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Download About Management - The Telegraph of March 26, 2007
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Transcript
FOR “COMMENTARAO” IN THE ‘TELEGRAPH’ OF March 26 2007 “About Management” by S L Rao (Summarized from “Servants to Masters? The Evolution of Management in India”, Global Business Press, 2007) Professors of management of Indian origin are making huge advances in management concepts and practice. Sumantra Ghoshal, a simultaneous PhD from both Harvard and M.I.T, worked in Indian Oil before study abroad and then teaching at INSEAD the London Business School was among the best of them. He died at 58. I was Course Director of the Advanced Management Programme in Bangalore for AIMA. The second week was his week when he mesmerized the class with practical theory. Ghoshal focused on the management of change and the process of corporate revitalization. He tried to answer the question as to what are the key factors that influence an organization’s ability to achieve radical improvement and surf a rapidly changing business environment. A theme that he was exploring was that market economics failed to take account of “human intentionality”, the element that enables management theories to become selffulfilling. “A theory that assumes that managers cannot be relied upon by shareholders can make managers less reliable,” he wrote. William Lazonick writes that the so-called ‘free’ market in the West and in Japan is the product of considerable government support and interference. Ghoshal’s concept of social capital was that the value of an organization’s workforce can be more than the sum of its parts. Corporations had to move from an industrial-age emphasis on “strategy, structure and systems” to a modern-age emphasis on “purpose, process and people”. Thus, the corporation was not a mere consequence of market imperfections but at the heart of the “organizational economy”. He took issue with just about everything currently done in management including and especially the role of business academics. Ghoshal wrote: “We - as business school faculty - need to own up to our own role in creating Enrons...It is our theories and ideas that have done much to strengthen the management practices we are all so loudly condemning.'” Recent company excesses had their roots in ideas developed in business schools over the past 30 years. If managers were seeking ever-more inventive ways of boosting share prices, paying themselves over the odds for doing so and offloading the costs on to society, they were just doing what business-school courses on strategy, transaction cost economics and agency theory had taught them. The conclusion is obviously that managers have to work for more than maximizing shareholder value and have responsibilities that transcend market valuation alone. It is possible that market valuation is more sustainable when embedded in strong ethics, value systems and social responsibility. Ghoshal said that there was an unspoken academic project to make business studies 'respectable' by removing the subjectivity of analyzing company behaviour in terms of human choices and actions. Instead, they looked for explanations in impersonal patterns and laws. Management teaching tried to create a kind of business physics. The pretension to science excludes moral or ethical dimensions from management since they are about intentions, not subject to modeling or quantification. Management academics want only to admit strictly economic motivations. They can be quantified. Establishing shareholder value as the one true end of management reduces all the complex variables that go into corporate life to a neat set of equations. However, the laws of physics are blind; humans and their organizations have intentions and choices and employ strategy - one-step back, two steps forward - that are not available in the natural sciences. Managers who treat people as opportunists taking chances, encourage opportunism that justifies ever-tighter controls. Governance that assumes managers are untrustworthy when it comes to maximizing shareholder value without hefty incentives, breeds managers who require huge stock options. Strategy based on the idea that maximizing profits involves a battle for value with employees, partners and society, generates corporate monsters such as Enron, which do in fact distort competition and eventually destroy themselves. To “really wish to reinstitute ethical or moral concerns in the practice of management, we have first to reinstitute them in management theory”. He said, intellectually, top management understands the need for radical change; they also see some of the first steps they must take; but they do not have the courage to do what they see and believe what they need to do. The real problem is not the intellectual gap in knowing what they need to do. It is the courage gap resulting in not being able to do what they know they should be doing. He said that charismatic leadership is not a pre-requisite for radical performance improvement. Azim Premji or Narayanamurthy who have created the highest value are by no means charismatic leaders. Success has given them a halo. Charisma helps but it is not a pre-requisite. The need is for an ability to inspire confidence in customers, employees, and among the investor community. These people are authentic; they are what you see. That is relatively more important than pure charisma. High performance is not only for sunrise industries. Outstanding performance is possible even in an industry that is shrinking. For example, L.N. Mittal grew his empire by rebuilding sick units to profitability and become the largest producer of steel in the world. Management primarily influences a company’s performance over time. Jack Welch’s ‘‘Control your destiny'' means that if you become better than the best in whatever you do, you develop control over your destiny. Jute has been worst off among Indian industries. Yet, Hastings is creating new capacities, building new mills because they are breaking through the traditional logjam of owners versus employees, owners versus trade unions, and so on, to build partnerships to a shared destination. Ghoshal often talked of 'the smell of the place'. The problem with most companies in India is that their environment saps away all the energy and creativity. The challenge for managers is change to an invigorating smell that releases entrepreneurship captive in the company. The dot.com bubble taught that money is not a scarce resource. The real scarcity is of human capital; the real issue is true value creation. The CEO must recognize that capital is not the fundamental issue; it is people and changing continuously. (1022)