The yin and yang of management
By Simon London, published: August 1 2005 at www.ft.com
In Built To Last, their study of enduringly successful companies, Jim Collins and Jerry Porras advised managers to reject "the tyranny of the or".
Visionary companies, they wrote, do not accept that products can be either high quality or low cost, that strategy is either incremental or bold, that executives can focus on either short-term profits or long-term returns. Instead, they find ways to pursue simultaneously goals that, according to conventional wisdom, are in conflict.
This yin and yang theme runs through the work of other influential business writers. Many large companies now assess managers against a "balanced scorecard", the performance measurement system designed by Robert Kaplan and David Norton that aims to keep executives focused on a range of often conflicting goals.
Similarly, Charles O'Reilly and Michael Tushman have told managers that they need to build "ambidextrous organisations", capable of pursuing both radical and incremental innovation at the same time.
On paper, such ideas seem far removed from the day-to-day grind. But, as any reflective chief executive will tell you, management is all about trying to reconcile conflicting demands.
To be sure, all CEOs want to build up their companies by better understanding customers and offering innovative new products. But they cannot afford to ignore pressures to do more with less. Few companies these days enjoy dominant market positions (think Microsoft) or regulatory protection (healthcare providers) that shield them from competitive pressure. So they must continue to downsize, re-engineer and outsource.
The most recent annual management tools survey conducted by Bain & Co, the strategy consultancy, reflects the struggle between growth and efficiency taking place in companies the world over. Bain asked 900 executives to identify the management tools their companies were using and rate their degree of satisfaction with each.
Among the top five tools in active use were customer relationship management (CRM) and customer segmentation. CRM in particular has made a strong comeback, having fallen from favour in the post-dotcom era when managers discovered that building customer relationships required more than buying CRM software. Customer-centricity is back.
Yet as the survey makes plain, pursuit of customer insight is balanced by a clear focus on cost. Also high on the list of the most widely used tools were outsourcing and business process re-engineering, which in the early 1990s became a byword for brutal job cuts.
Here, then, is a snapshot of management preoccupations circa 2005: a desire to grow through a better understanding of customers, set against a relentless drive to reduce unit costs.
This not-so-peaceful coexistence can also be observed in the behaviour of big companies. The business pages this summer have been dominated by news of job cuts at companies ranging from Hewlett-Packard to Hershey, Reuters to Ford.
Are these cost-cutting CEOs being disingenuous, then, when they say that their strategies are based on innovation and new products? Usually not. But their jobs depend on escaping
the tyranny of the or.
For example, IBM will this year cut 14,500 jobs, mainly in Europe, to cut costs in its giant information technology services division. Yet demand for outsourcing continues to grow. Indeed, IBM is trying to persuade its customers to outsource not only their IT but also human resources, customer service and finance administration.
The snag? While Big Blue was until recently an easy choice for companies looking to outsource their IT, it faces stiff competition from a new breed of India-based outsourcers offering comparable services at lower cost. Big Blue cannot afford to let its costs get out of line with those of its competitors. So, the yin and yang must somehow coexist in the corridors of IBM's headquarters.
FT Summer School aims to reflect on many of these cross-currents. Donald Sull of London Business School will offer an erudite commentary on the rise of "emerging market champions" - companies from China, Brazil, India and elsewhere that can take on established market leaders and win. The early success of pioneers such as Samsung, he says, is just a taste of things to come.
John Hagel and John Seely Brown, formerly of McKinsey and Xerox respectively, will chide companies for using "offshoring" - the transfer of work to emerging economies - simply as a cost-reduction tool. Smart managers, they argue, recognise that countries such as China, Taiwan and India offer world-class skills in disciplines ranging from semiconductor design to call centre management. Offshoring, they say, offers an opportunity for western companies "to get better, faster".
A related message from the Bain survey is that over the past decade supply chain management has moved from being a minority preoccupation to a mainstream management tool. So we asked Yoshi Sheffi of the Massachusetts Institute of Technology's Sloan School of Management to précis the latest thinking.
His message: today's supply chain needs to be not only efficient but also robust and responsive to changes in market conditions. He suggests a range of techniques that can be used to help.
Sudhakar Balachandran of Columbia University notes how cost accounting disciplines have migrated from manufacturing into the service economy. The disciplines themselves have also evolved. As well as measuring the cash costs of providing a product or service, smart companies look at the assets tied up in the process.
Such number-crunching focuses attention on balance sheet efficiency. If done well, he notes, it also yields a sophisticated view of which lines of business are truly profitable. These insights are essential for any business serious about charting a growth course.
Thus a management tool as seemingly inward-looking as cost accounting can be used to inform innovation and growth. In management as in woodworking, a tool is just a tool. The skill and intent of the craftsman is what determines the end result. Built to last or built to fail? The answer is in your hands.
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