Objectives of management: mastering complexity

Do you feel that your work as a manager is getting more and more complicated? You are almost certainly right.

In an increasingly complex world society, the advancing complexity of business management is inevitable. It’s been visible for at least four decades, and no doubt will continue indefinitely. You can follow one cause (and effect) in the changing preoccupations of the largest companies. In the mid-Sixties their concerns were primarily internal – but the outside world was about to assert itself.

Before that sea-change, the world’s major markets were astonishingly stable. The giant companies set the tone and managed the economy. They were by and large production-led, paying lip-service to marketing orientation, but actually churning out goods and services as they (and not the customers) saw fit. Their output featured fairly continuous improvements, but no great attention to cost. Markets were served on a take-it-or-leave it basis; but mostly customers had to take it, for lack of any alternative to the big brands.

CHALLENGED MODELS

Today’s successor companies have no such luxury. Markets and their exploitation have evolved into new, fluctuating patterns that challenge both the business models and the marketing means. To take just one factor, the internet is continuing to revolutionise the entire customer process from information to after-sales service. Very few companies have fully mastered this new chain of communication and execution. But what might be called the Dell model, after one of the very best users, is the tidal wave of the future.

Among the myriad consequences, process change has become much faster. Websites can be changed far more rapidly than factory layouts - but the latter reforms should also have been speeded up by the new technology. Grasping its implications and potential is plainly possible: witness the achievements of the vendors of high-tech itself. Intel, Apple, Microsoft and the above-mentioned Dell have achieved speeds of effective response that traditional management modes could never match, but which are now badly needed.

The high-tech tools, however, still must be applied to issues that are neither technical nor new. Management still hinges on correct analysis of situations, correct decisions on how to turn these situations to optimum advantage, correct execution of the decisions, correct response to feedback as results in the real world flow in. And then you repeat the process. ‘Analyse, Decide, Execute, Feedback, Again’ (ADEFA) is the management mantra. How would you apply it to these five scenarios, picked by Fortune as among ten of the toughest challenges around today?

1. Your banking business needs greater organic growth, but must simultaneously cope with the damage done to its reputation by scandal and corruption: plus the departure of many of its experienced managers.

2. Your soft drinks business, long a wholly reliable source of growth and profits, has run out of the former. How can you replace 85% of turnover with a more powerful driving force?

3. As a fashion retailer, your offerings are looking tired. Both managers and customers are deserting you, and the need is to match the brand strength with better market penetration.

4. The company sells pharmaceuticals, but one of its big sellers has had to be withdrawn because of lethal side-effects. Just when you need a new blockbuster, the shelves look alarmingly empty.

5. You have a quasi-monopoly in the world’s leading technology. But almost every one of your markets is under threat from newcomers and long-standing competitors alike. How can you defend your position?

SWOT ANALYSIS

The five companies are Citigroup, Coca-Cola, Gap, Merck and Microsoft - five of the most successful businesses the world has ever seen. Is there any common denominator that explains their very similar dilemmas? One is very clear: the difficulties have developed over a period. At any point, SWOT analysis would have shown that their Strengths had been weakening, relatively speaking, while their Weaknesses were become more serious. Their Opportunities required new entrepreneurial drive, and the Threats were real and potentially lethal.

So when did you last conduct a SWOT analysis, either on the whole business or the section in which you manage? It’s not a fashionable piece of management technology. But its disregard can be deadly. Another article in the same issue of Fortune shows in a brilliant study of General Motors what happens to a company whose Strengths are exaggerated, whose Weaknesses are ignored as Opportunities are missed, and whose Threats are brushed aside.

In all five companies, as at GM, the supreme tendency was to forget the bad news and concentrate on the good. The same factor has bedevilled the vicious three years of war in Iraq. Any planning for the occupation was ruled unnecessary because the Iraqis would be so thrilled to be occupied and so grateful for US ‘reconstruction’ of the country. The actual, awful experience was likewise wished away by the occupiers because it contradicted the basic assumptions on which they had gone to war.

Similarly, GM’s top management cannot face up to the all-too real prospect of bankruptcy. In their misguided eyes, the car giant is still the greatest manufacturer in the world. Nor will you find many at Coke ready to admit that the business has run out of steam: that the largely financial reforms instituted by Roberto Goizueta have exhausted their once-for-all magic; that the great CEO’s achievements only put off the evil day when lack of diversification and innovation would come home to roost.

THIRD CEO SINCE 1992

The present CEO, Neville Isdell, is the third since 1992, which is both a bad sign and an evil in itself. Launching hundreds of new products is not likely to be any more effective than the rapid-fire changes of CEO. These stem from the second key cause of large company failure: excessive faith in the ability of one high-and-mighty boss to design and implement the ADEFA cycle. Even Goizueta missed out (in diversifying into Hollywood and bombing with a deeply unloved effort to replace the much loved traditional Coke formula).

Any solution to Coke’s huge problems will complicate the management process. Top down rule by the CEO is simpler, but simply inappropriate in modern markets. Study P&G, widely hailed for having escaped from a bad case of Big Company Blues. The escape rested on a new innovation model - ‘Connect and Develop’. P&G would forget its old reliance on internal innovation and seek new ideas from outside the company’s doors.

The search was based on:

(1) identifying the Top Ten consumer needs

(2) identifying adjacencies – ‘new products or concepts that can help us to take advantage of existing brand equity’

(3) ‘technology game boards’, used when you need answers to key questions:

• Which of our key technologies do we want to strengthen?

• Which technologies do we want to acquire to help us better compete with rivals?

• Of those technologies which we already own, which do we want to licence, sell or co-develop further?’

The answers to such questions help to direct the networking with proprietary networks which involve ‘technology entrepreneurs and suppliers’, and the ‘open networks’ which connect P&G with hundreds of thousands of experts. I particularly like ‘Your Encore’, whose participants are 800 high-performing retired scientists and engineers. Tapping such knowledge makes every kind of sense. The innovatory cycle of Discover, Evaluate, Launch and Co-create works as well with outside talent as with insiders.

Using outsiders does, of course, dissipate the control traditionally exercised by the corporate centre. P&G does indeed have a vice president for innovation and knowledge who has day-to-day accountability for connect-and-develop. But his role is that of overseeing initiatives which he cannot ‘manage’ in the traditional way. The CEO, A. G. Lafley, set the new approach going and named a broad goal - to acquire half of P&G’s innovations from outside the company. By definition, that radically changed the way P&G managed itself.

RADICAL RESULTS

In turn, this radically changed the results. ‘Our R&D productivity has increased by nearly 60%. Our innovation success rate has more than doubled, while the cost of innovation has fallen. R&D investment as a percentage of sales is down from 4.8% in 2000 to 3.4% today’. The essential point is that such success would have been utterly impossible without a revolution in ‘the way we do things round here’, and without a surrender of direct power by Lafley and his cohorts. Responsibility and authority are not affected. But involvement is simply redefined.

The following words ring very true: ‘Leadership is not defined by the exercise of power but by the capacity to increase the sense of power among those who are led. The most essential work of the leader is to create more leaders’. There’s only one trouble with this excellent statement. It was published by one Mary Follett in 1924.

Over all the intervening decades, management hasn’t caught up with her wisdom. Follett’s book was titled Creative Business - and innovative creativity, as at P&G, is where new approaches to management are most required.

The entrepreneur is essentially a creative innovator. In a recent blog, I recounted the nine attributes of the entrepreneur as identified in the HBR at end-1979. They convert into nine questions. Do you have?...

• A high level of drive and energy

• Enough self-confidence to take carefully calculated, moderate risks

• A clear idea of money as a way of keeping score, and as a means of generating more money still

• The ability to get other people to work with you and for you productively

• High but realistic, achievable goals

• Belief that you can control your own destiny

• Readiness to learn from your own mistakes and failures

• A long-term vision of the future of your business

• Intense competitive urge, with self-imposed standards.

If you haven’t answered with nine resounding shouts of Yes, don’t despair. As I wrote in the blog, these attributes are not immutable elements of personality.

Every one of the nine can be developed, if you are prepared to confront your shortcomings and then to work to change your behaviour. These are basics of management and leadership alike. However, there’s something missing - the combination of marketing and innovation that creates a great customer franchise.

CUSTOMER PROPOSITION

My blog describes how I spotted this Wow! Factor when writing about nine great entrepreneurs who each exemplified one of the nine attributes in particular(although they actually were proficient at them all).

The story was the same whether it was Miguel Torres in wine, Bill Hewlett and Dave Packard in electronics, William Morris in cars, Gottlieb Duttweiler in cut-price groceries, Marcel Dassault in aircraft, Akio Morita of Sony in consumer electronics, Camillo Olivetti in office machinery, Ruben Rausing in packaging, or Robert Bosch in auto components. Each of them had grasped a great new idea which, with the aid of excellent execution, had metamorphosed into an irresistible customer proposition.

Each man had developed an irrefutable answer to the fundamental question: Why should the customer buy from me, and not from anyone else? As the P&G story shows, getting the right answer, and the answer right, is much more complicated in the complex world I described earlier. But when Hewlett said ‘If I have to tell a guy something, I consider myself a failure as a manager’, he was articulating a philosophy that Mary Follett would have applauded, and that Lafley seems to be following at P&G.

The complex challenges won’t be mastered without innovation in products and processes (including the processes of management itself). The leader’s role is to develop and encourage as many sources of ideas as possible, within the business, outside the business, and in combinations of external and internal. You deploy the attributes of the entrepreneur to break complexity down into manageable parts set in a frame of basic disciplines - above all, self-discipline. And you win.