Masters of Management

How the Business Gurus and Their Ideas Have Changed the World—for Better and for Worse

Adrian Wooldridge

• Publisher: Harper Business
• Year: 2011
• Print ISBN:
  9780061771132
• eBook ISBN:
  9780062096722
• Topic: Business
• Subtopic: Business Education
• Index: Business

"A tour de force of management theory . . . An insightful, hard-headed, and amusing guide . . . should be required reading for every student of business." —Lynda Gratton, author of The 100-Year Life

In 1996, longtime  Economist journalists and editors John Micklethwait and Adrian Wooldridge published  The Witch Doctors, an explosive critique of management theory and its legions of evangelists and followers. The book became a bestseller, widely praised by reviewers and devoured by readers confused by the buzzwords and concepts the management "industry" creates. At the time, ideas about "reengineering," "the search for excellence," "quality," and "chaos" both energized and haunted the world of business, just as "the long tail," "black swans," "the tipping point," "the war for talent," and "corporate responsibility" do today.

For decades, since the rise of MBA programs on campuses across the country, the field of management has operated in a dubious space. Many of its framers clamor for respect within the academy while making millions of dollars pedaling ideas, some brilliant and some nonsensical, in speeches, consulting arrangements, and books.

Although  The Witch Doctors was a damning critique ("a scalpel job," according to The Wall Street Journal), it also argued that much of management theory is valuable—making companies more efficient and productive, improving organizational life for workers, and providing sound ways for companies to innovate while defending more entrenched plans. Building upon all that made the original such a phenomenal success. This fully revised and updated edition,  Masters of Management, takes into account the rise of the Internet, the growing power of emerging markets, the Great Recession of 2008, and the more recent developments in management theory. The result is an indispensable volume for any manager.

PART I

HOW IT WORKS

1

The Fad in Progress: From Reengineering to CSR

Buying thousands of copies of your own book might sound like a particularly eccentric form of vanity. But what if the authors are backed by a deep-pocketed consultancy? What if getting onto the New York Times best-seller list can guarantee a lot of buzz? And what if that buzz can drive customers to the consultancy and speaking gigs at $30,000 a pop to the authors? Suddenly eccentric vanity looks like sound business.

This was the logic behind one of the most risible management scandals of the 1990s. In August 1995, Business Week revealed that CSC Index, an ambitious young management consultancy, and two would-be gurus with close ties to the consultancy, Michael Treacy and Fred Wiersema, had been employing methods that are more often associated with the grubbier parts of the record industry to turn The Discipline of Market Leaders, a slim and rather banal volume, into a best-seller.¹ They had brought so many copies of the book—always making sure to use small bookshops that were tracked by the New York Times in compiling its best-seller list—that thousands of copies had to be stored in tractor-trailers.

The Business Week exposé was one of the final chapters in the most remarkable management story of the 1990s, the story of the rise, triumph, and eventual fall of business-process reengineering, or reengineering for short. Reengineering was the most successful business fad of the Clinton era—a fad that persuaded companies around the world to break themselves up into their component parts and then put themselves back together from the ground up. It was also the most ambitious: Michael Hammer, the man who invented the idea along with James Champy, liked to give his job description as “reversing the industrial revolution.”

The fad started off with an acute insight: that information technology (IT) had changed the business world so completely that companies needed to go back to the drawing board. Why break up a job into its component parts and disperse those parts around the organization, as companies had been doing since the industrial revolution, when a single computer-empowered worker could do it better and faster? It also generated a great deal of genuine excitement. Michael Hammer’s “Reengineering Work: Don’t Automate, Obliterate” was one of the most popular articles the Harvard Business Review ever published. Reengineering the Corporation (1993), which he wrote with Champy, sold more than two million books in seventeen languages.²

Reengineering was soon sweeping all before it. Time magazine argued that Reengineering the Corporation had “set in motion a revolution the likes of which hadn’t been seen since Henry Ford introduced the assembly line.” By 1994, 78 percent of Fortune 500 companies and 68 percent of FTSE 100 firms were engaged in some form of reengineering, according to PriceWaterhouseCoopers, a consultancy. William Bratton, the man who turned around the New York Police Department, was one of dozens of public-sector figures who championed the idea. Hammer proclaimed that he was doing if not God’s work, then at least that of the angelic host: “I think this is the work of angels. In a world where so many people are so deprived it is a sin to be so inefficient.”³

Reengineering undoubtedly did some good—streamlining cumbersome work processes, fine-tuning throaty organizations, and pruning unnecessary jobs. But even more than other business fads, it suffered from a combination of hubris and insensitivity. Reengineers failed to grasp that organizations are human rather than mechanical entities. Reengineered companies found that they were soon suffering from “corporate anorexia” as they lost some of their most vital people (including middle managers who, far from being surplus, embodied corporate lore and wisdom). They also experienced a catastrophic collapse in levels of trust as the workers who survived the pruning turned against their masters. For most people, reengineering was demonic rather than angelic.

Even more than other business fads, it was also corrupted by greed: as the movement’s momentum began to wane, and the critics discovered more and more design faults, the reengineers resorted to ever more desperate methods to keep the hype going and the business rolling in—hence the fiasco with The Discipline of Market Leaders.

History Rhymes

The story of reengineering is of more than just antiquarian interest. It also throws light on the most influential business fad of the current decade: corporate social responsibility, or CSR. This claim might sound eccentric at first blush—it would be hard to come up with two more different management ideas than reengineering and CSR. Reengineering is the ultimate “hard” management tool; CSR is all soft and fluffy. Reengineering is all about making things more machine-like; CSR is about proving that there is a soul in the capitalist machine.

But in fact the two have a surprising amount in common. They are both classic business fads—ideas that contain a kernel of truth but which are oversold by ambitious gurus and greedy consultants and which eventually collapse under the weight of unrealistic hype and inflated expectations (though CSR’s demise is hardly likely to be as dramatic as reengineering’s). They both take a half-truth and treat it as a whole truth—reengineering by making a fetish of efficiency and CSR by exaggerating the importance of good works. And their fates are subtly intertwined: just as CSR’s rise owed much to reengineering’s excesses, so CSR’s current woes will help to pave the way for another burst of reengineering. In the overleveraged noughties, fair-trade coffee may have become a staple of most consumer lives and CSR a fixture in every boardroom. With the age of austerity upon us, consumers are watching their pennies and companies are scything back on the fluff.

Be Responsible, My Son

Corporate social responsibility has a short history but a long prehistory. Corporate philanthropists such as Cadbury and Rowntree in Britain and Hershey and Kaiser in the United States built model communities to house their workers (at one point the U.S. had more than 2,500 company towns, housing 3 percent of the population).⁴ In Germany and Japan, industrialists embraced a stakeholder model of capitalism in which workers were involved in decision-making. But by the 1970s company towns were withering across the Anglo-Saxon world, and shareholder capitalism had become bureaucratized. For many business people, corporate social responsibility meant nothing more than throwing some money at the local opera (and getting a few seats in return for the senior managers).

The pioneers of modern CSR—the idea that companies should embrace social responsibilities as a central part of their strategy rather than just a feel-good add-on—were an eccentric bunch: cranky business people such as Anita Roddick, the founder of Body Shop, and woolly intellectuals, such as the people associated with Business in the Community.⁵ CSR types were much mocked by people from both sides of the political spectrum—by left-wingers for trying to provide capitalists with fig leaves of respectability and by right-wingers for thinking that capitalists needed fig leaves in the first place. Most business people followed the C. Montgomery Burns approach toward their trade: “I’ll keep it short and sweet. Family. Religion. Friendship. These are the three demons you must slay if you wish to succeed in business.”

Today the picture could not be more different. Most of the world’s biggest companies trumpet their commitment to social responsibility. Some have even adopted a “triple bottom line” (people, planet, profits) to ensure that CSR is encoded in their DNA. And most of the world’s great and good have signed up to the program. The United Nations Global Compact for corporate responsibility, launched at Davos in 1999, has more than three thousand corporate supporters. America has created a National Corporate Philanthropy Day (February 25), which even has its own colors, blue and green. Britain’s 2006 Companies Act requires companies to report on social and environmental questions. China has created a Chinese Federation for Corporate Social Responsibility. As Clive Crook, a former colleague of mine at The Economist, has put it, “CSR is the tribute that capitalism everywhere pays to virtue.”⁶

This tribute to virtue is paid in gold as well as hot air. No major consultancy is complete without a CSR practice. Some consultancies sell nothing but CSR: a group called the Ethical Corporation provides “business intelligence” on CSR to more than three thousand multinational companies, publishes a CSR-themed magazine and website, puts on a huge conference every year, and compiles an ever-expanding library of case studies on corporate irresponsibility, including studies of Exxon Valdez, Toyota, and McDonald’s.⁷ There are CSR performance indexes (such as the Dow Jones Sustainability Index); CSR professorships (more than half of U.S. MBA programs require their students to know something about the subject); CSR websites, newsletters, and professional organizations; and year in and year out, hundreds of CSR conferences, discussion groups, and other jamborees.

The CSR industry is by no means as corrupt as the reengineering industry became, but there are revolving doors and secret handshakes. Nongovernmental organization activists chastise multinationals for their failure to implement CSR and then take jobs with the same multinationals to advise them on how to implement it. Liberal professors write books chastising multinationals for their business practices and then create consultancies that advise the companies on how to escape future chastisement. Many journalists would have been keener on puncturing the movement’s pretensions if they weren’t invited to so many CSR conferences in exotic places.

What explains CSR’s extraordinary success? Why has an idea that was once associated with a few eccentrics become mainstream? The simplest answer is reputation management. Joint-stock companies have always provoked profound suspicion, on the grounds that they have all the legal rights of individuals without any of the responsibilities. Sir Edward Coke complained in the seventeenth century that “they cannot commit treason, nor be outlawed or excommunicated, for they have no souls.” A century later, another jurist, Edward Thurlow, worried that “corporations have neither bodies to be punished, nor souls to be condemned, they therefore do as they like.”⁸

These suspicions have grown louder in recent years. Ordinary people expect ever-higher standards from their corporate masters. A survey by McKinsey in 2007 discovered that 95 percent of companies felt that “society” had higher expectations than it did five years ago.⁹ Academics, whistle-blowers, journalists, NGOs, professional malcontents—all delight in exposing the malefactors of great wealth. Hollywood has produced a stream of corporate-bashing films: The Constant Gardener (pharmaceuticals), Sicko (healthcare), Blood Diamond (precious stones), Supersize Me (fast food), Syriana (big oil), Michael Clayton (corporate law), and Capitalism, a Love Story (business in general, courtesy of the man who made the best business-bashing film of all, Roger and Me, Michael Moore).

CSR is a way of fighting back, a way of managing your reputation in a reputation-shredding age. It is an ad campaign and an insurance policy rolled into one. It is no accident that some of the leading proponents of CSR are companies that have been embroiled in scandals or companies that operate in scandal-plagued industries such as oil and gas. CSR is both a ready-made advertising campaign and an insurance policy. Joseph Schumpeter once complained that “the public mind has by now so thoroughly grown out of humor with business, as to make condemnation of capitalism and all its works almost a requirement of the etiquette of the discussion.”¹⁰ CSR gives companies a seat at the table.

Globalization has given new urgency to the trend. Given that a company based in Boston can see its reputation shattered by heinous practice in Borneo, it is advisable to build ethical considerations into their supply chains (such as paying their subcontractors a living wage). So has environmentalism. Companies have taken to appointing chief sustainability officers, producing sustainability reports full of pictures of green fields and blooming flowers and generally revising their behavior to reduce their production of world-warming gases. In 2005, Walmart, the world’s biggest retailer, committed itself to becoming a zero-waste business (it pledged to double the fuel efficiency of its vehicle fleet by 2015). In the same year, General Electric adopted an “Ecomagination Strategy” that involved slashing its output of greenhouse gases and investing heavily in “clean” technologies. Tesco and Sainsbury, two of Britain’s biggest retailers, are locked in a fierce battle to prove who is greener. Even BSkyB, the British satellite outpost of the distinctly brown Murdoch empire, has declared itself “carbon-neutral.”

Companies have been forming some surprising alliances in the name of CSR—and blurring the line between for-profit and nonprofit organizations in the process. Companies have taken to striking deals with governments to slay various monsters such as corruption (a particularly common practice in the mining industry) or blood diamonds (the Kimberley process). Limited Brands, a clothing company, has even lobbied the government of Alberta, Canada, over threatened caribou habitats. But the bread and butter in CSR deal-making is provided by NGOs. Coca-Cola has formed an alliance with the World Wild Life Fund to conserve freshwater river basins and with Greenpeace to eliminate carbon emissions from its coolers and vending machines.

The CSR boom is driven by a single obsessively repeated formula: that “being good is good business,” as Anita Roddick of the Body Shop put it—that you can do well by doing right, as a thousand public relations professionals have put it since. CSR can improve the bottom line in four ways, at the very least, the argument goes: by attracting better workers and boosting overall morale; by appealing to socially conscious consumers, who are happy to pay a bit more for ethically sourced products; by identifying new business opportunities, particularly at the bottom of the pyramid; and by engaging socially responsible investors. CSR boosters have no shortage of examples to back up their arguments. One in nine American investment funds claims to have a “socially responsible element.” There is evidence that people will buy a “fair and square” product over a plain vanilla one. In 2005, ABC Home Furnishings allowed two Harvard researchers to conduct an experiment on two sets of identical towels in one of its New York stores. One set of towels carried a “fair and square” logo and a message about how this towel was good for society. The researchers tried swapping the logo from one towel to the other. They discovered that not only did the sales of towels increase when they carried the label; they increased even more when the store raised the price of the towel.

Corporate Candy Floss

What should we make of all this? Is CSR an inspired formula for creating a better world, as its proponents claim? Or is it corporate candy floss, as its critics insist? Is it a conspiracy against shareholders (who end up footing the bill for all this CSR), as free-marketers argue? Or is it a gigantic con trick—an attempt to paint a human face on the snarling devil of corporate capitalism—as left-wingers suspect?

It is tempting to answer “all of the above.” One of the many problems with CSR is that it is an inherently muddled philosophy—a feel-good mishmash rather than a coherent position—and one that is adopted by different people for different reasons. Some entrepreneurs are gripped by social problems; others see them as great advertising. Some companies are serious about CSR; others treat it as just another corporate ritual. This muddle is one reason for the movement’s extraordinary popularity. But it also exposes it to a wide range of criticisms.

The least convincing arguments come from the left. Here the view is that CSR is nothing more than a con trick. Phrases such as “greenwashing” and “window dressing” abound. Companies devote only a miserable 2 percent of their income to philanthropy, almost exactly the same proportion that they devoted before the CSR boom. “Socially responsible” investment funds account for only 2 percent of investment funds in the United States and less than 1 percent of funds in Europe. The quintessential corporate villain, Enron, was one of the first big companies to adopt a “triple bottom line,” and piled up environmental awards with the same panache that it piled up unfunded liabilities. Companies that are happy to embrace CSR when it coincides with their business ambitions suddenly lose interest when it comes into conflict with them.

The more subtle version of this argument is that CSR is nothing more than a polite mask that companies put on smart business decisions. Why does Whole Foods fill its shelves with organic food and “natural” washing powder? Not because it is more responsible than Giant, but because it has identified a lucrative market niche. Why does Starbucks offer health insurance to its baristas? Not because it is a good corporate citizen, but because it wants to reduce labor turn-over. Why have Mars and Cadbury become obsessed with “sustainable” sources of cocoa? Not because they have got religion, but because they are worried that supplies of cocoa may run out. In this view, what many corporate types regard as the strongest argument in favor of CSR—that it is just smart business—is in fact proof that it is just an optical illusion.

The problem with the left-wing assault on CSR is that it is based on the erroneous assumption that there is a fundamental conflict between the interests of companies and the interests of societies as a whole—and that companies are therefore engaged in a relentless game of greenwashing and window dressing. Of course, there are plenty of corrupt companies, some spectacularly so, such as Enron...

Table of contents

• Cover
• Title Page
• Contents
• Foreword
• Introduction: The Unacknowledged Legislators
• Part I: How It Works
• Part II: The Prophet and The Evangelists
• Part III: Three Management Revolutions
• Part IV: The Great Debates
• Part V: Workers of the World
• Conclusion: Mastering Management
• Index
• Acknowledgments
• About the Author
• Notes
• Praise
• Credits
• Copyright
• About the Publisher