Posts tagged ‘Management’

Purpose, Teamwork and Culture: Management and the vital trio of purpose, teamwork and culture in business

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Three of the most basic and critical questions in management are:

(1) Who’s in charge here?
(2) How much power should they possess while they stay in charge?
(3) And how long should that stay endure in the event of failure?

The standard answers are clear:

(1) A single, designated person, subject to collective oversight
(2) As much power as they want
(3) No time at all.

The standard practice, however, is somewhat different. The following real-life case history can also stand as an interesting test for any would-be board chairman. What would you do if, having appointed a new managing director to lead a troubled company out of the dark and into the light…

In Year One, he closes several operations, fires 50 people – and the company, after related charges, loses $4.4 million. Never fear, in Year Three he assures you and everybody else that ‘We successfully turned the company round’. Profit that year is $3.6 million, followed by $5.7 in Year Four. The next year, though, the recovery reverses, and 46 more staff are removed from the roster.

That doesn’t prevent 79 more forced departures in Year Six, together with a $7 million loss – and more closures. In Year Seven, your chosen boss announces his fourth major reorganisation in seven years, splitting the company into three. He reassures you, again, that the company, ‘in my opinion, has turned’ – and still he remains in the job.

Would you, as chairman, have retained the services of such a spectacular non-performer? Who did? The awful answer is the man himself. The company is Unisys, whose boss, James A. Unruh, combines the posts of chairman and chief executive. All the figures, for losses of money and jobs, need multiplying by 100. Thus in Year Six, Unisys lost $700 million and 7,900 employees. Over the past decade, its shareholders have lost an annual 11.4% on their investments. On any reading, this mournful series of events shows (a) that Unisys has totally failed to fill the vast gap created by the collapse in its sales of mainframe computers: and (b) that the critics of downsizing in general are right in this specific case. Each successive reduction in the capacity of the organisation merely set the stage for the next decline – and at long last, in June, for Unruh’s departure.

Turn to another company, and to a report in the same issue of the Wall Street Journal, and you find that SBC Communications ‘is the only Baby Bell that hasn’t resorted to massive lay-offs to trim its work force’. Its double-digit percentage rises in annual profit have led the telecoms industry despite lack of cutbacks – or is it because of a policy which has earned the company ‘loyalty among its employees’? You won’t find much loyalty at Unisys – or at another telecoms group where, according to a middle manager in Europe, ‘Nobody here has a clue what the strategy is’.

That group, the giant AT&T, is now planning to join SBC (in origin, an AT&T division) in the largest merger in history – $50 billion plus. The two share a common feature with Unisys: in all three cases the chief executives are also chairmen, and their near-absolute power appears to be independent of success – or failure. The CEO of AT&T, Robert Allen, has even clung to power in a bizarre interregnum before an outside appointee takes over. Yet the company has lost shareholders 16% of their capital since end-1995, while market share in the long-distance trade has been slipping. The fundamental questions raised at the start, which apply to appointments at every level, have received the same wrong answers as at Unisys. (1) The wrong person was appointed; (2) given excessive power; and (3) allowed to survive too many proofs of his unsuitability.

(1) and (3) certainly don’t apply to Edward J. Whitacre, Jr. of SBC. But what about (2)? He manages in dictatorial style (‘spare on words, long on action and powerful in execution’), says the WSJ. The same paper reports a pregnant saying from a manager whose company was acquired by SBC: ‘We have a joke about SBC’s management: It’s “Ed Says”. Anytime you ask why a particular decision was made, it’s “Ed Says”. That’s it’.

Given a choice between ‘Ed Says’ and Unruh’s rule, anybody would settle for Ed. An effective dictator has to be superior to an ineffective one. But that doesn’t settle the power issue. Is dictatorship justified by results? Does one-man rule have a better record than collective, collegiate management? Is the award of absolute power consistent with modern management necessities?

It’s doubtful whether any of these questions trouble the minds of boards deciding on the appointment of a chief executive. Indeed, making the choice ‘is frequently carried out with insufficient attention – particularly with regard to investigation of the chosen candidate.’ The quotation comes from Taking Charge, in which two researchers for the Judge Institute of Management Studies at Cambridge investigate what makes CEO succession work.

As one selector told the researchers, commissioned by the head-hunters, Saxton Bampfylde International, ‘The more I do of these things, the more I’m conscious of the fact that all of them have to do with the effect of people on other – with relationships between people.’ That being so, personal style is crucial, especially since among ‘the most urgent tasks facing the new CEO… is that of establishing an executive team with which he or she can work effectively.’ Teamwork hardly fits with ‘Ed Says.’

Each task is different, though. In crisis, an Ed could be essential. It’s a matter of horses for courses – which is why making the choice comes third of the ten stages that are recommended in Taking Charge:

1. Planning – agree on what the job entails.
2. The search for candidates – where they come from may determine where they take you.
3. Making the choice – a considered judgment, please, not a whirlwind romance.
4 & 5. Appointment and interregnum – the decision is made (and fresh uncertainties begin).
6. Starting work – new CEOs should look before they leap, gathering information relentlessly.
7. Orientation – relationships are the heart of the matter.
8. Team-building – knowing who to replace (and when to button your lip).
9. The strategy review – learning and giving ownership.
10. Implementation – establishing and communicating the new leadership.

In my view, the key stages, after the right person has been carefully picked, are 6, 8 and 9, which mesh closely together. Bob Baumann made this point powerfully in describing his first months at SmithKline Beecham (previously reported in Thinking Managers). The process of gathering information, by asking people at all levels about their perceptions of the company, its strategy and their particular roles, gives insights into both colleagues and the corporate condition; begins a working relationship with individuals; and starts along the road to full-blooded teamwork as the senior executives re-examine the strategy with their new leader. The vital trio of purpose, teamwork and culture are all involved.

Something’s missing from the ten stages, though. Taking Charge assumes that the new boss will have a separate chairman – which wasn’t true, as noted, in the three cases set out at the start. The researchers quickly found that the chairman-CEO relationship is loaded with potential for trouble. To quote one interviewee, ‘the chairman lives in a world where quite clearly he is the most important guy in the company. Now I live in a world where the CEO is the most important.’

But the issue of importance is irrelevant. Purpose is all. The prime task of the chairman, as the first among equals on the board, is to agree on the overall targets by which the CEO and his executive colleagues will be judged (‘agree on what the job entails’). The second task is to relate the strategy adopted by the executive team to those targets. The third task is to judge the CEO on his performance as the actual results come in – of which more later.

The final task for decision-makers, after making that diagnosis is to agree on a vital prognosis. Can the incumbent take the company forward, or is another change needed? If so, the sooner action is taken, the better. The board of Pilkington gave Roger Leverton several years before concluding that profitability was far too low compared to French rival St.Gobain and that the change process at the British glassmaker had simply taken too long. Leverton was unceremoniously replaced by a recently appointed Italian. But had Leverton been required to reach a profitability target by a certain time? If not, why not?

Mistakes in appointments are much more likely to happen when the decision-taker hasn’t decided firmly what ‘the job entails.’ That’s asking for trouble, just as much as failing to exercise due care and attention over the actual choice. As the researchers heard: ‘The whole process of recruitment is extremely difficult and most people are very bad at it… because they don’t take enough time about it, in thinking it through, in checking references, in doing every sort of thing they can to find out if it’s the right person… even at this level.’

The words ‘this level’ refer to the CEO, but the situation described is general. You are not recruiting a person for their personal attributes alone, but on their fitness for the particular purposes of the business and for their ability to create the teamwork and cultural enviroment that will serve those purposes excellently. Any uncertainty about purpose, teamwork or culture will have immediately damaging results, as Mary Walton shows in an alarming account (Car: A Drama of the American Workplace) of events at Ford Motor.

The programme for the new Taurus, Ford’s flagship in the US, was based on the soundest principles of modern supply management. You choose a single supplier as a partner in both developing and making what you need. Walton earlier wrote an excellent book on W. Edwards Deming, whose ideas underpin an approach that was accepted by the East long before it came back to the West. Ford ‘had been persuaded by the Japanese that it was better to establish long-term, familial relationships with a few suppliers rather than play them off against each other with constant rounds of bidding. The result was supposed to be a harmonious give-and-take between supplier and supplied.’

So far, so good. Unfortunately, the style of the Taurus programme manager, Dick Landgraff, who believed in the high decibel school of management, was inimical to the new philosophy. If cost overruns were threatened, Landgraff would say, ‘Let’s bring these guys in and smash them’. At meetings with suppliers, he would ‘close the door and yell at them about cost overruns. Landgraff didn’t care if he wasn’t Mr Nice Guy.’ In one sense, Mr Nasty won: the Taurus came in on time and on budget. But Ford lost.

In one example, Walton gives a horrifying account of the near-disasters in seat design and manufacture – work previously done in-house. Having closed down its own seat-making capability, Ford was utterly dependent on a young and over-stretched firm named Lear. That sounds a loud warning about supplier partnerships: the choice of partner is as crucial as any personnel appointment, and the partnership must be as tightly controlled and smoothly managed as the overall programme.

You can’t afford errors like Ford’s poor choice, nor its late approval of the seat design, nor the cultural clashes between supplier and customer. Pernicious side-effects may well follow if you try to cure such mistakes by bullying tactics. According to Walton, the difficulties with suppliers ‘symbolised an entire project gone bad. Ford pushed too hard on many fronts.’ She links this basic error to the fact that the Taurus proceeded to flop in the marketplace: the top-seller for five golden years fell to third.

The implication is that Mr Nasty may make things happen, but that Mr Nice Guy makes them happen better. Also, the appointment of tough, hard-driving, ‘Ed Says’ shouters is a sign of possible deeper problems in the organisation. Consider this view from Taking Charge: ‘The more autocratic and centralised the prevailing management style, the less likely it is that individuals at lower levels will have been given the space and authority to develop their own confidence and competence.’

The link between organisational behaviour and the conduct of individuals is evidently powerful. In business, as in personal life, the bullying manner is often a cover for lack of confidence, which is intensified by ‘or-else’ organisational pressures: ‘bring the Taurus in on budget, or else’. The prime purpose of the whole programme was surely to create a new car even more successful than its predecessor: meeting the cost parameters was an important, but subordinate aim.

Since the success or failure of project leaders and CEO appointments alike hinges on the right choice and prioritisation of objectives, unless that correct choice governs the selection of the leader and everything else, the project or the company is likely to fail. How you then react to that failure is vitally linked with another question raised at the outset, which is the degree of power allowed to the incumbent. The clue lies in this pregnant sentence: ‘The key is to understand that no project is complete until it is systematically reviewed and its lessons learned.’

Here, Professor David Garvin of Harvard Business School is talking about the way in which the US Army has been improving its ‘management’. The conduct of war has many analogies with running a business, and the HBS case study believes that the army ‘has perfected a remarkably efficient process for correcting its mistakes and sustaining its successes.’ The ‘action review’ method amounts to no more than, to quote the Wall Street Journal, ‘reviewing what happened and applying its lessons.’ Boston University’s School of Management calls the result ‘a process of continuous learning and improvement’ – precisely what the work of any chief executive or manager of any kind should engender.

Indeed, to ‘sharpen your leaders’ is how one general describes the whole purpose of the process, which for the military involves drawing the lessons of both simulated combat and the real thing. In management, the lessons of failure teach more than those of success. But the routine policy of firing the authors of failure and promoting the successful teaches nothing. That was a key reason for the celebrated failure of the army in Vietnam. The constant change of officers meant that the US didn’t fight for nine years, but for one year nine times. Managers also rotate quite frequently. But there’s no reason why they should be condemned to make the same mistakes as their predecessors – or themselves.

The action review principle matches Bob Baumann’s policy of information gathering, teamwork and strategy review at SB – and should certainly help to avoid that folly. When any programme is started, or appointment made…

1. Agree clear objectives, first in written terms, then translated into relevant numbers, financial and non-financial.
2. Stage regular review meetings at which progress is measured against the objectives, and both adverse and favourable deviations are analysed and explained.
3. Initiate action to (a) correct the effects of the adverse deviations (b) ensure that the causes do not recur (c) codify and learn the lessons of failure and success.

The obvious question is who conducts the reviews. The usual boss-subordinate process is not appropriate, since the object is to get things right, not to award blame – and the responsibility could lie with the boss. Interestingly enough, Robert Allen at AT&T instituted evaluation of his performance by his subordinates. Its ineffectiveness can be judged by the results. A collegiate group – non-hierarchical and not ‘Ed Says’ – is required.

Thus the answer to the three questions changes. (1) Who’s in charge here? A primus inter pares, a leader among equals. (2) How much power? What’s needed to lead the group effectively. (3) How long a stay in the event of failure? Use the action review principle, and failure will become the springboard of success as purpose, teamwork and culture fuse into a vital whole.


December 5, 2008 at 04:04 Leave a comment

Managing Mistakes in Human Resources

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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.

Put the best ideas of eight leading business gurus into practice now…

Robert Heller has written Business Masterclasses for eight great gurus, including Warren Buffett. Download Warren Buffett’s Masterclasses now with a free 2-month trial to Letter To Thinking Managers. If you choose to maintain your subscription you will receive all 24 Masterclasses (3 for each master) free during your first year.

The reality is that 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.

This is an extract from the December 2007 edition of Robert Heller and Edward de Bono’s monhtly Letter to Thinking Managers. Read the full article with a two-month free trial subscription.

Put the best ideas of eight leading business gurus into practice now…

Robert Heller has written Business Masterclasses for eight great gurus, including Warren Buffett. Download Warren Buffett’s Masterclasses now with a free 2-month trial to Letter To Thinking Managers. If you choose to maintain your subscription you will receive all 24 Masterclasses (3 for each master) free during your first year.

December 5, 2008 at 03:56 Leave a comment

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