It's time for a new management system.

• Author: Houghton, James R.

IN THE PAST CENTURY, America has been transformed into an industrial and economic power that--for all its current problems--is without parallel in world history. One hundred years ago, the U.S. primarily was rural and agrarian. People lived on farms, plowing the fields or toiling in small workshops. Markets were local and the workforce was largely homogeneous. Formal education generally was informal, usually stopping at an early age.

By the end of the 1800s, the Industrial Revolution had changed all that. The body and soul of America were transformed as millions migrated to the U.S., attracted by opportunity and jobs. They brought a tremendous capacity for work and helped this country grow great. However, many of them did not know the language, and few had any education.

These factors--combined with the prevailing psychology of the day--resulted in the creation of large, hierarchical organizations. Workers were considered little more than cogs. Leaders were expected to be commanding, authoritative, and armed with all the answers.

Frederick Taylor and his scientific management ideas were very influential. When he introduced his time-and-motion studies at Midvale Steel Company in 1881, the concept of the assembly line spread throughout American industry. The results were fantastic.

Henry Ford launched the Ford Motor Company in 1903. Then, the prevailing price for a car was between 2,000 and $2,500. Six years later, the Model T was introduced at $850. By 1927--the last year it was produced--the Model T cost $260, due to economies of scale and specialization.

The assembly-line attitude of yesterday's leaders is understandable. Direct labor in the automobile industry, for example, was 80% of manufacturing cost. Today, it is 20%, and even less in other industries. Yet, many business leaders have not been able to escape this legacy.

As Paul Gray, president of Massachusetts Institute of Technology, said in Fortune in 1990, "industry still has a Frederick Taylor-Henry Ford view that the worker is a cost to be minimized, not a resource to be maximized." Or as Leon Martel puts it in the preface to his book, Mastering Change, "We live in a world of change, yet we act on the basis of continuity."

So, while organizations are built and leaders lead--based on paradigms of the past--change accelerates, making the old models obsolete. Just look at the corporate landscape. In 1955, Fortune published its first "Fortune 500" list of industrial companies. Less than 35% remain on that list today. Of the top 25 listed in 1955, just 14 remain there. Five have gone out of business or have been swallowed up, six have dropped out of the top 25, and two are not even in the top 100. Moreover, of the 14 left, many have undergone extensive changes.

Of course, there are some newcomers, such as IBM, that basically were a brand new industry and weren't around in 1955 in the top 25. Nevertheless, this represents about a 50% turnover of what were the biggest, best, brightest, smartest, most powerful corporations in the U.S. and the world. Significantly, these are not venture capital companies where failure rates are high.

There are a lot of reasons for these failures and changes. I have a thesis that those companies who were so powerful began to build walls around themselves. They began to tell themselves, "Hey, we are big; we are the best; we are the brightest. People will have to buy from us because they have nowhere else to go. Paying attention to customers is not all that important."

Today, there is evidence of real change that I think will continue unabated, but on an unpredictable course.

It is not known what changes will take place, but some facts can help shape a response to those that do come along. First, the Industrial Age is over. It is no secret we are living in the Information Age. We have made the world smaller as well as instantly and increasingly competitive by the spread of information technology.

Second, alliances will become more and more important in the years ahead. Third, the workforce will become more diverse. The...