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Christopher Bartlett & Sumantra Ghoshal: Managing Across Borders

In the 1980s, globalisation was the ‘Big New Thing’. Never mind that Chinese and Levantine traders had traded across half the globe at the start of the first millennium BCE. At the forefront of thinking about how multi-national corporations could organise themselves to prosper were a truly multi-national pair: an Australian, who’d worked in London and Paris and now occupied a professorship in the US, and an Indian who’d studied in the US and was a professor in France.

Christopher Bartlett and Sumantra Ghoshal surveyed the way multinationals organised themselves and categorised when each of the structures would be appropriate. Their legacy is visible on our high streets, in our back-offices, in factories and in building services today. A huge proportion of the goods we use are sold by multinationals.

Christopher Bartlett & Sumantra Ghoshal
Christopher Bartlett & Sumantra Ghoshal

Christopher Bartlett

Christopher Bartlett was born in 1943, and grew up in Australia. He studies Economics at the University of Queensland, gaining a BA in 1964. He worked as a marketing manager for the Alcoa company in Australia, before becoming a consultant with the London office of McKinsey and Co, and then a General Manager in France, for Baxter Laboratories.

But academia called to Bartlett, and he travelled to the US, to do a Masters (1971) and then PhD (1979) in business administration at Harvard, joining the faculty of Harvard Business School in 1979. He remained there and is not an emeritus Professor.

Sumantra Ghoshal

Sumantra Ghoshal was born in Calcutta, India, in 1946. He studied Physics at Delhi University, gaining his BSc. From there, he worked from 1969 to 1981 at the Indian Oil Corporation.

In 1981, a Fulbright scholarship took Ghoshal to the US, where he took a an SM at MIT in 1983, then did something extraordinary. He worked on and completed two different PhD theses at two different universities, at the same time. He was awarded a PhD by MIT in 1985 and a DBA by Harvard the next year.

And in 1985, he took up a position at Insead, where he became Professor of Business Policy in 1992. Two years later, he moved to the London Business School to become Professor of Strategic Leadership. He remained there until his untimely death from brain haemorrhage in 2004.

Managing Across Borders: Strategies for Multi-National Corporations

Surveying 250 managers from 9 multinational companies, Bartlett and Ghoshal concluded that there are three principal models that multinationals followed:

The Multinational – ‘Multi-domestic’ – Corporation

The Multinational structure is a decentralised, federal organisational structure that focuses on local markets and has only loose central control. They later called this model ‘multi-domestic’, and is most responsive to local demand. The corporation looks most like a portfolio of different companies. Now, these will be seen as band portfolios in which the brands have a lot of autonomy and much of their own infrastructure.

Food and drink, and household appliances are products that most need this strategy.

The Global Corporation

The global organisation tries to gain maximum economies of scale by centralising as many of its functions as possible. This often results in brands sharing infrastructure and services, leading to a lot of strategic decisions being driven by functional expertise and priorities. Brands therefore become increasingly global and undifferentiated in local markets.

Plant and heavy machinery, technical equipment, and raw materials production are products that most need this strategy.

The International Corporation

Here, there is a lot more centralisation than in the multi-domestic corporation. But there is also more local autonomy than in the global model. One role of the centre is to facilitate knowledge transfer among the trading divisions, so they can share technologies and achieve economies, while making some of their own choices to optimise use of domestic supply chains and expertise.

Textiles, light machinery, and printing and publishing are products that most need this strategy.

A Fourth Model…

Bartlett and Ghoshal considered that these three models left open the possibility of a new, fourth structure. This would combine elements of all three, and they also assessed which of the four models would work best, according to two pressures:

  1. Pressure for Local Market Responsiveness
  2. Pressure for Global Integration

Their book on this topics, was the 1989 best-seller (often reprinted): Managing across Borders: A Transnational Solution.

Strategic Options for Multi-National Corporations - Bartlett & Ghoshal
Strategic Options for Multi-National Corporations – Bartlett & Ghoshal

When both pressures were high, their new model would be most suitable:

The Transnational Corporation

The transnational corporation is the most complex. It balances widespread global integration of technology and supply chains against the need to adapt products and services to local market preferences. It is supported by a strong central headquarters, that is able to move managers around to gain international experience and share knowledge.

Cars, consumer electronics, and pharmaceuticals are products that most need this strategy.

From Systematic Efficiency to Responsive Innovation

Bartlett and Ghoshal also discerned powerful shifts in the fundamental needs of a business strategy. Where Michael Porter had laid out strategies that would allow companies to win the largest share of a market, Ghoshal and Bartlett argued that corporations need a strategy to create value anew, and grow their market as a way of winning business. They said companies need to innovate their way out of market pressures, rather than push against them.

They also challenged the orthodoxy that began with the Scientific Management movement of Taylor, Gantt, Adamiecki, and the Gilbreths,  and then the efficiency drives of people like Ford and Sloane. Sloane’s approach of Strategy, Structure, and Systems became the McKinsey 7S model. But Bartlett and Ghoshal wanted to replace Strategy, Structure, and Systems by Purpose, Process, and People.

The three Ps were the new building blocks of a corporation. In a series of articles for the Harvard Business Review, they placed responsibility for each of these firmly on the shoulders of top management.

So here we are, in 2017. And our world is dominated by a range of global, multinational, and transnational corporations, whose focus is on process and whose mantra is people. Not a bad body of work to act as a symbol of what multinational collaboration can achieve!

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Alfred Chandler: Business History

It’s just a few people who could claim to have invented an academic discipline, but one who could, with some justice, is Alfred D Chandler. He was a historian who studied business, and in so doing, he inferred large historical patterns that still inform our thinking.

Alfred Chandler
Alfred Chandler, 1918 – 2007

Short Biography

Alfred DuPont Chandler was born in 1918 into a Delaware family that had commerce in its blood. In one branch of his family was grandfather Henry Poor, of Standard and Poors, and in another was the duPont family. He studied for a Masters degree at Harvard College before the war, where he was a friend of John F Kennedy. After service in a non-combat role, he returned to Harvard to finish his Masters and earn his PhD with a study of Henry Poor and the coming of the American railroads..

An appointment to MIT allowed him to study more large corporations in depth. His analysis of duPont, General Motors, Standard Oil, and Sears Roebuck & Co led to the publication in 1962 of the first of his three most noteworthy books (among over 25 in total): Strategy and Structure.

He also worked for a while at Johns Hopkins University, before returning Harvard in 1970, as the Isidor Strauss Professor of Business History at the Harvard Business School. There, he wrote his second major work, 1977’s The Visible Hand: The Managerial Revolution in American Business. This exceptional work won Chandler the Pulitzer Prize for History, and was the first business book to be recognised with a Pulitzer Prize. The title is a deliberate reply to Adam Smith, whose ‘invisible hand’ is the market. We’ll see what Chandler was referring to in a moment.

In 1990, Chandler published the last of his three major books, Scale and Scope: Dynamics of Industrial Capitalism. In this he shows that it is not just scale of operations that bestows big economies and hence competitive advantage. It is also scope – capturing a diverse spread of markets early on. Uncharacteristically, Chandler looked to economics and borrowed the term ‘first mover advantage’.

Having retired from the Harvard faculty in 1989, Chandler continued to work, write and comment on changes in business, and was a visiting professor at numerous institutions. He died in May 2007.

Themes of Alfred Chandler’s Work

Chandler’s approach of wide-ranging comparative analysis to find historical patterns of evolution and change initially encountered a lot of resistance from the academic business community. These academics favoured using economic and quantitative analysis to build their theories, but Chandler was able to change many (though not all) attitudes. Today’s business school focus on case studies and the rise to prominence of academics and writers like Jim Collins.

Strategy before Structure

The primary thesis of Chandler’s ‘Strategy and Structure‘ is that strategy must come before (and therefore dictate) the structure of the corporation. His historical observations led him to conclude that market forces need to drive shifts in the way organisations evolve, and he was able to predict the increasing trend for decentralisation that continues, in the largest businesses, today.

More recently, academic and business commentators have disagreed. Tom Peters observes that it is structure that determines which strategy a corporation will select, and Richard Tanner Pascale argued that Chandler assumed that organisations act rationally. They don’t, and he also notes that organisational structures play a big role in shaping strategy.

Trust Gary Hamel to sort it out, by seeing the subtlety of the competing views. He notes that the two are intertwined: new challenges lead to new structures, and new structures present new challenges. He concludes:

‘Few historians were prescient. Chandler was.’

Arguably, Chandler is, along with Igor Ansoff, one of the founding advocates of the study of business strategy.

Professional Management

Chandler also charted the rise of professional management; first in Strategy and Structure and then, more fully, in The Visible Hand. He saw managerially led corporations in the US rise with the growth of the railways and the need for complex, geographically-spread, systems. These first arose within the railway companies, and then in the corporations that grew nationally, due to the opportunities that long-distance transport offered.

It was the visible hand of an organisation’s managers that replaced Smith’s invisible hand of the market as a major driver of the structure of a modern business.

Further Reading

I rarely cite another website for further reading about our Management Thinkers, but in this case, I am compelled by the excellence of the article at the Strategy + Business site. I have deliberately avoided borrowing from it. If you are interested in Chandler, this should be your next port of call.

 

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Rosemary Stewart: Practical Management

Rosemary Stewart studied management extensively, in the UK. Rather than revolutionary, her ideas serve to underpin the day-to-day challenges real managers face in the real world.

Rosemary Stewart
Rosemary Stewart

Short Biography

Rosemary Stewart was born in London, England, in 1924, and grew up first in Sussex, and then moved to Saskatoon, Canada, where she finished her secondary education. She studied economics at the University of British Columbia and then returned to England in 1945, after graduation (and after the war), to study Social Psychology at the London School of Economics, where she also won her doctorate in Management Studies.

She joined the Acton Society Trust as a researcher, and rose to become its director. There, she researched the challenges of large organisations and, in particular, of the newly nationalised British industries. Her interest persisted and she is best known for her studies into and analysis of Britain’s National Health Service. While at the Acton Society Trust, she worked with Joan Woodward, and Reg Revans was also a researcher there.

After seven years, she joined the new Oxford Centre for Management Studies, which became Templeton College, where she was made a Fellow and then, in 1992, upon her retirement, an Emeritus Fellow. Her long-time interest in healthcare management matured when, in 1996, she became the first Director of the newly founded Oxford Health Care Management Institute.

Rosemary Stewart died in 2015.

The Reality of Management

Rosemary Stewart was a prolific author, although most of her books have fallen out of print. Her three most notable books are still available:

All of her books have a focus on real, day-to-day management challenges, pitched firmly at middle managers. They help managers navigate the choices they need to make and the structures within which they work.

They are neither heavy-weight academic tomes, nor lightweight populist handbooks, and so are ideal for the interested, thinking manager, who wants ideas to help her or him to be effective at work.

Choices for the Manager

In the latest of Stewart’s three classic books, she fully articulates the model with which she is most closely associated. She suggested that management effectiveness arises from dealing well with demands and constraints, and, as a result, making good choices.

Demands, Constraints, & Choices - Rosemary Stewart
Demands, Constraints, & Choices – Rosemary Stewart

The diagram sums up 15 years of Stewart’s research.

Demands

Demands on a manager set out what they must do; their responsibilities or duties. But they also  include the demands we make upon ourselves, alongside those imposed by your organisation, manager, peers, and external players, like customers, suppliers and other stakeholders.

Constraints

These are the factors that will also limit a manager’s scope for choices. If anything, they have grown in number since Stewart originally wrote her list. Whilst we arguably have more technology choices, and more choices of where to outsource work to, she did not account these as constraints. Rather, using the one technology available, in the one location it was sited was something she took as a given.

Choices

What everyone in a creative role knows is that constraints don’t just limit choices, they make them clear and give us scope for innovation. But managers do have a lot of freedom about how they work with the resources they have. How well you exercise these choices will dictate your performance as a manager.

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Charles Handy: Management Philosopher (Part 1)

In my research for this article, I found an unreferenced remark, suggesting that it was The Economist magazine that coined the term ‘management guru’, and that they first used it as a description of Charles Handy. Handy rejects the label – and so he should. It almost belittles the breadth of his thinking. From organisational theory, to management trends, to social polemic; Handy’s thinking goes well beyond easy categorisation.

Charles Handy

Short Biography of Charles Handy

Charles Handy was born in a small town a few miles outside of Dublin, in Ireland, in 1932. He was educated in an English public school, and at Oxford University, where he gained his MA in ‘Greats’ – classical history and philosophy. He went from there to work for Shell, taking a number of operational roles around the world, where he had great autonomy as a young manager. Returning to London, he found headquarters life didn’t suit him. What did, however, was a transfer to the staff college, where he found teaching much more to his liking than corporate administration.

MIT Sloan School

Having taught himself the basics of economics earlier on, so he could take up a role at Shell, he moved briefly to Anglo American as an economist, before travelling to MIT to study at the Sloan School of Management. here he met and studied among some of the greats of US management theory: Warren Bennis, Chris Argyris, and Edgar Schein, who supervised his studies. He was greatly influenced by them all, and also by the work of Douglas McGregor, who had also worked there and died a little before Handy arrived in 1965.

He returned to London to set up the Sloan Program at the newly founded London Business School, where he became a professor in 1972. It was there that he wrote his first book, Understanding Organizations, which has remained in print pretty much ever since 1976, with new editions updating it for modern readers. It is still a first rate introductory text, of which Handy says that he wrote it to get to grips with the ideas in it. He also (famously) recommends that once you have read it, you should re-write your own version and burn the original. In part, Pocketblog is my attempt at re-writing his book, though I never plan to dispose of my trusty 1993 fourth edition!

Handy finds his Voice

Whilst Understanding Organizations is very much a compendium and synthesis, Handy’s next book introduced his own ideas. 1978 saw the publication of The Gods of Management. We’ll take a look at the ideas in this book in part 2 of this blog.

In 1977, Handy left academia, in search of a somewhat more spiritually rewarding role. He found it in an organization set up by Prince Philip the Duke of Edinburgh, and the Church of England. St George’s House is an institution that encourages business and political leaders to come together, along with faith leaders, to consider contemporary and societal issues. His post as Warden allowed Handy to marry his philosophical and commercial instincts.

Portfolio Career

However, in 1981, Handy left, to pursue a new direction in his working life. This was a direction signposted in one of his most important books, 1984’s The Future of Work. In it, he signposted the development of portfolio careers, and the downshift from high-powered corporate jobs (the rack he had been on at Shell) to lesser-paid, but more congenial lifestyle careers. He embraced this downshift through the 1980s and started his own portfolio career that has served him to this day.

Handy further developed the ideas from The Future of Work in 1989’s The Age of Unreason. This book is full of ideas that we will explore further in part 2 of this blog. At its heart is Handy’s rejection of people as human ‘resources’. In modern organizations, we will want to assert our individuality.

A Stream of Ideas

The late 1980s and early 1990s were a particularly prolific time for Handy. He contributed to Making Managers, which sparked a new focus on management as a professional discipline, rather than a simple set of tasks, and led to the growth in the UK of management qualifications, and wrote Understanding Voluntary Organizations. In 1991, he presented a BBC TV series called Inside Organisations, and published a book by the same name, which set out 21 management concepts or ideas. Handy chaired the RSA from 1988-89.

His more philosophical leanings emerged from 1994, when he wrote one of his biggest selling books, The Empty Raincoat, about the emptiness at the heart of global economic growth. In the US, it was called The Age of Paradox. This book may be the most prescient among many of his works that seem that way.

Handy has barely let up with a stream of new books with new and interesting ideas:

A Summing Up

Without a doubt, Handy is a prodigious thinker. He has done and written so much, that we have to consider him one of the few of our Management Thinkers and Doers for whom a single article is not possible. Like another great, Peter Drucker, Handy is one of our foremost commentators on the nature of organisations. And like Drucker, his ideas have ranged well beyond that field. In Part 2 of this article, we will focus entirely on some of Handy’s biggest and most important management ideas.

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Herb Kelleher: Employees First

Herb Kelleher was for many years one of the most innovative, unorthodox, and successful corporate executives. He delivered profits to an airline business every year of 20 years as CEO, in an industry where other airlines could not manage 5 years of profits, and he did so by sticking to a simple mission and placing values first. But the whacky reputation of Southwest Airlines, which he co-founded, belies the clear-sightedness of its long-time CEO.

Herb Kelleher

Short Biography

Herb Kelleher was born in 1931, in New Jersey. He studied English and Philosophy at Wesleyan University, before going on to study law at New York University, from where he graduated in 1956. He spent a couple of years clerking for the New York Supreme Court, and another couple at a Newark Law firm, before moving to Texas, from where his wife had come.

In 1961, he set up a law firm in San Antonio, where one of his clients was Rollin King, who owned a small airplane charter business. One evening in 1966, over drinks, King outlined an idea for a different kind of airline, which would serve the main three Texas cities, with point-to-point services, rather than scheduling to meet international hub flights. Famously, they sketched a schedule on a bar napkin, for flights between Dallas, Houston, and San Antonio. Kelleher was sold on the idea and invested $10,000 for a 1.8 per cent stake.

As Chief Legal Counsel, Kelleher led the acrimonious legal battles to secure the licences and slots that Southwest would need, to fly. This led to court cases all the way up to the Texas supreme court, but in 1971, the company started trading under experienced airline CEO, Lamar Muse. It took three years to become profitable.

In 1978, Muse resigned, and lawyer Kelleher was appointed president, and then CEO four years later. This inspired appointment led to phenomenal growth for the business – in both monetary and reputation terms. Kelleher built Southwest into a widely admired business, which many have tried to emulate (rarely successfully). The figures speak for themselves.

1982, Kelleher becomes CEO

  • Airplanes: 27
  • Staff: 2,000
  • Revenue: $270 million

2001, Kelleher retires as CEO

  • Airplanes: 344
  • Staff: 30,000
  • Revenue: $5,000 million

Kelleher retired as CEO in 2001, and as Chairman of the Board in 2005. He remains a prominent and outspoken contributor to US business life.

Kelleher’s Secret

Kelleher’s secret is far from being secret: it is plain to see for anyone who observes the Southwest Airlines business (and there have been countless business school case studies), and Kelleher has spoken of it many times.

Put simply, Kelleher adopted the attitude of:

Employees first; customers second; shareholders third

Compare that with the behaviour of most corporations and you will see it is exactly the ‘wrong way round’. Yet it has worked phenomenally well. And if you say that there are many who do espouse this sequence of priorities, I’d agree. But the truth is, very few truly (I mean TRULY) do the ’employees first’ thing, and do it properly.

However, this is not the first time we have encountered the ’employees first’ philosophy at Pocketblog: take a look at this post about Vineet Nayar, from 2010.

Stick to the Mission

Kelleher was always determined to stick to the mission of the company – they never did anything that was outside of the airline industry, nor indeed outside of the confines of a point to point US service. Sticking to what you know and do well, can be a powerful way to stay focused and deliver stability and excellence.

And Kelleher stuck to his philosophy of what his business aimed to do, which he articulated as being about happy customers and low costs. This led to a no-frills service that focused hard on keeping costs low, and a business that became famed for its customer care. He achieved both by a fierce loyalty to his staff, which they reciprocated.  This is manifest in two particular ways.

Serious Fun

Kelleher has a love of fun and practical jokes, that means he rarely takes himself seriously. He has been see in Elvis costume, on a Harley Davidson, and has arm wrestled another CEO for the right to use a disputed marketing slogan (and lost).

His staff took his lead and Southwest is famous for on-board pranks, and singing flight attendants. Some of the in-flight announcements have gone viral on social media because of their wit or novelty. Yet all their staff do take their jobs seriously and the airline has never had an in-air fatality.

Staff Care

Kelleher’s commitment to staff care has meant that Southwest has ridden out the peaks and troughs of a particularly volatile industry without ever laying off any staff nor even imposing furloughs (compulsory leave of absence to save the company money). Instead, they have taken numerous hits on short-term profit. The result has been enviable staff loyalty (with among the lowest turnover rates in the industry) and exceptional productivity. Putting staff interests ahead of shareholder returns has, paradoxically, maximised shareholder returns over the long term.

So,what do we learn?

  1. Unorthodox works
  2. … but only when done with the integrity to stick to your values.
  3. Low costs and customer care deliver profits
  4. … especially when your employees share your commitment to both
  5. Exceptional culture delivers great results
  6. … but you need to set the tone, deliver on values, and get out of the way, as a leader.

‘The Business of Business is People; Yesterday, Today, and Forever’
Herb Kelleher in his own words

 

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Andrew Carnegie: Rail, Steel and Books

Born in poverty, Andrew Carnegie became the richest man in America and then gave away most of his wealth. His business success story embodies eternal truths of business success, and modern innovation too.

Andrew Carnegie

Early Years

Andrew Carnegie was born in Dunfermline in Scotland, in 1835. The family struggled to make ends meet and, in 1848, emigrated to the United States, settling in Allegheny, Pennsylvania, just outside Pittsburgh.

Very soon, Carnegie started earning money, first in 12-hour shifts at the local cotton mill, then as a Telegraph boy, and then at the Pennsylvania Railroad. Starting as a secretary to the Superintendent,Thomas Scott, Carnegie thrived. He was to maintain his association with Scott for many years and it was the springboard for much of his later success.

The Railways

Scott both promoted Carnegie as a Railway executive and introduced him to the opportunities to invest in stocks. Today, many of Carnegie’s early investments would be considered insider trading, but then, it was simply exploiting the knowledge and connections that he and Scott had created. This investment gave him the capital to start his own businesses.

During the Civil War (1861-65), Scott and Carnegie continued to thrive – largely because the railroads needed to move vast quantities of raw materials, men, and munitions. At this time, Carnegie also invested in the growing Pennsylvania oil industry.

Rising to Superintendent of the Pennsylvania Railroad, Carnegie forged the connections that would make him vast wealth, when he moved into the Steel Industry. After the war, he set up a number of iron works and formed The Keystone Bridge Works and the Union Ironworks, in Pittsburgh. His connections in the rail industry gave him a ready market.

King of Steel

Iron bridges were notorious for failing, but on a trip back to Great Britain, he met Sir Henry Bessemer, who had developed an industrial process for converting iron into high grade steel. Carnegie brought the Bessemer Process back to the US in 1870. This innovation gave him the ability to manufacture vast amounts of high grade, but low cost steel, which he sold to the railways for bridges and rails. It is said that Carnegie girders built the skylines of the northern states.

He also innovated by creating what we now call ‘vertical integration’. He bought up the ability to manufacture the coke for his Bessemer Furnaces, made the steel, and used it to build and sell finished products from bridges to steamships. At the same time, he was also creating ‘horizontal integration’ – steadily bringing together various businesses into one centralized corporation, the Carnegie Steel Company. These two developments led to huge efficiencies.

Not all efficiencies were equally good. Carnegie fell out with long term business associate, Henry Frick, when Frick – going against Carnegie’s instructions – employed armed Pinkerton agents to support strike breakers in 1892. The ensuing loss of life was a stain on Carnegie’s reputation as an ethical businessmen and, whilst he felt he had to publicly support Frick, led to him buying out Frick’s shares in the business.

Sale of Carnegie Steel

In the 1890s,  James Pierpoint (JP) Morgan’s steel holdings were growing rapidly. Carnegie saw the wealthy banker as his primary competitor. As the twentieth century began, Carnegie weighed his options: compete or not? Wanting to retire, he opted not to compete but to offer to sell to Morgan. Accounts differ as to whether Carnegie wrote down the sale price on a piece of paper and passed it to Morgan or whether he asked Morgan to write a price on a piece of paper and return it to him. Either way, the resulting transaction of nearly $500 million (equivalent now to over $13 billion) made him the richest man in America (and if we equalize the value by spending power, by far the richest ever).

Carnegie’s Philanthropy

Early on, Carnegie had talked of giving away surplus income to benevolent purposes. Now he set about giving away vast amounts of his capital. The list of organisations that received massive endowments seems almost limitless. Of all, his most famous approach was to endow the creation of many, many libraries. As a boy, he educated himself, reading from the personal library of Colonel James Anderson, who opened it to working boys each Saturday night.

Now he was able to create public libraries throughout the United States, Britain, Canada and other English-speaking countries. He opened the first Carnegie library in 1883, in Dunfermline. He would build and equip libraries on the condition that the local authority matched his commitment by providing the land and funding its ongoing operation and maintenance.

He led a trend, in the early twentieth century, of huge works of public philanthropy. The idea of giving away most of a vast wealth was reinvigorated recently. Bill Gates, Warren Buffett, and more recently Mark Zuckerberg, today’s giants of personal wealth, have all made commitments to give away much of their wealth, perhaps mindful that Carnegie once said that ‘the man who dies rich dies disgraced’.

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Robert Owen: Fair Management

Robert Owen is often referred to as a social reformer. So what is he doing in a blog about management?

In fact, in his espousal of management over pure command and control, we can see in Owen the first shining of the light of humanistic management, that was not to become the norm in his home country of the UK for nearly two centuries.

Robert Owen

Short Biography

Robert Owen was born in 1771, in Newtown, in Wales. After working in several drapery businesses around England, in 1790, he became the joint owner of a textile factory in Manchester. Because he had little experience of manufacturing, he started off wth a rigorous regime of intense observation of how his employees worked. Through this, he said, ‘I maintained order and regularity throughout the establishment’. Could this be an early variant on ‘Management by Walking About’: Management by Observation?

Along with other investors, Owen bought a Mill in New Lanark in 1799. The realities of what was then regarded as enlightened mill ownership were that he inherited a workforce where 5 and 6 year olds were expected to work up to 15 hours a day. His first act was to stop taking children from the local poorhouse, to raise the minimum age of children he employed to 10, and to ban the use of corporal punishment.

This was the start of a series of reforms that led to Owen being labelled variously as a social reformer, a socialist, an educational reformer, and a utopian (by Marx and Engels!) But at this time, certainly, Owen justified all of his changes on purely economic grounds. He used profits to fund social improvements for his workers and found that productivity subsequently increased. Eventually, the New Lanark Mill showed a 50% Return on Investment (ROI).

Eventually, his reforms were to include taking no children into the mill, creating the first night school in the world, for his workers,  starting what became the basis of the British Co-operative movement, and founding the Grand National Consolidated Trades Union in 1834 – sadly, it did not survive the year. He also tried in 1815 and failed to introduce new legislation to improve working conditions nationally.

It may shock us now that his aim of increasing the minimum working age to 10, reducing the maximum daily working hours to 10½, and requiring a minimum of half an hour a day of education for all children was seen as a serious risk to the wellbeing of business. Lesser legislation was passed in 1819 and we still hear the same arguments about potential legislation around worker’s rights today.

Consult other sources…

If you want to learn more about his social reforms, educational work, or attempts to create trades unions and co-operatives, there is plenty of good material. I would like to focus on the things Owen did in management, that were almost a century ahead of his time, to only really be formalised by the likes of Mary Parker Follett and George Eastman, and the later humanistic management leaders, like Elton Mayo and Douglas McGregor.

Five Visionary Approaches

Humanistic Management
Owen recognised that, in his rapidly mechanising industry, machines would never attain a greater importance than the people who worked them

Abandoning Command and Control
Owen preferred to manage his workers, rather than issue commands. And to help him, he started selecting his managers on merit and giving them training.

Empowerment
Okay, so he would never have used this modern buzzword, but he firmly believed in the value of giving his managers real autonomy.

Change Management
Not only did Owen understand the value of winning trust from his workers before trying to impose change; he actively sought out influential individuals among them to help build and disseminate his case: what we call ‘change champions’.

Performance Monitoring
Every day, supervisors would assess the work of their workers, and award a colour code (from poor, black to blue to yellow to white – best), which would be displayed on a wooden block (his ‘silent monitor’) for all to see. Peer pressure and pride are powerful motivators!

 

 

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Jack Welch: Supreme Manager

Fortune Magazine named him the greatest manager of the Twentieth Century. He took a well-managed and moderately successful corporation and grew it for 100 successive quarters, transforming it in the process. And now he spends his time teaching younger managers to do the same.

Jack Welch

Short Biography

John Francis Welch Jr was born in 1935 and grew up in Massachusetts. He gained a BSC in Chemistry from the University of Massachusetts in 1957 and went on to post-graduate study at the University of Illinois, where he earned an MSc and then a PhD in Chemical Engineering. From there, he joined General Electric, in 1960.

After concerns about the bureaucracy in his first year, a manager persuaded him to stay and from then, his rise through the organisation was steady and fast. He was their youngest General Manager ever, in 1968 and became a divisional vice president in 1972. In 1979, he was a Vice Chairman and Executive Officer, and a year later was named as the next Chairman and CEO of General Electric. He took the post in the autumn of 1981. He set his sights on creating the world’s most valuable company.

He spent the next twenty years growing GE spectacularly, in two phases that we can crudely characterise as ripping down the old (1980s) and building the new (1990s). As soon as he took over, he saw that changes in world business and the then emergent growth of Japanese business would mean that the well-managed but moderate-performing GE would flounder unless he could successfully change it, to compete.

His changes were a great success, growing share price from $4 in 1981 to $133 in 1999, with profits rising from $1.6 billion to $10.7 billion when he left the company in 2001. His retirement has seen the publication of three hugely successful books (co-written with his third wife, journalist Suzy Welch) and the creation of his own business school, the Jack Welch Management Institute, which teaches MBA programmes under the aegis of the private Strayer University.

Welch’s books are:

  • Jack: Straight from the Gut (2003) – his biography, co-written with John Byrne. Reportedly earned him a $7million advance.
  • Winning (2007) – his perspective on how he succeeded at GE – along with its companion volume…
  • Winning: The Answers (2007) – both co-written with Suzy Welch
  • The Real-Life MBA (2015) – a guide to management and business inspired by his teaching – also co-written with Suzy Welch

Ripping Down the Old – How Welch Disrupted GE in the 1980s

  • Welch started with a big investment in GE’s corporate management training facility, Crotonville in New York State.
  • He shifted the focus of GE’s business towards services, creating around 6,000 new businesses during his tenure
  • He determined to deal with unprofitable businesses, famously saying that if a business was not rated at number 1 or 2 globally, it would be fixed, closed, or sold. This is a pretty rigorous application of the strategy implied by the BCG Matrix.
  • He flattened the management structures and devolved power down to business units, creating far more decision-making autonomy for general managers.
  • His closures and simplifying activities resulted in a massive ‘downsizing’ of the business by nearly 200,000 staff, saving the business $6 billion and earning him the epithet of ‘Neutron Jack’ (after the Neutron Bomb that kills people while leaving infrastructure standing).

Building the New – How Welch Re-built GE in the 1990s

Having torn down what Welch perceived as not working, in the 1990s, he turned to creating a set of sustainable practices.

  • Managers were evaluated against the ‘Welch Matrix’ of values and new managerial appointments and deployments took up a full month of his time every year. He articulated his 4 Es of ‘energy, energisers, edge, and execution’, and placed adherence to values above achievement of figures.
  • He asked experts at Crotonville to develop a mechanism to hold middle managers at all levels accountable and in 1988 launched the ‘Work Out’ process of town hall meetings where managers had to give answers and make decisions, and created opportunities for large group brainstorming. This process was widely emulated by other businesses.
  • He learned how Walmart – then as now, hugely successful – stayed at the top of its game by gathering information constantly about what promotional activities are working and failing (for their competitors as well as for themselves) and then rapidly making changes. He adapted what he learned into GE’s QMI process of ‘Quick Market Intelligence’. This opened up huge commercial opportunities.
  • To encourage innovation, he recognised the need for excellent communication up and down the organisation, and across its businesses and divisions. His ‘Boundaryless Organisation’ was, perhaps, one of the biggest drivers of GE’s success.
  • In 1997, Welch initiated rigorous quality management, mandating Toyota’s ‘Six Sigma’ process throughout the business, expecting huge numbers of managers to be trained and gain their ‘belts’.
  • Finally (for this quick summary), Welch spotted the coming of the web as a primary means of doing business. Throughout the mid to late 90s, GE businesses were adjusting and developing their practices in a piecemeal fashion. In 1999 Welch launched his ‘destroyyourbusiness.com’ initiative to compel every part of GE to reinvent itself.

The upshot of all of this was not just spectacular growth, which other great CEOs have achieved. Welch was able to create a lasting change that persisted under the next CEO.

Pithy Soundbites

Welch is well known for coining pithy soundbites. Here are a few favourites.

  • ‘Change before you have to’
  • ‘Lead rather than manage’
  • ‘Control your destiny or someone else will’ (also the title of a 1995 book about how Welch was making his changes).
  • GE is ‘the largest petri dish of business innovation in the world’
  • ‘For a large organisation to be effective, it must be simple’
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Joan Woodward: Technology drives Structure

In the  1950s, a revolution was underway in management thinking. Classical ‘scientific’ management theory had been discarded by the humanists, and now a new generation of researchers were challenging humanistic approaches.

Their conclusions led to ‘contingency theory’ – the idea that the best approach to management is contingent on the situation. Among them, working from the southern English backwater of SE Essex Technical College was a forgotten leader in the field of management studies: Joan Woodward.

Joan Woodward

Very Short Biography

Joan Woodward was born in 1916. She was originally a classicist, but changed direction and got her first academic post in the Department  of Social Sciences, at Liverpool University, where she worked from 1948-1953. There she started her work in industrial relations, which she expanded when she moved to South East Essex Technical College (now part of the University of East London).

It was here that Woodward did her most significant research, from within the Human Relations Research Unit. The purpose of her research was to enhance the performance of commerce and industry using the techniques of social science. She did this by examining, in detail, the organisational structures of 100 British manufacturing companies in the SE Essex area (east of London and north of the Thames).

She stayed there until 1957, when she secured a post at the far more prestigious Imperial college. She remained there until her untimely death, from breast cancer, in 1971. Woodward became the second female professor at the College when she was appointed Professor of Industrial Sociology in 1970.

Woodward summarised her research in her 1970 book, ‘Industrial Organization: Theory and Practice‘.

Woodward’s Findings

Today, the idea that there is no ‘best’ organisational structure, but that the right one ‘depends’ on many factors is taken as so obvious as needing no explanation. This was not at all the case in the 1950s. So, when Woodward published her first findings in 1958, they seemed revolutionary.

Among the 100 manufacturers she studied, she found wide differences in the way they were organised:

  • Management structures, levels in the hierarchy and spans of control
  • How work was allocated
  • Definitions of responsibilities
  • Levels of accountability
  • Skill levels of the workers

Her analysis led her to categorise the organisational structures and discover they were driven by the production methods and technology in use. These in turn, were driven by the products the manufacturer created, and the demands of their markets.

She categorised three types of structure with approximately equal representation in her sample (8 were not classified).

  • Group 1: Small Batch and Unit Production
  • Group 2: Large Batch and Mass Production
  • Group 3: Process (continuous) Production

Each had different structural characteristics, which we don’t need to examine here, because the technologies have changed a lot in the last 70 years. The principle remains relevant: that the systems your organisation creates are critical to successful organisational design. This is a different aspect to the idea of contingency, to the more familiar Situational Leadership models. It is also an idea (the need for structure to reconcile to systems) that finds its modern articulation in the McKinsey 7S model.

Woodward’s later work started to break down the control approaches that companies take. They identified two independent dimensions of control:

Personal-Impersonal
This ranges from the highly individualistic direct approach (often present in start-ups led by charismatic entrepreneurs) to bureaucratic styles of impersonal leadership, all the way to automated control of work that we now see in large, computerised warehouse operations.

Fragmented-Cohesive
At the fragmented end, every part of the organisation finds its own solutions (and ‘re-invents the wheel’ in 1990s jargon). We now see far more centrally controlled systems than Woodward did, facilitated by modern technology and mediated by business school teaching that this is more efficient. However, a select group of businesses are finding that this level of rigidity results in customer unfriendly outcomes that have led them to reject it and restore a measure of localism in their control systems.

Assessment

So, was Joan Woodward ahead of her time? I don’t think so. I think she was exactly of her time. But this should not detract firstly, from the importance, at the time, of her work, and secondly, of the achievement of a woman, in the 1950s and 60s, who led her field.

 

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John Elkington: Triple Bottom Line

The need for sustainability and for corporations to take their responsibilities to society is a commonplace now. It was not always thus. And one man has played a big part in that transformation: John Elkington.

John Elkington

Very Short Biography

John Elkington was born in 1949, and grew up in England, Northern Ireland, and Cyprus. He studied Sociology and Social Psychology at the University of Essex, gaining his BA in 1970. He then went on to gain an MPhil in Urban and Regional Planning from University College London (where he is currently a visiting Professor – also at Imperial College and Cranfield University).

From there, he worked for four years at a transport and environment consultancy, before spending five years as the editor of the ENDS report (ENvironmental Data Services) from 1978-1983. A prolific writer, Elkington’s first book, The Ecology of Tomorrow’s World, appeared in 1980.

In 1987, he co-founded consulting business, SustainAbility, and in 1997 wrote the book that popularised his most notable idea, the Triple Bottom LineCannibals with Forks: Triple Bottom Line of 21st Century Business continues to be a high-selling book.

Currently, Elkington serves as Executive Chairman of another business he founded, Volans. This is both a consultancy and think-tank that tries to foresee the future and help clients to make breakthrough changes. He also continues to write books and articles for many publications including frequent articles for the website, GreenBiz. He speaks, and serves on many advisory boards guiding big businesses on sustainability and their corporate and social responsibility.

The Triple Bottom Line

Among the catalogue of ideas that any serious manager or business person must be familiar with is Elkington’s Triple Bottom Line.

He suggested that, in addition to the usual profit-based bottom line measure of a company’s performance, businesses should also prepare bottom line measures in a ‘people account’ and in a ‘planet account’; giving rise to the three pillars of people, profit and planet – another coinage of Elkington’s.

These are often represented as three overlapping circles of concern that clearly represent three views of overlapping stakeholder groups.

Triple Bottom Line

‘Profit’ represents the economic imperative felt by owners and shareholders, whose concern is for monetary reward and growth of capital. It refers to the traditional bottom line in a company’s accounts.

‘People’ represents the needs of the organisation’s community and therefore its corporate social responsibilities. A corporation’s social responsibilities extend to all of its stakeholders; not least its employees and the communities within which its facilities sit. This is a big challenge for companies whose shareholders demand that they maximise dividends, whilst its workers are in countries where the state does little to champion their rights.

‘Planet’ represents the natural environment and the part an organisation must play in our joint responsibility for its stewardship. The best organisations treat the environment as a prestigious stakeholder and the worst as nothing more than a source of raw materials and a sink for disposing of waste.

Progress to Date

Pocketblog is not a political commentator, so it must be our readers who assess the progress corporations have made to making the triple bottom line a meaningful commitment. There are examples at both extremes. What is evident, however, is that the challenges facing the world in the coming years are equally great with regards to people and planet, and if too much of our economic activities sacrifice these to the a single profit related bottom line, there may be little left for our grandchildren to spend their profits on.

You May also like the Sustainability Pocketbook

Sustainability Pocketbook

The Sustainability Pocketbook is for managers who want to get involved in this area but are not sure where to start or what they can realistically do.

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