THE PRACTISE OF TOP MANAGEMENT

PART THREE

TRANSACTIONAL AND NURTURING LEADERSHIP STRATEGIES.

In the previous section, we asserted that there are two essentially different strategies that can be adopted by corporate leaders - to direct the enterprise as though it is essentially made up of assets which can be increased in value by being bought, sold, manipulated and added to; or to treat the enterprise as though its central core is a productive human community, and to act on the business through close involvement with the organisation.

In making this distinction, we realise that some will feel that we are being too simplistic, but we believe that it is a distinction well worth making, because it highlights fundamentally different philosophies of doing business - one of which is currently dominant in the financial markets, press and business academe.

Transactional Strategies.

Underpinning a transactional philosophy of management are a number of fundamental assumptions:

• The business is owned by its investors, who have the overriding right to decide what should be done.
• Managers should be responsive to investor needs, or suffer the consequences.
• The value in a business resides fundamentally in its assets. These should be readily traded or converted into money.
• People are a doubtful asset, as their value cannot be accurately measured.
• What can be measured, however, is the cost of employing people.
• 'Strategy' is devised by top managers, often supported by strategy consultants and is then managed, or 'cascaded' down through the company.
• Everything is conditional: the best businesses are in a state of constant upheaval and change.
• Top managers ought to be high-profile, outward-facing, decisive and active.
• Change is best driven through organisations by strong, charismatic figures.
• Managers will become stale and run out of new ideas if they stay too long in one company.

Managers who fit the profile above are likely to engage in the following activities as their primary means of getting things done:

• Focusing remorselessly on actions that will enhance the 'bottom line' visibly and quickly.
• Devising new strategies that will 'transform' the business, enacting them fast, often through,
• Portfolio management - changing the shape of the business by buying and selling assets, usually described as 'M&A'.
• Organisation change and restructuring, usually driven by cost reduction. Cost reductions are normally a result of top-down 'reviews' that lead to significant job hits, the bigger the better.
• 'Driving' the organisation from the top down.
• Hiring top people, not growing them, and firing those who do not fit.
• Maintaining a high profile with key external influencers, primarily in the financial markets and the press.

Nurturing Strategies.

Practitioners of this philosophy do not often capture the headlines - in fact, they tend to be categorised as 'boring' in some quarters. Because the essential focus of such managers will tend to be on the organisations that they lead, and the customers that those organisations serve, most of their work will be invisible to external observers and the signs of their success or failures difficult for such observers to directly measure, especially as results come as a consequence of the efforts and quality of the whole organisation, rather than a few high profile actors. Also, there will usually be a time delay between the actions of such managers and the results achieved.

Some examples of the practise of this philosophy might help understanding.
Henry Mintzberg of Mc Gill University described the behaviour of John Cleghorn, CEO of the Royal Bank of Canada as follows:

"John Cleghorn's style of management is unusual for someone in his position; he is very involved in the operational details of the bank. He's been known to call from the airport to report that an automatic teller machine is not working. He sold the corporate jet - he says that he was uncomfortable with it - as well as the chauffeured limousines. All senior executives, Cleghorn included, are expected to spend at least 25 per cent of their time with customers and front line employees."

"In his meetings with employees, Cleghorn aimed to gather information, but also to send signals about the organisation, whether by encouraging long-term employees, congratulating people for their presentations, infusing his energy into the organisation, or constantly describing the values that he finds important. Rarely did he exercise the CEO's prerogative to control on this particular day. Rather, his role was to encourage and enable, with the individual (motivating and coaching), the unit (team building), and the organisation at large (culture building)."

"His strategy approach appeared to be one of crafting: to foster a flexible structure and open culture, to see the strategic implications of initiatives, and to integrate them with the overall vision. That requires his detailed, nuanced knowledge of the organisation.

"Of course, this approach, based on rich, grounded information, does not make someone a strategist: that depends on one's capacity for creative synthesis. But, I believe that such a style of managing is a prerequisite for developing strategic insights. It is the ability to move between the concrete and the conceptual - not only to understand the specifics but also to be able to generalise creatively about them - that makes a great strategist".

Mintzberg concludes, "Such is the practise of management as a craft - low key, involved, warm, focused.......It may not make the headlines, but it seems to work."

Are Mintzberg's insights invalidated by the fact that they seem to be very much at odds with the popular conception of the practise of top management as put about by those who dominate the channels of communication to the public and who make the most noise?

Well, it seems that serious researchers who have tried to find out what the managements of the most successful long-term performers really do come to just about exactly the same conclusions.

John Kotter, in his famous study of senior leaders that resulted in "The General Managers' concluded that what he saw in the behaviour of the most successful was:

• Possession of deep organisational and industry knowledge, with special sets of skills, interests and relationships that fitted the context that they were in. (Good people do not necessarily manage every type of business well).
• Personally keeping on top of a very large and complex set of activities and identifying problems that may get out of control.
• Managing a huge and diverse range of relationships in order to gain support from those with power and influence, get lateral support from those they could not control and being in constant contact with subordinates at many levels to hear their intelligence and send signals about what was important.
• Setting and constantly reviewing objectives and priorities and the allocation of resources in the light of flows of information, the most important of which came from contacts and word of mouth, rather than formal channels.
• Dealing firmly with underperformance, conflicts and difficulties with resolution and understanding.

Porras and Collins in their book, "Built to Last", describe the same range of behaviours in the best and most durable companies - commenting additionally that, in general, the best corporate managers are not charismatic superheroes, travelling from one challenge to the next, but dedicated corporate careerists who are closely bonded with the organisations that they lead and know so well. They even observe that Jack Welsh, the much-feted CEO of GE, was only one in a long line of extremely capable leaders of that company, and possibly not even the best!

Closer to home, 'Management To-day recently interviewed Sir Terry Leahy, the CEO of Tesco, one of Britain's diminishing group of great big companies, observing exactly the same patterns of behaviour, to wit:

• Total dedication to Tesco and its business.
• Clear focus on managing through the organisation and its staff - plus a strong identification with customers.
• Lack of pretension and visible signs of status, such as chauffeured cars and company aeroplanes.
• Disinterest in taking on external directorships, in the belief that Tesco was sufficient challenge.
• 'Crafting' strategy from a deep knowledge of his organisation, customers and the competitive dynamics of his industry.

In fact, commented the interviewer, Mr. Leahy seemed to be a rather serious, ordinary sort of fellow with a great determination that Tesco should do well - not at all in the heroic mould, even a mite 'boring'!

Last, we had the privilege of working closely with Jim Fifield, who led EMI Music from being a sorry industry loser to an industry leadership position.
Again, Fifield demonstrated many of the characteristics described in others, to wit:

• Strong dedication to his industry. (He was once castigated for reading 'Billboard' through a Thorn EMI board discussion on the defence electronics industry. When asked about his views on the defence division, he lowered Billboard and commented that he only wished the division would produce less videos of rockets with flames coming out the back, as it upset the artists!)
• A remorseless capacity to express and repeat his business philosophy and model for managing the business, until even the most recalcitrant subordinate found himself practising a new set of management skills.
• A mild contempt for synthetic information and fondness for finding out what was going on through contact and relationships with subordinates.

One of his maxims was that a good subordinate would know what he, Fifield, valued, and act autonomously in line with this understanding - with the proviso that the subordinate would also call him when it mattered because they both knew the few critical matters which they needed to discuss before acting.
A second was that he valued "Words, not numbers - and the most important words were verbs." He wanted to know what people were doing, because if they did the right things, the numbers would follow.

Contrasts between Transactional and Nurturing Strategies.

• Investors represent such a wide range of different needs that trying to suit them all would result in organisational chaos. Therefore, they should be regarded as one vital stakeholder - whose interests can generally be best met by serving customers competitively through a superb organisation.
• Transactions should not be the dominant business strategy, but may be appropriate in some circumstances, provided there is a strong enough organisational and cultural 'platform' to assimilate new acquisitions.
• Cost reduction is an essential part of running a business, it should be a continuous and progressive process, supported by adequate capital investment and training to enable people to be as productive as possible, not pursued through sporadic campaigns.
• The functions that design, make and sell are the front line of the business and therefore the most important.
• It is critical to invest continuously in the infrastructure of the business and not be deflected by short-term setbacks.
• Continuity of leadership is essential, unless external circumstances are exceptional.
• 'Creative destruction' is predominantly a myth - a well-founded organisation can adapt and live for a very long time - most company demises are the result of incompetence, abuse, neglect or investor indifference and short-term gain.

We hope that readers will recognise fundamental differences between the two philosophies that we have described. As a postscript, we would observe that it is almost impossible to move successfully from a predominantly transactional strategy to a nurturing one, whereas it is quite possible to weave transactional threads into a predominantly nurturing approach.

Next, we will examine the consequences of adopting the different philosophies on the performance and survival of enterprises.