In business there are only two types of failure

Thursday, 01 June 2000


    The failure of imagination and the failure of nerv

    Imagination is being overtaken by method. Risk management has become risk avoidance. So instead of rosy outcomes touted by management methods promoters, businesses may be no better off, writes Les Lothringer*

    This article is not a criticism of management in general, as most managers conduct themselves with professional skill and care. It is a critique of that minority whose decision outcomes do little credit to the profession of management. To that diminishing group and the methods by which they operate, I have accorded the term "The New Managerialism".

    Under The New Managerialism that indeterminate feature best described as "the roll of the dice" can either be completely ignored or, at best, quantified and controlled through method. Albert Einstein, having once said that God does not play at dice, subsequently had to retract that remark.

    "Management is the province of uncertainty: three-fourths of those things upon which action by management must be calculated are hidden more or less in the clouds of uncertainty." So said Prussian army officer Karl von Clausewitz. He was describing war. I substituted the word management. Nor does it matter that things now are more mechanised, more technology-based. One objective driving the widespread use of technology by companies is the elimination of human error. Yet human error remains a principle factor in unfortunate outcomes.

    A dubious business strategy

    You are a senior executive of an international corporation which funds commercial and private consumption transactions through credit. You want to increase market share through acquisition rather than through natural growth. After all, growth is risky and you know that the second-hardest thing in the business world is to win over new customers. So, you've become an acquirer and bought finance companies. To lower costs, you've relocated your call centres to third world countries.

    The strategy document guides your way. Some of the best consultants around helped write it. In a moment of truly original thought, you decide to buy a logistics company. Not any logistics company, a special logistics company. It facilitates the movement of physical goods along the supply chain. You pay more than $50 million for it. Good buy? Well, someone else offered $23 million ... a wealthy group with a strong profit record. Someone else offered $29 million. Both other offers had some synergy with logistics and their manufacturing operations. No such synergy with a finance company. But that's OK - it's consistent with "the strategy".

    Incidentally, your logistics company is not the dominant player in the market. It hasn't won a major client in some time. Margins are under pressure and the competition can out-price you. You can't win that game. When it comes to differentiating the product - not much room to move there either. Value add is a problem. There is virtually no value add. The business is not a star; it's not even a cash cow. This business is a dog.

    There's more. The computer software that handles business transactions is none too flash. The replacement system has been under development for over three years, could have taken one. Getting the only contract programmer who knows something about it to work to deadlines is a science in itself. Other initiatives to value add through IT have been costly and not always successful. The IT manager is a contractor resented by the permanent staff. They come up with the ideas. The contractor promotes them to the executive. More contractors and consultants have been brought in.

    The latest CEO joins a succession that have come and now gone. Just before he went, he terminated his CFO. The P&L just was not coming out right! A few new customers would have fixed that though. The new CEO is younger than the last. By the way, the business is up for sale and you know that you won't get all your money back. What to do?

    Loss of organisational memory

    An important facet of The New Managerialism concerns the loss of organisational memory. A further example: A paper recycling plant making protective packaging. The product required low-grade recycled paper pulp. The product was none too precise and did not need to be. The management engaged a consultant to the newsprint industry. Newsprint requires a different and higher standard of product along with different and more expensive technology. After expenditure of about $1 million on new plant, the recycled paper product was no better. It cost more to produce and the process had just become more complex and more costly, but the price of the product could not be increased.

    What was relevant was the attitude of the one remaining paper recycling technician. He had been in the plant for several years. All the other long-term staffers had gone. This solitary technician was the only one left. He could recall some of these improvement techniques being tried before. None worked. Some other techniques would not work - but you'd only know that if you knew your business and your customers' businesses.

    The remaining technician left. Eventually the consultant was discharged and the new plant enhancements were sold off. Eventually the whole manufacturing operation was off-loaded.

    Management alchemy

    To understand how these situations come about, we should appreciate what is meant by The New Managerialism. We need to consider the shift away from true innovation towards risk management and its minimisation, the myth of control and the failure of strategic planning.

    The New Managerialism rests upon the contention that optimal outcomes can be decided from a semantic examination of options, devoid of any need for special insight into products, processes and markets by decision-makers. The method is king. If you can follow a method, you could just possibly come to the right conclusions. If you did not get to the right conclusions, get another method. Hence the lack of any real concern for experience loss, a frequent outcome of corporate downsizing. Note I said experience loss rather than skill loss. Skills may be bought in and frequently are. Experience is a whole different thing. Connected with this is organisational memory, the loss of which can be costly indeed.

    Methods have been developed from past experiences and the need to deal with similar future experiences. Adherents to this new class of management may know of the range of available methods and even be skilled enough to use some of them. A simple matter of opening up the methods kitbag and pulling out the right one to deal with the problem at hand. Seems straightforward enough. Trouble is, it could be back to front.

    To really know what methods may work, one needs the experience of past problems. A simple forecasting example will suffice. Standard PC software has simple forecasting or data trending tools. You prepare your data set, for example, a sales trend, elect a forecasting tool and out comes the forecast result.

    Problem is, the forecast will not be right, due to the underlying business forces behind the chosen data. To decide which forecasting tool to use and how to use it requires a deeper appreciation of the causal factors. If there is no close appreciation of the factors making our sales trend data what it is, it is pointless to forecast that data. Yet this is what frequently happens with the financial forecasting. If the forecasters are experienced financial analysts promoting a public float, they are likely to know this. Hence the liberal use of disclaimers that only mean, more or less, that the future will be the same as the past, only better!

    Further, it is an altogether surprising thing that this class of manager believes that a method approach to strategy formulation, high-level problem resolution and business innovation can also work. Many methods work at an operational level, but beyond that, they are pretty well useless.

    As for strategy, very little true strategy development is actually occurring. Historically, your strategist was more likely to be a business owner, a political leader or a military general. They were the direction setters. Tactics were a staff function. What now passes for managerial strategy formulation is more likely to be a bit of tactical tuning at best or some loose visionary statement of intent. Mission statements are an example of this. If the skill base matters little to you, it's then not hard to develop a strategy to buy a company in which the core operational skills simply do not correlate with your own. If things don't work out, just bring in more contractors and consultants, which is what our finance company is doing. A costly alternative to core skills.

    Unrealistic expectations

    Another facet is the greater pressure on management now, with the consequent need for managers to perform and take responsibility for outcomes where in fact they may have little real control. Apparent control substitutes for risk, so you control what you can control, even though it may not add business value. For example, the hardest thing in the business world, relatively speaking, is to create a new product or service and create a market for it; or extend the market for an old product or service. Both are risky. You cannot order customers to buy. Much easier to over-control internal processes, introduce another reorganisation or replace the IT systems. Much easier to buy market share through takeovers than to conceive a new product and labouriously build new market. But even this has its share of pitfalls, judging from last year's hostile takeover by one insurance company of another.

    The new paradigms

    An important foundation stone supporting The New Managerialism is the almost cult status of the management gurus. Management gurus are necessary in direct proportion to the emptiness of the prevailing management practices. One such guru used the phrase "stick to the knitting". This summed it up very neatly, a phrase I recall in the book In Search of Excellence. Non-core businesses were to be discarded and they were. Now no one actually knows what a core business activity is, or a non-core business activity. But in this risk-averse environment, it goes down well. One thing is for certain, if Westfield chairman Frank Lowy stuck to the knitting, as he recently put it, he would have remained a delicatessen owner in Bankstown. The alternative was to sacrifice control and take on risk. The mobile phone product enhancements from the telcos is not true innovation either, no more so than is a baker changing the ingredients to the dough mix.

    Management fads die as quickly as they are born. New ones spring onto the stage. The disciplines of science and engineering have been eclipsed by the pseudo-sciences of forecasting, risk management, strategic planning and financial measurement. It seems that the measurement of performance has become more important than performance itself.

    Adherents to these new managerial paradigms place their faith in simplified relations and superficial analyses to explain the complex, unsteady, contradictory, complex and only partially understood real-world problems. Since no problem can be fully understood and as decisions involve risk, energy is directed to risk reduction. Innovation is honoured in the breech. Better to attach oneself to uninspiring and predictable methods and approaches than the alternative of a risky initiative.

    Remember the paperless office? Remember EDI? Or TQM, MBO, QCs, TBC, ERP, WCM, world's best practice, benchmarking, BPR, transformation, downsizing, rightsizing? The paperless office concept preceded the biggest rise in the sales of office printers ever.

    This demonstrates how the oft-made claim that "technology is the driver" does not stack up and will cost you if you allow your company to be taken down that route. This claim is being made about the Internet. Gerry Harvey recently expressed his belief that most Internet companies would go broke. Internet B2B may promise something. But so did EDI. If your company is planning to get involved with Internet B2B or is already, then you better do your sums very carefully.

    The new performance jargon promotes effectiveness and efficiency, performance parameters that are incompatible with innovation and risk. Effectiveness links outputs to intended outcomes and efficiency links outputs with inputs. All easy to measure if you are auditing predictable processes.

    In its very nature, innovation involves uncertainty and uncertainty does not lend itself to audits. Paradoxically, with our two preceding case examples, management purported to exercise control and minimise risk, yet lost control and wasted financial resources precisely through the process that was intended to achieve opposite outcomes.

    Personality parameters

    Just what are the personal social parameters that characterise this class of managers. How does one explain the ready acceptance of the new and generally unproven management theories, a desire for simple answers to complex or any problems, intolerance of intractable staff and wasting of human resources and resistance to uncertainty and risk taking? I suggest that the following traits typify the new managerial style:

    * Intolerance of ambiguity, in that all elements of a problem must make sense before acting.

    * Close-mindedness, as in a tendency to ignore unpalatable information.

    * Dislike of trials or tests, unless they come with the approval of the latest management methods promoter.

    * Appeal to relevant authority figures, in this case, the promoters of the new management paradigms.

    * Insistence on standards that are moreover an insistence on group conformity.

    * Inability to profit from past experience, or those of other people.

    * Over-identifying with one solution paradigm, such as those listed previously and now with on-line technology and the Internet.

    Technology as a driver

    The attachment to this idea that the Internet is the solution to just about every business problem in Western economies and now third world countries brings to mind the craze over investment in tulip bulbs in Holland back in the 1600s. Over the course of a few decades, the price of Dutch tulip bulbs went through the roof. Investment in the then old economy was directed to tulip bulbs. People at all levels of society dabbled in tulips. Everyone was an expert. Eventually that market fell over, the Dutch economy went into a prolonged depression and few were spared.

    Technology can never be a strategy. The best it can be is a tactical tool. But some managers cite the Internet as their strategy. Some consultants have also moved in, setting up e-commerce consulting groups. Paradoxically, while organisations are touting their intended use of Internet technology, they may consider just how well they are really administering their existing IT assets [refer "Do Your Computer Systems Earn Their Keep?" Company Director, April 1999].


    The opportunity to profit from prior experiences has diminished. With the loss of an organisation's experienced staff comes the loss of organisational memory and the opportunity to learn from those who previously climbed the ladder. True mentor support has been replaced with "leadership conferences". Very few organisations now use mentors and where they are used, their use is restricted.

    "How can the ability to lead depend upon the ability to follow? You might as well say that the ability to float depends upon the ability to sink" - the Peter Principle.

    Edward DeBono expressed much the same thing differently with his Catch 24 that states that "in order to reach the senior position in an organisation, an executive needs to have kept hidden - or to be without - exactly the skills he will need when he gets there".

    The best managers are strong, capable and experienced. The worst managers may be strong but without talent, or perhaps capable but lacking drive. Most mediocre managers who rise up do so by being good followers. There is nothing more discouraging to a company's workforce than to see a manager elevated to a higher position to which they are not the equal.

    Les Lothringer is a management consultant and implementation project manager for commercial and industrial technology, e-mail:


    The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.

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