clair015

Sometimes, management practices, intended to improve the functioning of the organisation, have unanticipated consequences. Sometimes these consequences are negative, but also only apparent in the long-run, making firms adopt techniques which are really not very healthy for them (at least in the long-run). Take ISO9000. ISO9000 certification constitutes a process management technique through which firms are expected to follow (and document) a number of procedures, aimed at creating consistent, efficient processes, in which best practices are standardised and deviations from the best practice are avoided. It leads to efficient, high-quality products with minimal digression from the standard. This all sounds very logical, justified and desirable, right?! So what am I whining about? Well, professors Mary Benner from the University of Pennsylvania and Mike Tushman from the Harvard Business School examined what happened to the innovation output of firms adopting ISO9000 techniques. They col...

In your firm, when you come up with an idea for a new product line or service, or some other project that you think has great potential and want your company to invest in, what do they want to see? My guess is it’s “payback time”, a “net present value” calculation, or some other number in a business plan, right? And if you can’t produce the numbers, you won’t get the dosh. But that’s also a bit of a problem; sometimes the most promising projects with long-term strategic implications are exactly those that are impossible to quantify. Take Intel’s invention of the microprocessor. In the early days, when they were working on and (quite heavily) investing in it, did they have a business plan, a net present value calculation and a payback time? Heck no. They didn’t even know what they were going to use them for – they had no sense of a potential explanation (dreaming of sticking them into handheld calculators and lamp-posts) till IBM showed up and worked hard to convince them that putting t...

Established, very profitable companies often find it difficult to remain innovative (which may get them into trouble in the long run). In contrast, entrepreneurial, innovative companies often find it difficult to start producing efficiently and make a healthy profit out of their inventions. That is because the organisation required to be creative and innovative is usually quite different from the organisation that is suited for efficient, mass-scale production. Professor Jim March from the Stanford Business School eloquently put it like this: he said there is a fundamental tension between “exploitation and exploration”. Exploration involves innovation and creativity, which often requires a high level of autonomy for people in the organisation and a flat organisational structure. Exploitation is associated with words such as productivity, efficiency and control, which requires hierarchy and clear rules and procedures. If a company is financially successful, exploitation often starts to ...

Quite often, when I interview or just talk to a manager about his company and try to figure out why they are organised or managed in a particular way, I hit upon something which I don’t understand. Some practice, management technique, service specification or incentive system from which I simply fail to grasp why they do it like that (just to name a few candidates: detailing in pharmaceuticals, buy-back guarantees in book publishing, insane working hours in investment banking). And when then I ask (“I am not sure I understand; can you explain a bit more?”), I often get a long and winding answer (which suggests to me that they don’t quite know it either…). And when I then, stubbornly, poke a bit harder (“sorry, but I still don’t get it…”), the interviewee might get a bit annoyed, after which very often I will receive the momentous reply “look Freek, everybody in our business does it this way, and everybody has always been doing it like this; if this wasn’t the best way to do things, I ...

In the 1960s we saw a wave of “diversification” among corporations, resulting in the emergence of many so-called conglomerates. They operated in all sorts of businesses that often didn’t have much to do with each other. For example, a famous conglomerate in the UK was Hanson Plc, whose divisions operated in activities ranging from chemical factories to electrical suppliers, gold mines, cigarettes, batteries, airport duty free stores, clothing shops and department stores. Diversification was popular and conglomerates flourished. In the 1990s though, the trend reversed, and we witnessed a wave of de-diversification. Firms started to focus on their “core activities”, companies were split up, conglomerates were dismantled, and diversification was generally regarded as unfashionable, evil and simply not-done. What led the trend to reverse? Economists have argued that it was shareholders fighting back. Shareholders can diversify their stock portfolios; they don’t need companies to do that fo...

In general, CEOs seem just like normal people. Some of them are nice, some of them unpleasant; some of them are modest, others are nauseatingly self-obsessed; some of them are bright, others more mentally challenged; some of them are helpful, others are cynically egotistic (and I could give you examples of each of these). Most of them are quite rich though… And most of them are men. Yet, over the years, I have also interviewed quite a few female CEOs. Barbara Cassani when she, way back when, was the CEO of Go Airlines (later acquired by Easyjet), Sly Bailey , when she was still CEO of IPC Media (now she is the CEO of the newspaper group Trinity Mirror), Gail Rebuck , CEO of the book publisher Random House (who confirmed the famous story that she signed a big contract when she was in a hospital bed giving birth) and, very recently, Stevie Spring , CEO of magazine publisher Future, and Ruby McGregor-Smith , CEO of the large property services company MITIE. And they are all so nice…! I me...

Whenever people hear that I am a professor at a business school, the reply I most often receive is “oh, so you teach people how to make money…?” And I usually nod while I display a weak smile and abide in silence. Some time ago though, I was teaching in New York, at Columbia University’s business school , and took a taxi from JFK airport. The driver, starting a polite chat, said “what do you do?” “I am a professor at a business school” “so you teach people how to make money”, “yeah (sigh), I teach people how to make money”… But then, the guy continued, “so, what’s the answer?”…. That was a minor credibility crisis, right there on the spot… I don’t remember what I said, but I remember thinking later what I should have said. It is about “creating value” (and selling it for more than it cost you to create) but also about “retaining value” (namely, why wouldn’t anyone else be able to come in and do exactly the same thing – driving the price down till you can only sell it for what it cost y...

Can you have a useful R&D department that is perfectly useless? Perhaps I should explain the question... Most R&D departments are supposed to generate new technologies, products, processes, etc. But not all do. Some R&D department seem to never come up with anything that makes it to market. Clearly a waste of money, these lab-rats, right? Well, maybe not. For a long time, economists and other folks studying organisations assumed that R&D departments are supposed to come up with stuff. And only if they come up with good stuff – which eventually makes it into a sellable product and reaps a profit – is an R&D department worth the investment. Clearly, if they never come up with anything at all, that’s money down the drain – or at least, that’s what everybody assumed. Then, two professors of strategy (note, not economists!), Wesley Cohen and Daniel Levinthal , discovered an interesting insight. To put it in a simplified nutshell: sometimes, firms with R&D departments...