We don’t usually think of Peggy Noonan as a management thinker. But she has an insightful paragraph on management in her Wall Street Journal column on Friday:
There is an arresting moment in Walter Isaacson's biography of Steve Jobs in which Jobs
speaks at length about his philosophy of business. He's at the end of
his life and is summing things up. His mission, he says, was plain: to
"build an enduring company where people were motivated to make great
products." Then he turned to the rise and fall of various businesses. He
has a theory about "why decline happens" at great companies: "The
company does a great job, innovates and becomes a monopoly or close to
it in some field, and then the quality of the product becomes less
important. The company starts valuing the great salesman, because
they're the ones who can move the needle on revenues." So salesmen are
put in charge, and product engineers and designers feel demoted: Their
efforts are no longer at the white-hot center of the company's daily
life. They "turn off." IBM
[IBM] and Xerox [XRX], Jobs said, faltered in precisely this way. The
salesmen who led the companies were smart and eloquent, but "they didn't
know anything about the product." In the end this can doom a great
company, because what consumers want is good products.
Don't forget the money men
This isn’t quite the whole story.
It's not just the salesmen. It’s also the accountants and the money men
who search the firm high and low to find new and ingenious ways to cut
costs or even eliminate paying taxes.
The activities of these people further dispirit the creators, the
product engineers and designers, and also crimp the firm’s ability to
add value to its customers. But because the accountants appear to be
adding to the firm's short-term profitability, as a class they are also
celebrated and well-rewarded, even as their activities systematically
kill the firm’s future.
In this mode, the firm is
basically playing defense. Because it’s easier to milk the cash cow than
to add new value, the firm not only stops playing offense: it even
forgets how to play offense. The firm starts to die.
If the firm is in a quasi-monopoly position, this mode of running the
company can sometimes keep on making money for extended periods of
time. But basically, the firm is dying, as it continues to dispirit
those doing the work and to frustrate its customers.
As the managers find it steadily
more difficult to make money playing solely defense, they become
progressively more desperate and start doing ever more perilous things,
like looting the firm’s pension fund or cutting back on worker benefits or outsourcing production to a foreign country in ways that further destroy the firm’s ability to innovate and compete.
There is another way
What’s interesting is that Steve Jobs lived long enough to show us at Apple
[AAPL], in the period 1997-2011: what would happen if the firm opted to
keep playing offense and focus totally on adding value for customers?
The result? The firm makes tons and tons of money. In fact, much more
money than the companies that are milking their cash cows and focused on
making money. Other companies like Amazon [AMZN], Salesforce [CRM] and Intuit
[INTU] have demonstrated the same phenomenon and shown us that it’s
something that any firm can learn. It’s not rocket science. It’s called radical management.
Fifty years ago, “milking the cash
cow” could go on for many decades. What’s different today is that
globalization and the shift in power in the marketplace from buyer to
seller is dramatically shortening the life expectancy of firms that are
merely milking their cash cows. Half a century ago, the life expectancy
of a firm in the Fortune 500 was around 75 years. Now it’s less than 15
years and declining even further.
Why do managers keep on this path
that is systematically killing their firm? For one reason, it’s more
difficult to add value than to cut costs. For another, the executives
have found ways to reward themselves lavishly.
As Upton Sinclair has noted, “It is difficult to get a man to
understand something, when his salary depends upon his not understanding
it.”
Via: news.yahoo.com
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