'People are the only sustainable competitive advantage', according to Hal F. Rosenbluth. Since his company, Rosenbluth International, is in a people business - overwhelmingly, corporate travel - that shouldn't be surprising. But the firm has also invested heavily in IT systems which are designed to keep technologically well ahead of much larger rivals like American Express. Rosenbluth's point, though, is that others can catch up on the technology. It's much harder, especially for large multi-business companies, to overtake the innate strength of a firm for which people love to work.
That's Rosenbluth's transcendant objective and affects every decision. For instance, the prime criterion in hiring is that the appointee must be 'nice' - a word that's vague, but which everybody understands. It means a person who is pleasant to talk to, good to have around, friendly and cooperative: somebody you would enjoy meeting outside the office. In fact, when linking up with new business associates, Rosenbluth takes them as far from the office as possible - to a ranch in North Dakota, 'where there isn't anything else' and where they can get to know each other through shared activities (like putting up fences) that have nothing to do with work.
Does all this really have much to do with running a successful company? It certainly bears little relation to how most companies are run, to judge by some recent surveys. Gallup interviewed 200 chief executives and financial directors, finding that they appeared to take the Rosenbluth line: 'Britain's bosses believe that happy employees mean bigger profits.' The sting was in the tail: 'Yet when asked to state their most important future business strategies, motivating staff was mentioned by only 12%.'
That's far from bright, to judge by a new PIMS Associates study. This time over 5,000 managers were involved. The PIMS people knew already that '70% of profit performance derives from established measures of competitive strength, market attractiveness and productivity.' Now they've discovered that 15% of said profits is driven by human resources strategy. While that's impressive enough on its own, it also appears that how you manage people 'drives the achievement of competitive strength and productivity' - and hence profitability. But which people do these remarkable findings have in mind?
BLOSSOMING PROFITABILITY
It isn't the usual groups associated with HR strategy: the counter-clerks, stewardesses, factory operatives and other staff, who are the usual heroes and heroines of the wonderful accounts of productivity improvements. According to PIMS, the key lies, not at these levels, but in the people who manage them. If you really want profitability to blossom....
1. Make sure that managers contribute all they want to decision-making, listen to their ideas and share information with them: profitability gain, up to 15%.
2. Agree with your managers on an open management style: profitability gain, up to 28% compared to companies where culture and change are in dispute.
3. Provide at least five annual days of formal training for all levels of management: profitability gain, unspecified, but real.
4. Have formal succession planning - which is also 'linked to higher profitability.'
This quartet of findings is based on detailed study of the links between practices and profitability across a host of companies, like all reports from PIMS (which stands for 'profit impact of market strategy'). But the four lessons also match the 'ten essential behaviours' which a Harvard professor, Renato Tagiuri, has derived from questioning three decades of Advanced Management Programme students on what 'good bosses do.'
They are asked this question: 'You have a new boss who is technically competent and eager to put you in a position to do your best work. What do you need your boss to do?' It's an excellent question, not least because it stresses a vital truth: to paraphrase President Kennedy's famous inaugural, 'Ask not what your subordinate can do for you, but what you can do for your subordinate.' A version of that command was the basis of a spectacular turnround at British Airways, whose engineering managers went down to the shop floor with two fundamental questions:
1. What are we doing that's stopping you from doing a better job?
2. What are we not doing that would help you to do a better job?
The answers were very numerous: they helped BA Engineering to beat a cost-cutting budget by £35 million in the first year alone. The actions forced on management by the responses endorse Tagiuri's Ten, which start with 'clarify the mission, purposes or objectives of your employees' assignments.' The latter should be described clearly. Nor should employees be left out of the goal-setting: 'Listen to your employees' views. They may have ideas or approaches that are better than yours - but pass on whatever useful relevant knowledge you have.'
PARAMOUNT OBLIGATION
However participative the regime, though, the manager has a paramount obligation to ensure that all necessary resources are provided - 'including the employee's skills, information, other people, equipment, funds, authority, and time.' Moreover, the focus must stay firmly on performance - with clear 'standards or guidelines by which you will evaluate performance - what you consider important and how much you expect - including ethical standards .'
The reward system must match your objectives and meet your employees' expectations and motivational needs. Feedback must be prompt. In the words of a great Japanese manager, Toyota's Seisei Kato, 'Always reward merit, but never let a fault go unremarked' - but accompany the fault-finding, says Tagiuri, with an offer of assistance. That's one way to get an essential element that's only in the employee's gift - trust: 'admit your errors, don't tell lies, and if you cannot keep a commitment, explain why.'
There's no hint here of abdication, note. The manager still manages: the last of these Ten Commandments, in the Harvard Business Review, is 'Make the decisions that are yours to make.' In fact, the whole decalogue reminded me powerfully of a remarkable speech, delivered with remarkable results, that I've commended to management audiences for many years. The speaker was the future Field Marshal Montgomery. He had taken over an Eighth Army in dire trouble and promptly talked to his senior officers in uncompromising terms.
He stressed that there was no alternative to another decalogue: (1) trust: the boss earns the trust of others in part by trusting them - and telling them so (2) teamwork: the work of management can only be done together (3) a positive culture: 'I do not like the general atmosphere I find here. It is an atmosphere of doubt, of looking back. All that must cease' (4) objectives: which must be sharply defined and (5) clearly communicated (6) confidence: the self-confidence of the leader or leaders and the confidence of the organisation go hand-in-hand
Back-up with all necessary resources (7) is essential: Monty announced that 400 new tanks had just been off-loaded at Cairo (8) performance: getting things done as and when they should be, willingly and without excuses (9) humanity: the touch and the attitude which indicate caring (10) emphasis on results: applying aggression of the controlled and rational type to out-achieve the competition . The general said firmly that 'we will hit him [Rommel] a crack and finish with him' - which the battle of El Alamein duly brought about.
THE BEST BOSS ATTRIBUTES
The dovetailing of all this advice and these examples is by no means uncanny. Nearly all bosses were at one time subordinates, and they can recognise from their own experience which senior managers used the Rosenbluth-PIMS-Tagiuri-Montgomery approach and which didn't. Almost certainly, they'll agree with Tagiuri's Harvard students (who have flown high and average 44 years of age) that the users were their best bosses, and the non-users the worst. So how far are those lessons reflected in the way in which most organisations are managed? There's a simple check. Answer True or False to these propositions:
1. I am completely trusted by my superiors to do an excellent job
2. I and my colleagues work as a genuine team, with every member cooperating and contributing to the full
3. I am comfortable with the corporate culture and sure that it is contributing to optimal success
4. I and the organisation have clear objectives which I have helped to define and which are known to all
5. I get full and clear communications, and in turn communicate fully and clearly with my people - and they with me
6. I am confident in my ability to do my job, and in that of colleagues and subordinates to do theirs
7. I have all the authority and resources I need to do an excellent job - and so do my people
8. I insist on and get excellent performance on agreed criteria - and that's what I achieve myself
9. I genuinely care for my people - and my bosses do the same for me
10. I know what business results we must achieve against the competition - and we constantly seek to improve our competitive prowess and performance
The answers, of course, are often depressing. I commonly come across great and greatly respected companies in which relationships are governed by fear, not trust. 'Teamwork' is better described as jockeying for position. The culture is inimical to the professed strategy of management. That strategy has fuzzy objectives which boil down to a simplistic focus on bottom-line results. In any event, the aims get fuzzier the further you go down the line, until they're barely visible at all. And while leaders often assume a self-confidence bordering on arrogance, that equally often conceals a deep uncertainty about the direction of the company and their own role and performance.
Managers are starved of resources, sometimes financial, but mostly of manpower. In a 'lean and mean' age, efficiency and economy are associated with cuts in manning: in case after case, though, the lower wage bill is paid for by offsetting diseconomies. Some of these hidden costs are operational, but others are personal. According to a survey by the Institute of Personnel and Development, 42% of senior managers and a third of middle managers are not taking their full holiday entitlement, 60% need abnormal hours to meet their workload, and nearly half have their holidays interrupted by work-related questions.
IRON CURTAIN MANAGEMENT
These findings relate to British firms, but the results are unlikely to vary greatly in most other economies. There, too, managers have found their workloads increasing as 'delayering' and other approaches to eliminating managerial jobs have reduced the available manager-hours without reforming the business processes for which the hours are needed. The increase in pressure and stress, and the decrease in rest and relaxation, must affect performance. In any event, many companies, while paying lip-service to performance, allow Iron Curtains to separate not only departments, but the whole company - with a counter-productive division between head office and the units which actually deal with customers and make the money.
Moreover, many firms don't provide the help and guidance which, far more than fear, produce excellent performance. That comes under the heading of 'caring'. It's hardly shown by the host of companies which have no management development worth the name, nor any career planning, and in which employees have no means of sending messages up the line, either about improving performance or about their own ambitions. At a time when upward appraisal by subordinates of superiors is in vogue, few companies have adopted the practice - and they are far outnumbered by those with obsolete and obstructive systems of downward appraisal.
A disappointing negative finding from PIMS is that it came across as many 'badly-run formal appraisal systems - resulting in no benefit to the business - as there were well-run appraisal systems which did benefit the business.' After reading this, and the litany of accusations above, the answer seems obvious. Install better appraisal systems and run them well, establish strategic planning that's linked to planned management development, make frank and open discussion a corporate way of life, adopt Total Quality Management and business process reengineering, appoint cross-functional and inter-departmental teams, and so on. Much of this menu has, indeed, been recommended in Thinking Managers.
The recommendations stand. But they have to be heavily qualified by the realisation that these methods are not enough - and not only because they must be linked to the determined pursuit of business results (though that is a prime factor). Empirical observation shows that all the guru-blessed initiatives can be installed beautifully, yet the company may still be ugly. On the other hand, companies may be stuffed with archaic, inefficient systems, rule-books and procedures: and yet this ugliness may not prevent the business from being beautiful.
The beauty shows itself in small things as well as large profits. You'll find, say, a young woman working on a systems project who says that if she has an idea, it will be considered: if it's good, it will be implemented. If it's rejected, she won't just be told No: she'll be told why. Or there'll be a middle manager, full of enthusiasm, who happily says that he has all the authority and resources he needs to do a job that he loves. Or another young woman who, miserable elsewhere in an entry-level job, was approached by this far better company - which, having promised to keep her name on file after an unsuccessful application, actually did so, to her intense and grateful surprise.
These three stories all point to a mystery ingredient. This is a Theory Y company (pervaded with the belief that people naturally want to work well and will do so if encouraged) that has many superficial aspects of Theory X (that work is unnatural, and good work will only be won by sticks and carrots). The ingredient is what I call Theory AZ. It's the start and finish of everything, the alpha and the omega. Theory AZ holds that excellence truly resides in the quality of people and of their relationships. Recruitment thus becomes the platform for lasting success, and encouragement - by subordinates, peers and superiors - right through the careers of those recruited does the rest.
MANAGING FROM A TO Z
It develops management, too. Expect people to work hard and well and to enjoy that hard work: reward their performance, not only with pay, but with recognition and promotion to bigger and better opportunities. Enable them by training, guidance and resourcing to take those chances, in part by taking chances - controlled and intelligent risks: and don't penalise them for honest mistakes. Rather, encourage them to learn from their errors. Theory AZ is nothing but management in the Rosenbluth-PIMS-Tagiuri-Montgomery vein. It sounds 'soft' - but is that right?
Certainly Rosenbluth is as hard-nosed a businessman as you could expect to meet. Without hardness, he couldn't have developed a century-old family company into a $2 billion business with 3,000 employees and handsome profits. The formula is universal: to quote Fortune, 'Hire nice people, treat them well, encourage them to bind emotionally with the company, train them continuously, and equip them with the best technology. Then the customers and the profits will follow.'
The logic is inescapable. Yet most companies and managers, instead of taking this proactive approach, are essentially reactive. Something slips - say, a week's, or month's, or quarter's figures - and the 'problem' is attacked until the slippage is corrected. In the meantime, nothing has been done to ensure that the 'problem' won't recur - except, possibly, the selection and execution of a scapegoat. Theory AZ managers are simply confident that, once the platform has been laid, the results will follow. And they are absolutely right.
