UK: HELLER ON MANAGEMENT - THE EVERGREEN ROUTE TO GROWTH. - As the various management fads come and go, the pursuit of organic growth gains favour. This, says Robert Heller, is one management concept at least that will run and run.

Last Updated: 31 Aug 2010

As the various management fads come and go, the pursuit of organic growth gains favour. This, says Robert Heller, is one management concept at least that will run and run.

New management fashions are sweeping all before them, and then being swept away themselves, at disconcerting speed. Only three years after re-engineering rudely pushed Total Quality Management aside, its tide is in full retreat. Financial re-engineering, in the extreme shape of demerging, has also faded fast - despite apparent success in finding the new Eldorado of shareholder value.

The two fashions are giving way to an evergreen of management: pursuit of organic growth. The downsizing cutbacks which still disfigure the strategies of Europe's corporate leaders cannot expand businesses. As Michael Hammer, Dr Re-engineering himself, has admitted, 'The real point is longer term growth on the revenue side. It's not so much getting rid of people. It's getting more out of people.'

You can't enhance the performance of axed employees. Hammer told the Wall Street Journal that 'reflecting my engineering background', he had been 'insufficiently appreciative of the human dimension. I've learned that's critical.' How could anyone, even an engineer, ever have thought otherwise? Even the demerging wheeler-dealers claimed humanity: splitting companies into focused operations allegedly removes the dead hand of head office and sets free local, individual initiative.

Ironically, head offices like that of Hanson - now demerging - were supposed to maximise the value of subsidiaries by dynamic, financially-oriented direction. That star has fallen. But the stock market's downbeat reaction to Hanson, ITT, AT&T and others implies that the demerging magic, too, no longer works. If a demerged unit, like ICI's Zeneca, has the potential for organic growth and the means to mine that gold, all well and very good. But, to quote the Journal, 'if the offspring aren't ready for the rough-and-tumble world of global competition, breaking up may even cause values to decline'.

That competitive readiness is fundamental for re-engineered and demerged businesses alike. So how would you rate the readiness of one case: Company X? It's strong on distribution, financial management and manufacturing processes: notably less effective at sales and marketing: only just holding its own on product development and quality control: and frankly below par at business planning, linking design to production, market research, and IT. So far, the prognosis must be mediocre: but the rest of the score-card turns middling to awful.

The weakness of Company X at managing operations is as marked as its strength at running the finances. Procurement and supply chain management aren't much better. Manufacturing technology also lags seriously: and so, contributing to all the other defects, does training and people development.

And who came to these damaging conclusions about the company? The stunning answer is the management itself - and Company X is British manufacturing at large.

The verdict was obtained by Ingersoll Engineers after quizzing senior executives of 325 major firms. They were asked to rate themselves good, adequate or poor on the above criteria: the overall result ignored the adequates and derived an 'index of effectiveness' from the sum of the goods and poors. Self-assessment of this kind may lack scientific rigour, but there's no reason to doubt the general thrust. By its own admission, UK manufacturing is inadequately managed.

Many of the 325 have certainly re-engineered operations, even if they haven't used Hammer's snappy name for the process. Hence, no doubt, their high self-rating for manufacturing processes. But if the three high-scoring areas (distribution, finance and manufacture) are the apex of the pyramid, they rest on a dangerously weak human base. Progressive deployment of people, from managers to shop floor and counter, to optimise the present and build for the future is the only route to sustained organic growth.

That's a definition of excellent management - and what's true of the majors applies just as strongly to the lesser brethren. The Society of Practitioners of Insolvency reports that in the past year 10,000 of its terminal patients were significantly infected by the virus of ineffective management controls and poor decisions. Another 4,000 were laid low by sheer mismanagement: 'the difference between failure and survival appears often to be the quality of management, not the difficulties of the marketplace'.

European companies, with their heavy hang-up on downsizing, have yet to learn the lessons that have undermined re-engineering in the US. Volkswagen is a painful example. It can't just downsize its way out of terrible financial performance: far more than over-manning explains why a company whose highly acceptable cars have Europe's largest market share earns only 0.6% on those massive sales: and that's after a praised recovery. The feeble number compares with 3.8% for GM, 3.9% for Ford and the 6.5% achieved by a Chrysler which has lifted performance far above VW's - and Company X's.

The downsizing companies suffer from the X ailments - all eminently curable, when tackled as a whole and with the help of employees at all levels. That is the only way to join a new management fashion that will run and run, and deserve its longevity: upsizing.

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