UK: THE GURUS - SUMANTRA GHOSHAL. - Chief executives must create a climate of ambition and 'stretch', says Ghoshal, LBS professor and proponent of the entrepreneurial organisation.

by Fiona Jebb.
Last Updated: 31 Aug 2010

Chief executives must create a climate of ambition and 'stretch', says Ghoshal, LBS professor and proponent of the entrepreneurial organisation.

The words are quietly, reflectively, spoken - but it is fighting talk for all that. 'A lot of managers work long and hard simply to make the inevitable happen,' says Sumantra Ghoshal, professor of strategic leadership at London Business School. 'They just preside over the inevitable. Yet management is all about making things happen that otherwise wouldn't, about making ordinary people produce extraordinary results.'

Ghoshal is one half of an academic partnership (with Harvard Business School's Christopher Bartlett) which has long focused on this question of sows' ears and silk purses. The duo first sprang to prominence with the publication of Managing Across Borders seven years ago. More recently they have published their thoughts on the entrepreneurial organisation, and the changed role of top management. Their latest book is due out in Britain in the spring, and Ghoshal gives the impression that he is intending to keep the printing presses busy.

He has, he says, done his time consulting - now it is time to consolidate.

What those years of consulting showed him, he says, is the sheer abundance of firms which operate in a climate of 'satisfactory underperformance', where staff do just enough to get by, but add nothing of their own volition or initiative, nothing of themselves. Attacking the root of this problem - finding a way to make an entrepreneur out of the lowliest employee - is the major focus of Ghoshal and Bartlett's most recently published papers, a series called Changing the Role of Top Management.

In the series Ghoshal and Bartlett argue that it is archaic for the modern corporation to rely on top managers to be the 'designers of the strategy, the architects of the structure, and the managers of the systems that direct and drive their companies'. This may have worked in the past, in the days of strict hierarchies when it was - just about - possible to view the boss as all-knowing, but it is obsolete in today's flatter, customer-driven structures. 'The problem,' write Ghoshal and Bartlett, 'is not the CEO but rather the assumption that the CEO should be the corporation's chief strategist, assuming full control of setting the company's objectives and determining its priorities. In an environment where the fast-changing knowledge and expertise required to make such decisions are usually found on the front lines, this assumption is untenable. Strategic information cannot be relayed to the top without becoming diluted, distorted and delayed.'

The authors conclude that: 'Senior managers of today's large enterprises must move beyond strategy, structure and systems to a framework built on purpose, process and people'. Behind the carefully crafted alliteration lies a call for top managers to imbue their people with a strong sense of the corporate goal, creating a climate of ambition or 'stretch'; an exhortation to directors to focus less on the company's structure than on its processes; and a plea for chief executives to foster entrepreneurial initiative, rather than compliant implementation, in their people.

Not, says an intense and highly articulate Ghoshal, that companies must have either strategy or purpose, must opt for either structure or process.

'It's not that the strategy, structure or systems are unimportant, it's not that the chief executive totally avoids these. It's just asking what the basic priority for the chief executive is. And the key role for the chief executive is the renewal process ... the core is about creating a sense of ambition.' In practical terms, this means setting stretch performance standards, and creating a culture in which employees will be self-disciplined and confident about acting on their own initiative.

The difficulty, he says, with adopting new models is that managers in the West have lost their nerve. 'I have begun to feel more and more that western managers are becoming extraordinarily timid.

You can see it with any $14 billion company that is unprofitable: it is much easier to cut it down to a $9 billion company that is profitable than to make it a profitable $15 billion company. Cutting it down to restore profit is by far the easier task - to cut is very easy ... It doesn't really take a great deal of managerial imagination or guts. And the thing is we have made a macho-ness out of the timidity.' Managers in the East, meanwhile, are boldly gunning for growth - and not just the paltry 3% or 4% annual targets with which many of their western counterparts content themselves. Yes, Ghoshal agrees, Asian business people are starting from a lower sales base, yes, their targets of 25% annual growth may be over-ambitious, yes, their markets are immature, but the point remains: managers in the East have a hunger and an ambition that their counterparts in the West appear to have forgotten.

But it is not just timidity which prevents top managers from stepping into the role that Ghoshal has defined for them, it is also incompetence, he says. For the new chief executive's job specification bears little resemblance to the expertise that most managers will have spent years acquiring. The process of making it to the CEO's chair is rather like one of those Russian babushka dolls. 'The CEO is the big doll. The divisional president is the slightly smaller doll who looks just like the CEO and fits inside the bigger doll. If you are a really good small doll ... then eventually you end up as the biggest doll. But the way in which you add value at the top is fundamentally different from the way in which you added value in the middle and in the front line.' Nevertheless the mould in which the CEO is set is merely an enlarged version of managers further down the line. It is ironic, Ghoshal adds, that by the time managers reach the very top, they have usually long given up on training and personal development courses.

But it is not only top managers who need to be convinced that their world has changed irrevocably: middle managers and those whom Ghoshal and Bartlett term frontline workers must also see the light (not, of course, that there are too many middle managers left to be converted). Middle managers need to be convinced that their role is one of coach, guide and mentor, but here top managers hit the familiar stumbling block: 'Middle managers are the biggest problem. They're used to being the controller and the translator (of management wishes). You don't need that any more. Yet if you can't create exciting opportunities for these managers, they will either become silent resisters or die fighting.' In either case, the corporation loses out on the other vital contribution that middle managers can make - passing on knowledge from one part of the company to another. This, for Ghoshal, is the only worthwhile economy of scale.

The frontline reaction to this brave new world is a measure of how successful the transformation has been higher up, says Ghoshal. He quotes the example of Philips Semiconductors in Scotland which underwent radical reform over a three-year period in the early '90s, after reporting such bad losses that only the deep pockets of the parent company could save it from going under. Not only did the company get itself safely back into the black, says Ghoshal, but 'the smell of the place' changed completely.

'It was a classic case of satisfactory under-performance. Most of the workers were women who came to work for the income it provided; all their interests lay elsewhere. Yet three years later the same people were continuously comparing themselves with their Japanese competitors. It had become very clear to them that if they were not improving their lines, then their competitors would take their customers.

The whole language, the whole feeling had changed.'

It all comes down to the image for which Ghoshal, the Indian-born academic who taught at Harvard and Insead before arriving at the London Business School two years ago, is perhaps best known. Many companies, he says, operate in an environment like that of downtown Calcutta in July - where it is hot, humidity is 100% and everyone is tired and listless all day long. What these companies should be aiming to create is the Fontainebleau forest in the spring, so that the body becomes full of movement, vigour and energy.

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