How to make the most of it

The most important innovations of the past century""antibiotics, vaccines, automobiles, planes, telephone, and the television, computers, etc.""could not have taken hold so rapidly or spread so widely without the discipline of management.

One of the world's most admired managers, GE's Jack Welch, consciously rejected the word manager. It carried too much bad luggage; it smacked of control and bureaucracy. His call for leaders struck a responsive chord. Around the same time, Peter Drucker also backed away from the label, shifting instead to executive.

The name change helped to clear the way for a new attitude, a new focus on performance, and what it takes to produce it in a modern economy.

This book is divided into two parts: the first part, "Design", deals with the big picture. Why do people work together and how? The story begins in chapter 1 with value creation. Value creation answers the why part of management's basic question.

Value creation is the animating principle of modern management and its chief responsibility. Value comes from many sources""from a product's usefulness, quality, the image associated with it, availability, the service that accompanies it, etc. An organisation's business model lays out how it will accomplish its purpose, the system of players it must depend on to create value.

This is the subject of chapter 2. American Express started out as a regional freight express business in 1850. What American Express did was to invent the traveller's cheque and, in the process, one of the most valuable business models of the past 100 years.

Also, one of the best business-model stories of the past two decades has been that of the Dell Computer Corporation. Dell didn't need plants and equipment to build the components, nor did he have to invest in research and development.

The customer got exactly the configuration he wanted, and Dell avoided the reseller's markup. The success of Dell's business model demonstrates the extent to which even products are behaving more and more like services. It has given Dell a direct link to its customers.

"Strategy" (chapter 3) addresses how that system will differ from competing alternatives and, by doing so, create enough value to satisfy its owners and to be self-sustaining. WalMart's key strategy in Sam Walton's own words "was to put good-sized stores into little one-horse towns which everybody else was ignoring".

So, by being first, Sam was able to preempt competitors and discourage them from entering WalMart's territory. He watched expenses like a hawk, making frugality and continuous cost reduction a way of life.

Even though he was one of the world's richest men, he'd often walk instead of taking a cab, or double up in a hotel room to stay within budget. Logistics also became a key factor in WalMart's ability to deliver low prices, thanks, in part, to the geographic strategy the company pursued. WalMart pioneered called cross-docking. Goods from a supplier's truck went seamlessly from an unloading dock directly into a truck bound for the stores.

Chapter 4 completes the answer to the question by placing the people who work together inside (or outside) the organisation's boundaries, and establishing the rules of engagement that will best align all the players in the common pursuit.

Under Sloan's leadership, GM's market share grew to 45 per cent by 1940, while Ford's dropped to 16 per cent. Henry Ford made fun of GM's organisation chart. This was sour grapes. Sloan's strategy and the organisation capable of executing it succeeded brilliantly. Toyota's competitive advantage in cost and quality arose directly from its organisational practices.

They presented an alternative to Detroit's command-and-control structures: its shop-floor hierarchy, its functional silos, and its vertical integration. Instead of seeing management as the source of all innovation, Toyota's continuous improvement depended on participation from everyone.

India's Aravind Eye Hospital is a mission-driven organisation whose success illustrates the kind of impact that can be achieved when the lines of organisation are drawn in support of strategy. Aravind has made smart choices about scale, scope, and structure since its founding in 1976 by a retired eye surgeon, Dr Govindappa Venkataswamy.

Within 25 years, it has become the largest provider of eye surgery in the world, performing 180,000 cataract operations a year, 70 per cent of them for free. Cataract surgery is Dr Venkataswamy's Model T. Focusing on this one "product", Aravind has designed an extraordinarily efficient, high-volume, assembly-line process to produce it.

Translating plans into performance""execution""is the subject of Part II. Chapter 5 looks at how good managers know which numbers to focus on and why basic numeracy is so powerful.

Chapter 6 explains how good performance metrics do this and, thereby, make an organisation's real bottom line clear. Chapter 7 looks at how management deals with another of its imperatives: balancing short-term and long-term performance.

Managers must also keep themselves and everyone else focused on the critical tasks at hand, making sure that resources are deployed where they are needed, and that the organisation is constantly moving forward. This is the subject of chapter 8.

The author maintains if management had its own golden rule, it would be this: Trust others as you would have them trust you. No value is more universally and loudly proclaimed in organisation than respect for the individual.

First, it means accepting that each person is different, and, therefore, good at different things. What matters most to performance is getting the right individual for the job. An organisation can have the noblest mission and the best strategy in the world but, without the right people, it will never succeed at execution. 

WHAT MANAGEMENT IS

Joan Magretta
Free Press
Pages: 243
Price: $25