The Search for the Magic Bullet
The notion of managing as a profession is a modern one. In the 1700s and 1800s, people were said to be "in business," but it was presumed that it was the "doing" of the trade or craft that was the key skill. Much of the world's work was done in the individual proprietorship, on family farms or in cottage industries. There were business people, but there was little notion of "managing" as a separate skill. The most successful businesspeople were industrialists, financiers or merchants. There were politicians and generals who provided leadership, but it wasn't until the early 1900s where the skill of management was acknowledged as being distinct from the skills involved in product creation.
It is not surprising that the first theories of high-performing management in the early 1900s were engineering models-based on mass production and the assembly line. People said that the successful manager was one who could look at the production process and engineer a different design for the big machine that constituted the company's organization for manufacturing.
At the same time, Gilbreth, Taylor and others were pioneers in time and motion studies. In both cases the fundamental view was that of something similar to physics or chemistry. The theory was that if you could break the process down into its smallest components, there were certain immutable laws that must be followed. The chemical reactions would then occur at the same time and in the same way as long as the ingredients were mixed in the right proportions.
Inherent in this view, of course, is an assumption about workers that is not particularly complimentary. It assumes that the best way to improve their productivity is to train them in the narrowest range of activities and ask them to repeat them over and over at relatively high volumes. Any acknowledgment of the ability to think, reason, or judge was only in a negative sense. These faculties were assumed to be the sources of imperfections and distractions. These distractions could only be bred out of the process by standardization and focus on the subdivision of work into small, easily repeated pieces.
Organizations that adopted this approach enjoyed substantial initial productivity gains compared to individual assembly. Ultimately, as the production process became more complex, the price of ignoring human factors showed up and was manifested in worker dissatisfaction and alienation. Where worker dissatisfaction was prevalent, quality and productivity both declined. The mass production approach and the time and motion study approach provided no clues and no solutions for repairing processes that gradually grew out of control, unhinged by what was inadequate attention to the human dimensions.
The 1940s and 1950s models of successful management were dominated by experiences that came out of World War II. Superior logistical management was considered key at this time, and success came from commandeering resources and applying overwhelming force at key points during designated times. This school of thought postulated that a leader created a command-and-control organization where a relatively small number of people with superior analytic thinking skills exercised precise control over the flow of resources and the tasks of individuals. The "Whiz Kids" of Ford in the 1950s were literally the same people who had brought quantitative measurement and control systems to bear on the resources necessary to win the war. It was presumed that this was the prototype of the successful general manager. This person would bring high analytic wizardry to the job and oversee the application of sophisticated financial controls. The underlying assumption about the workforce in the Whiz Kids model did not take much more notice of human factors than did the assembly line.
But the Whiz Kid model requires a management hierarchy. Since the Whiz Kids believed their job was to create financial and control systems, they needed a relatively broad organization of middle and upper-middle managers performing functional tasks of engineering, marketing and production. In WWII, the traditionally autonomous field commanders and generals were made part of even bigger organizations called "theaters" or "the supreme allied command." This approach created the conviction that organizations could become bigger and bigger as long as there was an adequate hierarchy and a system of financial controls. It was assumed that the key job of management was to provide that infrastructure. By the 1950s, these assumptions were behind the huge growth of the industrial giants in autos, steel, industrial products and petroleum.
By the 1960s, the success of the industrial giants provided the impetus for the first generation of conglomerates. Conglomerate CEOs were epitomized by Harold Geneen at ITT. Geneen believed in having a broad variety of companies (portfolio diversification) and then managing the managers of those portfolio companies with a combination of tight controls, financial reporting and intimidation. In hindsight, the successes attributed to these management philosophies are likely to have been substantially the product of the post-war U.S. monopoly on key products and technologies. Costs were essentially irrelevant since we could-and did-charge whatever it cost to make cars, steel, airplanes, locomotives and TVs. Tapping the ingenuity of production workers to improve productivity and flexibility wasn't a factor in this equation.
By the late 1950s and early 1960s, management was becoming more accepted as not only a profession but as a field worthy of study and research. The nation's business schools reached their first level of maturity. The financial and control experts, and time and motion experts, were joined by a new class of academician and research consultant from the behavioral and humanities side. Business was being studied as a science. These new business scientists assumed there were high level strategies that could be brought to bear to produce better results. Both groups (the engineer/strategists and the behaviorists) began to look for the "magic bullets." To the engineers/strategists, the most important job the CEO did was to find the optimum strategy. The behaviorists believed that success was a function of creating the right corporate structure and incentives. To them, the CEO's job consisted of building environments that would motivate people and "shape" their behaviors.
The strategists were exemplified by the work done by General Electric and SRI on the profit impact of market share. Widely known as the PIMS Study, this was an enormous data analysis of companies, their profitability and the profit margins of their products. It concluded that the most important role of the CEO was to adopt a strategy for the company to become the market-share leader for its industry. All good things would flow from that market share leadership. Later, it became clear that, while market share and a number of other positive financial results were linked, one was not the cause of the other. Today, we suspect today that high market share and high profits might both be products of a third set of conditions. But 30 years ago, this mind-set led to the Boston Consulting Group and others to focus on the "learning curve" as being the key to all financial success. The premise was that if you had higher total cumulative output than your competition, you would have a lower unit cost. It led to the famous "two-by-two" grid in which companies sorted all of their product lines and divisions into "stars ""cash cows" and "dogs." Management was reduced to three relatively straightforward orientations: focus on market share; focus on where you are on the learning curve; focus on creating a portfolio of "cash-using" and "cash-eating" businesses-and then sit back and enjoy the benefits.
Research conducted by behaviorists during this same time assumed that the performance of human beings throughout the organization was as important as the strategy decisions made at the top. They assumed the real challenge for management was to engage the entire organization in positive and productive behavior. In 1966, Frederick Herzberg published his seminal book, Work and the Nature of Man. It argued that managers needed to understand that their principal task was to motivate the human beings within their organizations to higher levels of productivity, and he offered a specific formula. Herzberg argued that what he called the hygiene factors (working conditions, i.e., compensation, corporate policies, etc.) were not capable of achieving positive worker satisfaction. These factors were only capable of either increasing or decreasing degrees of dissatisfaction. Herzberg's point was that only the factors intrinsic to the job itself-a sense of accomplishment, a sense of doing something worthwhile, the challenge of excellence and the opportunity to achieve-created and spurred satisfaction. Only by engaging these higher levels of human needs were you able to tap into their potential to make increased contributions.
Until Herzberg, American managers, if they thought at all about the effect of worker satisfaction on worker motivation it was in terms of working conditions, not intellectual change. In reality, a substantial part of today's American management thinking has its roots in Herzberg. Today we talk about TQM, employee involvement groups and re-engineering, and we think them totally modern phenomenon. And yet, when one looks back to the 1960s and 1970s, when the buzzword was "quality of work life," we find many of the same basic components. The idea was that, by improving working conditions, managers could increase satisfaction, motivation and performance. Herzberg's work was central to this idea, because he was the first to highlight the importance of extrinsic factors, an idea later expanded by researchers who investigated defects of job design on worker performance.
Modern studies of high performance companies reinforce the presumption that the major advantage comes from tapping into what Herzberg terms the "Abraham" side of humans, the part that adheres to values and seeks achievement. Conversely, the best employers can do if they pay primary attention to the "Adam" side of human nature, i.e., the pain-avoidance and animal-needs part of our nature, is to reduce the potential for dissatisfaction. This probably affects only those negative factors like turnover, absenteeism and sabotage.
B F. Skinner and other behaviorist assumed that the role of the manager is to focus on changing the behavior of workers in ways useful to the organization. Skinner advocated positive feedback in response to desired behavior. Negative feedback is of no use in achieving results, he claimed. So experienced managers would identify the results wanted and ensure that the behaviors that accomplished this were reinforced. As desired results became more frequent, less reinforcement was needed.
By the 1980s, the competition between the "strategists" and "structuralists" had evolved to where it was taken up by nonacademic popularizers. These popularizers could, in turn, be characterized as being either "simplifiers" or "complicators." The most popular of the behaviorally-oriented management gurus of the 1980s tended to be simplifiers. Books like The One Minute Manager and In Search of Excellence took the psychological underpinnings of the structuralists and translated them into a handful of key pieces of advice. This led to such buzzwords (or buzzphrases) as "management by walking around," and the "one-minute praising," "one-minute feedback" schools of leadership.
On the strategy and "complicator" side, it became clear that if a lit-de was good, more was better. Peter Drucker wrote huge tomes on the role of management. Michael Porter of Harvard Business School wrote a series of books on identifying sources of strategy and competitive advantage. Lester Thurow wrote extensively about comparative advantage. Consulting firms like McKinsey came up with no less than seven "S's" essential for managers to understand.
By the 1990s, both sides had surrendered to the sound bite. Gurus competed for attention with a series of "one-word" theme management doctrines. TQM, empowerment, vision, and reengineering were all shorthand that implied that all you needed was to understand one phrase, concept, or idea to become a truly exceptional manager.
Fortunately, the pendulum has swung back. In this second half of the 1990s, our understanding of high-performance management has become more sophisticated; with a clear understanding that no one size fits all. There is a better understanding that change is very difficult and staying on top is just as hard as getting there. Most of the buzzword fads ignored the fact that every decision you make sets off a chain reaction with which you must deal. Success in an organization undergoing change depends on the sequencing and understanding of contingencies. Organizations can only handle so much at one time.
Most managers do not have the time or inclination to wade through competing experimental results, and will continue initiating variations of the quality-of-work-life programs. All will be based, to some degree, on the assumption that increasing satisfaction increases performance. In today's "virtual" workplace, it is even more important to pay attention to the intrinsic factors of job performance and the motivating effects of achievement and pride of purpose. For the "work-at-home" employer and the member of the "virtual corporation," there is no place anymore in "workplace." This radical change creates another variable whose effect on the chemistry of human beings and organizational results is yet to be well understood.
Herzberg's important intuition drives much of today's management thinking. His argument that there should be two divisions of industrial relation has occurred. Human resource departments attend to the "hygiene factors," while line management creates achievement, growth and recognition factors for employees that will presumably increase productivity.
This duality is inherent in the conclusions of McKinsey's work on high-performing companies. McKinsey concluded that the productivity and performance leverage from empowering employees occurred only if a "spine" of certain values and practices were already in place. In fact, McKinsey found that the same kind of empowerment activities that enhance one company's productivity would lead to reductions in effectiveness in other companies where that performance-oriented culture was not already in place. Perhaps this is just repeating what Isaac Newton observed-for every action there is an equal and opposite reaction. To build toward the heavens we need a foundation that will hold it all in place.
In the end, it becomes clear that much of the difference between a highly effective organization and one that isn't has little to do with strategy, positioning or technology. The winners are those with exceptional management skills. Our model of what a manager does has moved away from viewing people as machines or seeing management as some kind of engineering or physical science. It is now management's role to engage the entire human organization, to engage all facets of the individual personalities on both sides of the manager/employee line.
The principal lesson of the search firm files is that we have developed a sophisticated understanding of what it takes to be a great manager. We want people who understand technology, who understand the industry, who have had comparable positions, and have degrees from good schools. But the key skills reside in those senior executives who engage the whole of his or her organization on its human dimensions. This is why, for all industries, getting results is understood to be linked not to knowledge of business theories, but to skills-the ability to think strategically and then to engage others with that strategic vision. The most important managerial skill knows how to generate a vision people can embrace and will execute with enthusiasm. Without that linkage to the human side, management can accomplish very little. But with it there are no limits. The Secrets from the Search Firm Files can help future managers master this challenge, even given the amazing frustrations of being a leader.
Six Characteristics of High-Performing Companies (and They All Have to Do with Leadership)
This search for the magic bullet, for the unified field theory of management, still continues. The leading-edge work in academe and among the more sophisticated think-tanks and consulting organizations leads people to the same place. The factors that sort the best from the rest are not strategy or technology. They are the quality of leadership.
We understand now that it is an "execution" world. There are few protected positions, proprietary products, or lead times that amount to much, and there are no geographic or knowledge barriers you can hide behind for very long. With the cars all even and every one starting at the same place on the track, then it is the skill of the driver that matters. Earlier in this chapter there was a reference to a McKinsey & Company study that looked at a large number of public companies. The study singled out those that had generated exceptional total return to shareholders consistently over long periods and through a variety of business cycles. The study concluded that exceptional companies shared six broad characteristics, none of which had anything to do with specific strategies, technologies, size, market share or product. All six involved leadership skill and leadership will.
No summary can do justice to this kind of conceptual framework. Readers who are interested are referred to the McKinsey Quarterly, 1995, number 3. In summary, the work concluded that during extended periods of high performance the companies that achieved exceptional results all exhibited six similar attributes.
- They were driven by leaders. No inertia or self-perpetuating process maintained their advantage. The leaders of these companies were demanding, "unreasonable" in the sense they set goals well above the logical extrapolation of current trends. They imbued the company with the conviction and sense of urgency to achieve goals not readily seen within the current range of capabilities. But these leaders were also able to contribute to the specifics of the business-they were not just generalists. They brought insight, intuition and experience to their organizations, and instilled a productive fear of failure. However, people were not afraid to take risks, but leadership created a sense that complacency was an enemy as perilous as competition. Even when things were going well, the leadership questioned what conditions might challenge their supremacy, and would take preemptive action. And, as the people who commissioned our partners to find senior executives knew, this leadership had relevant line experience. It had delivered results before under similar circumstances.
- These companies were relentless in pursuit of "before-the-fact strategies." They steered by a clear vision of what works in the relevant market. They understood what customers needed, and understood their own strengths and weaknesses, as well as those of their competitors. Their vision was expressed in terms of market dominance, not financial returns. They adhered to simple performance measures. But this relends pursuit of strategy was not a source of inflexibility. In fact, it gave them the impetus to be agile and responsive in their core business when necessary because their focus on the market and the customers let them understand when a previously successful strategy had stopped working and it was time to do something different.
- They were energized by an extraordinarily intense performance-driven environment. The leaders established a culture where there was real accountability. Both professional and personal standards were very high. People who worked there described them as good, but not "nice" places to work. By that they meant that the rewards were not in the perks and benefits, but in being part of a winning institution and achieving notable results.
- These companies had relatively simple structures. The reporting and accountability lines were clear, and the organizational structures reproducible as the company grew. Even as the company expanded geographically or added product lines or services, it cloned its basic elements rather than reorganize into previously unknown forms.
- The company's successes were based on world-class skills. These companies did many things well, but one world-class skill area was the vital underpinning of their strategy. They understood that, whether it was marketing savvy, a production or merchandising expertise or a quality/cost expertise, they had to spend whatever it took to be not just the best in their industry, but the best in class worldwide. These companies viewed their management process as one of the competitive skills areas. And they worked at it just as strongly as they worked on the other skills. For example, they understood continuous improvement, but applied it to themselves. The management understood it was not exempt from these notions, but, in fact, had to lead by example since its own sustenance of continuous improvement was the most critical aspect of all.
- These companies were continuously rejuvenated by well-developed people systems. This had nothing to do with the activities of the HR department, but with the fact that the leadership was aware of the performance of key contributors even two and three levels down. Interaction between the levels of management was provided regularly, so that discussions of problems and awareness of significant issues were shared broadly across all levels.
I don't imply that McKinsey is the only one with the answer. Consulting firms like A. T. Kearney; Bain & Co.; Booz Allen and a variety of academic institutes have done similar work. And they come up with similar analyses. In the end, there are two conclusions. The first is that it is rational for companies to look for and be willing to pay a premium for outstanding management skill. We know that the relationship between above-average management skills and superior results is not coincidental. The second conclusion is that we also know, with a reasonable level of confidence, what exceptional management looks like. Our research for this book makes it clear that the people who recruit executives have a clear profile that matches the theory and research and are behaving rationally when they pursue it.
