The Management Paradigm Is Breaking: Organizational Design Is The Next Innovation Frontier
From the history of science, we get the concept of a paradigm shift. It occurs when the mental models of conventional thinking—what Thomas Kuhn, who first wrote about paradigm shifts in science, called “normal science”—break down together. The situation isn’t that some elements of the standard model fail, or that there’s a partial breakdown. It’s that every part of conventional wisdom fails at the same time. Orthodoxy must be abandoned.
The standard example is the shift from classical physics to quantum physics. The laws that worked in the classical realm don’t apply in the quantum realm. Physicists who had mastered the old frame—Einstein among them—were suddenly challenged in every aspect of their science.
Living through a paradigm shift is world-shattering. Everything you believed is now questioned. And Kuhn’s sobering observation was that most incumbents of the old paradigm can’t make the leap. They can’t embrace the new goals, can’t parse the new language, can’t see the new logic. They feel forced to abandon a lifetime of effort—and a lifetime of emotional investment. Making the leap can feel like admitting failure, defeat, and a wasted life.
No wonder they get stuck.
A Paradigm Shift In Business Is Underway
The world of business and economics is going through a paradigm shift right now. It’s multi-faceted and dramatic—arguably as consequential, in its own domain, as the shift from classical physics to quantum physics. It interweaves three forces:
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The shift from efficient profit maximization as the purpose of the firm, to value creation for customers.
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The emergence of new technologies that support this value-creation focus.
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A new organizational logic that is replacing managerial capitalism.
Let’s take these in turn.
1) From Profit Maximization To Customer Value Creation
Value creation is becoming the primary purpose of firms, and value is determined by customers and end-users.
Profit maximization tends to be adversarial toward customers. The old logic quietly implied that the more the customer gets, the less the firm realizes in profit. “Efficiency” too often meant cost-cutting aimed at less expenditure—some of which was directly tied to customer value, whether expressed in maintenance, quality upgrades, speed, communication, reliability, or any other beneficial aspect.
Value creation starts with knowing customers—their desires, aspirations, complaints, and worries—and aiming to improve their lives and expand their sense of empowerment.
In a conversational way, Marc Andreessen (on an a16Z podcast) observed that ChatGPT’s training pointed it toward making users happy. User happiness is what it “wants.” It answers questions, helps people understand, encourages them, supports them, and empowers them. It’s non-adversarial.
That orientation—toward the user’s experience and uplift—is a signal of the new paradigm.
2) New Technologies Are Aligning Around Value Creation
ChatGPT is a prominent example of the emergence of new technologies in support of value creation. Amazon is another.It helps us find and buy things tuned to our individual wants and then delivers them to our personal specifications—and takes them back with no questions asked if we made a mistake or are dissatisfied.
Jeff Bezos, when he was CEO, called this approach “customer obsession,” and explicitly contrasted it with profit obsession. Amazon’s logic is: win by making the customer’s life better—then let profit follow.
Google is another new-paradigm firm that exhibits extreme sensitivity to the customer. Liz Reid, Google’s VP of Search, demonstrated it when she said: “People don’t just use search, they rely on search. If you screw up, you’re going to hear from your mom, you’re going to hear from your friend, you’re going to hear from your child.” Google knows where the new market power originates: at the point of the customer experience.
That’s also how Google knows when products are ready to release to this demanding marketplace. After an enormously complex re-engineering to integrate AI and search, Reid described the “market-ready” moment as the point when, after many tests and iterations, customers said: “Oh, I want to use this.”
Engineering excellence matters. But in the new paradigm, customer emotion and lived experience decide. That’s the shift.
3) The Hardest Shift: Organizational Design
The third force driving this paradigm shift—and the one facing the greatest resistance in corporate capitalism—is organizational design.
The old paradigm treats organizational design as a control system. It views value as created inside the firm, especially at the top echelon, through leadership, strategies, technologies, and management methods. These are then transmitted through layers of employment, processes, marketing programs, and distribution channels until outputs reach the customer. There must be no deviation from top-down prescription.
The compliance toolkit is familiar:
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strategy documents, presentations, and meetings
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5-year, annual, and monthly plans and budgets
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enterprise software that records every work step and prompts the next one
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job descriptions—lists of what individuals must do as defined by HR bureaucracy and executive management
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“commitments” escalated upward to a high-enough level to decide, then pushed back down as authority to proceed
This model is now out of sync with social, cultural, and technological reality.
Managerial control has become an unsustainable relationship with employees. It’s adversarial to employees in much the same way profit maximization is adversarial in markets. It’s inappropriate because the direction of modern development—socially and technologically—is toward the empowerment of individuals: more freedom to be imaginative, to exercise judgment, to collaborate, and to innovate as value creators.
Managerial control through organizational design runs in the opposite direction.
Edge Cases That Point Forward
There have been many new-paradigm experiments in organization—described as self-organization, self-management, flow, networked autonomy—at companies like Morning Star, Semco, Handu, Tesla, and Deepseek, many of which are described in The Post-Managerial Era Of Capitalism. They’re edge cases. They point to the new paradigm, but the old one still dominates in the vast majority of corporations.
And yet the direction is clear.
The Name Of The Emerging Paradigm: Venture Mode
There’s a term for this emerging new paradigm: Venture Mode.
We’ll be describing it in this Substack series.