What managers can learn from doctors

When companies were small, people did not bother much about management as such. It was a pragmatic question of how to organise to get things done. “Management” as a standalone concept emerged only as companies got bigger, and initially much of it was common sense. As late as the 1970s, for instance, although there were fierce arguments about the proportions, sharing the benefits of corporate growth among all the stakeholders just seemed fair and normal.

But as companies ballooned in size what no one foresaw – and many still do not understand – was that it was not only economies that accrue to scale but also the returns from being right or wrong. The reach of technology into every corner of life raises the stakes still higher.

The destructive power of management wrongness multiplied by size is amply demonstrated by the Great Crash of 2008. From where we are now – stuttering recovery, stagnating or falling real incomes, soaring inequality, banks still too big to fail – it seems clear that we are suffering the consequences of an era of raging management overconfidence.

As Alan Greenspan, former chairman of the US Federal Reserve, lamented in 2008: “I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms… I discovered a flaw in the model that I perceived as the critical functioning structure that defines how the world works.”

The £66bn by which taxpayers continue to subsidise UK banks and the $100bn in penalties and fines levied on US financial institutions since the crisis are a tiny part of the damage perpetrated by managers and politicians who overestimated their understanding of how the world works.

Even now, faith in grand management visions and projects lives on, whether in Google’s mission to digitise all the information on earth, the UK government’s attempts to “transform” the benefits system and the National Health Service, or big data, as in: “Let the data decide.” Of course, as this newspaper’s Tim Harford has pointed out, big data will yield important insights. But seeing what has been done with small data, data intelligence is at least as important as magnitude. Intelligent data means interpretation, and interpretation means judgment, with all the possibilities of fallibility and bias that introduces. And that is before we decide how to use the results.

That faith needs to be challenged. It is not just that the experiment with a model based on abstraction and ideology has been a disaster to everyone but the fraction of 1 per cent who run large banks and hedge funds. Even more fundamentally, it is time to recognise that given the multiplier effects of size and technology, management needs to be handled as gingerly as rocket fuel, equally capable of propulsion to the stars or blowing the traveller to smithereens.

There is no necessary trade-off … between community and efficiency; those who pay attention to community may indeed become the most efficient of all

A more humble approach to running our organisations is needed. It should take a leaf from medicine’s Hippocratic oath: first, do no harm. That means recognising that starting from a big outcome – like a reorganised NHS – as a plan for change is epistemological and practical nonsense. Change is possible but it begins at the other end, with small-scale trials to get knowledge about what works on the ground and how that can be scaled while avoiding unintended consequences. Change is a result, not the starting point.

If that looks like muddling through to those who want to change the world overnight, fine. But done scientifically, small changes in practice can have momentous consequences without the unwelcome surprises. A recent report by Locality, a network of social and community enterprises, and Vanguard, a consultancy, claims billions could be knocked off the bill for British public services by jettisoning conventional cost- and scale-driven approaches and instead working to understand individual need in its context.

Working like this, UK councils such as Stoke and the London Borough of Camden believe they can reverse the public-sector narrative of doom in which ever-increasing demand collides with ever-declining resources and not only improve lives and communities but also reduce demands on the system. In this way, modest management can recast the welfare state for the 21st century – from the bottom up, one person at a time.