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June 13, 2013 12:07 am
Peter Drucker, who did more than most to promote the study of modern management, once pointed out that when Karl Marx’s collaborator Friedrich Engels was running a mill in the 19th century, its 300 employees had no managers as such, only “charge hands” who enforced discipline on “proletarians”.
As Drucker wrote in The New Realities (1989) management’s “fundamental task” is to “make people capable of joint performance through common goals, common values, the right structure, and the training and development they need to perform and to respond to change”. Management, he continued, explains why “for the first time in human history, we can employ large numbers of knowledgeable, skilled people in productive work”.
In other words, “management” has a fair claim to be the most revolutionary business idea of the past 150 years – if only managers could pin it down and apply it.
Harvard Business Review has dubbed the years between 1911 – when Frederick Winslow Taylor published his book The Principles of Scientific Management – and 2011 “The Management Century”. Taylor’s breakthrough was to see that production line productivity could be improved by using “scientific” methods of organisation.
The approach has been criticised for imposing a mechanistic regime on workers in the interests of pure efficiency, but it triggered more research into psychological and sociological ways to make manufacturing more productive.
Plenty of management techniques have helped to improve the ability of managers to fulfil their fundamental task. China-based car manufacturers, for example, are using the production line efficiency methods pioneered by Japan’s Toyota and others.
But the overarching management ideas that have shaped the way in which people run any large organisation – and plenty of small ones – are mostly broader and less changeable.
The FT judges chose leadership, ethics, strategic management and the spread of business educators and advisers for the list of the 50 big business ideas. But we steered clear of singling out individual management theories.
Even successful management theories, such as those espoused by Tom Peters and Robert Waterman in In Search of Excellence or by Jim Collins and Jerry Porras in Built to Last, tarnish with time, as the companies studied fail to keep up with the latest business trends.
Management writers would love to think that their ideas shape business. Some theories, including those mentioned above, did affect managers’ thinking and practice, particularly between 1990 and 2000 as globalisation took hold. But unlike solid inventions that can be installed and put to work until the next upgrade – such as fibre optics, robotics or the microchip – “management” is a concept which users must constantly reshape to meet new organisational challenges.
As Charles Handy, the veteran management thinker, now in his 80s, told the FT in a recent interview: “The most that I can do is to cast [managers’] problems and opportunities in a different light so they see them more clearly. But what they do about it and what the answers are, no, I don’t have them. So I’m never going to have three rules for success, or this is the answer to leadership … that’s impertinent and bound to be wrong anyway most of the time because … every problem is different.”
If management was the broad idea that allowed large companies to be run efficiently, strategic management was the vital refinement that permitted managers and their companies to “compete, win and survive”, to quote Walter Kiechel’s lively account of this revolution in The Lords of Strategy.
Michael Porter, the Harvard University academic, is the central figure in defining the concept. The pillars of strategic management are underpinned by his two books, Competitive Strategy (1980), which defined the “five basic forces” that determine the state of competition in any industry – customer power, supplier power, the threat of new entrants, substitute products and rivalry between established competitors – and Competitive Advantage (1985), which told chief executives how to retain their lead over rivals.
As one of our judges said in selecting “strategic management” for the list: before the development of the concept of strategic competitive advantage, and how to analyse it, “you just ‘did business’”.
But Porter’s ideas stood in the middle of a five-decade development of strategy as a tool, honed by consultancies such as McKinsey and taught by management schools.
In the process, strategic planning developed first as a separate step in strategic management and later as a continuous process of evaluation and re-evaluation of the competitive forces.
As an idea, however, strategic management has proved hard to do well and worryingly easy to get wrong. As Richard Rumelt wrote in his 2011 book Good Strategy/Bad Strategy, “the gap between good strategy and the jumble of things people label as ‘strategy’ has grown over the years.” He pointed out that many organisations fail because their leaders think it is enough to lay out vision statements and lists of objectives without addressing the critical question of how to reach those goals.
Debate still rages about whether the discipline can, or even should, be codified or professionalised, even as strategy evolves. For the future, Richard Whittington of Oxford University’s Saïd Business School has suggested opening a new phase of study. He differentiates “small strategy” – about the financial performance of companies in competitive industries – from “big strategy”.
The latter applies to organisations that have wider impact, such as “state-owned oligopolies, eccentric family behemoths and control-hungry entrepreneurs”, but fall outside the normal area of research.
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Corporate ethics and reputation
It is easy to forget that as recently as the 1980s, many businesspeople and business academics thought of ethics as at best optional, at worst irrelevant to companies’ central task of maximising shareholder value.
But business schools scrambled to introduce or upgrade courses in ethics as part of their MBA programmes following the 2001 Enron scandal. The backwash of the financial crisis has given further impetus to attempts by companies to clean up their act. In 2009, the idea of an “MBA oath”, outlining values and ideals to which managers should adhere, began to take root.
In parallel, a series of crises has prompted companies to re-examine how they manage their reputations, in preparation for, and in reaction to, mishaps and mistakes. BP’s clumsy response to the 2010 Deepwater Horizon oil rig disaster and Toyota’s poorly handled product recalls have become case studies in reputation mismanagement. The transparency brought by social media – which allows critics, inside and outside the business, to amplify ethical, environmental or reputational problems – has given added impetus to companies’ attempts to improve their corporate culture.
Gradually, companies have realised there is no short-term fix for ethical and reputational damage. Rebuilding a corporate culture – as Barclays, hit by the Libor interest rate-rigging scandal, is discovering – takes time. Nor is corporate social responsibility, in its original form as a philanthropic effort separated from the business itself, sufficient to offset any perceived lapses in the core management of a company.
Instead, advocates of “creating shared value” – such as academic Michael Porter and consultant Mark Kramer – urge businesses to feed a virtuous cycle of good behaviour and mutual self-interest. By investing in the communities they serve, companies such as Nestlé, Unilever and GlaxoSmithKline are managing to improve their reputation, develop their business, and create the conditions for future growth of the overall economy.
In the same pragmatic spirit, Archbishop Vincent Nichols, head of the Catholic Church in England and Wales, has urged corporate leaders to harness both the desire for profit maximisation and the need to do good, principled business. The question, of course, is how to balance these two essentials of modern capitalism.
. . .
The idea of what constitutes great business leadership has changed more radically in the past 30 years than in the previous five decades and is in the process of changing again.
A shift from managerial capitalism to investor capitalism, particularly in the US, placed a premium on visionary, entrepreneurial, charismatic leaders, often endowed with imperial powers by hopeful shareholders and boards.
With that shift in the 1980s and 1990s came a wave of popular business literature, equating chief executives to warlike leaders, from Alexander the Great to General George Patton, and a revival of interest in ancient “management” texts such as Sun Tzu’s The Art of War and Machiavelli’s The Prince.
But, as Nigel Nicholson of London Business School has written in his latest book The ‘I’ of Leadership, “the lesson of history for leadership is that whatever worked yesterday won’t necessarily work tomorrow.”
The bubble in charismatic chief executives started to deflate in the early 2000s, pierced by corporate frauds at US companies such as Enron and WorldCom. The recent financial crisis laid low a further generation of aggressive leaders of the biggest banks.
Research by writers such as Jim Collins (Good to Great) and Rakesh Khurana (Searching for a Corporate Savior) has shown the appointment of a charismatic outside boss will not necessarily put a company on the path to success. Often, lower-profile chief executives, frequently appointed from inside the company, performed better. “Self-effacing, quiet, reserved, even shy – these leaders are a paradoxical blend of personal humility and professional will,” Collins wrote. “They are more like Lincoln and Socrates than Patton.”
What Nicholson describes as our “infatuation” with leadership is unlikely to go away: the short-term success of bank chiefs, so soon after the cautionary tales of Enron and others, proves that. But radical thinkers such as Gary Hamel suggest the future of many companies will be as networked organisations, linked by social media, in which a premium is placed on teamwork. Such an evolution will put more emphasis on people-centred management and leadership qualities such as integrity, competence and adaptability.
. . .
Business educators and professional advisers
The first master of business administration programmes sprang up more than 100 years ago at the Ivy League universities in the US. Some 50 years later the growth in executive courses began, as the US government invested in intensive management programmes to retrain military personnel returning to work after the second world war, writes Della Bradshaw.
But it was not until the 1980s that management consultancies and business school gurus really got their teeth into the corporate world.
The crossover between management consultancies and business school professors dates back to the turn of the 20th century.
Arthur D Little, the consulting firm, was set up by a professor from the Massachusetts Institute of Technology, and McKinsey by a professor from the University of Chicago. Some top management gurus have moved seamlessly between business school and consultancy, perhaps most notably Michael Porter, the Harvard Business School professor who founded the Monitor Group.
That continues, with the consultancy firms having scooped up a third of all graduates from top-ranked MBA programmes in the past 20 years to feed demand from the corporate world for advice. In 2012, in spite of, or perhaps because of, the economic crisis, McKinsey was still the top recruiter in many of the best business schools in the US and Europe.
Corporate universities have also flourished, with companies such as General Electric training their own managers, helped by handpicked professors. Growth in these in the US and Europe has stalled since the financial crisis of 2008.
But the economic climate is not the only threat to campus-based temples to business knowhow.
One of the biggest disruptive forces of the past year has been the rise in educational technology, enabling the online distribution of Moocs – massive open online courses.
Their promise, which is yet to be tested in the corporate world, is that they will bring the teaching of the world’s top professors to the desktop for free.
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