How To Manage: Learn From The People, Plan With The People, Begin With What They Have.

Learn from the people

Plan with the people.

Begin with what they have.

Build on what they know of the best leaders.

When that task is accomplished, the people all remark, we have done it ourselves.

Economics For Entrepreneurs Podcast Transcript

October 20, 2020

David K Hurst

Hunter Hastings

A listener asked us recently about our point of view about managing people in a medium-size, fast-growing firm. Specifically, this listener raised some issues around the different experiences of people in different roles in the firm, frontline workers, middle management process managers and executives. Are the terms blue collar and white collar still applicable? I’m not sure, but it’s that kind of issue. A midsize firm that has multiple functions like manufacturing, distribution, and marketing, and has its own administrative functions like accounting and HR can be a place with a lot of different lived experiences. How do you get everyone to buy into the mission and the purpose in the same way, and to the same degree, with the same level of commitment?

To answer this question, we turn to our good friend, David K Hurst. He’s lived these management issues in his role as an executive in the steel industry, navigating through turbulent times. And I might add managing from turbulence to a smooth result. After that he embarked upon an intellectual journey of discovery to understand why there are turbulent management cycles in some firms. How is it possible to go from turbulent to smooth, and why different ways of managing co-exist, and why there are what he calls tensions between the two, and how those tensions might be resolved.

Does Austrian thinking play a role here? Well, David, not an Austrian economist, but an avid learner, has discovered Hayek while on his intellectual journey and his thinking about the interplay between and within complex systems – individual order and the social order – and that there are tensions between them that are never fully resolved. And yet emergence can result that yields an outcome where everyone can be comfortable recognizing that they have to make some adaptations as individuals to reap the benefits offered by membership of the group.

David has authored a model of management to which he gives the title Management In A Field Of Tensions. There’s a cyclical element in how the tensions play out, sometimes favoring what he calls the soft humanistic side of management, where we Austrians tend to live, and sometimes demanding a shift to the hard scientific side of planning and data and goal setting. Both sides have to live together. The tension is never resolved.

We provide the graphic depiction of David’s Management In A Field Of Tensions Model, and he’ll refer to it during the podcast. So if you’d like to retrieve it from the internet, as you are listening, you can do so at [ pod or at

David K. Hurst is a prominent speaker writer and management educator. But mostly, he’s a business guy. He was executive vice president of a large North American industrial distributor with over 1 billion dollars in sales, employing 1600 people, and was part of the senior management team that saved the organization from bankruptcy during a severe business recession, and turned it to profitability and growth. He has an MBA in finance and a BA in psychology, and he serves as adjunct professor at the university of Regina, his graduate school of business.

He’s a Harvard business review author and a contributing editor to the business magazine strategy plus business.

David, welcome back to Economics for Entrepreneurs.

David Hurst

Thank you so much, Hunter. Very good to be here again.

Hunter Hastings

It’s good to have you back. We had a lot of very high praise for the recent podcast that we produced together. And one of the reasons to continue that conversation among the many is that we had an inquiry from one of our listeners on the subject of managing a diverse set of employees. This was in a medium sized business, but the mix of employees included blue collar. If that’s still a term for people working on the frontline and white collar people and marketing and other areas, executives doing strategy and planning and so on. And the question is about the different considerations that arise when you’re managing and trying to motivate that kind of a very diverse group.

And that made me think of the model you call Managing In A Field Of Tensions. I’d like you to describe the model, why you use the term “the field of tensions”.


David Hurst


Oh, well, thanks so much, Hunter. Please understand that this model is the most recent station I’ve reached on a journey. And the journey began with my experience nearly 40 years ago in a leveraged buyout that went spectacularly wrong. We were taken over by a leveraged buyout artist and took on so much debt that we went insolvent, but not bankrupt because we owed the bank so much money. They couldn’t actually call the loan. And over the next four years, we learned more about managing than I had learned in a lifetime, and we broke through a mirror to get behind the looking glass. You might say to a topsy-turvy world where if you were a weak, you were strong. If you knew a lot, you are actually ignorant and you had to learn. And that experience set me on an intellectual journey, trying to understand this amazing experience, which was very successful. We came out of the mess after four years with the company, totally refinanced with new shareholders and a completely revitalized management group.

And I set out thinking about how this has happened. I wrote an article based on Daoist philosophy, yin yang philosophy, that got published in the Harvard Business Review. It was called Boxes & Bubbles And Effective Management. And from there I got into ecology, and understanding how forests have to burn to renew, or get attacked by insects in order to renew. That destruction is part of creation. And from there, I got into more sophisticated theories, complex adaptive systems, complexity theory, and more recent attempts to make sense of these complex phenomenon that we humans are, and problems we face. So this is a very high level abstraction. And I went up the ladder because frankly, the academics and the business schools have failed to do this. We talked a bit about the flaws in business school education last time, and how they got stuck in a 1950s conception of what science was about and tried to turn management into a management science in that mode.

And that has been a spectacular failure. At least as far as practitioners are concerned. For the academics, of course, it’s led to a boom in academic journals where they write for each other. But most of their articles, frankly, are unintelligible to practicing managers.

So let’s talk about Management In A Field of Tensions. The whole notion is that we’re not born static, awaiting motivation. I try not to use the word motivate anymore. The fact is we are born alive and struggling. We are motivated as part of being alive and we are continually living with two major concerns. The one on the right-hand side of the diagram is: what do I need and how do I get it? I need food. I need water. And so on. And on the left of the diagram are what I’ve called existential concerns, which is all about my identity and the identity of the group I belong to. Who are we? Why do we matter?

And this tension is absolutely critical. There’s continual tension between these two kinds of requirements, which cannot be reduced to each other. This immediately, of course, crushes the assumptions of neoclassical economics, which is always, always about a hierarchy of needs and that people can order their preferences. And they’re stable. Obviously, this kind of assumption makes no sense in the field of tension.

My understanding about the tension is very close to where the Austrian economists are coming from. And certainly where Friedrich Hayek, who has really been my guide in this area, was coming from. He saw the tensions between the hard scientific approach of treating people as objects to be motivated because objects are static and they need motivation; and, on the other hand, people as subjects, people as ends in themselves, people to be cultivated and grown, to find their own identity, meet their own potential, to fulfill their mission of why are they here in space and time for this brief period of our lives.

It’s all about finding meaning, if you will. It’s very much based on values and story and narrative. That’s how we make sense of who we are. It’s the story we tell about ourselves and when great crises happen – like the pandemic, or a disruption in a relationship. The shock is to your narrative. It’s to your story. That the person you thought you were is no longer viable. And you’re going to have to find another story, another identity, a story that embraces a crisis and sees it as an opportunity for renewal and as an opportunity for continual growth. And, and so the infinity loop with its long slow solid line on the front and the rapid dotted line on the back is this concept of an ecological balance between these tensions.

Everybody talks about balance, but nobody really elaborates on what it means, because we immediately think of a teeter totter, or a Newtonian scale. One goes up, the other goes down. This framework is a different kind of balance. It suggests an ecological balance of long periods of growth and development on the front interspersed with moments of crisis. When everything comes to a screeching halt, and you are thrown back into chaos to find your way up the backloop to a new identity, to a new story, a new narrative. And of course, as a species, that’s where we are at the moment with this pandemic, that all the comfortable assumptions of how we could continue growing without problems, that all our comfortable, hard, scientific assumptions, our measurements of prosperity through gross domestic product and an increase in wages, all this came to a screeching halt. And all of a sudden nature says, “not so quick, you’ve disturbed the equilibrium”. You’ve got too close to the wild areas where these viruses live and here they come to remind you that nature bats last.

And so this crisis is timely, and it gets your attention. It’s not a question of thinking our way into better ways of action. As we discussed last time, we are actually acting our way into better ways of thinking. Initially, we had to follow the most successful countries, who took draconian top down diktats to close the economy down, to stop the community, essentially, from functioning. And now we’re opening up on an experimental basis and we’re seeing what works better. Do masks work?  They work initially. We thought they didn’t. Now we think they do. Maybe there’s a vaccine and everything will go back to where it was before, but that doesn’t seem extremely likely. There’s going to be something, but whether it’s a hundred percent effective and whether it’s just one shot we don’t know. And, of course, there are other bugs hanging around. And so, once again, our minds are concentrating wonderfully and we are on the, backloop headed up towards a new concept of who we are as humans. We are living in a world that is alive and changing all the time and reacts and responds to all efforts to live in it.

Hunter Hastings

Let me step down one level in the abstraction, David. I’d love to talk about people as ends versus people as means as a way for managers, entrepreneurs, and business owners, to think about the challenge of managing their organizations. Let’s just look at that one particular element of your model.

David Hurst

Well, once again, we have to contrast it with where we are at the moment or have been historically. In general and on average business -particularly in America  – has looked at people as means. They are means to production. We’ve looked at them through an economic lens as human resources, just like material resources and financial resources. They are a means to our ends. And our ends are given by outside: it’s maximize shareholder value, or that’s what it has been; now maybe it’s stakeholder value, which is the new mantra. But that’s the way, historically, we have looked at people. Now at this time, once again, in the crisis, we’re reminded that people have another requirement, which is that they may work for money, but they live for story. And if we look at what has happened politically, and the support that the current president has had, it’s basically from people who lost their story, who lost have lost their identity of who they were.

As I mentioned last time, there were three generations in the furniture industry around High Point, North Carolina. You knew who you were, you had a stable job, you had a stable role, and that was your identity. And when those jobs went to China, yes, the consumers got a better deal; they got cheaper furniture. But the people round High Point, North Carolina lost their story of who they are. The same in the steel industry, in Ohio, and in all the other industries, which were affected by these moves. And it’s not just the move to China, of course,  it’s mainly a consequence of high technology. I know in the steel industry today , we need one tenth of the workers that we needed when I was in the steel industry,40,  50 years ago. It really has changed dramatically, but whether it’s the advance of technology or actual movements on the world stage, a whole group of people have lost their story.

And as I say, we may work for money, but we live for story. And if we lose our story, if we lose our sense of who we are, we become suicidal, or we become addicted, and we will do anything and support anyone who says, I’ll give you your story back. I’ll bring you back to the way we were. Of course, it may be an illusion, but it’s extremely powerful, extremely powerful. And so we can see this playing out on the political stage.

And I think the same thing is playing out at, at the business level. I’m thinking of a business like Costco. Costco’s business model is an innovation so on, but I don’t see many people copying it. What is difficult to copy in the Costco model is the way they treat their people. And the way when you go into a Costco store, the people are concerned. They care about you. When you ask them, “Where would I find this?”, they will put their work aside and say, you know, let me show you. I would say that’s almost impossible to duplicate. It’s very difficult to replicate. I can copy their business model, but I can’t copy that their people are treated as ends in themselves.

So this is a new way of thinking: of people as ends as well as people as means. And obviously it’s a tension. Sometimes you have to treat them as means. If you’re in a cash crunch and you need to cut costs, you may well need to reduce the workforce in some way. Now there are various ways of doing it. And I won’t go into those at the moment, but there’s no doubt that’s you need a faster response to a fast breaking crisis, that may include workforce reduction.

Hunter Hastings

Does the principle of treating people as ends apply to all levels in an organization, the frontline employees, the middle management, the executives? Everybody lives by story. And we can motivate…….. I shouldn’t use that word. We can give them a good working opportunity to tell their story, and opportunities to live their story.

David Hurst

Absolutely. This model applies at many different levels. The epitome of systems thinking is that it is a multi-level perspective. And the notion is that you are trying to create a space at every level in your organization where there’s room for people to live and embellish and create their story, find their identity. At the upper levels, of course, it’s a bigger space, but at the lower levels, it’ll be a smaller space and time. But nevertheless, it’s unique to them because only they have that fine-grained perspective.

Hunter Hastings

The Costco example would be like that: I am able in my own space to create a one-on-one relationship with that customer, who asks me a question and I take them and treat them in an individual fashion and thus express myself.

David Hurst

Absolutely. And that somebody at the end of the day, or the end of the week, or the end of the month, whatever the time period is, will come to see to me and say, what are you hearing on the shop floor? What are you hearing from the customers? And they’ll say, well, they were really upset when we removed this product and replaced it with that, or they’d really miss this one that we’ve discontinued. You know, once again, each perspective is unique. To go back to the steel distribution business, which is where most of my experience was, our steel was not different from anybody else’s frankly. The only way we can make decent margins in what the economists call a commodity business, is to add knowledge to it. How do you add knowledge to it? Well, it’s a very fine grained kind of knowledge.

Last time I talked about the truck drivers and their ability, when they deliver our steel to our customers, to assess how busy the customers are, whether our competitors’ trucks are in their yard, what products they’re carrying, and also to develop a relationship with the OD boss. So we can get our steel taken off before anybody else. Now that doesn’t sound like a big deal, but when you’ve got all your truck drivers working in this space, which we’ve created for them, when they come back from their drive, that they started at four in the morning, and so they’re going to finish by noon at the latest, but when they come back, they will gather around and maybe somebody higher up the chain will come into the coffee room or whatever it is and say, okay, folks, what’s happening? And a one truck driver will say, well, I saw a new truck, a competitive truck there.

And another one will say, yeah, I saw it too in my customers. And you’ve got an early warning system that’s going to appear long before it shows up in any data, because it’s at the fine grained level. And now your truck driver is no longer a means to an end, just a steerer of a truck, but actually an intelligence gathering person who is alive to what’s going on around them, looking for clues. And they are part of the big story. So this is where we have to  go with their stories. What’s their story? And, and by the same token, ask yourself, what’s the story that reflects this organization at its best? And typically we’ll find it is a fine grained story. It’s a story about the time we screwed up on delivery and the heroic efforts of our truck driver or a salesperson desk clerk to, to remedy it. It’s the lengths they went to at FedEx to deliver a parcel.

I used to tell a story to illustrate the value that the packages have to get through at all costs. And there was somebody, very junior, on their own initiative, organized a helicopter to deliver this key package. And this story was FedEx at its best. And every organization has those good stories. They also have, of course, stories about us at our worst, and you can get those stories of horror shows and errors, and those can be taken apart and say, well, what went wrong here? Or when something excellent takes place, how do we replicate those conditions all over the place?

Hunter Hastings

Can you articulate some practical advice out of that, David, for our business owners and managers?  How do we get that started? How do we get that narrative started? I know a little bit about the history of Costco and Jim Senegal who created the culture, if you like, but just how do you do that?

David Hurst

Well, I think the approaches are as varied as the firms. Depending on your context, there’s got to be a different starting point. You know, when you ask the management consultants to give us examples of firms that have changed, they very rarely are able to do that. So for instance, some people will talk about W. L. Gore and Associates, the makers of Gore-Tex, and their amazing culture and their flat organization. They have what they call a lattice network as a way of organizing and they have something  they call “hierarchy on demand”, where there isn’t a traditional hierarchical structure, but rather a network of continual conversations going on. Every now and then they need an executive decision and they will….. I think of it as a fishing net, that’s lying flat on the ground…..when they need an executive decision, they just pick up the point in the net and just lift it a bit.

And there you’ve got a pyramid, a hierarchy, and you make an executive decision, and then you let the net go and it’s flat back on the ground again. So that, by keeping it flat, the hierarchy’s there, but it’s in the background. So it’s this fine grained relationship where the egalitarian network is in the front and the hierarchy is there at the back. It doesn’t go away. And once again, this is the tension between a right-hand structured, hard scientific, hierarchical point of view, and the left hand side where it is flat and egalitarian and everybody has an equal say and point of view. It has to start at the top. The stories they tell of firms like W.L. Gore and Associates, these are invariably firms that start off like Jim Senegal did at Costco. There is a charismatic founder who really believes in this different model.

Bill Gore, who founded W.L. Gore & Associates had worked in DuPont for many years. He noticed that the best conversations in DuPont took place in the carpools. They used to drive to work together. Obviously, this is back in the, in the forties and fifties, it’s a far cry from where we are today. But he said, why can’t we reproduce the atmosphere of the carpool, where a bunch of colleagues go in together and they have great discussions in the car, and then they get to work. And now you’re in the DuPont hierarchy and they can’t talk to each other. And there’s boxes and structures and vice presidents and assistant vice presidents. When DuPont came up with the chemical, the polyethylene compound that led to Gore-Tex, DuPont decided it was not a scalable product that they were interested in because they wanted products at very large scale. Bill Gore said, I’ll take it.

And he took it and ran his organization the way it always wants to run: that’s an organization that is flat. And so you get these wonderful stories and people go to look at W.L. Gore & Associates and say, my, this is amazing. But very few, in fact, I don’t know of any, try to emulate it because you’re looking at something that’s being cultivated and grown and you can’t design and build it. And that’s of course, exactly what Friedrich Hayek said. He said, just because an organization or an institution serves human purposes in a particular fine way, doesn’t mean it was designed. In fact, he says they emerged through the interactions of millions of humans, certainly scores and hundreds and thousands of humans. And don’t imagine that you can then go ahead and design it. And of course that was the theme of The Fatal Conceit: the conceit that we can design, we can make the world anew in Thomas Paine’s favorite quote, which, you know, Ronald Reagan himself was not beyond quoting.

But no, we can’t make it anew. We can create the conditions in which changes will take place, desirable changes that will take place. But essentially what you’re creating is conditions for emergence. And so we’re back into the gardener again. So to start, it has to come, I think from the top.

In fact, the first question you ask yourself is where is this happening already? Because some organizations, they might have made a good start. I can remember, I was dealing with a major multi-national and I said, “Where else are you already seeing this kind of behavior, which you want, this wonderful weave between the hard and the soft?” And they said, well, if we think really hard it’s probably our whole Waialea branch. And I said, what is it that makes the Hawaii branch so special? And they said, well, it’s because it’s a small branch and it’s only got one guy at the top. And so this person makes the trade-offs and we use them together.

If you come into our larger branches, you find that we split the responsibilities between two different people, and they often turn out to be competitive with each other. And so instead of cooperation within the organization, you start to get competition; hierarchy creates competition. It creates elites. It creates status differences, and we know how humans behave under those conditions. They will be competitive and strive for status.

In my own experience, going into a steel service center, which we had acquired, it was in Wisconsin actually. And we had acquired it from a single owner. It was a private company and he was an autocrat not to put too fine a point on it. And I can remember going to one of the first company-wide meetings I’d ever had. It was a dinner. There was a presentation from us, the new owners, and there was an executive table. And I was expected, as the incoming representative of the new owners, to sit at that executive table. And after about 10 minutes, I said, I don’t want to sit here. I’m going to go sit with the other folks, and I sat with the drivers who, of course, had all grouped themselves at one table. And then I sat with the sales folks who were at  another table, and I moved around the room. And that simple action speaks volumes. Once again, it’s behavior. Not the language. It’s all about trying. And it’s a process. It’s a journey you start wherever you are. The best place to start is, is where you’re at. And in fact, there’s no other place you can start from is where you’re at. What am I going to do differently? That’s going to send a different message tomorrow. And my going up with the truck drivers sends a message. The truck driver comes back and he says to his buddies, you know, that executive VP from Canada, he’s okay, he’s human just like me. And that’s it. It’s this shared human quality that we’re all struggling, that we’re all trying to make sense of our lives and ourselves at different levels in our different spaces and times. And it’s that recognition, which is absolutely key, the realization of our shared humanity. If you will, for lack of a better word,

Hunter Hastings

You have said, David, that smaller and private entrepreneurial firms may have an advantage. They can stay closer to that humanistic side of the model. And it’s the big public corporations that tend to be dragged to the hard scientific side. Is that right? Do you think there is an advantage for the smaller businesses?

David Hurst

Yeah, I think that’s absolutely right, Hunter. In the front loop, that solid line. And now I’m talking about application at the corporate level. Eventually they come up with a formula, which allows them to scale. Everybody’s interested in scaling and scaling requires specialization. It requires hierarchy. It requires structure. And with that comes all the issues of competition and status and power and drags you inexorably towards the right hand side, which was, if you remember in the model that we talked about last time, where they are in the power trap. Going public for me is a critical catalyst for this. There is some evidence that small privately owned companies have several advantages. They’re frugal in good times and bad, they’re always careful with the cash. They have a very high bar for capital expenditure.

They’re not necessarily driven by investment metrics and so on. They try to not carry too much debt because debt gives the bankers power and they don’t want that. They make fewer and smaller acquisitions. So they’re not betting the farm.

Look at some of the acquisitions that Hewlett Packard made. There was one firm they paid $11 billion for and ended up writing off $10 billion within two years. I mean, just stunning, a stunningly bad fit.

So smaller companies tend to make fewer, smaller acquisitions. They also show a surprising level of diversity, because on the humanistic side, on the left-hand side, of course, it’s all about people. They tend to be more international and they’re better at retaining the talent inside. They discourage careerism. Once you get into a large company and you have young people coming in, as I was coming out of Chicago school of business in, in 1972, I was looking for a career path. I was looking for somebody who says, look, we’ll develop you, you’re going to have two years in this job, and then if you’re successful, you can move on and then you’re going to get a promotion. And that keeps repeating as you go on. I must confess, I found it very, very attractive. But for the corporation trying to become more humanistic, this is not good because it’s highly disruptive of the community. And it creates an incentive structure for individual managers to come in, look good for two years and then go off to their promotion, leaving their successor with a disaster.

I saw this, particularly in Canada with what we call our branch plant economy. We had branch plants of corporations like Sunbeam and all these Fortune 500 firms. And they would have American managers typically, and sometimes Canadians, but on two year cycles running through the plants. And, of course their job was to look good for two years. So they get that next promotion and then away they go. And of course, when you’re running something on a perpetual short term focus like that, you’re going to get into trouble because you’re going to run the plant and equipment and the people into the ground. And that’s what we found: that we had genius and then followed by an idiot and then another genius followed by another idiot. And of course the geniuses were the ones who were picking up pieces that the previous unfortunate had inherited from the previous genius and then we saw there was a well-defined cycle. And, and once again, you get into this, in these large corporations, large public corporations, where there’s an implicit contract with its management, that we will give you a career path and you can rise to the top and earn the fabulous sums that CEO’s earn these days. And so it’s very difficult to get out of that kind of cycle.

Hunter Hastings

So is it possible for our entrepreneurs, David, to stay entirely on the soft humanistic side of the model? Their careers would be to start a business and manage it for 40 years and I’m very successful. Can they stay on that side? Or are they always going to be fighting the tensions that drag them over to the scientific side?

David Hurst

It’s a dance. All I’m saying is that as you grow in scale, you are increasingly adding hierarchy. I’m not sure what the threshold number is – about 150 people in one location. 150 people in one location, but preferably a single level. Because as soon as you’ve got vertical levels, it creates communication differences. But 150 people in one location on the same level you can manage personally, you can know everybody individually, you can exchange stories. You can get your arms around it. As soon as you get bigger than that, you’re going to have to introduce some structure, some specialization, some hierarchy. And if you’re growing really fast, you’ll start hiring people for their technical ability. Not because their mindset – to use the popular word – necessarily fits in with your organization, because it’s a technical problem.

You need technical experts and that’ll solve your technical problems, but it moves you a little bit to the right. And then you need a head office specialization because we didn’t have purchase orders before, but now we’re going to have purchase orders. We didn’t have an HR department before, but now we need HR to, to handle the number of volume of people that we’re hiring and dealing with every day. And so we need a few people in charge of that. So before, you know it, you’ve got 15 vice presidents and they’re each structuring their own turf, and you’ve got to have battles and turf wars, and you move further and further to the right. And if the growth continues, you continue to struggle. You’re going to need more specialization and more levels of hierarchy. And so scale is the major dimension on the vertical axis of the ecocycle at the ecological level.

So it’s always a dance. Even as a small 10 person organization. You need some structure. You need to control the cash. You need to follow up and make sure you’re getting paid by your customers. There’s credit control, and so on. So it’s always a tension between the two sides, but it’s much easier if you start off on the left and then get pulled to the right, rather than dealing with an existing organization, which is already on the hard scientific side, in the power trap, and trying to bring it back to the left. That’s extremely difficult.

Hunter Hastings

One, one last question about the model David. On the soft humanistic side, you have the word judgment and we Austrians have a special relationship with that word “judgment” in the context of entrepreneurship. We think that’s what entrepreneurs do. And we apply it in this sense: in the face of uncertainty where you don’t know what’s going to happen, where you don’t have all the knowledge, you nevertheless, make a decision, and then you act, and then you deal with the results of that action. So we see judgment as part of the engine of the entrepreneurial economy. Is that the way you are using it?

David Hurst

Absolutely. There was an interesting article, from the Drucker Forum annual conference in Vienna – I can give you references for your listeners – on what Aristotle called phronesis. It’s quite obviously a Greek word: P H R O N E S I S. And it means practical wisdom. It is a grounded form of judgment. It’s the kind of, decision-making you default to, when you don’t have the data, when you can’t make the calculations, when you have to make the best decision based on your experience and what you can glean from the people involved with the situation. And that’s exactly what it says. Judgment is the exercising of a Phronesis. And it’s used in times of surprise, uncertainty and conflicting values.

When, there’s trade off or compromises that have to be integrated in some way. And so it’s precisely for those conditions, surprise and uncertainty and conflicting values. That’s almost the definition of the entrepreneur, right? And yes, that’s where judgment comes into its own. And it’s contrasted on the right-hand side with calculation. Calculation says, “we’ve got the data”. And once again, getting back to what Friedrich Hayek said: you never have the data. There’s never enough data. You might be able to come up with some general equations, which give you an idea of the overall economy, but you can never get the data needed to solve the myriad fine grain  equations. And of course in the entrepreneurial world, that’s even truer. I mean, the data never comes or when it does, it’s five years late.

I mentioned last time, I think, the tale of the two stories of how Honda got 50% of the North American motorcycle market. And the one story is from the people who were there at the time, and they tell a story of accident, surprise, and uncertainty, conflicting values, and judgment, which allowed them to be successful. And the other story is from the Boston Consulting Group. And it’s all about traveling down the learning curve, and it’s all very elegant. It’s all very plausible. But there wasn’t any data, the data to make those learning curve decisions was only available five years after they got 50% of the market. So the data is never there. And if it is there, it’s not on time, it’ retrospective.

Peter Drucker’s favorite philosopher, Soren Kierkegaard, said we live life forwards, but we remember it backwards. And to remember it backwards is too abstract is to categorize. To live life forward is to be on the ground in the moment, in that time. And so lessons abstracted from looking backward can’t be applied right here right now, or by going from abstract to concrete. It won’t tell you what to do because it’s you in this unique moment, which has never happened before. I say to managers, each of you is in a unique situation, your organization is unique and that’s why it needs judgment. You can get some ideas from others, but they will never tell you what to do. They will just increase your experience. Judgment is based on experience.

Hunter Hastings

I’m going to wrap it up there just for time reasons, but thank you very much. We will exhibit this Management In The field Of Tensions model so that people can follow along as they listen. Any readings you can send me I’ll link to them in the Key Takeaways that we publish each week. And then next time I will try and devise a good discussion guide around Hayek and sensory order and emergence as it might be applied in complexity theory and business. I’ll try to make it practical. Because I know you’re becoming a Hayekian as you advance through your research,

David Hurst

Well, thank you, Hunter. There’s one thing that we did discuss possibly mentioning was a quote, a quote from the Dao Te Ching to end it. It goes like this.

Learn from the people

Plan with the people.

Begin with what they have.

Build on what they know of the best leaders.

When that task is accomplished, the people all remark, we have done it ourselves.

Beautiful. I can’t think of a higher praise for an effective entrepreneur – to leave his people with the feeling we have done it ourselves.

Hunter Hastings

David, thank you. You always leave us with an awful lot to think about and to act upon it and we appreciate it very much. Thank you.

David Hurst

It’s a great pleasure Hunter. Thank you so much for your invitation.


88. David K. Hurst: Managing People-As-Ends and not People-As-Means.

Key Takeaways and Actionable Insights

In many situations, the complexities in managing a diverse and layered team of people is to view individuals as ends and not means.

Management and organizational frameworks often treat people as means. The business ends are external: so-called shareholder value, or stakeholder value, which is fashionable today, or simply revenue and unit sales goals or metrics and KPI’s.

Managers are taught to look at people through an economic lens as resources – human resources – in the same way as material resources and financial resources, to be utilized as efficiently as possible.

But people are not means. They are subjects, and they have subjective ends of their own. They’re searching for identity, meaning, and trying to meet their own potential. If managers recognize this, their approach to people as team members and employees will be much different.

Individuals need to be able to tell their own story in their own space.

We work for money but we live for story. The most important story is the one we tell about ourselves and our values. People need opportunities to tell their story. Everyone at every level in an organization and in every type of role or job needs this opportunity.

To do so, they need their own space in which to create and embellish their story, a space that is unique to them and gives them a fine-grained perspective of which they are masters, and for which others will prize them.

David Hurst gave the example of Costco, where the in-store personnel have space to use their own discretion to serve customers. If a customer (a guest, in Costco parlance) requires assistance in locating an item, a Costco associate will stop whatever they are doing and escort the guest all the way to the shelf location. They have their own space and their own discretion to design and deliver a unique level of service, and a story they can tell about their customer commitment. This becomes a culture that pervades the entire company.

FedEx has similar spaces, and similar stories about individual employees going to extraordinary lengths to make sure packages are delivered on time.

One way to create these spaces is to give everyone intelligence gathering roles.

David Hurst tells the story of delivery truck drivers in the steel fabrication business. He treated them with deference for their ability to gather real-time intelligence: which competitors had trucks in the customer’s yard; what concerns were customer employees talking about; which customers were friendly and which ones adversarial? These front line employees are able to gather and feed back market intelligence that was faster, deeper more local and more detailed than traditional reports. It’s small data, often much more valuable than big data. And the employees can tell their stories about their intelligence gathering and their important role in company processes, from their unique space.

The word in management usage now is fine-grained. The front line has a fine-grained perspective and fine-grained intelligence. This fine grain is highly valuable, especially when shared in collaborative teams and structures where everyone knows their role, which is not tied to hierarchy.

Hierarchy and structure create a cascade of negative effects for the people in them.

As companies grow and become larger, they require internal specializations and experts in narrow, technical fields. Specialization brings hierarchy, where general managers can supervise those in specialized roles. Hierarchy leads to careerism and status, when employees are not collaborating with each other but competing. The result is what David calls a power trap. The firm becomes trapped on the right had side of his Management In A Field Of Tensions model.

Recently, it has become fashionable to coin terms such as human capital, or brand capital, or relationship capital, or even spiritual capital or street capital. All of these terms are sloppy definitions of capital from an Austrian point of view.

Management In A Field of Tensions Diagram

Click on the graphic to download it.

The tension for management lies in a continuous pull of the “hard, scientific” side of the model, away from the humanistic side.

Austrians lean towards the left hand side of David’s model: humanistic, treating people as ends, respecting narrative more than data. For example, the exercise of judgement under uncertainty, so central to the Austrian paradigm of the entrepreneurially-driven economic system, lies on the left hand side of the model. It’s practical, grounded wisdom, when entrepreneurs make decisions when they don’t have all the data. (And the Hayekian insight is that no-one ever has all the data.) They glean what they can from the individual observations of people involved in the situation at hand (small data), and then decide, knowing that the consequences are uncertain, and that they will need to be adaptive to change in the future.

The right hand side of the model represents the pull of so-called science: hard data, mathematical calculation, plans and administrative bureaucracy.

Smaller, private, more entrepreneurial companies can often avoid the right hand side of the model.

Smaller and privately held companies have many advantages. They tend to be more frugal in good times and bad, and act carefully with cash, thus retaining flexibility in difficult markets. They have a high bar for capital expenditures and make fewer malinvestment decisions. They often try to avoid carrying too much debt, so that bankers don’t have power over them. And, importantly, they are often better at retaining talent and keeping experience inside the firm. They can avoid the careerism of competing for status in the hierarchy, and just let people become better and better at their jobs. On the left hand side of the model, as David describes, it’s all about people.

Free Downloads & Extras From The Episode

Read about David’s management philosophy of Leading Like A Gardener here.

Get David’s book The New Ecology Of Leadership here.

“The Austrian Business Model” (video):

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52. Mark Schaefer: The Future of Marketing Is Austrian – How Human-Centered Marketing Can Fix A Business Function That Has Lost Its Way.

This week I spoke with Mark Schaefer about his iconoclastic and deeply insightful book Marketing Rebellion, in which he expounds the solution to modern marketing’s failures, via an approach he calls Human-Centered Marketing.

Listeners to Economics For Entrepreneurs and aficionados of Austrian Economics will recognize the close overlap between Austrian Economics and Human-Centered Marketing.

Key Takeaways & Actionable Insights

Marketing has lost its way – in its current state, it’s no longer a useful business growth tool for entrepreneurs.

  • An obsession with technology has eclipsed the focus on people and human values.
  • A mania for measurement has obscured emotional connections with customers.
  • “Marketers hide behind their dashboards” and are not conducting conversations with customers.

The solution, says Mark Schaefer, lies in the principles of Human-Centered Marketing. Austrians can easily recognize these principles as our own.

Austrian Principles vs Human-Centered Marketing Principles

Click on the image to download the full PDF

The customer-sovereignty perspective yields actionable truths.

  • Customers don’t need ads – they don’t see them, they don’t hear them, they block them.
  • Customers are rebelling against the interrupt-and-annoy approach of marketers.
  • The customer is in charge.

What do customers want from marketers? The answer for Mark Schaefer lies in Core Human Truths – what Austrians call Highest Values.

  • They want to feel loved.
  • They want to be respected
  • They want to belong
  • They want you to advance their self-interest
  • They want proof that a firm or brand is contributing to their community

These are deep human needs that don’t change. Whatever the speed of change in market, these values are constant. Humanism lets marketers hold on to what is not changing, rather than being overwhelmed by change.

Marketing mantras like “loyalty” and “engagement” are false.

  • Customers don’t want to be loyal; they want freedom and choice – they like shopping around.
  • Engagement does not result from clicking on an e-mail and downloading a white paper or a coupon.
  • These are dashboard measurements, not human values.

Mark’s recommendations are grounded in humanism.

Customers respond to shared meaning and shared values – so long as the sharing is authentic. Businesses must be loyal to consumers, never let them down, always be consistent. Live on their island.

Seek trust. Marketers have burned through trust. The Edelman Trust Barometer shows trust in business and brands and advertising going down for 11 straight years. Now brands must transcend the public’s mistrust.

Flip your branding. A brand is not what you tell customers. A brand today is what customers say about you to their friends and peers. People trust other people.

Let customers create their own value. This is pure Austrian Economics: customer value is an experience that takes place entirely in their domain. Brands and businesses facilitate – but can’t create – the customer’s value experience. Customers hire your brand or business or product or service to help them create value.

Marketing is promise management.

  • Choose the promise you make to customers carefully – is it one they really want from you and will they trust you when you make it?
  • Ensure that you have the capabilities to deliver on the promise. Don’t over-promise.
  • Keep your promise every time, with no exceptions ever.

BONUS: Small and medium businesses have an advantage in human-centered marketing.

The larger the business, the harder it is to connect to customers on an individual, emotional level. Small business has an advantage in showing its face, demonstrating its personality and exhibiting trustworthiness.

Items Mentioned In This Episode

Mark Schaefer’s Human-Centered Marketing Manifesto is here. 
For comparison, our Menger’s Manifesto, from Principles Of Economics, is here. 
Find Mark’s book, Marketing Rebellion, here.
Mark’s website is 

Free Downloads & Extras

Accounting From An Austrian (Misesian) Perspective: Our Free E4E Knowledge Graphic
Understanding The Mind of The Customer: Our Free E-Book

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