Here is an excerpt from an article written by John Hagel III for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.
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Throughout his life, Peter Drucker strived to understand the increasing complexity of business and society and, most importantly, the implications for how we can continue to create and deliver value in the face of complexity. I have long been influenced by Drucker’s work. In the 1960s and 1970s, he was already anticipating some of the implications of the Big Shift just beginning to emerge: the transition to an information economy, the centrality of knowledge work, and the transformative impact of digital technology on all types of work.
Around that time, two forces coincided, each amplifying the disruptive capacity of the other. First, the deployment of the digital microprocessor and packet-switched networking marked the beginning of the rise of the digital infrastructure that would eventually span the globe, driven by exponential performance improvements in computing, storage, and bandwidth technologies. Digital technology unfolded on top of a second force that had been building for a few decades: a global movement in public policy towards economic liberalization which was systematically reducing barriers to the movement of goods, money, people, and ideas across the boundaries of nations and industries.
The combination of these two forces created enormous opportunities but also enormous challenges. They have systematically and significantly eroded barriers to entry and movement on a global scale. The result is relentlessly mounting performance pressure. Evidence of this pressure
is starkly captured in the return on assets (ROA) for all public companies in the US since 1965. Over this period, there has been a sustained and dramatic erosion in performance: ROA has collapsed by 75 percent.
As the effects began to play out in the ’70s and ’80s, Drucker wrote extensively
about the need for management practices to change. He knew that as the nature of work transformed and the pace of change increased, existing management practices, not to mention worker skill sets, would quickly become outdated and fail to meet the needs of the coming information economy. The widespread erosion of ROA confirms that our management practices and institutions are struggling to respond to the relentless pressure. Why haven’t they responded more effectively?
The vast increase in the complexity of the economic and social landscape over these decades offers at least a partial explanation. There are many ways to think about complexity, but one key dimension is the degree of connection and interaction among participants. Thanks to the forces described above, we are more connected on a global scale than ever before. Not only are there more connections among more people, the speed of interactions has increased significantly, so that even small events in remote areas can propagate quickly, setting off cascades of events that evolve beyond anyone’s expectations. Witness the grassroots political movements that are increasingly shaking up “stable” political regimes around the world. Power laws with spiky heads and very long tails progressively crowd out the familiar bell curves that made life seem predictable.
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To read the complete article, please click here.
John Hagel III, a director at Deloitte Consulting LLP, is the co-chairman of the Deloitte Center for the Edge, based in Silicon Valley. His latest book, co-authored with John Seely Brown and Lang Davison, is The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion. To check out all of his HBR articles, please click here.