MBA & Business Education Guide: Spring 2009 - Your mini MBA

You can get your fix of high-quality business inspiration without spending two years back at school. This shortcut to business brilliance is offered by Richard Reeves and John Knell.

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Last Updated: 09 Oct 2013

We know you're busy. Too busy to read many of the thousands of business books published each year. Perhaps too busy to attend more than a few 'professional development' courses. And certainly too pressed to take a year or two out to do an MBA course. You may in any case be sceptical about how much you can learn from the gurus, professors and corporate titans who line up to proffer their advice.

We're with you. Business courses and books can, of course, be enlightening and inspiring. But more often, they are a mixture of the blindingly obvious and wildly utopian. In the years we've been researching and advising on organisational issues, we've realised the value of simply cutting to the chase. No throat-clearing, windy anecdotes or lengthy case studies: just the key insights and killer facts.

But it's also clear that we are writing against darkening skies. In the first half of 2008, the scientific evidence that global warming is reaching a dangerous tipping-point - beyond which any action will be at best remedial - became incontrovertible. In the second half of 2008, the world's financial system shattered, with the loss of mammoth players such as Lehman's, trillions of dollars of taxpayers' money and all confidence in the capital markets. The political economy of the West has been profoundly reshaped. Our MBA is one constructed in clear sight of a broken planet and a broken financial system.

But there's no doubt that the ethos of some MBA programmes is part of the problem, rather than the solution. The high-octane, risk-taking, money-chasing approach favoured by some graduates may have contributed to the overreach of many firms in the run-up to 2008. There's some evidence that business-school students become less ethical in their outlook and behaviour during the course of their studies. Graduates at business school are more likely than their non-business peers to cheat. Education corrupts; business education corrupts absolutely.

The post-2008 world requires a spirit of stewardship in business leaders, and a focus on building businesses that are sustainable both environmentally and financially. We focus a good deal of our limited time on sustainability: for this we make no apology. Our planet is broken, and organisations have a responsibility to help fix it. But it is equally important that businesses are economically sustainable, too - resting on secure financial foundations, emphasising organic growth rather than debt-fuelled M&A activity, and rewarding executives for their performance over a period of years, rather than months. The broken financial system needs a new approach, a new moral philosophy of business.

SUSTAINABILITY

This is not a feature on the curriculum of many MBA courses. Not yet, anyway. But it's a major concern for business leaders around the world. An understanding of the challenges of sustainable living, and a commitment to meeting them, are now prerequisites of leadership. We broke the financial system last year; we've been breaking the planet for decades. Some business schools get it. 'It's not a story of 28-year-olds trying to save the world,' says David Schmittlein, dean of MIT Sloan. It's a story of managing cataclysmic change: 'It's about what our students do and say when they get into these organisations.'

Corporate leaders express concern, too. Says Ben Verwaayen, former CEO of British Telecom: 'Climate change is not an issue that can be solved in competition among businesses. It must be the number one priority for both governments and the business community.' Argues Richard Branson, chairman of Virgin: 'We must rapidly wean ourselves off our dependence on coal and fossil fuels.' Former Wal-Mart CEO Lee Scott claims that sustainability is 'the biggest business opportunity of the 21st century', while Nicholas Stern, the economist commissioned by the Government to examine climate change, warned of the 'greatest and widest-ranging market failure ever seen', if companies fail to become sustainable.

Eight out of 10 FTSE-500 companies consider climate change to present a 'commercial risk' - but the same proportion regard it as a 'commercial opportunity for both existing and new products'. They are right on both counts, but the opportunities have yet to be seized.

Climate change poses three kinds of business risk: physical risks, including rising sea-levels, extreme weather and crop failures; regulatory risks, such as emissions curbs and tougher environmental tax schemes: and reputational risks, as customers, employees and investors go green.

In 2007, Rajendra Pachauri, chair of the International Panel on Climate Change, said: 'If there is no action before 2012, that's too late. What we do in the next two or three years will determine our future. This is the defining moment.' This means we're running out of time, fast.

BUSINESS LEADERS NEED TO:

Assess their exposure to risks - physical, regulatory and reputational - from climate change.

Move to full disclosure of environment impacts, including carbon emissions.

Set demanding targets for carbon reduction.

Lobby governments for tougher regulation, to ensure a level green playing field.

LEADERSHIP

Now for some properly bad news. In what will be seen as the halcyon years before 2008, the lamentable quality of most leadership advice didn't matter much. But now, as we collectively struggle to fix our broken financial system, the need for real reflection on what business leadership means is urgent. The necessary 'remoralisation' of the market will place new ethical and personal demands on leaders. The cult of the CEO, overpaid and overconfident, has come to a shattering end. Business leaders now seem like Shelley's Ozymandias, 'King of Kings'. Their glittering city of a debt-fuelled, finance-driven capitalism has been razed - and leadership will never look quite the same again.

Being a successful leader is less about who you are or what you do than about what you know. The word wiki stands for 'what I know is' and a successful leader's internal wiki includes four key pieces of knowledge: where the organisation is heading; what is going on; who they are; and how to build a strong team.

The first thing successful leaders know is where the organisation is going. This sounds obvious, but plenty of nominal leaders subscribe to the approach satirised by the 19th-century French radical Alexandre Ledru-Rollin as: 'There go my people. I must find out where they are going, so that I can lead them.'

One of the most commonly reported failings of leaders is, paradoxically, an unwillingness to use their authority. This is not a problem for the leaders whose organisations are most successful. They are not bullying or hectoring, but they are authoritative. Authority without arrogance: that's the secret.

Successful leaders build, in leadership expert Jim Collins's phrase, a 'culture of discipline'. They are about getting things done, managing information effectively in order to control costs and marshal resources. If this sounds a little unglamorous for the titans of the corporate world, this is because of the unfortunate division made in recent years between leadership and its slightly grubby cousin, management. The business analyst Warren Bennis wrote: 'Management is about doing things right; leadership is about doing the right things.' It was a much-repeated sentence, and an unhelpful one. Pretty soon, people like Liz Cook and Brian Rothwell were arguing that 'management is a science; leadership is an art'.

The trouble with the leadership/management dichotomy is that it lets bosses off the hook when it comes to constructing good management information systems and scrutinising the results - tracking the development of projects, peering into departmental accounts and generally keeping their arms around the organisation. Once leaders start talking about 'keeping their eyes on the horizon' or 'taking a helicopter view', sell your shares and/or start looking for a new job.

Great leaders also keep in touch with how people are feeling. They don't spend their time worrying whether everyone is happy, but they know what the emotional temperature of the organisation is. The excellent work by Daniel Goleman and his colleagues on emotional intelligence or EQ (which includes Primal Leadership) shows that good leaders are emotionally in tune with the people in their organisation. Knowledgeable leaders understand that people are not machines to be reprogrammed according to the latest strategy document. They understand that change provokes an emotional response, that successful change involves allowing people to feel angry, resentful and afraid as well as excited, hopeful and energised.

Successful leaders know where they are strong, but know their weaknesses too. There's a fierce humility to successful leaders. They know they can't do x, y and z. They do not presume to be all-conquering. They are willing to hire people as talented as, or more so, than themselves to senior positions around them.

Great leaders are motivated by what they build rather than what they get. They build great teams: they surround themselves with talented people. As Harry S Truman reminded us: 'You can accomplish anything in life, provided you do not mind who gets the credit.'

This is one of the reasons why their companies continue to succeed long after they've gone. Often, strong leaders build the team first, then decide where to go. With the right people, you can go to different, better places. Great leaders have a clear sense of where the organisation is going, but very often this is the result of collective decision-making in a talented team. Because the future holds so much uncertainty, a team with the agility to retask, seize new opportunities and question received wisdom is better than a single, dominant vision.

CULTURE

It is a self-evident truth that organisations need to care about their culture. People are simultaneously the most valuable factor of production and the most difficult to engage effectively. Few organisations operate as if they have accepted either of these inconvenient truths.

But it is clear that the labour has a unique ability to create value in the modern economy. As we've moved from an industrial to a knowledge economy, 'hard' physical assets, such as buildings and machinery, have become less important. Intangible assets - such as intellectual property, innovation and knowledge - are the motors of value inside modern enterprises. They now account for up to 80% of the value of large companies. In straight economic terms, people contribute more value to businesses than any other factor of production.

A quick word on the way organisational cultures are created, sustained and altered. All MBA courses contain a 'culture change' module. But this language is not quite right. Organisational cultures grow, rather like mould. Of course, they grow in new directions, as a result of deliberate executive intent or, more often, as a consequence of historical accident. And they are highly resistant to 'culture change' programmes, consultants and projects. It is not big-change programmes that change culture, but the accumulation of thousands of small actions or 'micro-behaviours' over time.

The more senior and powerful an individual, the greater the impact of their own behaviour - for good and for ill. Apologies for the obviousness of this statement, but we have been struck by the number of senior executives who claim that a particular course of action is not possible because 'the culture round here won't allow it'. To which the response has to be: But it's your culture. As a senior manager or executive, you have a huge impact on the culture through the way you conduct yourself every day: a number of workplace studies have shown the sizeable impact of a boss saying 'thank you'. The more senior a position a person holds, the more power they have to shape the culture and climate of their organisation. Few leaders take this power seriously enough.

A community is built on sociability. Small surprise, then, that the most consistently powerful predictor of job satisfaction is the answer to the following question: 'Do you have a close friend at work?' Having a pal at work is vital to a sense of sociability. This finding should be put alongside the evidence that people most often cite their relationship with their immediate superior as a reason for quitting. 'Toxic bosses' remain one of US employees' biggest problems at work, according to a recent Business Week survey. The importance of relationships is clear: people stay for their mates, and leave to get away from their managers.

Communities are built on relationships, which in turn are built on conversations. Most organisations now over-communicate with themselves - not least because of the ease of e-mail - but under-converse. As Theodore Zeldin argues in his book Conversation (Harvill 1998), conversations can go 'off-agenda', lead anywhere, and mix up diverse topics. They are the synapses of the organisational brain - spaces in which sparks are ignited.

But, of course, organisations are not social clubs, places to sit with a cappuccino, flirt, and talk about the weekend. There's stuff to do, a common purpose to pursue. That's what solidarity means: a community with a purpose. People need to know what the organisation is trying to achieve, and how what they're doing on a day-to-day basis contributes to that goal.

The more freedom people have over where, how and when they work, the happier and more productive they are. Discretionary effort goes hand-in-hand with discretion and with freedom. There are a number of dimensions in which autonomy really counts: how the job is done, what the job consists of and where the work is done. There may be serious restrictions in how far some staff can be given flexibility - even in how much they want. But as a general principle, far greater autonomy over task and time could be granted to most employees.

CASH

It's often said that accounting is the language of business. The conduct of business is certainly unimaginable without it. Accounting has been defined by the American Accounting Association as 'the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information'.

There - that's got you interested. It's a good job accountants don't run the sales and marketing department. An equally accurate definition of accounting might be: 'You will never consistently make money, control your costs, make the best use of your resources or be able to decide where to focus your efforts inside your business unless you understand the fundamental rules of accounting.'

The power and relevance of accounting is underscored by the longevity of its central tenets - some of the basic rules of accounting haven't changed since Ancient Rome. Let us introduce you to the real Godfather. Luca Pacioli was a Franciscan friar who produced the first printed description of the double-entry accounting system in 1494, in order to 'give the trader without delay information as to his assets and liabilities'.

Accounting is, fundamentally, a rule-based discipline. A fully fledged MBA accounting model would equip you with a plethora of rules, on both the practice of accounting and on widely accepted public standards of reporting financial information. Our ambition here is much more limited: to provide you with the four key tenets of financial accounting:

- You must establish a double-entry system for recording the effects of each transaction as debits or credits.

- The left-hand side of an account should list the debits, and the right-hand side the credits.

- Total debits must equal total credits.

- Apply the accounting equation: assets = liabilities + capital.

CONVERSATION

In our experience, the best marketers do not lack bravado. But even they are struggling to project steely self-confidence in the face of profound changes to the world in which they do business. One of the most visible manifestations of these changes will already be familiar to you - the rise of new media and the challenge to the supremacy of traditional TV and print advertising. If you have a SkyPlus box or Virgin Media's V+ service, you will already be watching more TV on demand and time-shifting your media consumption.

The internet and new forms of social software and social media, such as blogs and social network services, afford consumers the ability to contribute as well as receive information. Good examples of where such interactions are taking place include Dell's IdeaStorm, Facebook, flickr, Linkedin and bebo. Everyone used to be a viewer, reader or listener. Now, everyone can be a broadcaster and content-provider too. We have moved from the world of one-to-many to many-to-many communications.

For some, this shift heralds a genuinely new epoch - the age of mass innovation, in which we are democratising the production and consumption of everything as we change the way we communicate and share. All of this is having a decisive impact on how companies talk to their markets, and on the very nature of markets themselves.

If the aim of marketing is to satisfy customer needs or wants, how has the discipline traditionally approached this challenge? The dominant conceptual model underpinning marketing strategy has been the so-called marketing mix - a generalised model used to describe the different kinds of choices that organisations must make in the whole process of bringing a product or service to market. The most famous shorthand for those broad choices remains the 'Four Ps' framework, originally proposed by E Jerome McCarthy, focusing on product, price, place and promotion, which together provide the basic components of a marketing plan.

But the Four Ps are being taken over by the Four Cs: community, co-creation, customisation and conversation.

The first big challenge for traditional marketing is that success is no longer just about enlisting individual consumers but about how best to engage the communities in which they hang out, hunt and harangue. Consumption, it appears, really is best served in a crowd. The problem for companies is that as consumers have become more valuable, they have also become more vengeful. Both these attributes demand that enterprises should seek to be in constant conversation with them.

Some of those conversations are with individuals who are their biggest friends and fans - they're people who already love them. The challenge then is how to amplify their contribution and voice. But some conversations are with their biggest foes. These people have been burnt by a bad product or poor customer service, and they're intent on flaming the reputation of the offending company. Enterprises must work even harder to stay in the conversation game with them, but to a different end - to get them to change their pitch or their tone or, better still, to get them to talk about something else altogether.

The idea of customer-driven customisation is hardly a new one. Motor manufacturers have for many decades offered consumers a bewildering array of options on any new car they might order, with automated manufacturing systems enabling the manufacturer to reduce the lead times on any customised order and maintain a competitive price. But the internet and other interactive technologies have greatly expanded the possibilities for customisation, popularising the idea of mass customisation - in which the personalisation of products and services for individual customers is no longer the preserve of the wealthy but is deliverable to all customers at a price-point equivalent to traditionally mass-produced goods.

This phenomenon has been brilliantly captured by Chris Anderson, in his 'long tail' model. As Anderson notes: 'The theory of the long tail can be boiled down to this: Our culture and economy are increasingly shifting away from a focus on a relatively small number of hits (mainstream products and markets) at the head of the demand curve, and moving toward a huge number of niches in the tail.'

Standing on the shoulders of community and customisation is the other key disrupter to traditional marketing - co-creation. Firms can no longer create value in splendid isolation. Value is increasingly being co-created by the firm and the consumer, as consumers actively help design, develop and distribute the products and services they value.

Marketers have long claimed to be the generator of the customer-eye view of any business, stressing that their overriding mission is to engage with their customers as much and in as many ways as possible. Maybe. But firms that cling to the certainties of old marketing models won't deliver on this mission. The Four Cs are rapidly undermining the core of almost all traditional marketing theory. Community, customisation and co-creation are eroding the gap between marketing on one side and the customer on the other. Consumers have changed. Marketers will have to change with them - and learn the art of conversation.

This is an extract from The 80 Minute MBA: Everything you'll never learn at business school by Richards Reeves and John Knell, published by Headline. MT readers can order a copy of the book, RRP £9.99, at the special discount price of £7.99 (including p&p). To order, please tel 0870 755 2122, quoting ref code BSH682, or visit www.pressoffers.co.uk/bsh682. Allow 28 days for delivery. Offer subject to availability.

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