Business Management by Robert Heller

09:29 pm | 1 recommendation | Be the first to comment

What should managers do when things go wrong?

Whatever the causes, there can be no doubting the result. The world is going through a period of acute economic anxiety and falling economic performance, both in large matters and small. In a sense, everybody has been here before. What goes up must come down.

The old maxim works the other way, however. But clinging to this expectation is no great comfort in the downside years.

An age of increased complexity confronts everybody with a greatly increased range of options.

Which of all too many choices should we adopt in order to achieve realistic and valuable benefits? The Peter Drucker formula shows the process:

• Which activities and policy areas do we have to tackle?

• What activities and policy issues can safely be left to others ?

• What proposed activities and policies don’t have to be handled by anybody?

There’s a fourth question of fundamental power. Are all your activities and policies directed towards purposes which are realistic, important and rewarding on every measure – financial, economic and social? And a fifth question goes to the heart of the matter. Do you analyse every activity and policy to ensure that you have understood the root causes of all situations before adopting policies which will commit you to action?

Finally, has your planning and decision-making been conducted with full participation, involving a range of independent expertise as well as the staff and clients who will be affected by any solutions?

I wrote many years ago on http://www.thinkingmanagers.com about a survey of middle managers which showed unanimous agreement that participation by staff in decisions affecting their work greatly improved the quality of both decisions and execution. Follow-up, however, revealed the strange fact that none of the managers had taken the elementary step of acting on their belief.

It sounds simpler to manage by the time-dishonoured Order and Obey method. But that misses a vital trick. To handle complexity, you need people to understand what they are doing and why.

Learning becomes easier, and has far more point, when it is based on practical problems and solutions.

To quote Mike Gibson of PricewaterhouseCoopers, reported in a Management Today discussion of How to Survive Complexity… ‘a lot of the complexity we have is self-imposed. We have created things, we have acquired things, and when we look at them they are more complicated than they should be. The impact on cost and speed is clear’.

Accountability is a key issue: ‘Often the model is not fully clear on who is in charge, who is accountable for what when it comes to execution’.

The MT debate between bosses and experts showed that complexity is itself a complex issue. In a multi-business, multi-client, multi-market group like WPP, ‘trying to simplify complexity actually ends up in destroying value’, says Sir Martin Sorrell.

Self-inflicted wounds always threaten, though. I recall a wise friend who once told me that, ‘if you need complex calculations to justify an investment, don’t do it’.

Management by Self-Imposed Overload, etc, are unnecessary evils. That still leaves Sorrell in the clear when he observes that the networked 21st century ‘is not for tidy minds’. Too right.

To read more from Robert Heller see http://www.thinkingmanagers.com.

08:07 pm | 1 recommendation | Be the first to comment

The lessons of Total Quality Management

Every manager knows that appearances should match the realities of the business or other organisation. What do users of your products and services think about these offerings and the experience of using them, and, how do these real facts compare with your own beliefs about the standing of the organisation relative to competitors, other comparators and ‘stakeholders’ generally?

In my experience, there is always a meaningful, potentially malignant gap between the inside and outside views. This thought sprang to mind earlier this year when looking at coverage of the chaos at Heathrow’s four-billion-pound fifth terminal - T5, recently described as a 'national embarrassment' for the UK.

Presumably British Airways (the sole user) and the British Airports Authority (the provider) must have used modern methods of project management (which is very powerful). If that assumption is correct, how could the project have gone so disastrously wrong at the most sensitive moment - the first day of actual opening?

Lessons could and should have been learned from the BA engineering business, which introduced Total Quality Management following its worst ever period. Deep unrest among the staff had resulted in a long walk-out. Firmness paid off in the end; the men went back, and the strike was ‘won’.

But the true victory of the management was still to come in the decision to take a vow that such a disaster as the strike would never be allowed to happen again. Hence the basic decision to adopt Total Quality Management. It was a rip-roaring success, both operationally and financially.

The largest area at BA Engineering was Aircraft Maintenance, with 4,000 employees. Its boss, John Perkins, disliked the popular ‘culture first’ approach to corporate improvement. AM had a welter of technical problems, and Perkins put these first. Inspired by a chance meeting at Harvard Business School, he used the services of Kepner-Tregoe, with its formal approach to problem-solving. The consultants’ analysis rested on five questions:

1. Are there any quality issues?

2. If so, how are they picked up and transferred?

3. If they are picked up and transferred, how are they dealt with?

4. If they are dealt with, what working mechanism is used?

5. Is the environment supportive of change and the new behaviours required?

Those five questions, which can apply to all and any parts of an organisation and its processes, are as ‘hard’ as could be. But the process automatically embodies a ‘soft’ or cultural element of great importance and power. Organisational improvement and development are not subtle matters, but based on solid, deeply established principles of behaviour.

It only seemed logical to expect that the Total Quality Management concepts of BA Engineering would be transferred to the other divisions inside the BA organisation. As usual, a committee was duly formed to effect the transfer. And that, so far as I can discover, was as far as reform got.

Maybe the T5 catastrophe dated back to that false step. Total Quality should mean just what it says - total.

You don’t require genius to achieve performance that matches reality to achievement, but you do need to develop true self-knowledge and to apply that vital wisdom.

For more on Total Quality Management, see http://www.thinkingmanagers.com/business-management/total-quality-manage...

11:35 am | 1 recommendation | Be the first to comment

Management by numbers

Plans, projections, decisions, debates, results – all these and many more depend on the provision and calculation of outcomes (forecast or achieved) measured in monetary terms.

However, very few managers have paused to consider whether the numbers, even if scrupulously honest and perfectly presented, are guiding them and their business management in the right direction.

Consider this quote from the Harvard Business Review (January 2008):

‘For years we’ve been puzzling about why so many smart, hardworking managers in well-run companies find it impossible to innovate successfully. Our investigations have uncovered a number of culprits… These include paying too much attention to the company’s most profitable customers (thereby leaving less-demanding customers at risk) and creating new products that don’t help customers do the jobs they want to do’

Returning to this fray, the three authors, Clayton M. Christensen, Stephen P. Kaufman and Willy C. Shih, name the misguided application of three financial-analysis tools as accomplices in the conspiracy against successful innovation. They allege crimes against three suspects:

• First, the use of discounted cash flow (DCF) and net present value (NPV) to evaluate investment opportunities. This usage ‘causes managers to underestimate the real returns and benefits of proceeding with investments in innovation’.

• Second is the way that fixed and sunk costs are considered when evaluating future investments. The approach ‘confers an unfair advantage on challengers and shackles incumbent firms that attempt to respond to an attack’.

• Finally: the ‘emphasis on earnings per share as the primary driver of share price and hence of shareholder value creation. Concentration on EPS ‘to the exclusion of almost everything else’ takes resources away from all investments ‘whose payoff lies beyond the immediate horizon’.

I summed up the last of the three crimes in my Essential Manager’s Manual, which has just come out in a new edition (Dorling Kindersley, £25). ‘Successful management’, it says, ‘involves trade-offs and compromises to reach the best decision when several factors are involved. The aim of tradeoffs is to keep short-and long-term risks as low as is possible.’

The mistake is to suppose that you can maximise investment and profits at the same time. On the contrary, the long view means that short-term profit has to be sacrificed for long-term success. The other way round, ambitious plans for expansion may sometimes have to be trimmed to achieve satisfactory current returns. Products are similarly affected: you cannot simultaneously maximise a car’s acceleration and minimise its fuel usage.

Try to square this circle, and you end up with a business which is biased against successful innovation. In this tumultuous decade of the unfolding 21st century, that’s no place to be.

For more on business management, see http://www.thinkingmanagers.com/business-management

02:34 pm | 1 recommendation | Be the first to comment

Management by example

Whether it’s finance, marketing, production, strategy, human relations or any other discipline, managers accept that the subject is teachable and that, once taught, the lessons will bring value to managers and the organisations that employ them.

Jack Welch, of General Electric, based some of his awesome managerial reputation on the active role he played at the in-house college at Crotonville where GE’s executives were supposed to master their craft.

Welch is also one of the management heroes who have written books about their lives, times and management ideas. I’ve never doubted the potential value of this approach. That’s why I wrote the eight Business Masterminds for publishers Dorling Kindersley, picking as my masters a fascinating group of exemplars. The Masterclasses drawn from analysis of the octet’s successes are especially interesting – which is why we are making them available to all subscribers to Letter to Thinking Managers.

The credentials of the chosen are actually amazing. There’s Warren Buffett, who built the greatest investment fortune of all time from a base in Omaha, Nebraska. He’s recently turned over the bulk of that fortune to the charities run by Bill Gates, the biggest winner in the digital revolution – even though Buffett had steered clear of investing in Microsoft, because he didn’t understand the technology.

That was actually one of the Great Investor’s simple maxims – don’t invest in anything you can’t fully understand. That’s a difficult trick if you’re dealing with GE and Welch, for GE is so highly diversified that some analysts rightly call it more of a bank than the great electrical manufacturer it once was.

None of the above trio relied on technological brilliance to make their marks. Andy Grove of Intel, certainly, could not have led the microprocessor surge – changing the world in the process – without mastery of the design and engineering of his products.

The four businessmen in the Masterminds study are balanced by four teachers, whose personal business experience is confined to running their own shops. The late Peter Drucker, in fact, was at some pains to point out his lack of entrepreneurial ability.

Tom Peters, the loudest of the four teachers, is a managerial contrarian. He hot-gospels a new style that places initiative and enterprise above all else.

Unlike Peters and Drucker, the other two Mastermind thinkers don’t specifically apply themselves to the business of business. Charles Handy and Stephen Covey are philosophers of management. They are also deeply concerned with moral issues.

The principle behind the Masterclasses – 24 of them – is that, by working through key elements of the master’s practice you create a trial run for his theories and their application to you.

The reason why managers waste their time and money listening to advice they are never going to take is fear – fear of error. None of the eight Masters suffered this foolishness. The classes, and the examples, will help any manager to take the first steps in substituting bold confidence for weak anxiety.

To find out more and to subscribe to Letter to Thinking Managers, click here.

06:01 pm | 1 recommendation | Be the first to comment

Measuring management and leadership

Today’s super-bosses get salaries, of course, and very large ones at that; but they also receive ‘performance-related’ bonuses of great size, plus even more magnificent stock options and other wonderful rewards, from massive pensions to mighty perks.

These sometimes obscene elements are all supposed to be linked to performance.

Even though the cost of stock options can no longer be hidden, shareholders are exceedingly unlikely to protest about the packages, unless the management manifestly fails to deliver adequate performance.

That proposition sounds fair enough. Under a little examination, however, it falls apart. First, what is ‘adequate’ performance? The classic answer is a share price that outperforms the sector. The sector may be a meaningless concept; outdoing a mediocre bunch of competitors with sub excellent figures is no great achievement; and the share price, anyway, is hardly more under management’s control than the performance of the national and world economies. The only virtue of the share price is that the number is unarguable - for a specific moment in time.

The basic principle of incentives, from the shop floor upwards, is that the more you give, in theory, the more you get. The bald statement, however, ignores the way in which effective incentive schemes work. They work by altering behaviour and, in a well designed scheme, by aligning that behaviour with the needs of the organisation.

But incentive schemes can also skew behaviour in the wrong direction, the most famous example being sales incentives tied to turnover, but not to profit. What you get is a great deal of unprofitable business.

Dishonesty extends across the whole range of performance indicators. If doubtful numbers are going to boost management’s personal rewards, they have every incentive to gild the lily - or disguise the poison ivy. This pernicious tendency may be no more heinous than turning a blind eye to the dishonest. After all, you have to trust your finance director, don’t you?

‘Leadership’, not management, is the flavour of the times. It is, of course, a crucial component in optimising the effectiveness of organisation. But effectiveness – to which management pundits have devoted their teaching and preaching – may no longer be the Holy Grail of the top manager. The change that I see is a switch to maximisation: and what’s being maximised is personal reward.

This shift in values has been seen coming from along way off. CEOs and their cohorts began paying themselves larger and larger sums year by year long ago. The severe consequences for management are already clear.

The more the misuse of corporate funds for private enrichment becomes the rule, the more the long-term health of business must suffer as successful long-term, all-round management is sacrificed for short-term gain.

You can read more on management and leadership at http://www.thinkingmanagers.com

12:37 pm | 1 recommendation | Be the first to comment

The management style of making it happen

Sir John Harvey-Jones, who died back in January at the age of 83, was a company man, a hired hand whose promotion to chairman of ICI was the final stage in his rise through the executive ranks.

Thanks to inertia, ICI, as a top-heavy corpocracy, was heading for unprecedented losses. That was the dire prospect that led the board to appoint Harvey-Jones, a dissident who had long and loudly expressed his dissatisfaction with the work of his fellows and, perforce, himself.

Personal responsibility is a key pillar of Making It Happen, three little words Harvey-Jones chose as the title for a deservedly successful book. He did enough time at ICI to demonstrate his abilities and the great scope available for resuscitation.

His management style was like a breath of fresh air. ICI, like so much of British industry, seemed to have become introverted and unenterprising. The new boss was extroverted and adventurous, and the openness and warmth of his manner contradicted the corporate personality. It was those qualities, too, which made him such a success in retirement as TV’s Troubleshooter, visiting small to middling companies that had asked for the Great Man’s help.

Some had obviously expected to get patted on the back for their achievements, and were more than surprised to be kicked in a more sensitive area. The most famous example was the Morgan Car firm, noted for making a reasonable living by producing cars with obsolete technology which fitted its vintage marketing platform. The waiting lists were the notorious result. But the family management saw this pile-up, not as failure, but as an asset.

The true business of a business, of course, is to create and satisfy high demand that makes the most of fully balanced, highly modernised supply.

The rarity of the Harvey-Jones boss-type isn’t because it’s hard to acquire sufficient management know-how. It’s the human dimension. Strategy isn’t a cold subject. It requires emotional drive to turn the plans into action.

Writing in the Harvard Business Review, Cynthia A. Montgomery notes that just planning is not enough. ‘Strategy should also guide the development of a company – its identity and purpose – over time’. She argues that the prevailing approach sees strategy as a set solution, not as a dynamic process.

However, the old goal of a long-term, sustainable, competitive advantage must now give way to creation of value. She rejects strategy consultants; leadership demands that the CEO, with no outsourcing, is Chief Strategist. An analytical, left-brain exercise yields to an organic process – adaptive, holistic and open-ended. And the time-frame does not jump from year to year, but is ‘everyday, continuous, unending’.

That’s how to go about making it happen – exercising and perpetuating the dynamic powers of a Harvey-Jones.

See more on management style here: http://www.thinkingmanagers.com/business-management/management-styles.ph...

09:05 am | 1 recommendation | Be the first to comment

Corporate culture and incentives

How, why and by how much should people be incentivised? Are incentives and motivation identical partners? Why do gross errors occur, and how do you guard against them? And how exactly do you use error as a springboard for excellence?

The supposition is that high brainpower is a protection against low stupidity. In harsh fact, the brighter they are, the further they fall. Very clever people are all too often very arrogant – and arrogance is one of the last attributes that people of power can afford to let rip. Yet many, if not most, do precisely that.

The reality is that the corporate culture of incentives and the quest for personal reward diverts managers from their allegedly prime job – managing the organisation to achieve optimum corporate results.

You can’t exactly blame the beneficiaries. As I’ve often stressed, give a man a blank cheque and carte blanche to fill in the figures to his pleasure, and he’s not going to be overcome by modesty. Greed is the word. The evidence indicates overwhelmingly that these sums, however gigantic, have no impact on the quality of management. They have a most potent effect on motivation, true. But that can work against the supposed effect of incentives to stimulate collective performance. Motivation to enhance personal gains, on the other hand, has only that enhancement in its sights.

The most distressing aspect of incentives which have no true incentive element is not that they demoralise those who don’t share the gravy (which is a major adverse influence), but that the engine seems to surge on regardless of all criticism.

Negative incentives are at least as important as the positive variety. Yet there is nothing secret about what causes poor motivation, or about whether it is occurring. The grumbling and unresponsiveness are deafening, if you care to listen. And there are plenty of highly trained consultants who can tell you what’s going wrong and why – but all their help is no use to people who won’t face hard realities.

Gross errors occur because of denial. It follows that the best protection against error is denying the deniers. Often the latter are simply peddling lies. The Wall Street masterminds, when forced to confess their subprime losses, mostly began with much lower numbers than those that are now apparent (and very possibly still growing). The denials served no purpose save to put off the evil day.

That day arrives all the same – and the mark of the Supermanager is that error is not only admitted, but is tackled with the same energy as success.

Persisting in serious error perpetuates sin and shuns opportunity. Positives can be born even from negatives -and such birth is the most powerful incentive and motivational force of all.

For more on corporate cultures, see http://www.thinkingmanagers.com/business-management/corporate-culture.ph...

08:15 am | 2 recommendations | Be the first to comment

The Role of the CEO in Business Management

A familiar gibe against the over-managed company is that it has ‘too many chiefs, and not enough Indians’. Whether or not that’s generally true, management certainly has more Chiefs than it did.

There’s the Chief Information Officer – the CIO; the COO, whose middle O stands for Operating; the Chief Financial Officer, or CFO, without whom no self-respecting company can manage or be managed; and, above them all, there’s the CEO, the Chief Executive Officer, revolving in the corporate heavens, the master of all he surveys.

Writing for The Thinking CEO, the management magazine of cyberspace (which readers will find on the Thinking Managers business management website), I produced a short essay suggesting an alternative name for the CEO – the CGO, or Chief Growth Officer. That post, though, needs to double up as another CIO – CIO2, with the I standing, not for Information, but Ideas. The two Is should work hand-in-glove, which they notoriously often fail to do.

The most misleading title is CEO. True, the boss is chief and an executive director. But ‘execution’ is precisely what the CEO can’t and shouldn’t try to do: heading up all day-to-day ‘executing’, taking direct responsibility for activating all plans, controlling all the product lines and productive apparatus, driving all the other people into performing their allotted functions.

The poor incumbent will have too little time and too many voices screaming for his or her attention, both inside and outside the company. ‘CEO’ gives the wrong emphasis, although the incumbent is also the CSO – the Chief Supervisory Officer, responsible for checking that everybody else is in the right job and doing it right.

That responsibility plainly has to be delegated and structured. All top managers need to feel comfortable with the people who, in turn, are responsible for their subordinates. As the CISO, or Chief Internal Systems Officer, the incumbent CEO has to help build a living organism that bypasses bureaucracy and substitutes a quick and effective chain of command.

I referred above to the CIO as CIO2 – the Chief Ideas Officer. That doesn’t mean that the incumbent has all or even most of the ideas. The CEO/CIO2 has the essential job of making all his or her people feel and behave like key members of a true creative team.

Good ideas well worth turning into action can occur and apply anywhere in an organisation. But the transcendent area is what may loosely be called ‘strategy’.

The CEO who can’t withdraw from running operations to concentrate on strategic and structural transformation will fall – and fail – between two stools. It isn’t a case of whether the transformational moment will arise, but when and how and where.

For more on the role of the CEO, see http://www.thinkingmanagers.com/the-thinking-ceo

08:57 am | 2 recommendations | Be the first to comment

Management by leadership

Management has always been hard to define. Gurus and managers both differ about whether the activity is art or science or craft or discipline – or if it is inspirational or mathematical. The source of this uncertainty is the fact that management is a many-sided task which changes its spots and its pressure points in response to inner and outer stimuli but never arrives at ultimate truths.

But of course, this doesn’t stop people from attempting the impossible. A current example is the widespread enthusiasm for leadership. But how do you define leadership? And how can you be sure whose is better or best?

The same questions apply equally to ‘management’. Getting the answers has been tried time and again.

The great Peter Drucker's definition is the most reliable I know of, because it deals with processes, not platitudes. The expert manager, he wrote, knows what to do, knows how to do it, and – most important of all – does it. That last task is where the difficulty mostly arises.

To suppose that superior financial performance equates with better management and/or leadership is weak. However, if the financials aren't included in your weightings, what other objective measures are there?

Writing an article on ‘The Four Principles of Enduring Success’ for the Harvard Business Review, Innsbruck academic Christian Stadler worked on the basis that comparing the great companies with the second-best tells you more about corporate goodness than comparison with poor performers. Once again, financials are relied upon to define success. From 1953 to 2006, the Nine Greats gave much better returns to shareholders than nine runners-up: $4,077 on a single 1953 dollar versus $713. After careful analysis, Stadler arrived at his four principles:

• Exploit prior to exploring. Then more money will be made from existing businesses than from all-new ventures.

• Diversify your business portfolio, and diversify wisely – and keep your suppliers and customers broadly based.

• Remember your errors. Constantly review past failures to ensure they are not repeated.

• Be conservative about change. Great companies very rarely make radical changes. Also take great care in their planning and implementation.

The notable aspect of this list is that it differs so much from the programme that today’s true leaders are encouraged to follow.

My own advice would be to exploit the old as the basis for breaking completely new ground; not just for diversification, but to build in concentric circles round the core business; to analyse your success as thoroughly as your failures; and to throw conservatism to the wind, changing as much and as often as opportunities and circumstances require.

For more on management and leadership, see http://www.thinkingmanagers.com/business-management/leadership.php