CHARLES HANDY SEES THE FUTURE The management philosopher thinks you can survive -- even prosper -- in the tough new downsized world if you understand the forces that are shaping it.
(FORTUNE Magazine) – In a 300-year-old converted farmhouse in the hills of Tuscany, Charles Handy sits in front of a PowerBook 540c trying to make the world a better place. He's not a guru or a futurologist or an aging hippie with joss sticks. Charles Handy is a philosopher for the world of business and management. And like the best philosophers, he aims to describe the future to help us get ready before it grinds our dreams into pulp. The 62-year-old, Irish-born author's reputation is rising fast among managers around the globe, from executives at PepsiCo to the bishop of Oxford. Their worries are your worries: that corporate downsizing is leaving workers and managers burned out and lacking in values, that successful companies must find better ways to reward employees in order to remain on top, and that the only constant in business life today is change. Says Handy: "My job is to be ten years ahead, which is why a lot of people tend to say I'm stupid." To date, most of those people have been wrong. His prediction that by 2000 half the working population would be making a living outside traditional organizations seemed crazy in the early 1980s. Today more than 35% of Americans in the labor force either are unemployed or are temporary, part- time, or contractual workers. In Europe the figure is already close to 50%. Handy has provided some of the classic management ideas of the past decade, including the shamrock organization, the doughnut principle, and the portfolio career. The first gave companies a blueprint for identifying core activities and outsourcing everything else. The second helped managers and workers distinguish between the essential parts of a job or career -- by somewhat strange logic identified as the hole in the doughnut -- and the discretionary parts. The third encouraged workers not to think of their current jobs as a career but as just one part of a lifetime portfolio of wages, contract fees, charity work, and study.
AUTHOR of a half-dozen respected texts on organizations, his best-seller, The Age of Unreason, forecast the collapse of the 45-year job and the paternalistic corporation, along with the attendant unfolding of the new service-based economy. These events, he wrote in the 1989 book, offer unparalleled opportunities for all of us. His second big seller, The Age of Paradox, published earlier this year, recognized the dark side of these developments, with companies ruthlessly pursuing efficiency at the expense of workers, the community, and maybe even their own futures. While Handy has not always been the first to make these points, his jargon-free observations usually pack more power because of their clarity and prescriptive nature. Listen to his admirers. John Jennings, vice chairman of Royal Dutch/Shell, calls him "a purveyor of insight, a man of supreme common sense." Adds Max De Pree, chairman of Herman Miller: "He makes a direct connection to what we ought to be doing and the social context." Says Kate Owen, head of organizational development at BP: "He anticipated almost all the challenges we have faced in recent years." Charles Handy, for all that, is far from grand. He heads no organization or foundation and has no staff. His business partner is his wife, Elizabeth, on whom he shamelessly dotes. She alone is allowed to take his photograph (as she did for this article). When he's writing in Italy or in his cottage in Norfolk, England, his mail is opened by the maidso readers won't think "the woman is Handy's wife who cleans his London flat. She forwards very little of it. Although he has three homes, all are modest in size and decorated unpretentiously with shelves of books and paintings mostly done by unrecognized young artists. The three-bedroom home in Tuscany is one of eight apartments fashioned from the old farmhouse, stables, and barn. Handy is currently head of the owners' association and frets about the cost of sinking another well. At lunch, he happily serves guests a local wine for which he paid less than $1 a bottle. At dinner, he brings out the good stuff. He and his wife shop together, always lugging along the empty wine bottles for recycling. Their proudest possessions are their 20-something son and daughter, over whom they fuss like a couple of new grandparents. When you meet him, you soon feel as if you're talking to your favorite professor, or the first person who believed you'd make something of your life. Padding about his Tuscan home in old running shoes and a well-used British Airways first-class sleeper top, Handy is disarmingly frank about the responsibility and guilt he feels having been raised in "unearned privilege" as an Anglican vicar's son in the Republic of Ireland, not to mention his education at boarding schools and ultra-elitist Oxford. After walking out on a promising career at Shell in his 30s and a tenured professorship at the London Business School in his 40s, Handy now spends nearly six months a year just thinking and writing. Although he can command top rates -- as much as $15,000 to $35,000 an advisory session -- he restricts his corporate work to just enough to cover the bills. Says he: "It would corrupt my role as a thinker to be a consultant. I would become sold on my ideas." If you detect a note of disdain for consultants, you're right. Handy does consult with about ten corporate clients a year, but he sets himself apart from his consulting brethren by insisting on rather unusual preconditions. First, the clients must agree to read his major books and papers. Then they must gather in his living room in suburban London to tell him all about their company. "I don't prowl around companies like a consultant," he says. "I want to see the organization through their eyes." Handy calls on his classical education, using the Socratic method of questioning. "I remind them of the key facts: Organizations are slimmer, jobs are found more and more outside the company, careers are shorter," he says. "Next I ask, 'How are you finding it?' I try to be a sounding board." Rather than acting the part of a Tom Peters, say, or a Peter Senge, Handy compares himself to a good interior designer. Says he: "A designer doesn't say do this or do that. He or she says: 'Have you looked at this room as a pool of conviviality? What would happen?'" By asking questions, Handy says, he opens the way for companies to solve their own problems. Finally, after the Socratic session at home, both Handys visit the client. Charles addresses a group of workers or a meeting. Elizabeth sometimes takes photographs. The sessions pay well enough to allow Handy to aid 15 or so nonprofit organizations and charities during the year either free or for very low fees. Jokes Elizabeth: "We take from the rich to cover our work with the poor and give ourselves enough to live on in the process."
HANDY DOESN'T OFFER a clip-out guide with five steps to managing the future or ten ways to restore morale among your burned-out staff. He has no workbook to order. Charles, as he likes to be called, would rather lob questions like hand grenades to shake up your thinking. He works hard creating management metaphors. Then there's the sigmoid curve, sloping lines that he uses to show that companies will come to a natural end if they don't re-create themselves during good times. But the sigmoid curve is just a starting point. And . although his own shamrock and doughnut principles have become linked to downsizing and reengingeering, he's come to despise those processes (see box). Handy's method may seem a rather unorganized way of managing for the future, but top executives from organizations as diverse as Guinness, Arthur Andersen, British Petroleum, the Save the Children Foundation, and various Silicon Valley startups regularly make the trip to the Handys' London home. Says David Hatch, vice president of management development at Pepsi: "I don't like cookbook approaches. That's not the way the world is. Charles gives you models and language to create your own cookbook." Adds Brian Baldock, vice chairman of Guinness: "People often bring in consultants because they aren't confident to change something themselves. A conversation with Charles gives you that confidence." So imagine yourself hiding behind a curtain stitched by Charles's wife in the Handys' elegantly understated 19th-century apartment in suburban southwest London. You soon stop noticing that the seat covers need replacing, and start listening. "What is happening now is equivalent to what happened when the printing press was invented in the 1400s," he begins. "The authority of the church crumbled because we could all read the Bible in our own homes and make up our own minds about God. Priests were suddenly just people." Television robs presidents of authority, he goes on, computers liberate people from corporate authority, and CD-ROMs will soon rob teachers of their power because students will have instant access to everything teachers know. Says he: "This will lead to a renaissance, which in one way is great, because so much creativity will bubble up. But it also heralds a very turbulent time. People are often frightened when there is no authority around." To avoid the growing uneasiness inside and outside companies, Handy says, we must apply what he calls upside-down thinking, which he defines as an unconventional view of the future that stands everything we think we know on its head. When we were all employed, he says, "we basically sold our time for money. So as long as we were doing what we wanted to do, the point of our lives was to get as much money for it as possible. Money was the measure of our success." In that world, education was primarily for a fixed time, and then it ended. The government provided certain benefits. Upside-down thinking says that all these certainties will soon be dead. Governments are going broke and can't afford benefits. Education will have to become never-ending. Corporate taxes will go up if companies don't recognize their role in training and education. Because they can take nothing for granted -- including their jobs -- workers will need to learn how to value time as well as money. If society is to absorb all this change without undue turmoil, nothing short of a revolution is needed in Western ways of capitalism, including in higher education, corporate law, and finance. Consider Handy on the following:
-- On those being "reengineered" out of jobs: "Very soon, half the work force of the developed world will be 'outside' the organization. The future prosperity of all of us will depend on their competencies and their education, yet no one seems to be noticing or caring. If workers don't continually develop and update their skills, not only will they be of no use to the organization but, worse, they will be a growing burden to the rest of us. Few will bother to educate themselves if the government and corporations don't do it. The result: Half of the population could be out of work."
-- On those left with jobs in corporations: "Jobs are now created by those who do them, not by bosses. In the age of intellectual capital, we need to rethink the constitution of our corporations to give a proper voice to those who really own that capital -- the core workers. We should think of a new constitution for the corporation, one which recognizes the rights and obligations of all the parties involved, but particularly the members of the company."
-- On the rights of shareholders in the age of intellectual capital: "When the assets of an enterprise are primarily its people, it is time to rethink what it means to say that those who finance the enterprise can in any sensible way 'own' those assets." Shareholders, he says, are bleeding companies. Capital investment lags behind dividend and profit growth. Argues Handy: "The property concept of a company is out of date." One suggestion: two classes of shares, perhaps, in which core employees and those running the business own "A" shares that have equal voting weight to "B" shares, which would be sold to investors through financial markets.
-- On pursuing growth in the age of intellectual capital: "Unreconstructed capitalism has its dangers. We are going down a dead-end road if we think that economic growth is the only thing that matters. Even Adam Smith warned that unrestricted growth would lead to economies of 'useless things' instead of cultivation. Unless we find more growth in cultivation, we risk destroying the world for our children."
SOUNDS LIKE New Age Karl Marx? Travel up to the top floor of Shell Centre on the south bank of the Thames in London. In his sumptuous, black-paneled office, John Jennings, vice chairman of $95-billion-a-year Royal Dutch/Shell, says that while he doesn't buy all of Handy's ideas, many of them are currently being mulled at Shell. For example, Shell is deeply concerned with how to motivate its core workers while giving adequate skills and incentives to workers who may well face a downsizing exercise in the years ahead. Says Ernest Mourik Broekman, head of human resources: "The uniform manager population, those with the same career pattern, is slowly fading away. We're looking at ways to recognize people in a core career group and people who might not have a core career at Shell. The latter group would be kept in touch with the market, so with minimum pain, they could go back to it." One possibility, he adds, would be to increase up-front compensation for noncore managers and decrease pension benefits. Jennings rejects Handy's ideas about sharing corporate ownership with key workers, but he does agree that growth may not always be good: "In the Cold War, we thought nuclear arms could lead to the destruction of mankind. In the unfettered mercantilism that has followed the end of the Cold War, we are finding that it could lead to the destruction of the earth's ecosystem. I think Handy is right, but how do we better define progress if not through conventional measures of growth?" A realist, Jennings admits: "My board would think I'm crazy if I brought this up." Instead, he discusses these and other Handy ideas with his corporate planners and the heads of Shell's operating units. Arthur Andersen, the $6-billion-a-year accounting firm based in Chicago, finds Handy's ideas equally provocative. Dick Measelle, worldwide managing partner, believes that training people is the only way to give them security in an insecure world. "People are assets, not expenses," he says. "We have been an up-or-out organization, and that's getting expensive." As Andersen is the kind of company that handles other companies' outsourcing, it's in the rare position of wanting almost all its employees to remain at the core, and maybe even stay with the company.How reconcile stay with the company with their up and out policy? So Andersen is working on new ways to boost an employee's sense of belonging. Says Measelle: "We're looking for a method to make employees who have five or six years of service into members." Though not a partnership, it could include some official recognition and profit sharing. Measelle sees it as less of a legal promotion, as becoming a partner would be, and "more of a spiritual bond." Using Handy's sigmoid-curve analogy, the company is re-creating itself in order to keep its core people glued to their seats. Its three new business curves, according to Measelle, are redesigning accounting in order to properly value intellectual capital, making the company "the best place in the world to work," and targeting the Asia/Pacific, particularly China, for megadevelopment. HANDY'S WRITINGS don't just affect companies; they often hit individuals in a powerful way, like the advice of a trusted friend or relative. For Charles himself, it was Elizabeth who pushed him to leave Shell and then the London Business School, despite the sacrifice in salary and security both times. In turn, Charles has given similar help to others. Sir Christopher Hogg, for example, chose to leave his job as both chairman and CEO of Courtaulds, the huge British chemical company, in 1991 at age 55, even though he was widely admired for his skill in the post. He was troubled by the pressures of combining the roles of CEO and chairman. So he gave up the CEO post while continuing as chairman. He also held on to his job as chairman of Reuters, the news agency, continued as a trustee of the Ford Foundation, and took seats on the boards of the Bank of England and SmithKline Beecham. Says Sir Christopher: "It took some courage to make the leap. I get my kicks running things hands-on. But my plural life makes me more reflective. I see a wide variety of business activity, and I think that helps me to do things better." While he applauds the efforts of Shell, Andersen, and Sir Christopher, Handy himself shies away from giving out case studies or examples. Says he: "I could point to Microsoft as the example of a company built entirely on intellectual property, but I wouldn't want to assume they've got it right." Instead, he moves the conversation along to his current thinking about the Third Age, a notion he borrowed from the French, Le Troisieme Age, originally meaning ! retirement. "A third of the population is over 55 -- soon it will be half," he says. "Retirement should be banned -- the word should be banned. We, as a society, can't afford it. Older people will have to be self-supporting. In Britain, for example, by 2030, you'll receive a pension worth 8% of your last wage. In Italy it's currently 40%." He predicts that companies will eliminate corporate pension plans within the next decade. Universal personal plans will replace them. Handy says that in the name of efficiency, "companies are reneging on their responsibility to pay workers a decent wage for their lifetime career." As a result, those companies have a responsibility to ensure that workers have skills that can help them find work after they leave the company. "If they don't do it," he adds, "there will be big pain ahead in the form of heavy taxes levied on companies by governments. And that will limit corporate efficiency." In Baglan Bay, New South Wales, BP Chemicals has just completed its first two-day course to bring that point home to employees. The course will eventually be offered at BP Chemicals units across Europe. Says Kate Owen, at BP: "Handy is right; we do have a responsibility. Gone are the days when a line manager would sift through a list of courses. Instead, we are moving toward providing development which is designed for individuals, to enhance their skills and personal portfolio."
IF WORKERS like these are "reengineered," they can approach the Third Age with more optimism. Says Handy: "People must stop thinking about retirement or taking a package at 55 as the beginning of leisure, but start thinking about two decades of another kind of work. It's a third of your adult life. Developing this part of it could be the salvation of society." Handy's advice to aging baby-boomers: "Look for customers, not bosses." Specifically, he says, education is a prime job opportunity for the young oldster. Says he: "In ten years, more education will take place outside of schools and universities than inside." He points to a variety of opportunities, from the increasing need for coaching and training inside companies to the creation of CD-ROMs for schools. Working wrinklies, he believes, will also be the consumer group to track for the future. "They'll be the main consumers and the bulk of the voters," he says. "They'll spend more on information, food, wine, books, CD-ROMS. They'll want smaller, quieter cars that pollute less. They'll care more about the environment, noise, beauty, learning, and less about consuming." Another Handy view of the future is based on federalism, a theory of management he borrowed from political theory. Federalist organizations, he says, get their energy from their satellite businesses, with the center serving only as a low-profile "force of influence." In the age of bottom-up decision-making and empowerment, the old-fashioned notions of corporate control and contracts of employment are now meaningless. Says he: "Organizations today have to be based on trust. How many people can you know well enough to trust? Probably 50 people at most. So, increasingly, organizations will be made up of groups of 50 that will bond together for different projects or needs." The consequences, he says, will be the increasing disappearance of the middle ranks of managers and the increased importance of team members. PepsiCo's Hatch says his is a federalist company. "All our divisions are very autonomous," he says. "But the notion of federalism gives us a language and a framework to help us interact as we get bigger and bigger. We don't want to become the Postal Service." This kind of team play is great for the individual, says Handy, but tough on the spirit of the corporation and society. Says he: "As people become their own agents, the corporate community breaks down. We get a lot of projects, but no sense of something bigger." In today's world, he stresses, "workers know that loyalty has to go first to your team or project, second to your profession, and only third to the place where you work." This creates one of Handy's most potent paradoxes: Companies can't offer stability to workers; workers need to think of themselves first; yet companies' most valuable assets are their people. This notion brings him full circle to his primary concern today. He predicts: "The power of capitalism will undoubtedly diminish unless we give more power to the real assets: people. If you want a model for the new sort of capitalism, you are more likely to find it in the family business networks of Italy or South China than in America or Germany." South China? Says he: "Like all extended families, these businesses are based on informal ties of mutual obligation. They move fast, and they are prepared to sacrifice short-term profits for long-term benefits, and they know that they are bonded to a common future. This gives them a great advantage over the more unwieldy corporate giants of the West or even Japan." While family-style capitalism is not likely to arrive in the West anytime soon, he says that unions might provide the community that the growing band of independent workers lack. As Handy works hard on his next book, tentatively titled Rethinking Capitalism, his wife spends more and more of her time turning away requests for his time. Why not hire an assistant or two to help with research, or a secretary to handle the correspondence? Says a sheepish Handy: "It's desperately important for people to know their own skills. I found out at about age 50 that I'm a good thinker but a terrible manager. Therefore, I should stick to thinking."
BOX: HANDY TIPS FROM CHARLES
-- Look for customers, not bosses.
-- Europe will be united within ten years.
-- Expect to work intensively for 25 years, not 45 years. Plan for your less- intensive life now.
-- Corporate pension plans will be dead within the next decade.
-- Study not-for-profit organizations if you want to learn about motivating your employees.
-- Loyalty has to go first to your team or project, second to your profession or discipline, and only third to the place where you work.
-- Consultants? Stay clear. No one is better qualified to solve your problems than you.
-- In ten years, more education will occur outside of schools.
BOX: WHY HE HATES MBA PROGRAMS
Handy walked out on his job as a tenured professor at the London Business School's MBA program in 1977 because he felt the school wasn't fulfilling its mission. "We were turning out consultants and bankers," he says, "and not a new breed of managers." He still believes that most MBA programs would profit from placing a stick of dynamite under their ivy-covered arches. Here's why. --MBA programs are still largely classroom-based. Handy believes there is a limit to what you can teach about management in class. What's unteachable? Says he: "Leadership, the ability to excite people, to conceptualize ideas and goals. The ideal MBA candidate walks into class with these qualities already. Unfortunately, most don't." --MBA degrees are too expensive. This forces students to snag the highest-paid jobs they can after graduation. As the only skills they have are analytical, they gravitate to consultancy or finance. This early emphasis on money, he says, means that "young MBAs can be extraordinarily selfish." --More MBA programs should be part-time and designed around the student's job. This would enable promising managers to pick up the analytical skills, economics, and marketing principles that can be taught in the classroom while learning other skills at work. Part-time programs also bring down the cost of getting an MBA. -- An MBA should be an entry-level professional qualification for anyone seeking a job as a manager of anything, like a certification for public accountants or financial analysts. But it should not carry a premium starting salary. "It's outrageous to let people manage without an MBA," he says. "But it's equally outrageous to pay enormous sums to anyone who has one. An entry- level MBA qualification should be the first step in an education that is added to throughout your career." His model MBA program: The one that he helped launch in 1983 at Britain's Open University. With 8,000 students, it is the largest in Europe. There are no classrooms, and all teaching is done through television and computers. Says Handy: "It's cheap, popular, and even spreading to Eastern Europe." His favorite MBA course: Comparative Management, a part-time course he designed for full-time managers. Says Handy: "I never spoke a word. Their requirement was to set up visits for the other students to their own companies. Each student made a presentation on what he or she had learned. They were always astonished at how different the companies could be and still be effective."
BOX: WHY HE HATES REENGINEERING
To Charles Handy, reengineering has become "a polite word for downsizing, which is very unfortunate. It wasn't meant to mean that." Today, he adds, "reengineering has got itself a bad name. For example, I reengineer you. It's not nice. Blowing organizations apart is not conducive to a state of commitment and euphoria." He goes on: "The trouble with reengineering when it is done badly -- which it mostly is -- is that it leaves people shattered, even the people left behind. They begin to realize they could be reengineered next and begin thinking about looking for a better place to work. So, in sum, good concept, bad practice. By now, it's probably damaged beyond repair. I say to hell with reengineering. I call it designing doughnuts. I call it creating a work group around a job that has to be done (the hole in the doughnut) and giving them the responsibility and all the information they need (the doughnut itself). It's creating a core and a lot of discretion around it." Still, Handy is a realist. "True, companies don't need so many people to get the job done, so they do need to shed labor," he says. "But this could be done more constructively by moving to the shamrock organization, where you export people into contractual roles or contractual organizations. This is time- consuming and difficult, however. Also, I guess, doughnuts and shamrocks aren't so catchy as reengineering." Companies that do get involved in reengineering should realize that it is not a crash program. Says Handy: "I know America is a 'get results' culture, and if you don't, it's tough cookies. But in the end there will be no results if there is no investment in people. When I was a professor, I spent a day a week in research. That was 20% of my time. I still do that. Companies could manage at least 10%." And what if your company won't give you that time? Then, says Handy, "create it yourself. Find an assignment that means you have to learn a new skill." But, he warns again and again, you should not expect magical, instant results. You are preparing yourself, step by step, for a productive life that will last 25 years or more beyond your final job.
CHART: NOT AVAILABLE CREDIT: FORTUNE DIAGRAM/SOURCE: THE AGE OF PARADOX; CHARLES HANDY CAPTION: HOW TO RE-CREATE YOUR COMPANY Handy's sigmoid curve shows the natural cycle of companies -- they wax and wane. To keep prospering, start a new business curve at point A, when things are going well. "Very soon, half the work force will be 'outside' the organization."