The challenge: 20th Century vs.

21st Century management

Stephen Denning

here are currently two strikingly different ways of running a corporation in a coherent Stephen Denning (steve@

T and consistent fashion. In one – the predominant mode of 20th Century management
refined over the last 50 years – the goal of the firm is to maximize shareholder value.
stevedenning.com) is the
author of The Leader’s
Guide to Radical
In contrast, for 21st Century management – the pioneering mode of Agile enterprises and of Management
leading Silicon Valley firms, as well as individual businesses in Europe and China – the goal (Jossey-Bass, 2010) and
of the firm is to create customers. [3] The Age of Agile
(HarperCollins, 2018). He is
a senior contributor at
The principles of 20th Century management Forbes.com: http://blogs.
The characteristic structure of work in 20th Century management is that of bureaucracy: forbes.com/stevedenning/, [1]
individuals fill specific roles and report to bosses. The dynamic is command-and-control. a founder the SD Learning
Consortium [2] and a
The firm runs on a vertical hierarchy of authority. [4] The structure and dynamic of 20th
Strategy & Leadership
Century management flow from the firm’s goal. Since maximizing returns for its
contributing editor.
shareholders makes a priority of relentless efficiency, workers need to be closely monitored.

The processes of 20th Century management

The processes of 20th Century management flow from these principles:
䊏 Because those doing the work are generally uninspired by the goal of maximizing
shareholder returns, leadership tends to be top-down, manipulative and transactional,
using carrots and sticks. [5]
䊏 Because the firm’s goal is to maximize ROI, strategy typically
defends the existing business by building economic moats to
deter competitors. [6] “The essence of strategy,” wrote
Harvard professor Michael Porter in 1979, “is coping with
competition.” [7]
䊏 Because generating truly innovative products and services is
risky, and may threaten the existing marketing hierarchy,
innovation mostly focuses on enhancing existing products and
services. [8]
䊏 Because the firm’s goal is to maximize returns, sales and
marketing primarily focus on inducing customers to buy the
firm’s existing products and services. [9]
䊏 Because workforce creativity and risk-taking are not deemed a
critical talent, Human Resources generally involves controlling
the staff as resources. [10]

DOI 10.1108/SL-10-2020-0127 VOL. 48 NO. 6 2020, pp. 11-19, © Emerald Publishing Limited, ISSN 1087-8572 j STRATEGY & LEADERSHIP j PAGE 11
 䊏 Because the steep vertical hierarchy of authority leads to an organizational structure of
silos, the budget is often a lengthy battle among the silos for resources. [11]
䊏 Because the firm’s hierarchy is self-protective, risk management tends to be seen as a
way of reducing expected threats, and may ignore atypical risks (Exhibit 1]). [12]

From its outset, 20th Century management had an obvious problem: with limited opportunity
for creativity agency employees often became disengaged. Throughout the 20th Century,
humanist thinkers repeatedly argued that a focus on the people doing the work would
improve the workplace and productivity. Firms often deployed these ideas for parts of their
operations to deal with specific issues, often with great success. But the management
usually reverted to hierarchical control as the reassuring norm.

The strengths of 20th Century management

20th Century management is a coherent and internally consistent way of running a
corporation. It is resilient: it hangs together as an integrated system. Its principles,
processes and practices are mutually supportive. If one principle, process, or practice
starts to go astray, then the other principles and processes kick in and align the errant
behavior with the overall system.
The term “principles” refers to the emergent properties of the organization, not merely the
firm’s declarations of its intentions. Just as individuals’ principles are judged by how they
conduct their lives, not merely by what they say, in organizations principles are what
actually drive behavior throughout the firm.
Principles establish a pervasive mindset throughout the firm. They may change, although
not easily, because they are reinforced by multiple processes and practices. They are

Exhibit 1 Principles and processes of 20th century and 21st century management

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known to the firm’s insiders because they see who gets promoted and who doesn’t, why
resources are allocated the way they are and what drives hard decisions. Principles define
“the way things are done around here.”
The principles that management declares for public consumption are often merely window
dressing. For instance, in August 2019, more than 200 chief executives of major
corporations signed a statement of the Business Round Table (BRT) on the purpose of a
corporation and supposedly renounced the goal of maximizing shareholder value. [13]
However researchers have found little change in corporate behavior in the year since then.
Harvard Law Professor Lucian Bebchuk and colleagues found that few of the signatories
obtained the approval of their board of directors for the announcement. Nor is there
evidence of significant effort to bring firm processes in line with the revised goal. Professor
Bebchuk concludes that the BRT statement was “mostly for show.” [14] The actual
principles of most of these firms remain unchanged.
20th Century management was a good fit with the 20th Century economy. The marketplace
and the technology were relatively stable, work was mainly manual, bosses knew more than
workers and customers could generally be manipulated by sales and marketing to buy the
firm’s products. The material benefits of 20th Century management were spectacular. On
virtually all key dimensions of human material well-being – poverty, literacy, health, freedom
and education – the world is a better place than it was a century ago. [15]
Even today, 20th Century management is still a good fit for some kinds of businesses, such
as commodities, or those businesses, or parts of businesses, where the firm does not need
continuous employee innovation – such as Amazon’s Fulfillment Centers. [16]

Then the world changed

As the century ended, 20th Century management was becoming steadily less effective. Four
major causes stand out. The pace of change accelerated. Technology made radical leaps.
Knowledge work predominated. And power in the marketplace shifted from the firm to the
customer.
The hierarchical bureaucracies of 20th Century management could not keep up with these
changed conditions. Innovation slowed. Unproductive work proliferated. Manufacturing was
shipped overseas. Rates of return on assets of U.S. firms declined.
Many firms’ responded aggressively; they downsized, reorganized, delayered and
reengineered. Some went on an acquisition binge and others shed their promising
embryonic businesses. These moves sometimes yielded short-term gains, but they didn’t
solve the underlying problem: a poor fit with the evolving marketplace of the 21st Century.
Nevertheless 20th Century management plowed ahead. “Most [firms] today are run on the
basis of ‘legacy’ management systems that have become obsolete,” concludes Menlo
College professor Annika Steiber. “The problem can persist even if a company is quick to
adopt the latest managerial tools and techniques, because usually these upgrades don’t go

“Understanding how 20th Century and 21st Century

management differ offers an evidenced-based theory why
today’s leading firms are leading and why yesterday’s giants
are flailing.”

VOL. 48 NO. 6 2020 j STRATEGY & LEADERSHIP j PAGE 13

 “For 21st Century management – the pioneering mode of
Agile enterprises and of leading Silicon Valley firms, as well
as individual businesses in Europe and China – the goal of
the firm is to create customers.”

deep enough; they serve mainly as add-ons to an underlying system that is no longer right.”
[17]

How 21st Century management emerged

Meanwhile a few pioneering firms began exploring different principles. Beginning initially in
software development initiatives and small startups in and around Silicon Valley, as well as
individual firms in Europe and China, these firms adopted a different goal: to create a
continuous stream of value for customers and users. Making money was a result, not the
goal. [18]
The characteristic structure of work was also different. The goal of continuously creating
value for customers led to a preoccupation with enabling the full talents of those doing the
work. Typically small self-organizing teams worked in short cycles, focused tightly on
delivering value for customers.
The firms also adopted a different dynamic. Instead of a steep vertical hierarchy of
authority, there was a flat hierarchy of competence; information, knowledge and ideas
flowed horizontally and upwards as well as downwards. Ideas could come from anywhere.
As in 20th Century management, both the structure and dynamic of 21st Century
management flow from the firm’s goal: in this case, creating value for customers and users.
The task requires mobilizing and enabling the best talent the firm can attract. Since creating
value for other people is an inherently inspiring task for those doing the work, firms
practicing 21st Century management can provide potentially more engaging workplaces.
Working in small teams in short cycles can also enhance agility and ensure that customer
value is continually being created.

The processes of 21st Century management

When firms first began to adopt these different principles, they often experienced difficulty
integrating them with the processes they had inherited from 20th century management –
leadership hierarchy, competitive strategy, line-extension innovation and so on. And so they
also had to reinvent their processes:
䊏 Because the firm trusts the workforce to be self-organizing, leadership tends to be
inspirational and relational. not manipulative and transactional. Owing to the distributed
nature of work, leadership is required universally. [19]
䊏 Because the firm’s goal is to create value for customers in a dynamic environment,
sustainable strategy must incorporate creating new businesses that attract new
customers. [20]
䊏 Because rapid continuous innovation is central to creating value for customers, it
typically encompasses systematic efforts to find new needs and new ways of meeting
them, including the creation of interactive ecosystems. [21]
䊏 Because the goal of the firm is to meet customer needs, sales and marketing must
address the real needs of customers and users. [22]

PAGE 14 j STRATEGY & LEADERSHIP j VOL. 48 NO. 6 2020

䊏 Because the success of the 21st Century firm depends on mobilizing all the capabilities
of an engaged workforce, people management must attract and enable the talent
required to deliver value to customers. [23]
䊏 Because the firm operates as a network of teams tightly focused on creating customer
value, the budget typically reflects decisions already taken to implement strategy.
There are often no organizational silos to fight over budgeting. [24]
䊏 Because the firm is focused on continuous innovation, risk management can support
initiatives that turn risks from threats into opportunities. [25]
As firms evolved these principles, processes and practices, they were not only able to
move more nimbly: they could focus on delivering instant, frictionless, intimate, incremental
value to their customers and users and create meaningful customer experiences. [26]
These firms grew rapidly because they found ways to transform the lives of customers and
users with new ways of communicating, connecting, working, accessing knowledge,
shopping, transportation and entertainment. These capabilities then generated network
effects and even greater profits. Paradoxically, leading firms practicing 21st Century
management have ended up making more money than firms focused primarily on
maximizing returns. The leading 21st Century firms have become the most valuable firms on
the planet as well as the leading global brands: Amazon, Apple, Facebook, Google and
Microsoft.

Current challenges of 21st Century management

With success comes scrutiny. Most of these leading firms are under regulatory review in the
U.S. and Europe for taking advantage of their market power. The issues include:
䊏 Whether the firms have abused their market power to crush their partners or competitors;
䊏 Whether there is a conflict of interest in running a platform and using the information
obtained from it to compete against users of the platform;
䊏 Whether the conditions of work in some parts of some firms are unacceptable; and
䊏 Whether their profits are being distributed equitably.
The firms would be well advised to regulate themselves if they have such issues. These
firms have grown large by doing the right thing by customers. Now they may need to raise
their sights higher and make sure they are doing the right thing by society. [27]

Transitioning to 21st Century management

Embracing 21st Century management has obviously been easier for firms that pursued
rapid innovation from the outset, like Facebook, Google and Netflix. Yet there are also
striking examples of older firms that have been able to make the transition from 20th
Century management to 21st Century management, such as Microsoft. Exhibit 2 depicts the
path Microsoft took to achieve 21st Century management.

“Because the firm’s goal is to create value for customers in a

dynamic environment, sustainable strategy must incorporate
creating new businesses that attract new customers.”

VOL. 48 NO. 6 2020 j STRATEGY & LEADERSHIP j PAGE 15

 Exhibit 2 Mapping the Microsoft journey

Is “21st Century Management” the right label?

There are now many firms practicing the relevant principles and processes of 21st Century
management. For example, the widespread “Agile management” movement also includes
many firms that prefer their own home-grown label, like “Project Aristotle” at Google, “two-
pizza teams” at Amazon, “growth mindset” at Microsoft, and “Rendanheyi” at Haier. Noted
corporate counselor Roger Martin extolls the principle of “adaptivity” and Professor Julian
Birkinshaw labels such nimble management as “adhocracies.”
There are important commonalities in all these corporate settings. Rather than debating
terminology, it may be more constructive to evaluate the specific principles, processes
and practices that are actually in operation in a particular team, unit or firm at any
particular time.

Two different modes of thinking

A significant hurdle in making the transition to 21st management is that it requires not only
doing things differently but also thinking differently.
The problematic principles and processes of 20th Century management reflect the idea of
the firm as a machine:
䊏 It is something that can be controlled and measured and analyzed separately;
䊏 Each individual part of the firm’s behavior can be predicted;
䊏 Its outputs will be proportional to inputs;
䊏 It can be understood quite separately from its context; and
䊏 Every problem has a root cause and every problem can be solved.

In contrast, 21st Century management views the firm, not as a machine, but rather as a
complex adaptive system. This means:
䊏 The firm can’t be mechanically programmed or fixed;
䊏 The firm can’t be analyzed separately from its context;

PAGE 16 j STRATEGY & LEADERSHIP j VOL. 48 NO. 6 2020

 “Because the success of the 21st Century firm depends on
mobilizing all the capabilities of an engaged workforce,
people management must attract and enable the talent
required to deliver value to customers.”

䊏 The firm’s direction can’t be fully predicted;

䊏 The firm can only be understood through its interactions with its environment; and
䊏 The firm needs to recognize that the environment is likely to force a change of course.
Thus, 21st Century management is not simply an incremental refinement of 20th Century
management. Its assimilation and implementation requires the demolition and
reconstruction of well-entrenched processes and practices. Decisions need to be made
about what to pay attention to in the future and what things, formerly thought important,
ought now to be ignored. Not until this re-construction is completed can the new paradigm
of 21st Century management be fully accepted. [28]

The future of management

Understanding how 20th Century and 21st Century management differ offers an evidenced-
based theory why today’s leading firms are leading and why yesterday’s giants are flailing.
The stark contrast between the two generates a comprehensive and integrated picture of
the ongoing paradigm shift in management.
Firms still practicing 20th Century management are likely to find an increasing gap between
their mode of managing and what the market context requires. Firms that don’t eventually
make the transition to a customer-focused strategy and a talent-centered culture risk not
surviving.
On the other hand, firms that successfully embrace 21st Century management can look
forward to an exciting and sustainable future.

Notes
1. This article draws on insights from the author’s blog: http://blogs.forbes.com/stevedenning/,
particularly www.forbes.com/sites/stevedenning/2020/09/20/what-21st-century-management-
looks-like/ and the author’s books, The Leader’s Guide To Radical Management (2010) and The
Age of Agile (HarperCollins, 2018).
2. SD Learning Consortium: www.sdlearningconsortium.org/
3. “There is only one valid purpose of a firm, to create a customer:” Drucker, P. Management (1954);
Rigby, D., Elk, S. & Berez, S., Doing Agile Right: Transformation Without Chaos (Harvard Business
Review Press, 2020); Steiber, A. & Sverker Alänge, S., “The Silicon Valley Model: Management for
Entrepreneurship,” (Springer, 2016). Other examples include the Haier Group in China (https://en.
wikipedia.org/wiki/Haier) and Vinci SA in France https://en.wikipedia.org/wiki/Vinci_SA): See also
Denning, S., “Post-Bureaucratic Management At Vinci and Haier,” Forbes.com December 2, 2018:
www.forbes.com/sites/stevedenning/2018/12/02/drucker-forum-2018-post-bureaucratic-management-
at-vinci-and-haier/
4. Hamel, G., “Bureaucracy Must Die,” Harvard Business Review, November 4, 2014. https://hbr.org/
2014/11/bureaucracy-must-die
5. Pfeffer, J., Leadership BS: Fixing Workplaces and Careers One Truth at a Time (HarperBusiness,
2015); Kellerman, B. The End of Leadership, (HarperBusiness, 2012); Kellerman, B.,
Professionalizing Leadership, (Oxford University Press, 2018).

VOL. 48 NO. 6 2020 j STRATEGY & LEADERSHIP j PAGE 17

 6. “The essence of strategy is coping with competition.” Porter, M., “The Five Competitive Forces That
Shape Strategy,” Harvard Business Review, January 2008. https://hbr.org/2008/01/the-five-
competitive-forces-that-shape-strategy
7. Porter, M., “The Five Competitive Forces That Shape Strategy” Harvard Business Review, January
2008; https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy; Porter, M., “The
Competitive Forces That Shape Strategy,” Harvard Business Review, March 1979, https://hbr.org/
1979/03/how-competitive-forces-shape-strategy
8. Zook,C. and Ormiston, C, “Focus on Your Core for Profitable Growth,” Bain & Company, March 21,
2001. www.bain.com/insights/focus-on-your-core-for-profitable-growth/
9. Denning, S., “The One Thing The Greatest Salespeople All Have,” Forbes.com November 29, 2012
www.forbes.com/sites/stevedenning/2012/11/29/the-one-thing-the-greatest-salespeople-all-have/
10. Denning, S., “Why Is HR Pursuing ’Agile Lite’? HBR Explains,” Forbes.com, March 16, 2018 www.
forbes.com/sites/stevedenning/2018/03/16/why-is-hr-pursuing-agile-lite-hbr-explains/
11. Denning, S., “Why Budgeting Kills Agile And Innovation,” Forbes.com April 4, 2019 www.forbes.
com/sites/stevedenning/2019/04/28/why-budgeting-cripples-agile-and-innovation/
12. Denning, S., “Ten Reasons Why Risk Management Increases Risk,” Forbes.com February 25, 2020
www.forbes.com/sites/stevedenning/2020/02/25/ten-reasons-why-risk-management-increases-
risk/
13. https://opportunity.businessroundtable.org/ourcommitment/
14. Bebchuk, L. and Tallarita, R., “Stakeholder’ Capitalism Seems Mostly for Show,” Lucian Bebchuk
and Roberto Tallarita www.wsj.com/articles/stakeholder-capitalism-seems-mostly-for-show-
11596755220
15. Roser, M., “The short history of global living conditions and why it matters that we know it” (2019)
https://ourworldindata.org/a-history-of-global-living-conditions-in-5-charts. Denning, S. “Why The
World Is Getting Better And Why Hardly Anyone Knows It,” Forbes.com, 30 November 2017, www.
forbes.com/sites/stevedenning/2017/11/30/why-the-world-is-getting-better-why-hardly-anyone-
knows-it/
16. Amazon is an example of firm that has mastered 21st Century management in the top 15
percent of its business, but chooses to manage its Fulfillment Centers with 20th Century
management.
17. Steiber, A., The Silicon Valley Model, (Springer, 2016).
18. See endnote 3.
19. Denning, S., “Organizational Tools For Changing An Organizational Culture,” Forbes.com, July 23,
2011, www.forbes.com/sites/stevedenning/2011/07/23/how-do-you-change-an-organizational-
culture/
20. Denning, S., “The Four Keys You Need To Achieve Strategic Agility,” Forbes.com, May 22, 2017,
www.forbes.com/sites/stevedenning/2017/05/22/the-four-keys-you-need-to-achieve-strategic-
agility/
21. Denning, S., “The Four Keys You Need To Achieve Strategic Agility,” Forbes.com, May 22, 2017,
www.forbes.com/sites/stevedenning/2017/05/22/the-four-keys-you-need-to-achieve-strategic-agility/
Denning, S., “How Amazon Became Agile,” Forbes.com, June 3, 2019, www.forbes.com/sites/
stevedenning/2019/06/02/how-amazon-became-agile/; Denning, S., “Why Most Firms Lack The
Agility To Implement A Business Ecosystem,” Forbes.com, www.forbes.com/sites/stevedenning/
2020/08/06/why-most-firms-lack-the-agility-to-implement-a-business-ecosystem/
22. Denning, S., “The One Thing The Greatest Salespeople All Have,” Forbes.com, November 29, 2012
www.forbes.com/sites/stevedenning/2012/11/29/the-one-thing-the-greatest-salespeople-all-have/
23. Denning, S., “Transforming HR As A Business Partner,” Forbes.com April 6, 2018 www.forbes.com/
sites/stevedenning/2018/04/06/transforming-hr-as-agile-business-partner-the-case-of-vistaprint/
24. Denning, S., “How Amazon Tames The Budget,” Forbes.com June 2, 2019 www.forbes.com/sites/
stevedenning/2019/06/02/how-amazon-tames-the-budget/
25. Denning, S., “Ten Reasons Why Risk Management Increases Risk,” Forbes.com, February 25,
2020 www.forbes.com/sites/stevedenning/2020/02/25/ten-reasons-why-risk-management-
increases-risk/
26. Pine, B. J. & Gilmore, J.H., The Experience Economy (Harvard Business Review Press, 1999).

PAGE 18 j STRATEGY & LEADERSHIP j VOL. 48 NO. 6 2020

27. Denning, S., “Why Big Tech Should Regulate Itself” Forbes.com August 2, 2020. www.forbes.com/
sites/stevedenning/2020/08/02/why-big-tech-should-regulate-itself/ Issac, M. et al., “12
Accusations in the Damning House Report on Amazon, Apple, Facebook and Google, New York
Times, October 6, 2020. www.nytimes.com/2020/10/06/technology/amazon-apple-facebook-
google-antitrust-report.html?referringSource=articleShare
28. Kuhn, T., The Structure Of Scientific Revolutions (University of Chicago Press, 1962).

Corresponding author
Stephen Denning can be contacted at: steve@stevedenning.com

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