Few “business thinkers” can lay claim to being “social philosophers”. Irish-born Charles Handy is an exception. Handy’s writings examine businesses as communities. For him, knowledge is the lifeblood of these communities and ‘The New Alchemists’ (the title of his most recent book) are the magicians who have been able to overcome the inertia of traditional organisations to make great things happen - to “sow the seeds of the future”.

In an exclusive interview with us, he discusses the changing corporate world and what it means for society and for individuals. Handy looks at today’s marketplace and sees “elephants” and “fleas” - and big changes for businesses everywhere.

Q. You define a company as a community and you say the workers are, in effect, “citizens” of the company…

A. If businesses no longer “own” the people they employ, it follows that they have to have a different kind of relationship with them. That relationship is like that of a country and its citizens. Citizens have certain rights: residence, justice, free speech, a share in the wealth of society and some kind of say in how it is governed.

Translated into corporate terms, a citizen’s right to residence means some guarantee of employment. That doesn’t mean a job for life any more, but I can envisage employees making contracts that will last for an agreed period of time, rather as members of the British armed forces bind themselves to three- and five-year contracts for service.

Q. How can organisations work more efficiently?

A. I’m not sure if we can use the term “efficiency” in the new economy, by which I don’t mean e-business and certainly not dot.coms, though of course e-business is a factor that we can’t ignore. Speed, flexibility and transparency of communication have had the effect of dividing the business world into what I call “elephants” and “fleas.”

As opposed to old-style corporations, fleas are small, agile, creative, unpredictable and, above all, adaptable. Examples are the growing numbers of contractors, freelancers, independent consultants and small specialised suppliers on which the elephants increasingly depend. What matters is that that they should deliver on time, to cost and to specification. They are effective rather than efficient. It’s not doing things right, but doing right things that matters.

Q. What does that mean for management?

A. What I think you are asking is how the flea model operates and how it can be managed effectively. Well, look at the film business. There are no big studios any more, just a few elephants — a director, producers and money men — who get an idea, assemble a team of fleas — actors and technicians — make the film, collect the money from distributors and then dissolve the team. Woody Allen’s film company and Steven Spielberg’s Dreamworks are examples of this type of enterprise: without permanent, money-draining investment in people and plant, such a company thrives in good times and bad.

A crucial skill will be to find where the fleas are and assemble the right team of fleas for the job. They will often be working remotely, from home or from some office of their own, so trust is a key part of the relationship. But how can we trust people we don’t see and who aren’t around? Communication helps, and you can hardly have too much of it. At the same time, business travel is continuing to increase alongside the varieties of electronic communication. So are conferences in which leaders from all sections of business and the community can meet and share their ideas.

Q. Has the new economy changed the way companies need to manage people?

A. The relationship has changed. In the old loyalty- and job-security-based organisation, employees were prepared to hand over the ownership of their ideas unconditionally. But that is no longer the case. They know that the assets of the organisation are largely made up of what is in the heads of the people they employ.

So the fleas are striking up new bargains with the elephants. We can find one sign of it in the film world. When the titles roll at the end, what we are seeing is the fleas visibly being given credit for their contribution. That is what makes them employable in the next job that comes up.
They will also expect a much greater share in the fruits of success than the arbitrary reward structure that the old economy organisation allocated to them. A reflection of that is the huge sums of money that go to the stars who bring in the audiences.

Q. You claim that the classical organisation concept will not be valid any more. What’s coming?

A. I believe that the organisation of the future will be federal. Federalism is a means of linking independent bodies together in a common cause. There are already examples of this — ABB, Unilever and Nike, to mention “Speed, flexibility and transparency of communication have had the effect of dividing the business world into what I call “elephants” and “fleas” THOUGHT LEADERSHIP some examples. They operate what are, in effect, independent companies; Unilever doesn’t even have any brands under its name. In federal companies, there is a centre but no headquarters.

The centre does not direct or command but co-ordinates and operates on the basis of subsidiarity, which is that responsibility and decisions should be pushed as far out and down the organisation as possible. Federal firms bring their brains together from around the world to agree to strategy and aims. They do not issue edicts from the top.

Q. How does capitalism affect society?

A. One effect that capitalism is having is to widen the gap between those at the top and those at the bottom. In some US companies the CEO is earning 500 times more than the lowest-paid worker. This is creating ghettos of resentment and poverty which I think capitalism will have to address because society — and hence customers — are beginning to demand it. There is a growing demand for companies to behave in a socially acceptable way: look what happened to Shell in Germany over the protests of the company’s policy in Nigeria. I think we are moving towards a new, more complex bottom line in which profit, environmental concern and social responsibility will have to be in balance. Those are the forces that will shape the new society.

This requires a new mindset from corporations, but there are benefits in that for them. Take the effect of the Internet. It poses a real threat to traditional organisations. All kinds of intermediaries are disappearing from the screen as their role is questioned. How do you create value when so many goods and services are commoditised? One way to do that is to turn to new markets or to think about markets in a new way. A case in point is Hindustan Lever Limited.

It has found a profitable Asian market for cosmetics in sachets costing a few cents and distributed through village traders whereas its customers were unable to afford a couple of dollars for the same stuff in a bottle. The new economy needs a new, flea-like mindset. That is why big elephant companies are developing activities as venture capitalists and business incubators in order to keep the fleas who come up with the ideas. The new model of growth is to create business opportunities in which the fleas can flourish and develop their management skills.

dossier

Charles Handy, Europe’s leading business thinker, has written some of the most influential books of the past century, including The Age of Paradox, Age of Unreason and Beyond Certainty: The Changing Worlds of Organizations. Handy started his educational odyssey with a classical Oxford programme in the ‘Greats’ (the intellectual study of classics, history and philosophy), reflected in his book, Gods of Management (Oxford University Press), in which he identifies four Greek gods (Apollo, Zeus, Athena and Dionysus) and the organisational/management styles represented by each. After gaining real-world business experience with Shell International in London and Southeast Asia, Handy entered MIT’s Sloan School, where he worked with pioneers in leadership and organisational theory such as Chris Argyris, Edgar Schein and Warren Bennis. Handy helped start the London Business School in 1967. He has worked closely with leaders of business, nonprofit and government organisations across the world.