This is the 8th blog post in the Organising for Outcomes series. It is helpful to understand where we’ve come from, how today’s ways of working have evolved, and the context that those ways of working evolved in. This helps us to understand why we’re working the way we’re working and what we might want to change in today’s context, which is significantly different compared to previous technology-led revolutions.
In the previous post we zoomed out to look more broadly at the introduction of Systematic Management between 1870 to 1900. This is to understand why we work the way we do today and to see what lessons we can (re)learn from the past.
In this post we will take a closer look at Systematic Management, the introduction of 'systems' (1) for work, (2) for cost transparency and (3) for incentivising workers. Many of the management innovations introduced in this time period are still in use today, sub-optimally, in a very different context.
Systematic Management
The awareness of management as a concept and a differentiator came into existence with new practices and an identifiable body of literature, known as Systematic Management.
As businesses grew, keeping track of orders, production, inventory and estimating prices to quote to clients, could no longer all be done by Rule of Thumb, in the heads of the factory managers, foremen and workers, with little organisational information, guardrails, controls or coordination. The literature of the period references the losing of orders, missing work, duplication of effort, lack of information at all levels, with a confused and somewhat chaotic state in the internal operations of many firms.
There was a greater need for improved internal coordination within firms.
Systematic Management was the firm developing its frontal lobes, much like a teenager becoming an adult. Previously, with growing scale, firms were more like dis-organisations. Now, firms were becoming organised, firms were becoming organisations. The control and coordination organisational brain was developing, creating processes that we are familiar with today.
Systematic Management is a precursor to, and provided a foundation for, the more well known Scientific Management which followed. Systematic Management and Scientific Management differ significantly in focus. Scientific Management was only possible because of the ways of working introduced in Systemic Management. The evolution was as follows:
Rule of Thumb: knowledge in the heads of foremen and workers. Haphazard.
Systematic Management: organising the organisation, coordinating people
Scientific Management: getting the most output out of an individual
Key aspects of Systematic Management included the following:
Data feedback loops. The gathering, visualising, disseminating and summarising of information so that more people had more insight into and oversight of the system of work, with data feedback loops. This grew in scale from the early example set by Daniel McCallum 30 years earlier, in the Age of Steam and Railways. The increased information flows allowed for more self-awareness, less risk and an improved ability to plan, organise and continuously improve.
Systems: The introduction of policy in the form of standards, processes and controls for the organisation. These are rules, constraints, rational approaches, in order to optimise outcomes at an organisational level. There is more control and less of the impulsive behaviours of the teenage years, as firms quickly grew beyond the cognitive capacity of foremen and workers.
For example:
• Cost accounting
• Production control
• Wage systems
This rise in standardisation also made its way to the production of the parts, so that less rework was needed when assembling a product. This was a crucial building block for Scientific Management, which was to follow.
Specialisation and Clarity of Roles & Responsibilities: increased clarity on who was to follow what process. Less laissez-faire, less duplication of effort, less confusion, more clarity on who is to act and how that person is to act. There was also increased specialisation in roles, with learnings from the textile industry (the 1st Industrial Revolution) making their way into manufacturing in the Age of Steel and Heavy Engineering (the 3rd Industrial Revolution).
There is always a trade off. In this case managers would find themselves focussing primarily on the task of accurately operating the system, with a much more limited view of their role in the firm. The incentive was less on the end-to-end flow of value and more on doing a narrower task, with finger pointing at others in the event of issues.
Growth of centralised ‘staff’ functions: Building on the management innovation in railroad companies and for the first time in manufacturing, there was the creation and growth in centralised staff functions. In today’s language we might call these Shared Service Value Streams, or Platform Teams. These staff functions took responsibilities from the line foremen and workers, enabling more coherence and coordination, optimising for the outcomes of the wider organisation. Due to improved information, standard processes, controls and clear accountabilities, it was possible to move those responsibilities into admin functions.
For example, the origination of the centralised Planning Department, which is the precursor to today’s Project Management Office (PMO). There was a greater need and ability to plan, set goals and organise effectively across the organisation.
In the next posts we'll take a deeper dive into each of the three key systems (cost accounting, system of work, incentives) that were developed as part of Systematic Management, to understand why we work the way we do today and what lessons we can (re)learn from the past to optimise for outcomes today and for the future.
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