These Experts Suggest a Return to Classic Management Doctrines
We need to look backwards, to rediscover the wisdom of experience, and not let ourselves be carried away by current managerial practices. That was the message of Expomanagement, the largest management congress in the world, which took place this year in Madrid. Participants in the three-day event included marketing expert Philip Kotler; Arie de Geus, an authority on managing change; technology guru Nicholas Negroponte; strategy expert Michael Porter; Thomas Stewart, the father of intellectual capital; negotiation expert William Ury; economist Jeffrey Sachs; former General Electric CEO Jack Welch, and former president George Bush. All came with ideas on how to be a successful company in the 21st century.
Many speakers spoke of the need to bury the excesses and errors of the over-hyped high-tech era and focus instead on the classical doctrines of management. This could mean, for example, discovering a need that has not been fulfilled, and then fulfilling it better than anyone else. Whether from the vantage point of price, quality or closer proximity to customers, every company must find its own niche in the marketplace instead of trying to imitate its competitors.
But these doctrines must be carried out with a new perspective – that of the “knowledge society.” The world has changed. The main asset of companies is no longer to be found on their balance sheets, but in their workforce. Therefore, companies must focus mainly on hiring, retaining and getting the best out of their employees.
“Historically, marketing has been a mistake. About 80% of new packaged products that are introduced fail in the marketplace,” Philip Kotler told his audience, adding that marketing is more than image; it forms a part of strategy. “Marketing is much too important to be left in the hands of the marketing department,” Kotler said.
What mistake are companies making? “To spend a million dollars in television advertisements so that, on the following day, no one knows what you said” is an error, said Kotler. Companies that do direct mail and advertising are also failing to get results since they “barely have a 1% response rate.” So why do companies continue to invest enormous amounts of money in these areas? Perhaps, Kotler said, a better question to ask is why they don’t carry out other plans. “Companies need controllers who review margins and profits [derived] from marketing,” he suggested. Starting from that point, companies can then go on to analyze the most profitable strategies for the enterprise.
Kotler’s theory of the four P’s – price, product, placement and production – should always be taken into account any time a company is defining a strategy. Kotler added a fifth element – innovation. “Good marketing consists in being different and better. But it doesn’t pay off to find a difference; you have to innovate,” Kotler insisted. In criticizing the cost reductions taking place in companies nowadays, Kotler pointed out that “the effectiveness of marketing tools changes with time. Why freeze the marketing budget? We can’t base marketing on what happened in the past.”
In periods of recession, Kotler advised, find more efficient positions. Southwest and EasyJet both serve as examples; they have discovered the formula for traveling inexpensively. Wal-Mart knew how to expand based on its promise of selling at lower prices than everyone else; it perfected inventory management in order to do that. Starbucks and Haagen Dazs can charge higher prices for their products than the competition because they don’t sell coffee or ice, but a lifestyle.
“The best moment to capture customers is when your competitors are cutting their marketing costs,” Kotler advised. “And nowadays the strategy can go in the following direction: When competitors are cutting costs, it’s time for you to increase your [marketing] costs. Dell is doing that while IBM and H-P are containing their costs.”
A company’s brand is another asset that managers must care for in the 21st century. “An intelligent company survives by its brand,” Kotler noted, referring to the automaker Volvo. “Its brand brings to mind the idea of security.” Slogans are intrinsically tied to the power of the brand “because it is getting more difficult to attract the attention of consumers now that the rhythm of life makes them busier and busier day by day.” To avoid a weakening [of the brand], companies need to find a phrase that synthesizes all the spirit and personality of the company.
Secrets of Longevity
Companies that have the greatest longevity share four characteristics: They are conservative in their finances; they are sensitive to the world that surrounds them; they have a spirit of corporate cohesion and identity; and they have a decentralized structure. All these factors were analyzed by Arie de Geus in a study at the end of the 1980s that looked at 27 companies in existence since the end of the 19th century.
“What is the measure of corporate success?” De Geus asked. “To maximize profits? Or to manage things so that the company functions and survives on behalf of the following generation?” learly, it is the latter. “The conclusion that I draw is that, for companies to survive for such a long time, assets are a form of surviving. They never mention profits because, for them, profits are like oxygen for human beings: We need oxygen to live but we don’t live in order to breathe.”
De Geus refuted the belief that numbers are all powerful. Instead it is people. “Capital is no longer the main factor in production. Capital no longer gives us a competitive advantage. Success depends on being able to take advantage of human talent.”
Talent is what enables companies to predict changes in the marketplace and stay ahead of them. In fact, the 27 companies that De Geus analyzed all have this in common: “At least once in their history, they have altered their line-up of business activity.” Du Pont is one of the clearest examples. The company was born as a manufacturer of gunpowder during the age of Napoleon. At the beginning of the 20th century, Du Pont was the largest shareholder in what is now General Motors. During World War II, Du Pont converted itself into a chemical group. Now, barely 50 years later, it is entering the field of convertible materials.
How has Du Pont been able to change so much without losing its essence? By managing knowledge correctly. “They promote people from within the company. They don’t resort to people from outside,” said De Geus. “This management model allows for injecting a deep-seated corporate [loyalty], which is what makes companies endure” and helps employees develop their potential.
Bits and Pieces
“Things that once seemed very obvious to us are no longer so obvious in the digital world,” said Nicholas Negroponte, who is certain that the technological revolution has barely revealed the tip of the iceberg. Under water, there is still an entire world to discover. “Technological changes are taking place at the same time as philosophical changes concerning the role of telecommunications. What is going to happen within four or five years? It will be different from the past.”
Mobile services will be the standard in this new way of conceiving of the technological world. “During the past year, [mobile] connections have surpassed those of cable,” Negroponte noted. “If during the past 200 years a great deal of urbanization has taken place, does technological development require the same urban development? No. Instead of taking people to resources, you can take the resources to the people. They don’t need to migrate.” This is one of the variables that companies must take into account, he said.
In addition, the classic criteria of profitability have changed. “Industry is now turned upside down. The three pillars of the sector were to charge by the minute, by kilometers or by bits,” Negroponte pointed out. “But now, if we have a broadband connection, we can use the same mode to send an e-mail to one person who is nearby and to another person who is in China. Space no longer has a meaning. Nor does time, which is asynchronous. What remains are bits. How many bits do I send? It does not work that way. There is no correlation between the [amount of] bits that you send and the value of those bits.”
Negroponte suggested that “the sector needs to find a new economic model. Probably, the best direction is to add value to bits ...” especially if you consider that “we are injecting more and more intelligence into devices that are getting smaller and smaller.”
Vision vs. Strategy
“Seventy-five percent of companies don’t have a strategy and limit themselves to imitating their competitors.” Michael Porter, one of those who warned about the bursting of the technology bubble, is emphatic that companies must return to classic models of management and leave behind the hangover of the Internet [bust]. “If the whole world is following the same goal, companies look more and more alike, and customers begin to choose on the basis of price.”
This is what happened during the last decade. Everyone wanted to enter the dot-com world because they believed that it was the future. “Executives confused strategy with ambition. Strategy is what allows you to have an advantage that leads you to a position of leadership, which is the goal. But if you don’t have a strategy, what you are doing to become the leader is to buy [customers] or lower your prices.”
That is critical to most of the management theories born in the shadow of the Internet. “Everyone talks about vision,” Porter said. “I believe that we must forget about vision. Vision is what you have when you haven’t slept in three days. Strategy, on the other hand, is what allows you to differentiate yourself from your competitors – not vague, foggy principles.”
But why is there such an obsession about differentiating yourself? “[Because] managing that way allows you to win, even if your competitor doesn’t lose,” said Porter. “There is only one way to measure success, and that’s return on capital invested.” That was the twist that brought down almost every Internet business. “With the Internet, they said they were going to transform everything; turn everything upside down. And what happened? There weren’t many revolutions.
“This mentality of turning everything upside down led many companies to do foolish things,” Porter added. The most serious [mistake], probably, was “to base strategy on the value of your share price. That approach is almost sure to ruin a company.”
“From the time we get up in the morning, we are negotiating. With our spouse, the dog, our customers, banks, lawyers…” William Ury is certain that the need to arrive at agreements is a constant in everyone’s life. Therefore, it’s important to know the keys to coming out on the right side.
But negotiating doesn’t consist in proving that you’re right. It involves getting both parties to come out as winners. “How do you manage things so that a negotiation generates a mutual benefit?” Ury asked. Considering this question helps people develop innovative approaches that satisfy everyone.
Ury referred to a case in Mexico that involved negotiating ability and creative energy. “The children’s museumofMexico City was negotiating with Disney to get a copy of the film Fantasia. The price that Disney was asking would have led to losses of $200,000 for the museum, which didn’t want to charge very high entrance fees,” Ury recalled. Confronting this dilemma, the people responsible for the museum looked for an innovative approach that would permit both parties to benefit. The museum had a very good relationship with the communications media which, in a gesture of public relations, offered to pay Disney for what would have been a free copy of the movie. The museum got to show the movie. “Both parties wound up winning thanks to imagination and a search for common ground,” Ury said.
When trying to arrange fruitful accords, as in the Disney case, “we should keep our eye on the goal and remember which interests we want to safeguard. At the same time, we should always remember the other parties’ interests, even if they are not present.” Such an approach, Ury added, makes it indispensable to know how to listen. “Negotiation is more involved with listening than with speaking, because only that way can we see other points of view.”
Another characteristic of a good negotiation, Ury emphasizes, involves the positions that are taken. “You have to be hard about the problem but gentle with people. You have to focus on interests and not on positions. Positions are what we say that we want – ‘so much money,’ for example. But what interests us is beneath those positions – motivations, fears, perceptions…” Ury recommended that, before coming to an agreement, “we ask ourselves what interests are behind it.”
Wanted: Global Peace
Economist Jeffrey Sachs believes that globalization is in danger. September 11, the war in Afghanistan and, more recently, the conflict in Iraq have all put a crack in international stability and endangered global peace. “This is the biggest danger for globalization,” he noted.
Sachs recalled how World War I set globalization back by 75 years. “It gave rise to the Bolshevik Revolution; it was the main cause of the depression of the 1930s and the foundation for the Second World War, as well as the subsequent division of the world. It took us 75 years to get rid of that burden.”
Now society is heading down the same road. “September 11 changed many things in the United States; more than [first thought]. It increased feelings of vulnerability and risk, and [led to] the belief that military force will help us.” Sachs does not share that point of view. “Military power cannot be translated into economic security. Agreements with other nations are needed for that.” As a result, he recommends that the “United States get busy demonstrating that [the conflict with Iraq] was a war for security, not [a war] for oil. And [Iraq] must be placed under the auspices of the United Nations to show that this is so.”
In order to reach that point, Sachs believes, American authorities must start changing their way of thinking. “In my country, many people consider the United Nations an obstacle to their interests. Conservatives don’t understand that the stability of the United States doesn’t depend only on military force but on international stability.” Sachs asks Europe to close the breach that emerged after the war with Iraq. “I believe the United States has made a mistake, and I hope that Europe will act with one voice again.”
Being Number One, or Two
As CEO of General Electric for 20 years, Jack Welch converted the company into an industrial giant and the envy of all his competitors. “I took charge of GE when the GDP of the United States was undergoing nine quarters of decline, the president had declared that the country was sick and Japan looked like it was going to take over the entire world.”
But Welch didn’t give up. On the contrary, he sent a clear message to his company: It was going to be active [only] in those sectors where it was number one or number two. To achieve that goal, GE focused all its efforts on people. “I will say the opposite of Porter,” Welch stated. “I believe that strategies don’t count for anything if you don’t have the appropriate people to introduce them. First, people – and then strategies.”
Welch believes that companies must do everything possible to retain their best – but only their best. “You must reward good people,” he said. “The question that all managers have to get a handle on is how can you get the most out of people – and get them excited.” Welch did that by offering people the challenge of being the best, and having fun on the job. “The secret is recognition, and making things fun. You have to light a fire under people.”
In fact, he was on the verge of quitting GE in 1961, just one year after joining the company. It seemed like a bureaucratic organization where he wouldn’t be able to realize his dreams. Fortunately, his bosses convinced him to stay by guaranteeing that GE would favor “the spirit of small business, but with the resources of big companies,” Welch noted.
“If you don’t do both things at the same time – have fun and work – you turn into a bore. I was working too much, drinking every Friday night, playing golf, and going on vacation with my sons when I had a son,” said Welch, referring to the breakup of his family that occurred after a divorce. Managers, he added, “must be responsible for giving opportunities to people.”
Beyond Our Own Borders
“Many demonstrations against globalization are based on ignorance,” said former president George Bush, father of the current U.S. president. “What these people don’t understand is that free trade is going to help improve the quality of life.”
Bush defended the Iraqi war as a fundamental step toward achieving the peace that globalization needs. “The liberation of Iraq removed clouds from the skies, and the future of the world has never been so clear,” he said. To criticism that the invasion of Iraq was an occupation movement, Bush noted that “the U.S. does not want to be a power that occupies Iraq. What it wants, and our allies also want, is Iraq for the Iraqis. We want the assets of that country to belong to the people, and not to a dictator.
“This vision is going to require leaders capable of looking beyond their own borders and getting involved in new challenges in this imperfect world,” he stated, adding, however, that he is aware that globalization is a process that “brings problems along with it.”
Bush went on to emphasize the virtues of the process. “Despite everything, the advance of democracy has been tremendous over the last few years.” He recommended resisting “those who want us to abandon the progress of the past decade, turn inward and distance ourselves from globalization.” For leaders, he added, the most important thing is to “have the clear trust of the people.”