Why Managers Still Matter

In today’s knowledge-based economy, managerial authority is supposedly in decline. But there is still a strong need for someone to define and implement the organizational rules of the game.

We live in a knowledge-based, rapidly changing, networked world. A supposed hallmark of the new economy has been the decline of managerial authority. Modern organizations such as online retailer Zappos have come to favor flat hierarchies with widely distributed authority. We call such businesses “wikified companies,” using the wiki- prefix to denote the loosely structured, bottom-up, egalitarian structure popularized by the Wikipedia encyclopedia project and touted by management thinkers and consultants.1

“Wikifying” the modern business has become a call to arms for some management scholars and pundits. As Tim Kastelle, a leading scholar on innovation management at the University of Queensland Business School in Australia, wrote: “It’s time to start reimagining management. Making everyone a chief is a good place to start.”2

Companies, some of which operate in very traditional market sectors, have been crowing for years about their systems for “managing without managers”3 and how market forces and well-designed incentives can help decentralize management and motivate employees to take the initiative.4 For example, in the 1980s, Johnsonville Sausage, based in Sheboygan Falls, Wisconsin, made a big point of slashing managerial oversight and putting quality control, personnel management, customer relations and even business expansion in the hands of worker-managed teams. As CEO Ralph Stayer explained, “My job ... was to put myself out of a job.”5

The Industrial Revolution brought the decline of small-scale, cottage production and the rise of large, integrated businesses; Adam Smith’s invisible hand was replaced with what business historian Alfred D. Chandler Jr. famously described as the “visible hand” of management.6 But now that pendulum appears to be swinging in another direction. What Frederick W. Taylor, a pioneer in the field of scientific management in the late 19th century, saw as rigidly organized factories of docile and obedient workers has been eclipsed by loosely structured teams of highly trained and empowered knowledge workers.7 Indeed, the “visible hand” of management has morphed into a system of loose networks, virtual businesses and peer-to-peer interactions.8

This isn’t to say that strong-minded managers have become extinct.


1. See, for example, D. Tapscott and A.D. Williams, “Wikinomics: How Mass Collaboration Changes Everything” (New York: Penguin, 2006).

2. T. Kastelle, “Hierarchy Is Overrated,” November 20, 2013, http://blogs.hbr.org.

3. R. Semler, “Managing Without Managers,” Harvard Business Review 67, no. 5 (September-October 1989): 76-84.

4. T. Peters, “Liberation Management: Necessary Disorganization for the Nanosecond Nineties” (New York: Knopf, 1992); and N.J. Foss, “Selective Intervention and Internal Hybrids: Interpreting and Learning From the Rise and Decline of the Oticon Spaghetti Organization,” Organization Science 14, no. 3 (May-June 2003): 331-349.

5. R. Stayer, “How I Learned to Let My Workers Lead,” Harvard Business Review 68, no. 6 (November-December 1990): 66-83; and C. Hartman, “Managing the Journey,” Inc., Nov. 1990, 44.

6. A.D. Chandler, Jr., “The Visible Hand: The Managerial Revolution in American Business” (Cambridge: Harvard University Press, 1977).

7. F.W. Taylor, “Shop Management” (New York: American Society of Mechanical Engineers, 1903).

8. R.N. Langlois, “The Vanishing Hand: The Changing Dynamics of Industrial Capitalism,” Industrial and Corporate Change 12, no. 2 (2003): 351-385.

9. A. Lashinsky, “Inside Apple: The Secrets Behind the Past and Future Success of Steve Jobs’s Iconic Brand” (London: John Murray, 2012), 69.

10. J. Wulf, “The Flattened Firm: Not as Advertised,” California Management Review 55, no. 1 (fall 2012): 5-23; and M. Guadalupe, H. Li and J. Wulf, “Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management,” Management Science 60, no. 4 (April 2014): 824-844.

11. P. Konieczny, “Governance, Organization, and Democracy on the Internet: The Iron Law and the Evolution of Wikipedia,” Sociological Forum 24, no. 1 (March 2009): 162-192.

12. G. Satell, “To Create Change, Leadership Is More Important Than Authority,” April 21, 2014, http://blogs.hbr.org.

13. C.C. Miller, “Yes, Silicon Valley, Sometimes You Need More Bureaucracy,” New York Times, April 30, 2014.

14. G. Hamel, “This is How Bureaucracy Dies,” Fortune, April 16, 2014.

15. See, for example, B.G. Posner, “Right From the Start,” Inc., Aug. 1, 1988; and F. Koller, “Spark: How Old-Fashioned Values Drive a Twenty-First-Century Corporation” (New York: PublicAffairs, 2010).

16. N.J. Foss and P.G. Klein, “Organizing Entrepreneurial Judgment: A New Approach to the Firm” (Cambridge, U.K.: Cambridge University Press, 2012).

17. P. Milgrom and J. Roberts, “Complementarities and Fit: Strategy, Structure, and Organizational Change in Manufacturing,” Journal of Accounting and Economics 19, no. 2-3 (1995): 179-208.

18. J. Useem, “How to Build a Great Team,” Fortune, June 1, 2006.

19. D. van Knippenberg, J.F. Dawson, M.A. West and A.C. Homan, “Diversity Faultlines, Shared Objectives and Top Management Team Performance,” Human Relations 64, no. 3 (March 2011): 307-336.

20. See D. Kahneman, J.L. Knetsch and R.H. Thaler, “Experimental Tests of the Endowment Effect and the Coase Theorem,” Journal of Political Economy 98, no. 6 (December 1990): 1325-1348.

21. S.L. Robinson and D.M. Rousseau, “Violating the Psychological Contracts: Not the Exception but the Norm,” Journal of Organizational Behavior 15, no. 3 (May 1994): 245-259.

22. Y. Benkler, “The Wealth of Networks: How Social Production Transforms Markets and Freedom” (New Haven, Connecticut: Yale University Press, 2006).

23. IBM Global Business Services, “Expanding the Innovation Horizon: The Global CEO Study 2006,” n.d., www.ibm.com.

i. Foss and Klein, “Organizing Entrepreneurial Judgment.”

ii. Foss, “Selective Intervention and Internal Hybrids”; N.J. Foss, K. Laursen and T. Pedersen, “Linking Customer Interaction and Innovation: The Mediating Role of New Organizational Practices,” Organization Science 22, no. 4 (July-August 2011): 980-999; and N.J. Foss, J. Lyngsie and S. Zahra, “The Role of External Knowledge Sources and Organizational Design in the Process of Opportunity Exploitation,” Strategic Management Journal 34, no. 12 (December 2013): 1453-1471.

iii. N.J. Foss, T. Pedersen, J. Pyndt and M. Schultz, “Innovating Organization and Management: New Sources of Competitive Advantage” (Cambridge, U.K.: Cambridge University Press, 2012).

iv. P.G. Klein and M.R. Saidenberg, “Organizational Structure and the Diversification Discount: Evidence From Commercial Banking,” Journal of Industrial Economics 58, no. 1 (March 2010): 127-155; P.G. Klein, “Were the Acquisitive Conglomerates Inefficient?” RAND Journal of Economics 32, no. 4 (winter 2001): 745-761; and H.S. James, Jr., P.G. Klein and M.E. Sykuta, “The Adoption, Diffusion, and Evolution of Organizational Form: Insights from the Agrifood Sector,” Managerial and Decision Economics 32, no. 4 (June 2011): 243-259.

1 Comment On: Why Managers Still Matter

  • Norris Krueger | September 29, 2014

    Good points here, gents… from the entrepreneurial perspective, we are seeing at least the illusion of managers behaving (and thinking) very differently. However, if you peek behind the curtain there are still no shortage of entrepreneurs who manage from a Theory X perspective… and even more “new school”, collaborative managers who are.. well… not very good at it. It’s hard to stay collaborative when the stuff hits the fan – but we need to get better at the skills of managing.

    But dare I ask… are b-schools really training for this? Or just bathing us in platitudes?

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