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Hard-core management: What you won’t learn from the management gurus

Bookcover

by Jo Owen, Kogan Page, 2003.

Abstract

The book challenges managers as to whether they know where they are, know their customers and the competition, know where they are going and how to get there. Where deficiencies exist, it provides ways of putting them right.

(Reviewed by Kevin Barham in November 2003)

(These book reviews aim to represent some of the key aspects of what the author has written. They do not necessarily represent the views of the reviewer or of Ashridge. Equally, the author of the book reviewed must not be held responsible for any misperceptions of the reviewer).

The book is described by one endorsement on the cover as a ‘brave and entertaining assault on the sacred cows of management’. It certainly is that. In the last 20 years, says the author, management has been through one fad after another as businesses have re-engineered, developed core competencies, and created customer-focused strategies. But we still meet bad management, poor service and unhelpful technology. As managers we experience boring meetings, politics and bureaucracy and increased reporting with fewer resources. There is a huge gap between the notions of excellence promoted by business gurus and academics and the daily reality of management. Jo Owen, ‘a serial entrepreneur in banking, consulting and the not-for-profit sectors’, aims to fill that gap, to separate the myths from the reality of management and to provide a practical way of identifying what it really takes to succeed in business. To do this, he cuts through what he calls the fog of complexity surrounding management by challenging the basic assumptions on which many managers are required to work.

Owen says that there are three core things that managers need to know for themselves and their businesses:

  1. To know where we are.
  2. To know where we are going.
  3. To know how to get there.

Unfortunately, most businesses and managers have no idea where they are, they don’t know where they are going, and they don’t know how to get there.

‘We know where we are’

Owen firstly describes why he believes most businesses have an imperfect understanding of where they are and how they are performing. He debunks various management assumptions, starting with those about customers.

‘We know our customers’

This is not true, says Owen. He points to some common assumptions about customers that we need to challenge. For example:

  • ‘Customers know what they want.’ If we merely follow customers, this leads to all the competition competing on broadly the same terms. Customer followers will not create new needs or exploit new demands. The true innovators lead their customers; the followers lose the race.
  • ‘They tell us the truth.’ Customer information may be distorted by customers who lie out of politeness. Don’t focus on what customers say, watch what they say and do.
  • ‘Their attitudes and opinions matter to us.’ Acting on customer attitudes is dangerous. What people do is more important than what they say. Market research is not the only way to understand customer behaviour. Observation and imagination are just as important.
  • ‘We use market research rationally.’ Because managers often distrust market data, market researchers have to use emotional or political ploys to be persuasive.
  • ‘We have relationships with our customers.’ Customers don’t want relationships with companies, they want products and services that work. Customer relationship management (CRM) technology is all too often a dead end because all we do is build bigger and more expensive databases in search of smaller and more elusive cross-selling opportunities. Effective CRM allows firms to test-market many different ideas and see which work best.
  • ‘We are customer-focused.’ But who is the customer? For most of us, our boss is the customer and is the one we respond to first and most rapidly. Unless the boss is customer-focused, the voice of the customer is filtered out by sales and call centre staff. Senior management is focused on financial numbers: share options are about share performance, not customer performance.

‘We know our competition’

This is unlikely, says Owen. Managers face three sorts of competition - for customers, resources and for promotion and bonuses. With promotion opportunities diminishing, the most intense competition that managers are concerned about on a daily basis is internal - ie the colleague sitting at a desk nearby. Where the external marketplace is concerned, everyone plays according to mutually agreed rules of competition. These make established competitors vulnerable to new competitors who decide to start playing the game, but according to new rules. However, only the truly brave manager dares to be different and try new rules of the game. Such managers tend to accelerate their careers: they succeed fast or they fail fast.

‘We understand our financial performance’

Far from it, according to Owen. Financial management as commonly practised contains some deadly traps. Internal information is massaged by people to achieve desired goals. Senior management who are rewarded with stock options are absolutely rational to manipulate the numbers for short-term gain. Don’t believe the headline numbers. The best way to read the annual report is back to front, starting with the notes to the accounts which show what the accounting assumptions are. Then work back to the cash flow and P&L statement before reading the chairman’s statement. Then you will be in a good position to evaluate what is being said.

‘We are in control’

Wrong again, says the author. Organisations are prone to ‘new age slavery’ - the costs of corporate control. Control is tighter but less effective than ever and focuses on procedures rather than outcomes. Businesses fall into the trap of thinking that because it is technically possible to have more control information, they should gather more information. This ignores the diminishing value of incremental information, the increasing organisational costs of processing it, and the increasing strategic risk of controlling the wrong thing when the world outside the organisation is changing. When everybody is being monitored, it also leads to decreasing empowerment and trust. We are entering an era of enslavement not empowerment, where compliance becomes valued over commitment.

‘We understand management’

Again, not true. As managers, we are poor at taking stock of ourselves and others. People find it difficult to give honest feedback and also find it difficult to receive it. The annual appraisal system produces an upward bias in evaluations, demotivates staff, and politicises promotion, firing and bonus decisions. Managers have to become chameleons who can adapt to the managerial environment around them and cope with stress and power issues. The more senior managers become, the less clear it is what they are meant to do and how they should do it. The skills required change fundamentally which explains why some managers are over-promoted. We will never understand each other fully as colleagues, so things will inevitably go wrong sometimes. All we can do is learn enough about ourselves and each other so that we give ourselves a chance of doing better.

Managers have turned to new technology to help them but this brings new problems. Because technology allows us to do more, people rush around trying to achieve more and more. We have substituted being busy for achievement. Managers have taken to communicating important messages to employees by e-mail but this is not a substitute for persuasion in person. PowerPoint presentations put style above substance and lead to ‘death by tedium’. The mobile phone puts us on call 24 hours a day, seven days a week, 365 days a year. This is not about being more effective or efficient, it is about becoming more paranoid.

‘We know where we are going’

Owen takes a similar debunking approach when considering how firms plan for the future. The challenge for most managers, he rightly observes, is how to manage and survive in an uncertain world. In such an environment, knowing the right questions is as important as knowing the right answers. Most plans, forecasts and visions, however, are based in reality on forward projections of the past. Most strategy is about fine-tuning what we already do because we are reluctant to change patterns that have brought success and survival in the past. Businesses are poor at predicting change, most innovation does not come from industry leaders, and competition too often focuses merely on keeping up with the competition. The real winners fight asymmetric battles and fight on their own terms, not those of the competition. When a competitor changes the rules, firms find that their existing customers, suppliers and products make it too hard and too risky to change what they are doing - until it is too late.

‘We know how to get there’

Owen goes on to look at the way firms try to manage change. As he points out, if we have an imperfect understanding of our current position and even less understanding of the future, it is no wonder that firms find it difficult to go from where they are to where they want to be. Because they believe they have to show they are making a difference, managers are far too keen to adopt the latest management fad. Their competitors are probably doing much the same thing so the result is to maintain the competitive stalemate. We are running faster just to stay level.

So what for businesses?

In the last part of the book, Owen offers some solutions for businesses and for managers. The answer for businesses, he says, is that they should stop playing according to other people’s rules. The challenge for them is to compete by playing a game where they make the rules. Businesses do not succeed by being the same as the competition, they succeed by being different. To do this, they need to know the right questions to ask about their customers, competition and the industry. The way to find the smart idea is to look and actively listen. Owen recommends the use of some classic strategic tools to find new directions for industry-based innovation. These include portfolio analysis, value chain analysis, and consolidation. The challenge is to use them creatively, as an aid to thinking, not a substitute for thinking. (For instance, mechanical use of portfolio analysis might suggest buying up star businesses, whereas creative use might recommend avoiding them because other players would pay a big premium for them.)

Owen describes various ways that firms have sought to change the rules of the game:

  • Attacking the profit sanctuaries of the competition. In the UK, the four major clearing banks have been challenged by Internet-based and non-traditional banks. The traditional banks, says Owen, are caught in the incumbent’s trap: if they try to fight the newcomers on their terms, they ruin their own economics. If they don’t challenge them, they lose market share.
  • Identifying loose bricks in the competitors’ market such as unserved market segments, or product or process weaknesses. Canon saw that Xerox had no offering at the low end of the copier market. The Japanese car producers first gained ground in the US market by producing cars that were low-cost but achieved unprecedented standards of reliability.
  • Developing new channels and bypass competition. The Internet is, again, a classic example. Developing new channels leaves incumbents with a dilemma: if they open new channels they risk alienating their existing channels and losing market share. If they don’t open new channels, they lose market share anyway.
  • The ‘whirling dervish dance’. The object is to confuse the competition so much that they don’t know which way to turn. Packaged detergents manufacturers, when faced with price competition that was killing profitability, did this by spinning the consumer around with so much choice that price comparisons became impossible. Consumers could only make choices based on products and profitability was restored.

Owen also suggests some questions that businesses should ask to help them identify ways to innovate with their approach to customers. For example: What is the substitute for our product, and why do people prefer that? What frustrates people in daily life? How are existing products and services actually used - does the product in use cause a problem that may point to an opportunity for us? Whatever the business ideas that emerge, the overall business model must be simple enough to meet the elevator test, ie it must be explainable in a couple of sentences as you go up in a lift to a meeting.

So what for managers?

For the manager as an individual, knowing where you are, where you are going, and how to get there starts by asking where your employer is, where the employer is going and how it is going to get there. The challenge of finding the right employment boils down to fit, foresight and flexibility. Fit is about understanding the informal rules of the game for the organisation for whom you work, of the function you work in and the boss for whom you work. You need to know the informal behaviours and patterns associated with success and failure. Successful managers are the ones who know how to play to the organisation’s rules (and who also know when to break the rules). Foresight is about knowing where you and your employer are heading. Owen suggests that, if you can identify the average span of control at different levels of your business, the net attrition rate at your level and above, and the growth rate of the business, you can calculate your odds of rising to the top and how long it will take you to get there. Flexibility means you have to keep on learning new skills to have a chance of remaining employable. Managers who want to progress have to make the transition from being technicians with logical problem-solving skills to being managers who understand the complexities and variety of making things happen through people.

Owen’s book is certainly worth a visit. He concludes by saying that we are all ‘postmodernists’ now. Postmodernism rejects the notion of universal truths. That is good news for managers because the spirit of capitalism is not about us all trying to do the same thing. It is about finding new ways to do new things. It is about having the courage to create our own futures rather than being prisoners of the past.

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