Charles Handy is one of the most respected, if not the most respected business thinker of modern times. This week sees Charles Handy interviewed by FTdynamo for HR Zone.

Charles Handy has long been regarded as Europe's pre-eminent business thinker, a position confirmed in January by the first-ever global ranking of business gurus.

Now approaching 70, Irish-born Handy is a former oil executive turned academic who is enjoying a third career as a populist social philosopher. For reading the business runes or stretching the imagination, he has few equals. Yet, despite his often revolutionary message, he remains the genteel, civilized voice of management.

How does Handy view today's turbulent business environment? As ever, he is looking beyond the present to interpret the trends emerging from the new economy. One of its features, he says, is the creation of a clear division in business types between what he calls "elephants" and "fleas".

Charles Handy talked to Godfrey Golzen.

FTdynamo: You use the term "human management" rather than "human resource management". What is the difference?

Charles Handy: The term "human resources" applies to a corporate model that is becoming obsolete because of the speed and extent of change in the environment. It belongs to what I call the age of elephants. Elephants were the dominant beasts of the old economy – big, powerful, bureaucratic corporations, rich in tangible assets, whose people traded job security for loyalty. These organizations depended on predictability, routine and markets where a successful product could expect years of dominance. In today's business environment dominance has been replaced by what Tom Peters calls "the nanosecond advantage" before somebody else comes along with a similar or better product. So companies no longer want to own assets – and that includes their people – which tie up their capital and limit their freedom of action. They prefer a much looser arrangement with individuals; humans not human resources. A good analogy is a football team. Contracts are with individual players, not with a team.

FTd: How can organizations work more efficiently?

CH: I'm not sure if we can use the term "efficiency" any more. Speed, flexibility, and transparency of communications have had the effect of dividing the business world into the elephants I've already mentioned, and what I call fleas. Fleas are small, agile, creative, unpredictable, and above all adaptable; they are the contractors, freelances, independent consultants and small specialized suppliers on which the elephants increasingly depend. What matters is that that they should deliver on time, to cost, and to specification. They are effective rather than efficient. It's not doing things right, but doing right things that matters.

FTd: What does that mean for management?

CH: Well, look at the film business. There are no big studios any more, just a few elephants – a director, producers and money men who get an idea, assemble a team of fleas – actors and technicians – make the film, collect the money from distributors and then dissolve the team. Woody Allen's films and Steven Spielberg's Dreamworks company are examples of this type of enterprise. It has no permanent, money-draining investment in people and plant, it thrives in good times and in bad times goes to ground like some fish in the Australian outback that only emerge when the rains come.

FTd: You claim that the classical organization concept will not be valid any more. How will the change take place, and what will be the newly developed concept?

CH: I believe the organization of the future will be federal. Federalism means linking independent bodies together in a common cause. There are already examples of this in firms such as ABB, Unilever, and Nike. They operate what are in effect independent companies. In federal companies there is a center but no headquarters. The center does not direct or command but co-ordinates. It operates on the basis of subsidiarity, which is that responsibility and decisions should be pushed as far down the organization as possible. Federal firms bring their brains together from around the world to agree strategy and aims. They do not issue edicts from the top.

FTd: How does this change the role of HR?

CH: Managers will have to learn to live with the process of managing individuals, rather than "human resources". They will have to tolerate unconventional attitudes and lifestyles, they will have to give people the freedom to make decisions and accept the consequences – an example is the American retailer Nordstrom, whose employees carry a message that reads "do whatever you think is necessary".

The biggest issue for HRM is the war for talent. Organizations that become "employers of choice" will change the agenda of management. The other great issue for HRM is to develop a sense of passion. Competitive advantage in the war for talent is gained by getting people to feel passion about their job. I'm not sure that elephants understand that fleas want to be able to change the world, or at least to work for organizations that hold this out as a possibility

FTd: How does capitalism affect society?

CH: One effect that capitalism is having is to widen the gap between top and bottom. In some US companies the CEO is earning 500 times more than the lowest paid worker. That is creating ghettos of resentment and poverty which capitalism will have to address because society – and hence customers – are beginning to demand it. Look what happened to Shell in Germany in the protests over the company's policy in Nigeria. I think we are moving towards a new, more complex bottom line in which profit, environmental concern, and social responsibility will have to be in balance. Those are the forces that will shape the new society.

This requires a new mindset from corporations; but there are benefits in that for them. Take the effect of the Internet. It poses a real threat to traditional organizations. All kinds of intermediaries are disappearing from the screen as their role is questioned. How do you create value when so many goods and services are commoditized? One way to do that is to turn to new markets or to think about markets in a new way. A case in point is Lever Hindustan. It has found a profitable Asian market for cosmetics in sachets costing a few cents and distributed through village traders, whereas its customers were unable to afford a couple of dollars for the same stuff in a bottle. The new economy needs a new, flea-like mindset. That is why big elephant companies are developing activities as venture capitalists and business incubators to keep the fleas who come up with the ideas. The new model of growth is to create business opportunities in which the fleas can flourish and develop their management skills.

FTd: What is proper selfishness?

CH: The big danger in the new relationships between people and corporations is that it leads to the creation of a very selfish society in which nobody feels any obligation towards anybody else. We are already seeing the results of this in the crime-ridden streets of prosperous European cities. I don't believe that business can flourish outside the moral order. Selfishness, or at any rate self-interest, is a natural human condition, but it ought to be what I have called "proper selfishness"; a realization that pure selfishness, in which every man is out for himself, is counter-productive in that it destroys the society which makes the enjoyment of life possible.

FTd: How do you feel about being beaten only by Peter Drucker in the FT dynamo/Suntop Media ranking?

CH: I am dubious about my newfound fame. If true, it is because I talk about the big issues, including social and educational matters, rather than managerial fixes. I like to think that I concentrate on the things that will matter in five to 10 years' time.

Recent sighting: "De Tocqueville Revisited", Harvard Business Review, Jan 2001
In the future: The Elephant and the Flea, Hutchinson, Sept 2001

FTdynamo features writing and research from leading business schools and management consultancies.