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ECONOMY

From the Knowledge Economy to the HumanEconomyby Dov Seidman

NOVEMBER 12, 2014

Over the course of the 20 century, the mature economies of the world

evolved from being industrial economies to knowledge economies. Now

we are at another watershed moment, transitioning to human economies

—and the shift has profound implications for management.

What do I mean by the human economy? Economies get labeled

according to the work people predominately do in them. The industrial

economy replaced the agrarian economy when people left farms for

factories; then the knowledge economy pulled them from factories to

office buildings. When that happened, the way workers added value

changed, too. Instead of leveraging their brawn, companies capitalized

on their brains. No longer hired hands, they were hired heads.

In the human economy, the most valuable workers will be hired hearts.

The know-how and analytic skills that made them indispensable in the

knowledge economy no longer give them an advantage over increasingly

intelligent machines. But they will still bring to their work essential traits

that can’t be and won’t be programmed into software, like creativity,

passion, character, and collaborative spirit—their humanity, in other words. The ability to leverage these strengths will be the source of one

organization’s superiority over another.

As an example of a company successfully offering humanity, consider this story. Mark Dickinson was trying to catch a flight after receiving the

terrible news that his grandson had died. But when he arrived at LAX, two hours ahead of his departure time, and saw the length of the lines, he

realized he’d never make it through security in time. No one was willing to make an exception to the rules and let him jump the line, so he endured

the wait and, sure enough, arrived at the gate 12 minutes after departure time. But there stood the pilot, who greeted him as he came running up,

shoeless. An agent at the Southwest counter must have believed his plight and passed the word, because the pilot had held the plane. He told

Dickinson: “They can’t go anywhere without me and I wasn’t going anywhere without you.”

Of course the decision was the right one, but it was one that only a human could make—and only would make in an organization that didn’t punish

it. The key here is that the pilot had the confidence that, even in an organization highly focused on achieving timely departures, he would not

likely be penalized for making the judgment call. And how did he have that confidence? Because he knew it was consistent with Southwest’s well

established values, chief among them the insistence on doing the right thing for the customer. The pilot’s act of humanity was enabled by a kind of

“operating system” laid down by management of the company.

This notion of a human operating system appeals to me because it hints at how fundamental the commitment to humanity has to be in a company.

Many times, we see businesses launching initiatives or projects that take on problems such as bureaucracy or bribery. Think about these efforts as

programs or “apps”—they are individually targeted at important problems, but without an operating system that lets them talk to each other and to

the “hardware” of the organization, they can’t accomplish much.

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A company, for instance, may launch a well-intentioned initiative to flatten its hierarchy. However, if it operates in a culture where fear of making

mistakes is paramount, junior employees will likely seek out senior employees’ approval before making important decisions. Another example: A

company could launch a program to improve their customer service, but if its customer service representatives are disgruntled with lack of

fairness and respect in the workplace, then no matter how great the program is, there will always be a ceiling on how proud the employee is in

representing the company to the public.

The management community knows on some deep level that humanity is important to enterprise success. In hiring, a recent study of over 1,000

CEOs indicates that above all they seek candidates who are “collaborative, communicative, creative, and flexible.” (Contrast this with the

Knowledge Economy’s premium on sheer intellect.) A recent study entitled “Only Human: The Emotional Logic of Business Decisions” finds a

majority of executives insisting that “human insights must precede hard analytics.” Elite business schools now offer ”soft skills” courses, ranging

from the art of giving feedback to the practice of meditation. Companies are trying to outcompete by branding themselves as “human” (Chevron is

the “human energy” company and Cisco is the “human network”)—so much so that Ad Age has proclaimed “human” the newest marketing

buzzword.

It is probably also becoming clear that the shift to a human economy has big implications for how managers approach their work. In his book The

Effective Executive , Peter Drucker advised business leaders to focus not only on the ends of their work but also the means—what I would call the

“how” of their quest for success. He wrote:

Direct results always come first. In the care and feeding of an organization they play the role calories play in the nutrition of the human body.

But any organization also needs a commitment to values and their constant reaffirmation, as a human body needs vitamins and minerals.

There has to be something “this organization stands for,” or else it degenerates into disorganization, confusion, and paralysis.

Today, the values Drucker advocated are even more essential to the health of the enterprise, given the higher mobility of talent. Consider the

finding by Gallup that only 13% of employees worldwide are engaged in their work. We can blame the fact that managers are still using outdated

leadership and organizational models – the ones designed to work in past economies. Most, as our data has shown, still treat employees as inputs

to production whose variability is a problem – and as workhorses whose own ideas and impulses must be reined in.

The path ahead for leaders—as Peter Drucker foresaw with such prescience—is to create human operating systems that allow humanity to be

expressed. He understood that, in a human economy, it is no longer enough to follow rules. As he famously noted, “Management is doing things

right; leadership is doing the right things.” We need to deeply internalize and scale into our human operating systems this profound distinction. In

so doing we will inculcate a culture in which everyone is a leader doing the next right thing. Certainly, machines will continue to get better at many

things that humans have traditionally done in businesses, but machines will never be the source of enduring advantage. The companies that

succeed best will those that focus on the humanity of work, and capitalize on what humans can uniquely do.

This post is part of a series leading up to the 2014 Global Drucker Forum, taking place November 13-14 in Vienna, Austria. See the rest of the series

here.

Dov Seidman CEO, LRN, author of How: Why How We Do Anything Means Everything.

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