management ethos, Heller's Law

Managers do not commonly regard themselves as thinkers. They are doers, men and women of action. All the same, managers seem to be more susceptible to ideas than any other group of professionals. Only look at the serried ranks of management books and the endless stream and range of additions - my own post, for example, recently delivered books on the tools of leadership, maximum success, the science of success, and 'the global me', which deals with 'new cosmopolitans and the competitive edge'.

As those few, random titles indicate there is an infinite market, and therefore an unending appetite, for ideas that promise to defeat competitors and achieve success. Managers apparently believe in the power of ideas. They are right to do so. That is why, over many years, Thinking Managers has discussed and analysed the best ideas of the best thinkers (among whom Edward de Bono is in a class of his own), checked them against the hard facts of experience and evidence, and selected the most valuable thoughts.

But the works mined share one feature with nearly all the other business management volumes. They are mostly not written by managers, or even by people with substantial experience of managing. Anybody who has spent real time in a senior position has developed considerable personal knowledge. Yet few managers write down the lessons from that knowledge, building on their own understanding, and turning it into useful guidance.

BE FIRST OR SECOND
That is partially true even of a relative giant like Jack Welch, who has bent the vast General Electric to his will by force of personality and ideas, but is only now (in his pending retirement) planning to put his thoughts on paper. His most famous idea was expressed in a stark injunction to the managers of GE's many and unrelated businesses: be Number One or Number Two in your market, or get out - by sale or closure. This was music to my ears, because it rhymes with Heller's Law: that most markets will only support two profitable leaders and one specialist.

My Law derived from observation of companies and markets as a business journalist. It was a theory tested against realities, generalising from the particular. Welch's injunction sprang from his observation, as a GE manager, that the corporation combined companies with high returns and others with low profitability, and that this correlated with their power or weakness in the marketplace. Like any natural businessman, he found this imbalance an affront to common and financial sense.

Welch's edict, and the actions that enforced it, were based on the same concepts as my Law: that optimising return on assets is an essential aim of management; that resources should therefore be allocated to activities offering the best prospects of exceptional returns; and that, other things being equal, market share correlates with profitability - small goes with small, and large with large. The difference is that I generalised from my observations: Welch did not.

That is a key difference between thinkers and doers. Sometimes the lines get crossed. The Boston Consulting Group catapulted to fame and fortune by codifying the same three ideas. It produced a seductive matrix based on profitability and growth. High growth and profitability were achieved by Stars, which were fed with investment. Low growth and profitability Dogs were killed. Low growth and high profitability Cows were milked - and, receiving no nourishing investment, probably starved to death.

INTELLECTUAL WEAKNESS
That left the remaining companies, with high growth but low profitability, which might become Stars or degenerate into Dogs. They received ample investment until the issue was decided, one way or another. Hundreds, if not thousands, of managers seized on the Boston Matrix as if it were Holy Writ. The reason is obvious in hindsight: it did their thinking for them. Sadly, though, the Boston Matrix had an intellectual weakness. For a start, putting businesses into categories didn't manage them; allocation of resources is a beginning, not an end. More important still, giving Dogs (and Cows) a bad name was a self-fulfilling prophecy that no doubt killed many a perfectly good business.

The wiser managers did their own thinking and used the matrix to judge the existing shape of their businesses and decide where it needed to be reshaped and strengthened - just like Welch. In other words, you use the ideas of others to stimulate your own thought and test that thought by its results in action. If you think consciously and all the time about your deeds, their rationale and their consequences, and alter course as you receive feedback from the real world, you are in effect writing your own management textbook.

That was certainly true of Welch. I had no trouble in writing a book on his thought, using interviews, GE reports, speeches, etc., for one of the eight compact volumes in my Business Mastermind series (Dorling Kindersley, £8.99 each). The miscellaneous sources added up to a cogent and coherent body of thought. Plainly, Welch's phenomenal success as a wealth-creating manager is strongly linked to his ability to set his deeds in a thinking framework.

PRACTISING MANAGERS
He is not the only practising manager who features in the eight-book series. The other doers are Warren Buffett, the mega-investor whose Berkshire Hathaway is another legend of wealth creation; Bill Gates, the inspiration of Microsoft, whose market value was once even higher than GE's; and Intel's Andy Grove, by all odds the most effective hardware manager of the digital revolution. All three of these doers have strong intellectual credentials.

Buffett when at university sat at the feet of Ben Graham, the guru whose theories on 'value investing' inspired Buffett's own theories and practice. Gates has written two books on his explosive industry and its technological workings. Grove was an academic before going into business, wrote a well-respected text book on microelectronics and has produced two good management books. One, High Output Management, can hold its own with any other text on how to manage. The second, Only the Paranoid Survive, is a deadly serious study of managing under high pressure in a high-tech business.

But these four are very much the exceptions, not the rule. Search as you may, it's not easy to find other managers, especially successful ones, who have made powerful contributions to management thought and thus practice. On the other hand, non-managing gurus are in abundant supply - too abundant, you might think. I tackled four of the gurus for the Masterminds series: Peter Drucker, Stephen R.Covey, Tom Peters and Charles Handy. Even though two of them (Covey and Peters) are successful businessmen, you wouldn't place them in charge of a major corporation.

But that by no means invalidates their teachings. All these writers have the advantage of a broader view than the vast majority of businessmen, whose experience is limited by their particular jobs and who don't study other companies - including competitors - with an unprejudiced, open mind. More important, though, the thinkers generalise. They seek patterns and impose philosophies. This has its dangers, since they tend to select examples and facts that support their theses. That is the opposite of the scientific method and leads to embarrassing misjudgments - like the choice of IBM as the arch-hero of In Search of Excellence, which Peters wrote with Robert Waterman.

MORAL PHILOSOPHIES
The philosophies, moreover, tend to have a strong moral content. Covey, a devout Mormon, believes that eternal natural laws of ethical behaviour are the guides to success. Handy favours the evolution of new organizations that disorganize to free individuals from the immoral chains of traditional employment. Peters similarly advocates liberation, calling for 'chaotic' management, not only to cope with chaotic times, but to enable individuals to make the best of themselves, and companies to make the best of individuals.

Only Drucker has no overriding theme, except to urge the pursuit of rational ends in rational ways, testing every alleged truth (including the three above) and expecting the conventional wisdom to be profoundly unwise. Thus he, like the others, operates within an intellectual framework which directs attention to key issues and gives coherence to practical ideas. The practicality is striking. Each of the books includes three 'Masterclasses' in aspects of business management which are eminently down to earth.

The first Drucker class thus teaches readers how to manage effectively by: setting objectives, organizing groups, motivating and communicating, measuring performance, and 'developing yourself and others' - a section which includes 'developing a relationship responsibility' for those you work with, asking:

1. Do I know what everybody else does?
2. Do I know how they perform?
3. Do I know what they contribute and what results are expected?
4. Do I trust the people I work with?
5. Do I treat each of them as individuals?
6. Do I know their strengths?

Whatever your answers, the questions should have made you think about your role in a different, positive way. Peters is especially good at challenging 'the way we do things round here' and acting as a corporate or personal gadfly. For example, one of the Peters classes demands to know whether or not you are a 'skunk' - meaning a rule-breaker, innovator and individualist. If not, why not? Becoming a skunk is quite easy:

• Break rules if that is necessary to achieve what you want to achieve.
• Experiment all the time to find better ways of operating.
• Seek out and join forces with people of like, iconoclastic mind.
• If you see decisions or actions that you think are wrong, challenge them.
• Welcome change, and act as a change agent.

TAKING THOUGHT - AND ACTION
The issue is not whether managers are stimulated by such advice, but whether they will respond to the stimulus. Move to the doers, like Gates, and that's the crucial difference. Thinking merges into action. For instance, every manager must have heard that you should strive to make the future happen. Gates did it - one Masterclass shows how to pursue 'big, hairy audacious goals', and 'manage by fear' (believing that the opposition is capable of doing the impossible, defeating you and destroying your success).

The first thought of the thinking manager, in other words, is that thought alone is not enough. As noted, you bring it to bear on your practical requirements, use the thinking process to learn from results, and feed back that learning into deeper understanding of your work. Study what a Buffett Masterclass on buying companies has to teach, and the value of directed thought becomes abundantly clear.

The value is also apparent from the performance of the thinking managers' equities: $100,000 invested equally between GE, Microsoft, Intel and Berkshire Hathaway in 1989, after doubling every two years, would have grown to $3.2 million in 1999. Whether the thinkers pay off as well depends on you. Approach their teaching as you should approach your own experience. Test what they advise against the realities of your job and incorporate what works into your own managing philosophy. Think of yourself as a thinker who acts on the ideas which fit and improve the real world.