28th May 2010
Quarterly returns and shareholder focus have been at the centre of Business Strategy for the last
decade. As companies made ever increasing profits the emphasis shifted from the customer to
the share holder and with that the drive for short-term quarterly returns - the consequences of
this on the market place are evident. For many companies caught up in todays economic
uncertainties it may be worth revisiting the lessons of the past. Going back to a previous
challenging economic decade takes us to the 1980’s early 1990’s
re-examining what the business gurus of the day were advocating gives us some interesting insights into how companies can regain consumer confidence, increase sales
and differentiate themselves from their competitors.
In 1982 W. Edwards Deming wrote the following in his preface to his famous publication of the time,
“Out of the Crisis”.
“Performance of management should be measured by potential to stay in business, to protect
investment, to ensure future dividends and jobs through improvement of product and service for the
future, not by the quarterly dividend”.
Deming was very much of the view that it is first necessary to know what to do and to learn how to
In his work Deming advocates the application of 14 Points for Management - these points he argues
can work in any industry of any size.
1. Create constancy of purpose toward improvement of product and service (focus on quality of the product and quality of service).
Adopt the new philosophy - take on leadership for
3. Cease dependence on inspection to achieve quality -
build quality into the product.
4. Minimize total cost - move toward a single supplier for any one item (building up loyalty & trust).
5. Improve constantly the system of production and service and as a
consequence decrease costs.
6. Institute training on the job.
7. Institute leadership - “the aim of supervision
should be to help people and machines and gadgets to to a better job”.
8. Drive out fear.
9. Break down barriers between
departments - getting people from different disciplines to work
together as a team.
10. Eliminate targets for the workforce asking for zero defects & higher productivity levels -
as the bulk of the causes of low quality and productivity belong to the system and not to the
11. Implement Leadership
12. Re-introduce pride of workmanship (getting people to take pride in their
13. Institute a vigorous program of education and
14. Get everyone in the organisation working on the transformation - transformation is everybody’s job.
Another business household name from the 1980’s was Tom Peters who together
with Waterman published "In Search of Excellence",
this book formed the platform for the McKinsey 7-S Model.
The research for In Search of Excellence was taken from a review conducted
by Peters and Waterman which examined 43 of Fortune 500's top performing companies. They started
with a list of 62 of the best performing McKinsey clients and then applied performance measures to
filter out what they saw to be the weaker companies.
Peters and Waterman identified what they saw as eight key themes to successful
1. A bias for action, active decision making - 'getting on with it'.
2. Close to the customer - learning from the people
served by the business.
3. Autonomy and entrepreneurship - fostering innovation and nurturing
4. Productivity through people - treating rank and file employees as
a source of quality.
5. Hands-on, value-driven - management philosophy that
guides everyday practice - management showing its
6. Stick to the knitting - stay with the business that you
7. Simple form, lean staff - some of the best
companies have minimal HQ staff.
8. Simultaneous loose-tight properties - autonomy in shop-floor
activities plus centralised values.
Rolling on to the 21st
Century and in an effort to assess how today’s successful senior managers are leading their
Companies through the recession makes for some interesting comparisons.
McKinsey & Company conducted a series of interviews with the CEOs of major companies to hear
how they were dealing with the global recession. The following are some extracts from that
Confront reality - this is about acknowledging that
there are issues with the Company and recognizing that difficulties may lie ahead if not dealt
Herbert Henkel, chairman, president and CEO of Ingersoll Rand was quoted as saying, “Always
question whether the “halo effect” of a business or business situation is blinding you to what lies
on the horizon.”
Getting ahead of the curve - look ahead and
consider what might lie in the future - what will be the opportunities and what will be the
challenges and start to take steps to deal with these.
Make decisions quickly - gather as much data as you
can as quickly as possible but move on the data quickly.
Put Strategy centre stage - discussions on strategy are no longer a once a year
event - but rather reviewed on a more frequent basis - checking the validity of the strategy to
deliver the business objectives.
Be transparent with employees - “The only way to
address uncertainty is to communicate and communicate. And when you think you’ve just got to
everybody, then communicate some more.” It is much easier for employees to understand changes that
impact directly on them when they understand why those changes have to happen.
Be open with investors - McKinsey state that most of the CEO’s they interviewed
commented on the extent to which they were communicating with their investors. The importance of
transparency. Interestingly they comment that “in times of crisis, there is a tendency to focus
entirely on short-term results - a tendency CEOs should counter.”
Build and protect the culture - Many of the business
leaders interviewed commented on the importance of a strong culture and how this had helped them
and their employees to deal with the difficulties they have faced into - but equally they felt that
it was important not to compromise or sacrifice the culture even when under pressure.
Keep faith with the future - Whilst dealing with the
pressures of the here and now - it was also demonstrated that companies need to remain forward
looking. Look for opportunities to gain a competitive advantage over your competitors, examine ways
to achieve higher productivity, entering new market and ensure not to sacrifice the company’s
talent in the pursuit of lower cost.
Key Themes running through all of this advice are:-
Look after your customers - seek out their opinions
and research their needs - the customers buy your product and investors will only invest if the
customers are buying!
Innovation - how are you going to differentiate from
your competitors - what will give you the extra edge.
Leadership - Decisiveness, Foresight, Leading Change,
Speed. Customers, Shareholders, Employees need to see strong leadership in the business to
make them feel confident about the future.
Keep the culture - look after your employees (hold on
to your talent); keep your employees engaged -