Download About Management - The Telegraph of March 26, 2007

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)