‘Many managers are suckers for the guru who can provide the philosopher’s stone’

Managers like all of us are also suckers for easy answers. “Management as a discipline is in very early stages of development. The equivalent would be the subject of chemistry as it was in the fifteenth-sixteenth century when it was alchemy. For centuries people were looking for the philosopher’s stone which was some kind of catalyst which could turn base metal into gold. Management is a bit like that. So many managers are suckers for the guru who can provide the simple answer,” says Robert Grant. He is a professor of strategic management and holder of the ENI Chair of Strategic Management in the Energy Sector at Bocconi University in Milan, Italy. He is currently in India teaching a course on strategy to the first batch of students at the Mumbai International School of Business, an initiative of the SDA Bocconi School of Management in India. In this interview he speaks to Vivek Kaul.
You have talked about the fact that the knowledge and insight needed to make sound strategic decisions and guide the development of their organisations is best served by strategy teaching that is rooted in theory. What do you mean by that?
Some people would reject the whole notion of business education. Some would say that the best way to become a successful manager is to learn on the job i.e. there is no substitute for experience. Part of the whole notion of having a business school is to say that actually there are principles, and there are things that can be learnt from an analytical approach.
Can you explain this through an example?
You have individuals who appear to be successful managers and the question is what can we learn from them. Can we in anyway generalize about this? So you look at Apple and you say is Apple all about Steve Jobs? Then what was his leadership style? Here is a quirky individualistic, unconventional and a very autocratic management style. And you ask why has this worked? You look at a different company like IBM and its former CEO Sam Palmisano, who had a very different leadership style. You start looking at all these examples and say can we see patterns. Can we see something that we can generalize? Soresearch tries to generalise for this diversity of experience and then the teaching says that here are some principles that we can start applying.
You talked about Steve Jobs and Sam Palmisano two people with very different leadership styles. Which style works more often than not?
Palmisano fits in with a more observable trend you are seeing in large companies where leaders are becoming less the people who make the key decisions. The problem is that most organisations are so complex that the CEO knows maybe 2% of what is going on in that organisation. Also these days businesses have to respond so quickly that they can’t wait for the stuff to get to the CEO level before decisions can be made. So you have to have highly decentralized decision making. So what then is the role of the CEO? Increasingly the role of the CEO is to manage culture and manage the development of people within the organisation, rather than to take the role of the decision maker.
So where does that leave the likes of Jobs?
In many ways Jobs may well have been the one of the last of the old school. This was somebody who was very very hands on. In the early days he was the designer. At one level he was the Chairman of Apple Computers but he was also the project leader on the projects. He was very deeply involved in tiny details which he was incredibly emotionally attached to. So I think in terms of models of leadership probably companies are making some serious mistakes if they say the Jobs way is the way to go.
At some level he was also the biggest marketer of his company…
Yup. He was a great marketing guy because he was the founder of this incredibly successful company that was a major part of a social revolution that took computing, something that had been dominated by governments and large corporations, and taken it down to young people. He empowered young people.
So how do you see Apple performing now that he is not there to lead them?
The case with Apple is like all companies that have visionary powerful founders who go on to be their leaders. The key is can that intuition and vision of the founder, become embodied in the capabilities of the firm. The fact is that Jobs had from several years before his death increasingly distancing himself as the chief decision maker of the firm. This must mean that in terms of the culture of the company, the systems by which the products are designed, how they understand the market, technology, their users, and many of the intuitive level skills that Jobs had, have actually become embodied in the capabilities of the organisation. It’s the same with every entrepreneurial company. Can the company make the transition from a company which is entrepreneur led, family led, into an organisation which is professionally managed but has managed to embody those skills.
Does that happen?
It does happen. You look at Walt Disney. The values and the quest for quality entertainment orientated towards children and families is something that has become embodied in the set of capabilities at Disney. Wal-Mart has a culture where cost efficiency is almost like a religion. Avoiding all waste and looking for new solutions to keep costs down, was something that was a part of the protestant upbringing of Sam Walton. But it has been transferred into the company. So I think it does happen. And it has to happen if the company is going to make that transition.
In one of your research papers you write “I frequently observe a propensity to fall back on ideas and beliefs that amount to little more than folk wisdom.” Could you talk about that in a little detail?
Management as a discipline is in very early stages of development. The equivalent would be the subject of chemistry as it was in the fifteenth-sixteenth century when it was alchemy. For centuries people were looking for the philosopher’s stone which was some kind of catalyst which could turn base metal into gold. Management is a bit like that. So many managers are suckers for the guru who can provide the simple answer. Hence, all the time you have people coming up with the philosopher’s stone. These fads in management come and go. Go back to the late 1970s and the early 1980s market share was the in thing. If you need to get anywhere in business you need to have market share was the in thing. The way to get market share is penetration pricing. This is what the Japanese companies were doing. So that was the sort of thinking that dominated that era. It made sense but not in others. Since then we have had wave after wave of notions, typically given tremendous appeal by the fact that people espoused them are usually fantastic performers. People like Tom Peters for example.
I was about to take his name…
HaHa. To give them their credit most of them have a key value but it is all within a context. One of the ones that was most influential was CK Prahalad and his core competence of the corporation. For many business leaders this was a kind of a revelation that rather than going out there thinking about what does the customer want, it made more sense to start looking inside, what the hell do you well as a company? The article was written 22 years ago and now you look back and say, core competence, that is just one single thing. Now when you look at companies you say there is a whole network of things and the key is the way in which they all fit together. The tremendous danger is this belief that there can be a single idea that provides a universal solution.
How does folk wisdom prevalent in organisations at various points of time influences decisions made by senior executives in companies?
If you look at the lead up to the financial services crisis a phenomenon that you saw particularly among the retail banks was internationalizing. So nearly all the US banks, and major European banks said, we have to have a position in China. They bought minority stakes typically in Chinese banks. Look at Royal Bank of Scotland, which was a Scottish bank, and present only in Scotland. Then it acquired NatWest in Britain. Then they started acquiring banks elsewhere in Europe, in United States and Asia as well. Bank of Santander did the same thing. HSBC internationalized as well. Other banks like the UniCredit Bank started to say we need to get into the game. I remember having this executive seminar with one of the Italian banks and I asked them what are you doing right now? And I was told we are internationalizing. And when I asked them why? Because we are living in a global world, was the answer that came along. So what? This sort of notion of globalisation just takes hold of people and it almost becomes an excuse for not really thinking about what really makes sense.
So globalisation is the current fad…
It is one of the current fads. The question that needs to be asked is globalisation creating any value for many businesses? In the case of retail banking you acquire banks in different countries. Then you ask are there any benefits of having them under common ownership? For starters you have to put them under the same brand. But then the regulations in different countries are different. Hence banks in different countries have to be separately funded. They have to meet the reserve requirements specific to that country. The markets are very often different and so you can’t launch the same products. So you say, well hang on, does this make sense? The same is true about telecom. Vodafone is the most international company and yet in every country it has to acquire licenses, has to establish structure etc. So the question is where are the economies of scale? So they say, maybe the economies are in sourcing. And then you start sourcing phones on a global scale. But in Japan they want Japanese phones simply because those phones had higher standards than what consumers in the UK were happy with. So you start saying where is the value being added here?
Vodafone hasn’t been doing terribly well in India…
Another of the link to this globalisation is to say where do we need to be internationally? Emerging markets. Why do you need to be in emerging markets? Because that’s where the growth is. But growth doesn’t necessarily mean profitability. All those banks that went into China most of them have sold of their holdings now. The car companies are still rushing into China building plants. In China they growth of capacity in automobiles is faster than the growth of demand. So you have the same excess capacity that you have in Europe and North America and so most of these companies are not making money in China. When it comes to telecom the emerging markets are pretty much close to saturation. India has a brutally competitive market in telecom. This is not a market where France Telecom or AT&T can say hey if we move in we are going to make a lot of money. To a lot of extent there is this sort of naïve thinking that just because you are in a growth market you are going to make money.
What has been the impact of increased volatility and unpredictability of the business environment in the last few years upon the strategic planning processes of companies?
What this means that you can’t forecast. So you have to have a planning system which is based upon the notion that actually you don’t really know, what is going to happen next week, let alone next year. And that is a major challenge. Though you don’t know what the environment is going to be you still need to make investments. The oil companies are making investments in oil fields and majorly into gas fields. These fields aren’t going to come on stream for another six, seven, eight years and then they are going to last for another 20-30 years. But nobody knows what the price of gas is going to be in six month’s time, let alone in ten years.
So the companies need to function more and more like venture capitalists?
I think you are onto something here. What companies increasingly need to do is not so much as manage a portfolio of major businesses necessarily, but at least have a portfolio of options. So they are looking at the future and saying we don’t know what is going to happen. But maybe we can engage in some in alternative scenarios now and make relatively small investments, so that if the market develops in this way, we can expand on that base and really exploit that opportunity.
Can you give an example to explain that?
Some of the technology companies are quite good at this. If you look at Google and ask what is it doing, you realise that wow it’s all over the place. And yet it is doing things that make sense in an environment of uncertain change. It started Android its mobile device operating system with the realisation that even though it was dominating search within PCs, laptops and so on, the internet access was increasingly going to move to mobile devices in the days to come. So that was a threat to Google because the question was that would these mobile devices be compatible with the Google search engine? So they decided that maybe if we have our own operating system then we can ensure all our applications are going to run on it. Then of course RIM and then Apple became the dominant players in the mobile business. Apple likes its close garden. It likes to control its own applications through its own app store and so on.
So what happened?
Google exercised the Android option, which was basically an embryonic protocol operating system. It then said we are going to launch this, we are going to invest in this, we are going to talk to major handset makers and provide them with the necessary tools to support it and so on. This despite the fact that Android was free and Google wasn’t making any money out of it. But it became a way of ensuring that their Google search engine and other Google products could make their movement into the mobile sector. Then they start saying what are the threats that we face in terms of our desktop applications? We are dependant upon Microsoft because our search engine runs on the Microsoft browser, internet explorer. It also runs on the Microsoft operating system. So again they said lets introduce Chrome. It’s an option. It’s not a massive investment. But it’s their own browser. And then they came up with the Chrome operating system as well. And it becomes an alternative. In fact they haven’t had to make a massive investment in rollout because Firefox’s Mozilla has eroded Microsoft’s clout and Microsoft is no longer dominant in the browser business. That’s one way of interpreting what companies are doing.
This approach you talk about might be possible in technology because expenses are not huge. But what about other businesses?
You look at the oil business. Nobody knows what the price of oil is going to be. Nobody knows if the House of Sa’ud is going to fall. Maybe that could be next domino. Nobody knows if the Israelis are going to bomb the hell out of Iran. So there is all that uncertainty in this business. So companies are hedging their bets. They are making investments in shale gas. They are taking minority stakes. The Chinese are taking stakes in the oil sands of Canada. But most of those are just minority stakes. But it’s enough for them to say that if it looks like that we are going to lose a lot of our upstream oil reserves, if the price of oil is going to rocket, then we are in a position now to understand enough about this business either to expand it internally or acquire a majority stake. Just looking at the options approach it means that you are building flexibility. It is building your ability to adapt.
(The interview originally appeared in the Daily News and Analysis on August 20,2012. http://www.dnaindia.com/money/interview_many-managers-are-suckers-for-the-guru-who-can-provide-the-philosophers-stone_1730122))
(Interviewer Kaul is a writer and can be reached at [email protected])