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CPDS Home Contact | Strategic Issues |
- Management -
There is a strong link between business engagement (ie employee loyalty and commitment to the organisation) and business performance (eg shareholder return and EBIT) (Abernathy M 'Know how to measure corporate engagement', FR, 2/2/07).
There are many reasons given for Australia's large current account deficit. A significant factor that has gained no attention is the lack of management skills required to develop and implement effective strategic plans that lead to export growth or import replacement. The current account deficit highlights the fact that Australia's industries are not globally competitive. The inability of Australian managers to think strategically is a major problem. Only 30% of business strategies address the question of competitive advantage. And only about 50% of organizations implement their strategies. Poor follow-up, lack of assigned responsibility, moving to other projects, following fads are part of the problem. Graduate business schools are not addressing this problem. Also the very concept of management schools may be the wrong way to produce effective managers. (Kenny G., 'Current account is a management deficit', FR, 11/8/05).
New management theories based on social psychology emphasise the wisdom of crowds and the value of gut reactions (Macken D 'Logic becomes a crowded science', FR, 22-23/1/05).
Most debate about AWA's involves persons who are not actually involved. The greatest cause for concern about this should come from management not employee. Agreements contain many provisions for flexible work. They do not increase management prerogative - but rather require greatly increased management skills. A second challenge involves dealing with hybrid systems with both AWAs and traditional agreements (Jones C 'AWA's a test of management quality', FR, 22/11/04).
George Friedman argues that problems in Western intelligence (typified by failure to predict Soviet Union's collapse) is the result of managerialism - which is modern management techniques based on procedures laid down in a master plan which destroyed previous culture of excellence. Success depended on sitting through meetings without going to sleep rather than on brilliance in peering through darkness to find truth. Managerialism has been fashionable in Australian bureaucracies for 15 year. The Evatt Foundation produced an excellent paper on managerialism - by David Boyle (Devine F 'Intelligence will never be a match for managerialism', A, 30/7/04).
All companies eventually fail - because incompetents take over. Of top 500 companies in 1957, only 74 were still on the list in 1997. Enron criticised others for being risk averse. A junior executive had made an unauthorised $50m investment - which succeeded - and this was seen as needed entrepreneurship. Others have failed due to arrogant culture - and dismissing warnings. NAB worked under Argus's 'Don't argue' regime - as he had worked in all areas of firm - but failed under his successor. McKinsey argues that failure can occur due to (a) lack of balance - where too much of a good thing becomes bad (b) change in CEO and (c) shift in ownership / environment. Governments have made very bad choices of senior executives - as they have no idea what is required, and appoint people who dazzle them. Telstra shifted from a focus on efficiency gains to 'deal making' (erratically). AMP went through a process of massive cultural change - and lost all experienced executives. It was overcome by a thick fog of arrogance. CEO's tend to have operating experience, but little knowledge of capital allocation - a key responsibility. Deals are seen to be 'sexy' - while routine operations are boring. Thus CEO's try to 'win the deal'. Australia's main problem is its isolation and lack of competitive jostling. A big effort is needed to create positive, dynamic, outward looking society that can support business. In Australia also many boards are more interested in their own standing (in an old-boys' club) than in shareholders. (Gluyas R. 'A world of cash and burn', A, 8/7/04)
Great managers do not need to be leaders. They tend to (a) ask what needs to be done (b) ask what is right for organisation (c) develop action plans (d) take responsibility for decisions (e) focus on opportunities rather than problems (f) run productivity meetings (g) thing and say 'we' not 'I' (Drucker P 'Fundamentals of executive success', FR, 29/6/04).
All managers make decisions on the basis of some form of bias - even when endeavouring to be objective. Sources include: implicit prejudice; in-group favouratism; over-claiming credit and conflict of interest (Banaji M etal 'How ethical are you?', FR, 23-28/12/03)
Firms (like economies) are moving away from being organized as command and control systems towards operating as 'free markets' (Phillips K 'Dinasaurs struggle in uncertain world', FR, 11/11/03)
The perceptions of an organizations' stakeholders can be a way to identify its requirements in knowledge management, and its intangible assets (Lawson M 'Seeing what's inside their heads', FR, 31/7/03)
Many companies have established deliberate blockages in lines of reporting so that CEOs are kept unaware of problems and can thus deny knowledge to avoid legal liability. This means that awareness of problems often comes too late (Braithwaite J., 'Make the boss responsible', FR, 15/7/03)
There is increasing debate about the possibility that CEOs tend to suffer mental problems - related to inflated self-importance, need for excessive admiration and a lack of empathy with others - a phenomenon that can lead to bullying (Hepworth A 'Dealing with bosses who turn out to be bullies', FR, 15/7/03)
AMP in 1998 had inexperienced management and a loaded gun at its head (in the form of capital guarantees) that could blow the company apart if the stock market slumped. It has lost billions because it made the same mistake that it made in Australia in the 1980s - then with single premium capital guaranteed insurance policies that resulted in huge losses in 1987 - that were concealed by its mutual status. But there was no one left on the board who remembers those days, and staff who were in possession of long corporate knowledge were sacked or ignored (Gottleibsen R. 'Bitter and costly lesson for new boys of brand', A, 26/2/03)
Supply chain management can improve business performance (Braue D 'Chain of demand', Bulletin, 15/10/02)
Producers in Australia have not fared well for 10 years because of economists' efforts to increase the power of consumers. This was bad news for those who gained meaning from the good or service they provide. Particular attacks have been on the professions by the NCC - where rules are seen as mere restrictive work practices and by managerialism (which has seen management as a generic set of techniques that can enable any organization to service outside interests) - and is closely identified with the idea of raising shareholder value. The latter suggests that organizations should have no obligations to their employees. Professionals are particularly vulnerable to this type of rhetoric. Market forces and managerialism can work wonders in the short term - though the gains tend to be absorbed by more layers of management. In universities, the number of students per academic has doubled over the past decade - while growth in the numbers of managers could have allowed a small university to be staffed. The long term effects of managerialism are less pleasant, as eventually producers burn out or take redundancy and new managers suddenly discover that they lack the skills previously taken for granted. This problem is increasing in Australia's hospitals. (Quiggin J. 'Breaking the camels back', FR, 26/9/02)
Very substantial efficiency gains can be achieved by major multinational companies by aligning their operating processes with the systems and software that they have already installed - yet not properly taken advantage of (Gottleibsen R 'Chip in if all systems are going for broke', A, 25/9/02)
McKinsey research had showed that best performing companies were those who slavishly sought out the most talented people. But Enron followed these principles - and its culture was created by McKinsey. This places firms overall interests second to the interests of its superstars (Gladwell The Talent myth', FR, 30/8/02)
US executives struggle with a mismatch between demands for good values and realities which demand performance at all costs. Deception from on high is normal. Senior management is seen as corporate rapists (Trinca H. 'Its all rumble in the corporate jungle', FR, 23/7/02)
A decade ago, the US suffered a crisis of confidence as it seemed to be losing competitiveness to Japan. Now there is new confidence in the US business model. The 'shareholder-value' concept has been given most of the credit for the turnaround (ie running firms exclusively for shareholder benefit - with management's interests being aligned with shareholders via stock options). However following the Enron and other failures, this concept is losing support. The concern is that this has led to: manipulation of earnings to maximize share values; playing the system by managements to profit themselves at the expense of shareholders; and very poor investment decisions where these were determined by share market expectations. Shareholder value concept was reinforced by privatizations, and by the influence of fund management concerns only with returns to themselves. The model was seen as better than the more complex European models of corporate governance. In the US, traditional corporate management was displaced by leveraged buy-outs - who saw existing managers as bureaucrats rather than as managers. Shareholder value emphasis led to a focus on core businesses, financial engineering to reduce cost of capital and stock options to align management with shareholders. This produced a long period of prosperity, and some claimed better resource allocation. But the productivity miracle was exaggerated - and most increases in return to equity came from greater funding with low-cost debt. Share-market rises were far greater than profit rises. Businesses that followed share-market expectations in investing made some very expensive mistakes (eg over-investing such as purchase of 3G licenses by European telcos, or under-investing). In The Alchemy of Finance Soros argued that financial markets could never be efficient (ie reflect true values) as financial market perceptions themselves changed the reality facing businesses (Chancellor E. 'Perverse incentives', FR, 7/6/02)
Performance reviews (a method for sacking staff by assigning ratings) has led to mistrust and low morale in US firms (Williams P. 'The secret sacking tool', FR, 4-5/5/02)
University departments are ‘unhappy’ in many different ways (eg fissured by old quarrels; discussions are in code which deal with questions of procedure, rather than issues of substance – so that pathologies are never confronted; a mania for democracy supplants any sense of what the enterprise is for (ie the purpose is seen as being fair, rather than economics or history – so there is nothing to actually be fair about); the bylaws are longer than the articles staff write – and cover the interests of every faction and perpetuate every baseless jealousy; it has been split into two through a declaration of independence; individuals hang out the dirty washing for all to see; it fails o deal with individuals engaged in misdemeanors or felonies). The reason that departments are unhappy can be speculated. These can include: attachment to a bad history; the resentment of persons promoted out of condescension; the perception of favoritism. But many will hold onto the pain of these problems – rather than moving on – because they lack strong leadership able to turn negative energy into positive resolve (Fish S. ‘Living death in the unhappiness department’, A, 13/3/02) [See parallels with Towards Good Government in Queensland]
Weird Ideas that Work argues that business success can not be achieved by doing one thing well (as eventually competition will kill it). Rather a steady stream of new ideas that sell is needed – and these will probably not come from people who feel entrenched and secure (Whitnell G ‘Wackiest paths to prosperity’, A, 27/2/02)
A movement known as post-autistic economics started in France - concerned with the over-emphasis on numbers in teaching economics. Also over the past decade the idea of 'public management' has been developed - which involves quantification of all goals. The result is that we achieve what is measurable - rather than what is necessary. Measurement can cause inefficiency by aping the form, not the content, of the private sector - ie that measurement (rather than intelligence and achievement) is what is important (Boyle D. 'The tyranny of numbers', FR, 2-3/2/01)
Technical specialists in organizations are frequently dismayed at the strategic decisions of their superiors - who don't really understand the issues. They respond by becoming apathetic. Traditional bureaucratic organizations were changed - to make them flatter - and the result is heavy (electronic) control of those at the bottom by those at the top. Work requirements change frequently and erratically. Those responsible for this are generally quite unaware of the effect of their decisions. The view that 'politicians are out of touch' has a similar cause. It is however hard to repair 'broken eggs'. Companies who have recognised the problem are now trying to rebuild a 'shell' - but have lost institutional memory and legitimacy in the eyes of their workers - whom they now need to make an extra effort. This has affected the civil service in the UK - and led to a brain drain from universities as the latter have been reformed on 'business' lines. 'Broken eggs' are a good symbol for what has happened in the public realm in the UK and US - and the more reform is produced via (say) 'public - private' partnerships, the more 'broken eggs' emerge. The limits of quick-fix policies are most apparent in terms of class divisions - where those at the bottom are losing resources faster than those at the top. It is hard to reverse the resulting stratification of society (Sennett R. 'A short flat community of broken eggs', Financial Review, 4/1/02) [CPDS Comment: Very clearly similar problems have emerged in Australia - eg in the disastrous attempt to 'reform' Queensland's Public Service - see Towards Good Government in Queensland. The source of these problems presumably lies in the use of strategic 'planning' methods when the situation is too complex (see Strategy Development in Business and Government)
The success of organizations being restructured depends on the ability of CEOs to chose the right people to retrench. However bosses rarely know who the performers in their organizations are, and often retrench essential talent. The organization then does not recover until similar talent is rehired, usually on the appointment of a new CEO who recognizes the past mistakes (Gottleibsen R. 'When surgery can kill a firm stone dead', Australian, 15/11/01) [See also The Case for a Professional Public Service]
Companies are seeking to reduce costs - and this often involves staff freezes or cuts (which can undermine morale), and reduced capital spending. But cost cutting is a poor alternative to strategy. No company ever shrank its way to success. And when cuts are made they may be in areas that are most critical to the company's future. There is a limit to what can be achieved by cutting out management layers - and companies may not know who is adding value (and lose loyalty if unfair decisions are made). Saving waste through quality programs can be the best way to make savings (Uren D. 'Quality requires guts - razors merely spill them', Weekend Australian, 27-8/10/01)