already discussed in Chapter 3 an example of a transformative idea—the Copernican revolution in astronomy. It wasn’t just a big idea in astronomy: It led to a different way of thinking about the universe and was accompanied by vast indirect social and political consequences. It became an evolving frame within which all other ideas in astronomy were evaluated, along with changes in the way society is organized. It didn’t appear fully articulated by Copernicus on day one. It steadily grew with the contributions of Galileo, Kepler, Newton, and eventually Einstein. Over centuries, it became an ever-larger idea.

Similarly, the Copernican revolution in management—call it by whatever name you like—isn’t just one more competing idea for improving the way organizations are run, like a new process for teams or a better kind of brand or talent management. It is a fundamentally different way of thinking about how human beings collaborate to get big things done in the world and hence a new frame for society in evaluating all other ideas for accomplishing that.

This different way of doing things generates a prospect that is genuinely exciting. It helps understand the present and points to a better future. It is a practical path toward a world that is better for those doing the work, better for those for whom the work is being done, better for the organizations that coordinate the work, and better for society.

The Copernican revolution in management offers both a different vision for the future and a multidimensional critique of how things are currently done. Thus, it presents a practical critique of much of current management, which is unable to keep pace with a fast-changing world in which the customer has become central. Among other things, the new way of doing things is essential to managing modern software. As all firms become dependent on software for success, Agile management will inexorably make its presence felt across the whole organization.¹³

Agile management offers a financial critique of current management. It shows that even on its own terms a sole focus on enhancing shareholder value doesn’t work. Shareholder value thinking is a trap that inexorably leads to a preoccupation with the short term and ultimately destroys shareholder value. The new way of doing things doesn’t just lament these flaws but offers an implementable way of resolving them.

It offers a legal critique of today’s management. The deployment of gargantuan resources—some $7 trillion over the last decade—in share buybacks is effectively stock-price manipulation and must be ended to restore the financial integrity of the economy.

It presents an economic critique of the way organizations are currently being run and points to the inevitable conclusion that an economy based on extracting value from corporations cannot end well. Agile management challenges economists to recognize that the determining element of much of modern economics is now value more than cost.¹⁴ It implies setting aside the mythology of “the invisible hand” of the marketplace and examining what is actually happening. As the Nobel Prize–winning economist Joe Stiglitz has pointed out, “The reason that the invisible hand often seems invisible is that it is often not there.”¹⁵

It offers a moral critique of society’s current leaders. The institutionalized self-interest embodied in extracting value from corporations for shareholders and their executives through share buybacks is unethical. Current incentives lead executives to do what they should know is wrong. When leaders of a society routinely act in ways that are unethical, they undermine and ultimately destroy the values of society.

It offers a political critique of a society that accepts boring work, stock-price manipulation, and growing income inequality as inevitable and acceptable norms. The new way of running things implies a vision of a society that is organized and run differently. It is political in a broader sense than the platform of any specific political party. It is neither Democratic nor Republican. It is conservative in the sense that it flows from the best that has gone before. It builds on individual freedom and self-management and entrepreneurialism and innovation and independence from government intervention. It is democratic in the sense that it is egalitarian in spirit. It aspires to create prosperity for all rather than extract value for the few. It offers a view of society in which corporate raiders and the banks play a supporting role rather than a dominant, determining force in our society.

It offers a philosophical critique of a society that confuses goals and results. Shareholder value is a result, not a goal. When a measure or a result becomes a goal, it becomes corrupted as a measure. This confusion is a root cause of many of our current economic problems.

Thus, the new way of getting things done is a transformative idea. Like all transformative ideas, it creates an intellectual frame by which other ideas can be evaluated. It offers a way out of practical, financial, economic, social, political, and ethical dilemmas of our time. It establishes criteria by which progress can be measured and goals are set. It creates a framework within which politicians and political debate can operate. Instead of offering a jigsaw puzzle of little fixes, it provides a broad theory of how organizations—and society—can function for the better. It is a coherent story that offers the prospect of a new age.

If we are right in thinking that a new age is emerging, when did it begin? Was it Helmuth von Moltke’s Auftragstaktik in the 1860s? Was it the Toyota Production System in the 1960s, which later became known as lean production? Was it the Agile Manifesto of 2001? Was it 2016, when the citadel of general management, Harvard Business Review, embraced Agile?¹⁶ Or is it an age that is still struggling to be born, one that will only be fully alive at some time in the future when more of its components and details are fully worked out? The inquiry is as practically pointless as asking, When exactly did the Copernican revolution in astronomy begin? Was it with Aristarchus of Samos? Or Copernicus? Or Galileo? Or Kepler? Or Newton? As with any transformative idea, the age of Agile has historical roots going back a long way. It will take many more decades for its final fulfilment.

The fact that a new age is emerging now is not an accident. We live in a time when many sense, like David Brooks, that “the very nature of society is up for grabs.”¹⁷ Some grand ideas of the past—Christianity, the Enlightenment, Marxism—have declining influence. Other ideas, values, and assumptions that prior generations accepted without question, such as democracy, truth, science, freedom of the press, and morality, are also under siege. Fundamental assumptions are being flouted by populist political leaders on a daily basis. A vision of a future dystopia in which the rich get richer while the bulk of the population trudges along, doing boring work with stagnant or declining compensation, or even no work at all, is an increasingly worrisome prospect. There is a growing concern that the current social and political order could even come unstuck.

The emerging age is a response to the feeling that there must be a more energizing, prosperous, and meaningful mode of living and working for the entire population, which can be imagined, experimented with, and implemented.

The emerging age offers a promising path forward. It’s the work of many minds, hearts, and hands. It’s incomplete in many respects. For the most part, it is being carried out by action-oriented men and women, not by academics or policy wonks. Until recently, it has been little written about in academia, or even in general management journals, with the notable exception of Strategy & Leadership.¹⁸ Nevertheless, it is now happening on a large scale and moving forward relentlessly, driven by heroic actors in the workplace who have rolled up their sleeves and set out to get things done in a better way, rather than just talking about them. These people are real-world pioneers. While it’s good to talk and write about policy issues, it’s even better to have people who do something about them and put their thinking into practice. This is policy and politics at the most real and essential level.¹⁹

If the emerging age is to prevail, it will require seeing the truth squarely and being fully committed to its values. The tasks involved will include breaking ranks when necessary, facing up to unpleasant truths, and having the courage to go beyond what has been tried and found wanting. If leaders of the movement stray from core values, they will also need to be called out and held to account.

As support for the new way of doing things becomes steadily more visible, debates will continue about the details of implementation, emphasis, terminology, and so on. Improved practices will be discovered. More sophisticated measures will emerge. Wrong turnings will be recognized as such. Some practices will be discarded. But we don’t need to wait for these course corrections in order to move ahead. The broad direction forward is now clear.

The emerging age thus offers the possibility of a great awakening—a foreshadowing of a transformation in the way our organizations—and our society—function. The ideas in this book constitute an invitation to recognize, applaud, encourage, nurture, and disseminate the possibility and protect it from those entrenched interests that are intent on preventing it from happening.

While the new age represents a vast social agenda, one of the exciting things about it is a preoccupation with keeping things small. Unlike the Gothic cathedrals of the past or the skyscrapers of today’s global conglomerates that seek to intimidate us with their size, the age of Agile is more like early Renaissance architecture, which did its utmost to keep things on a human scale.²⁰

When managers first encounter this way of doing things, their reaction is often to wonder why it is so small. With such small teams, how could it possibly solve huge global problems and operate at scale? Happily, the new way of organizing enables networks of small teams to operate at scale without sclerosis.

In the emerging age of Agile, the people doing the work have a clear line of sight to the people for whom the work is being done. It makes individuals conscious of their powers as complete, thinking, responsible human beings, liberated from internal and external contradictions.

In the twentieth century, the phrase “the dignity of man” died on people’s lips as a travesty as they watched the horrors of industrial-scale warfare, the daily crushing of the human spirit in soulless workplaces riddled with contradictions, and the relentless pursuit of self-interest by the well-to-do.

By contrast, in the emerging age of Agile, the dynamic focuses on human beings creating delight for other human beings. When an organization—or a society—is populated by people with this mindset, it can be at one with itself, at one with those for whom the work is being done, at one with those who are doing the work, and at one with the wider society in which it operates. In such a world, the meaning of “the dignity of man”—and women, too—is fresh and invigorating.