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Published: May 12, 2014
 / Summer 2014 / Issue 75


Management in the Second Machine Age

Future leaders will succeed by being entrepreneurial and by rethinking the balance between financial and social goals.

The developed world stands at the cusp of a major transformation unlike anything experienced since the Gilded Age. That period (the name was coined by Mark Twain and his neighbor Charles Dudley Warner in their 1873 satire of the times) offered immense economic expansion and wealth creation in the United States, but it also led to a major disruption in the occupational mix of the citizenry and an associated set of social upheavals. Entrepreneurs built colossal businesses while laborers shifted from farms to factories.

Erik Brynjolfsson and Andrew McAfee of MIT have coined a new term for the coming era in the title of their latest book, The Second Machine Age (W.W. Norton, 2014). They chronicle the advance of Moore’s law (the seemingly inexorable doubling of microprocessor power every 1.5 to two years over the last half-century) as it yields technological advances such as autonomous cars that easily conquer the complex task of driving.

More importantly, the authors note that respected scholars as recently as 2004 had highlighted driving as an example of a task too complicated for computers and inherently requiring human capacity. Even a casual scan of the traditional media uncovers further examples of this ferocious progress, including robots that can run, developed for the military, and a computer program that inferred Newton’s second law of motion from the movement of a double pendulum—a device that creates a chaotic pattern to the human eye.

Although no one can confidently predict how this new age will unfold, most economists take an optimistic view—they believe that the positive economic effects will offset the inevitable disruption of employment: Those in traditional blue-collar occupations are facing dislocation as computers take over jobs like truck driving, factory work, call center support, and even burger flipping. But just as our rural, agrarian society eventually settled into an urban, manufacturing economy, this disruption will ultimately yield a stronger economy and better standard of living.

The obvious historical transition of farm to factory offers hope, but it misses a less obvious transformation that occurred over the last century. A fresh look at the U.S. census data reveals that the big shift in the 20th century wasn’t all about labor. In fact, there was a huge shift into managerial occupations. And today it’s not just the working class that faces disruption, but the managerial class as well.

Businesses today are drawing upon smart machines using statistical models to cull valuable insights from the exabytes of new digital information created daily. Machines such as IBM’s Jeopardy-winning Watson are being trained to displace highly trained experts as disparate as medical diagnosticians, financial advisors, and professional chefs. Smarter machines will reduce the number of traditional management jobs in the second machine age and force a change in both the practice and philosophy of management for the millennials poised to become the next generation of managers.

An examination of the Gilded Age offers two lessons for the coming disruption. First, managers must become entrepreneurial again: Number-crunching computers will replace number-crunching managers. Second, the new generation of managers must address the social challenges of the emerging disruption. Unlike the entrepreneurs of the Gilded Age, they should incorporate a social mission into their definition of business success, rather than making philanthropic gestures following the achievement of success.

Number-crunching computers will replace number-crunching managers.

The Rise of the Manager

The 1920 census of the U.S. documented the occupational mix of its 41 million working citizens within a hierarchy defined by industry and role. For example, 12.8 million people were employed in the “manufacturing and mechanical industries” and nearly 11 million were employed in “agriculture, forestry, and animal husbandry.” Those results already reflected a critical economic transition from the 1910 census. Merely a decade earlier, more U.S. workers— 12.7 million, representing nearly a third of the population—had been employed in agriculture, forestry, and animal husbandry. But during the second decade of the 20th century, manufacturing employment grew 21 percent in the United States while the more traditional agriculture-related segment dropped 13 percent. Of course, we all know that over the following century U.S. employment in manufacturing continued to grow, then ultimately waned as the U.S. economy shifted to services in the 1980s.

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