Why Millions of Managers Are Becoming Obsolete: The Surprising Truth Beyond AI

Earlier this month, Steve Blank, adjunct professor at Stanford University, wrote a wonderful article, “Blind to Disruption — The CEOs Who Missed the Future,” It was about the thousands of carriage firms in the early 20th century that vanished almost overnight when new technology made their way of doing things obsolete.

Today, millions of managers face similar risks of obsolescence as almost everything that they have been doing for the last hundred years is less and less relevant. Spoiler alert: the risk is not principally AI.

A New Branch Of Expertise: Neuroeconomics?

There are of course many voices offering help. You’ve probably heard of macroeconomists and microeconomists. Now make way for the latest group of economists. They call themselves neuroeconomists. They are performing sophisticated scientific studies of the human brain with the goal of enhancing the quality of managerial decision-making.

They begin with a basic framework that sounds sensible. Take the one proposed by A. Rangel, C. Camerer, and P. R. Montague and published in the National Library of Medicine. It divides the process of decision-making into five stages. First, what is the problem to be addressed? Second, what are the values to be assigned to possible courses of action?. Third, what is the action to be taken? Fourth, how valuable was the decision taken? Finally, what lessons are there for the future?

The Key Problem Is What Is The Problem

Most of the available work of neuroeconomics is so far focused on highly technical neurological analysis of steps 2-5.

But guess what? The principal problem in management today lies elsewhere. It concerns the first step: what is the problem to be addressed?

For more than a century, the central problem addressed by management has been how to maximize profits by cutting costs. That’s the basis of mainstream economics. It’s the reason Ronald Coase won the Nobel Prize in Economics in 1991: firms exist to reduce transaction costs and enhance profits. You can read almost any introductory economics textbook and see that this insight is still so obvious that alternatives are not even considered.

Management theory has been on a similar track for at least the last half century. Management has been principally focused on increasing profits to maximize shareholder value. That was the official position of the U.S. Business Roundtable for decades. Business schools still teach it. Most of the processes, systems, and mindsets of traditional management are still in place in big firms. So that is the problem that managers are required to solve, whether they like it or not.

The Shift From Cutting Costs To Creating Value For Customers

Just as in the early 20th century, the world has changed. The primary dynamic of a business has shifted from increasing efficiency by cutting costs to expanding demand by creating more value. Value creating enterprises emerged from the combination of two elements: first, entrepreneurs began using digital technology and AI to deliver exponentially more value than traditionally-managed firms; and second, digital technology gave customers the power to demand more value from businesses.

The killer insight: value-creating enterprises not only satisfy customers: they make much more money than firms focused on making money.

As a result, the primary goal of fast-growing businesses has shifted from cost-cutting and profits to value creation for customers. Because the potential gains from value creation dwarf any potential gains from efficiency, value creation for customers has become the primary goal of fast-growing businesses today.

Meanwhile, profit-seeking firms that still focus primarily on improving efficiency and cost-cutting generate below-average value and are having difficulty in surviving. Two-thirds of the famous blue=chip firms in the Dow Jones Industrial Average are now performing below average (See the table below)

Why AI Will Make The Divide Even More Dire

In one sense, the explosion of AI represents a massive opportunity for management. Those firms already focused on delivering more value to customers will likely use AI to increase the benefits for customers and heap further riches on their firms.

By contrast, AI will likely be used by managers still operating in a traditional mode as a way to cut costs even faster. The approach will likely aggravate the obsolescence of traditional managers and the firms that they manage.

The difference in outcomes of the two groups of managers is largely unrelated to different neurological circuits in the brain. It’s not rocket science or even neuroscience that’s at stake here.

The traditional managers are simply trying to solve the wrong problem. If these budding neuroeconomists would focus their research on the central challenge today, namely, the goal of the firm, their work could move from merely “interesting” to profoundly “useful”.

And read also

How Value Creation Resolves The Contradictions Of Running A Business

Millions Of Managers Are Becoming Obsolete: Master Value Creation Now

Table: 5-year total returns of firms in the Dow Jones Industrial Average: July 9, 2025