Executive Insight

Russell Ackoff - unconventional management theorist - 1919-2009

2009-11-11T08:43:06-05:00

An evangelist of the big picture, Russell Ackoff was a management theorist who helped U.S. corporations by reimagining their challenges as opportunities to restructure.

Mr. Ackoff, who died Oct. 29 at age 90, was an expert in conceptualizing problems. He liked to say they came in three flavors: problems, messes and puzzles, and each needed its own distinctive toolkit.

Mr. Ackoff was one of a small group of management-studies pioneers who changed the way corporations thought about their businesses. Peter Drucker once wrote to Mr. Ackoff that his early work "saved me -- as it saved countless others -- from descending into mindless 'model building' -- the disease that all but destroyed so many of the business schools."

No fan of most business education himself, Mr. Ackoff nevertheless ran a business graduate center at the Wharton School of the University of Pennsylvania. There, he trained generations of management graduate students in an unconventional program that he said had "no curriculum, no classes, no examinations, no admission requirements -- only exit requirements."

Acerbic and aphoristic, Mr. Ackoff was fond of sayings such as "All of our social problems arise out of doing the wrong thing righter. The more efficient you are at doing the wrong thing, the wronger you become. It is much better to do the right thing wronger than the wrong thing righter! If you do the right thing wrong and correct it, you get better!"

Mr. Ackoff published such sentiments in a series of books. He also wrote about how to manage in the face of extreme uncertainty, such as the crises presented by the oil shocks and inflation of the 1970s.

Mr. Ackoff implemented his ideas through consulting with hundreds of companies, and later in his career, with governments. He helped General Motors create its OnStar navigation system, and had a three-decade association with Anheuser-Busch in which he helped the St. Louis brewer achieve national dominance.

Working with August Busch III, later Anheuser-Busch's chairman, Mr. Ackoff in the early 1960s helped design an expansion strategy that included building new breweries and warehouses, after potential sites were identified via computer modeling, a highly unusual approach at the time.

Mr. Ackoff also studied Anheuser-Busch's marketing strategy, and came to the conclusion that increasing advertising budgets had little effect on sales. (Neither did the taste of the beer, he found through blind taste tests.)

"This was incredibly valuable," says Bill Finnie, a former director of strategic planning for Anheuser-Busch who studied for his Ph.D. under Mr. Ackoff. "It gave Anheuser-Busch the confidence to maintain its marketing budget flat from 1961 to 1976. We quadrupled sales."

According to Mr. Finnie, reduced marketing costs were passed on to the consumer, making Budweiser inexpensive compared with local brands that had dominated the market through the 1950s.

In Mr. Ackoff's more than 30 years working with Anheuser-Busch beginning in 1960, the company's national market share grew to more 40% from 7%.

In return for his insights, Anheuser-Busch sponsored Mr. Ackoff's academic pursuits, including Wharton's Ackoff Center for the Advancement of Systems Approaches.

But Mr. Ackoff grew frustrated with management studies, which he felt were too limited in their focus on private industry rather than looking at organizations in the public sector as well.

At the same time, academic departments objected to qualitative approach that lacked statistical backing, and Mr. Ackoff disappeared from reading lists in the 1970s and 1980s. Yet he remained in demand by corporate clients and increasingly by governments, such as Iran, where in the 1970s he helped design a way of clamping down on cigarette smuggling.

Born in Philadelphia, Mr. Ackoff sometimes credited his undergraduate studies in architecture at the University of Pennsylvania with sparking his interest in holistic systems.

After serving in the Army in the Philippines during World War II, he completed a doctorate in the philosophy of science at Penn in 1947, and in 1951 joined with his Ph.D. supervisor, C. West Churchman, to found one of the first schools of operations research, at the Case Institute of Technology in Cleveland, which later became Case Western Reserve University. In 1964, the Wharton School recruited Mr. Ackoff and a handful of colleagues from Case.

In a field he regarded as littered with charlatans, Mr. Ackoff rejected the term "guru," favoring "teacher," in the belief that he was helping his clients design their own solutions. He delighted in crossing discipline boundaries, and his influence sometimes turned up in unexpected places -- Mr. Ackoff was part of a team that redesigned the White House Communications Agency during the administration of President Bill Clinton.

"He is representative of what I fear is a dying breed -- management scholars willing to tackle big and broad business themes," says Roger Martin, dean of the Rotman School of Management at the University of Toronto.

Source: The Wall Street Journal , November 11 2009

SEC Issues New Guidance on CEO Succession Planning

2009-11-09T08:35:55-05:00

During the past two proxy seasons, the SEC received a number of no-action requests from companies seeking to exclude proposals relating to CEO succession planning in reliance on Rule 14a-8(i)(7). These proposals generally requested that the companies adopt and disclose written and detailed CEO succession planning policies with specified features, including that the board develop criteria for the CEO position, identify and develop internal candidates, and use a formal assessment process to evaluate candidates. The SEC judged that these proposals could be excluded in reliance on Rule 14a-8(i)(7) because the proposals related to the termination, hiring or promotion of employees.

The Commission had stated in a 1998 Release that proposals involving "the management of the workforce, such as the hiring, promotion, and termination of employees" relate to ordinary business matters. Its position to date with respect to CEO succession planning proposals was based on this guidance and the historical approach to proposals relating to employee hiring and promotion.

In an October 26^th 2009 Release however it changed its position. Reiterating that one of the board's key functions is to provide for succession planning so that the company is not adversely affected due to a vacancy in leadership, the Release read, “Recent events have underscored the importance of this board function to the governance of the corporation. We now recognize that CEO succession planning raises a significant policy issue regarding the governance of the corporation that transcends the day-to-day business matter of managing the workforce. As such, we have reviewed our position on CEO succession planning proposals and have determined to modify our treatment of such proposals. Going forward, we will take the view that a company generally may not rely on Rule 14a-8(i)(7) to exclude a proposal that focuses on CEO succession planning.”

This change in position will most likely bring issues of CEO succession more prominently to the shareholder relations’ agenda and cause companies to more rigorously and transparently develop Succession Plans of consequence.

Directors lose elections, but not seats; staying power of board members raises questions about investor democracy

2009-09-29T08:04:30-04:00

A record number of corporate directors snatched victory from the jaws of their defeat by shareholders this year.

In a sign of investor discontent, 93 board members at 50 companies have received fewer than 50% of votes cast during annual meetings so far in 2009, according to RiskMetrics Group Inc. That's more than twice as many as any other year since the proxy-advisory firm began tracking the trend in 2003.

But none of those directors lost a board seat. All serve companies with "plurality" voting, meaning they can win uncontested elections with a single vote. Re-elected directors at two companies offered to resign under those companies’ "plurality plus" policies, but were reappointed.

The staying power of these board members raises questions about the limits of shareholder democracy. But snubs of sitting directors can help unhappy shareholders achieve other corporate-governance goals.

Activist investors pressing for more accountability in director elections say they aren't dismayed by the survival of minority-vote directors. Edward J. Durkin, corporate-affairs director for the United Brotherhood of Carpenters and Joiners of America, has pushed for majority-vote rules. Mr. Durkin says the rules are working, because boards are more responsive to investors. "It doesn't require people getting thrown off boards," he says.

The ranks of directors without majority support are likely to swell further next year. Under New York Stock Exchange rules effective in January, brokers no longer can vote clients' shares during elections.

Brokers typically back incumbents. Eliminating broker votes "could tip the balance" against board members opposed by activist institutional investors, predicts David Drake, president of Georgeson Inc., a management proxy adviser.

Source: Wall Street Journal; 09/26/09

Why Organizational Strategy Matters

2009-09-29T07:01:56-04:00

Why Organizational Strategy Matters

View more presentations from Charlesmore Partners International.

Leadership Development - Why Experience is the Best Teacher

2009-09-28T14:48:12-04:00

Leadership Development - Why Experience Is The Best Teacher

View more presentations from Charlesmore Partners International.

Do you have leadership continuity plans in place?

2009-09-20T12:07:37-04:00

Management succession is one of the most critical strategic risks a corporation faces, particularly as 46% of executive departures are unplanned and 50% of baby-booming senior managers will reach retirement age in the next five years.

Yet 51% of companies do not have a succession plan in place and only 6 percent claim a system in place to build top-flight executive teams.

Management literature shows that failing in leadership transition can be deadly to even the most successful of businesses. Indeed, since it can be a source of such business uncertainty, The Conference Board recommends that succession plans and leadership development strategies be developed and integrated into enterprise-wide risk management programs. It also recommends that corporate executives dedicate full attention to their succession planning duties and use the challenges posed by the economic crisis as an opportunity to improve their companies’ leadership development programs.

Contact Charlesmore Partners International for more information on how to build and implement effective succession strategies, manage change in organizational leadership and mitigate the risk of leadership discontinuity. You can read a synopsis here.

What is a transnational organization?

2009-09-18T22:36:33-04:00

Think global, act local has long been the mantra of the transnational.

True transnational capability requires:

· Exploiting the global integration

· Assuring local acuity, responsiveness and flexibility

The transnational corporation simultaneously pursues global efficiency, national responsiveness and knowledge development and exploitation on a worldwide basis.

The most successful global corporations have found a way to manage these dynamics successfully, interdependently and interchangeably.

Absent this balance companies typically operate internationally either as multi-domestics – providing a high degree of strategic freedom and organizational autonomy to subsidiaries or as mega-nationals – retaining tight control of strategic decisions and information at the global hub (worldwide facilities typically centralized in the parent country, products standardized, and overseas operations considered delivery pipelines to access international markets).

The problems with these models are:

· The mega-national may fail by blindly applying home country rules and practices to the new environment (under adaptation). Local entities increasingly act independently, redundancies and conflicts abound and the benefits of global reach erode.

· The multi-domestic firm can fail by playing entirely by the local rules (over adaptation). Increasing this model becomes out of touch with customers and employees and fails under its own inflexible weight.

· A hybrid that attempts to balance both dynamics – often called a matrix – works in concept more than reality - the matrix may fail due to complexity and procedural confusion (over-engineering).

New transnationals (and some incumbents) continue to experiment with alternative organizational forms and BCG highlights many that are at the cutting edge of architectural design. Often flexible networks replace more conventional designs. The challenge is that organizational performance doesn’t happen by osmosis and is planned and orchestrated and an adhocracy ultimately will prove problematic to sustainability. The balance of global and local will still be necessary.

Global Integration

Global integration means centralized control over key resources and operations that are strategic in the value chain; decisions are made from a global perspective

Global integration can provide a firm operating internationally with a number of important benefits derived from a worldwide optimization of resources:

Economies of scale. A company can lower its unit costs by centralizing critical value chain activities, such as manufacturing or logistics. This may involve having a small number of large facilities to make products for export, or creating a network of specialized and focused operations spread around the world that are tightly controlled by the central hub.

Value chain linkages. Sometimes competitive advantage comes from tight linkages between value chain activities - between R&D, manufacturing, and marketing in the home country which is a technological leader (for example Silicon Valley in the Internet equipment business); or between manufacturing and logistics. Tight integration allows the firm to stay ahead of technological and competitive changes.

Serving global customers. To the extent that customers are integrated and operate on a global basis, their suppliers may be forced to adopt a similar structure. Subsidiaries do not have their own stand-alone customers; prices, quality standards and delivery terms are determined globally.

Global branding. Consumer product companies such as Coca Cola or Gillette promote a united brand image around the world. Coke standardizes its formula and advertising themes (its two critical success factors), gaining efficiencies in utilization of marketing tools such as advertising and merchandising.

Leveraging capabilities. Some companies expand globally by transferring capabilities developed in the home market. The international expansion of both IKEA and Wal-Mart depends on supply-chain management skills that allow these companies to pursue their traditional low price strategies around the World.

World-class standardization. Key processes are standardized and centrally controlled so as to maintain competitive advantage. The pharmaceutical giant Merck manufactures locally to meet government requirements. Its manufacturing processes are complex, however, and these are standardized in order to maintain quality.

Competitive platforms. Tight control of local subsidiaries by central headquarters may allow rapid response to competitive conditions and redeployment of resources so as to facilitate expansion worldwide. For example, tightly centralized Japanese multinationals penetrated new markets in the past through price subsidization funded by profitable operations elsewhere.

Information advantage. Prime examples of mega-national firms - Japanese trading companies (sogo shosha) - are located in every corner of the world. Through the network of local offices, staffed primarily by Japanese expatriates, they optimize global business opportunities by tapping into pricing and delivery information about thousands of products.

Global integration does not necessarily mean distributing the same product or service in the same way all over the world. What it does mean is that decisions on how to address local customer needs or market differentiation are made by managers who have an integrated global point of view.

Forward-looking firms are finding that no region or country has a monopoly on business-level component capabilities and firms that actively seek the latest resources and skills from around the world can build superior knowledge and performance capability.

The ability of multinational firms to access foreign-based clusters of excellence is a clear source of advantage in gaining component knowledge-based advantage.

Implementing Global Integration

Important considerations include:

· The alignment of decision-making to ensure that local decisions reflect a global perspective

· The standardization of processes to achieve desired efficiencies and uniform behavior, using formalized control

· The socialization of key individuals in central and expatriate leadership positions to ensure global orientation

A Case in Point

By way of illustration, one particular client company that occupies a valuable niche position in the global medical device industry saw developing economies as significant growth markets over the next five – ten years. Its business was sound, but not particularly profitable. Years of doing business internationally had not translated into global mindset or practices. Product development was centered in two locations – North America and Europe; products were designed with a local orientation and an export mentality; leveraging local manufacturing capacity and legal entity financial results were blatant priorities; you could drive to most suppliers within a couple of hours; sales reps often competed against each other for international orders. Candidly, the organization was less an impediment to global growth than a foundational barrier.

Amongst the many clear realties facing a new CEO was that he couldn’t get from here to there without transformational change; espousing new values and expecting the organization to miraculously globalize was clearly not going to happen. In fact, what was required was a carefully constructed organizational strategy that – over time – built the practices, capabilities and mindsets of a global company. It is an ongoing journey that involves new leadership, extensive organization development activity, a new organizational architecture, new operating, information and communication systems and practices, a global P&L tied to a new reward system, the development of a global product portfolio, lean manufacturing centers of excellence and a global fulfillment and distribution process. The organizational transitions are immense as the company preserves institutional knowledge, while foundationally changing its modus operandi.

Coordination Mechanisms

Coordination mechanisms that help build and bond global integration include:

Face-To-Face Relationships

· Things get done through relationships not hierarchy

· Ties are built that span boundaries

· Events, projects, work assignments, knowledge sharing protocols, problem-solving

· Boundaries can be intra- or extra-organizational

· Conflicts are worked out through relationships, not because somebody decides

· Relationships deepen over time; they represent the social capital of the enterprise

Cross-Boundary Teams/Groups

· Fundamental coordinating mechanism for the transnational

· Be clear on purpose and deliverables; provide authorities and boundaries

· Staff for diversity and capability, not representation

· Mix face-to-face, synchronous and asynchronous where possible

· Promote learning as well as results

Global Process Management

· Horizontal standardization of sets of activities that are regularly repeated and focus on clearly identified deliverables

· Foundational pillar of coordination

· Global definition of process, local responsibility for execution

· Little room for local adaptation

· Improvements sought and shared

Know-How and Best Practice Sharing

· Create organizational opportunities, structures and technology platforms

· Set expectations for sharing and knowledge development and deployment

· Provide investment, visibility, recognition and reward

· Maintain, sustain and refresh

Knowledge Management

· Provides and advances competitive position

· Transfers corporate knowledge from individuals to the firm

· Converts established learnings into shared, organizational platforms

· Develops new sources of value

· Reduces redundancies and wheel re-invention

· Strengthens corporate “glue”; fosters global-local understanding

· Deepens networked relationships; builds organizational competencies

Normative Integration

· The socialization that leads to shared attitudes, values, and assumptions - the shared culture of an organization – and emphasizes the importance of a communal sense of identity

Without normative integration, communication across borders would be time consuming since people would have to figure out what terms and concepts meant to others and repeatedly establish new norms for social exchange (leadership expectations, how to surface and deal with conflict, the nature of reciprocity, and myriad other such norms)

Other coordinating mechanisms include global mindset development, transnational leadership development and organizational capability building. We’ll cover each of these in subsequent postings.

Local Responsiveness

Quando vai a Roma, fai come vedi?

(dipende)

· It depends upon the specific situation – what is necessary and what is the context.

· It depends upon the chosen (adaptive) strategy of the company.

Choices include:

· Cultural accommodation (adapting practice to local norms)

· Cultural compromise (deciding to find some middle ground)

· Cultural synergy (finding a way to integrate practices)

· Cultural relativism (practices are established relative to home country norms)

Differentiation of Subsidiary Roles and Responsibilities

Some companies have begun to differentiate the roles and responsibilities of their national subsidiaries.

The intersection of strategic and organizational considerations defines four generic roles that country organizations can play in fulfilling the global objectives of the transnational organization.

The principal strategic consideration is the overall importance of national environments to the firm’s global strategy. A very large market is obviously important, but so is a competitor’s home market, or a market that is highly sophisticated or technologically advanced. The major organizational consideration is the national subsidiary’s competence - in technology, production, marketing, or another area. Depending on its positions along these dimensions, a national organization may function as a strategic leader, contributor, implementer, or black hole.

Strategic Leader

National organizations with high internal competence located in strategically important markets must be legitimate partners with the headquarters in developing and implementing broad strategic thrusts.

Contributors

Several companies we try to capture the benefits of certain local facilities or capabilities and apply them to the broader worldwide operations. This pattern was particularly characteristic of subsidiaries in which competence was high but the strategic importance of the market was limited.

Implementer

Some national organizations have just enough competence to maintain their local operations in a nonstrategic market. Corporate resource commitments reflect the market’s limited potential. In most companies, the majority of national units play this role. It is characteristic of many subsidiaries in the developing countries of Latin America, Africa, and Asia as well as the national organizations in Canada and in the smaller European countries.

These national organizations cannot contribute much to the strategic knowledge of the firm. They do not have access to critical information; they do not control scarce resources.

Fundamentally, they are implementers - deliverers of the company’s value added. Their task is not unimportant, however. The implementers often maintain the commercial viability of the company and generate the resources that support strategic and innovative processes. For this reason, their efficiency is as important as the creativity of the strategic leaders or contributors. The implementers make it possible to capture economies of scale and scope that are critical to most global strategies.

The Black Hole

There may be strategically important markets in which a worldwide company has minimal capabilities. This is true, for example, of Philips in Japan, of Ericsson in the United States, and of Matsushita in Europe. In each of these markets a strong local presence is essential for maintaining the global position of the firm. Yet these competitors have only token positions in these markets.

The black hole is not an acceptable strategic position. The task for management is to find a way out of this thankless role. In essence, the national organization in a black hole situation should be playing the role of a strategic leader but lacks the competence to do so. Remedies will not come cheap. Developing a significant local presence in a large, sophisticated, and competitive national environment is extremely difficult, expensive, and time-consuming.

One common response to this challenge has been to create a small sensory capability to exploit the learning potential of the environment, even if its business potential is beyond reach. Thus, many American and European companies have established small organizations in Japan to monitor technologies, market trends, and competitors. The assumption is that such monitoring will allow the companies to analyze the global implications of local developments and at least prevent erosion of their positions in other markets.

Why Localize?

Important reasons include:

· National, regional and local market characteristics

· Network development and leverage; connections

· Customer needs, preferences and buying practices

· Local regulations and infrastructure

· Public opinion/political interests

· Employment norms/workforce appeal

How To Localize?

There are many important imperatives that promote and reinforce a localization strategy:

· Open-mindedness; tolerance for diversity and ambiguity; inclusion; reciprocity; sensory acuity

· Investment and commitment; local presence, infrastructure and relationships; long-term orientation

· Shared vision and goals; distributed authority; information transparency; mutual knowledge and learning

· Product/service/business process adaptation; business, leadership and organization development

Governments must act fast on unemployment - OECD

2009-09-18T21:46:38-04:00

Governments must act fast and decisively to prevent the recession turning into a long-term unemployment crisis, according to OECD Secretary-General Angel Gurría. “Employment is the bottom line of the current crisis. It is essential that governments focus on helping jobseekers in the months to come,” he said at the launch of the OECD’s Employment Outlook 2009. He also argued for a coordinated policy response to the crisis and urged policy makers not to forget the plight of those in the developing world that often can not benefit from well-designed social protection systems.

Despite early signs of economic recovery, in most countries unemployment will rise further next year and remain high for the immediate future. The unemployment rate has already reached a post-war record high at 8.5% in the OECD area, corresponding to an increase in more than 15 million in the ranks of the unemployed since the end of 2007. If the recovery fails to gain momentum, the OECD unemployment rate could even approach a new post-war high of 10%, with 57 million people out of work.

In light of this, the report argues, governments must urgently reassess and adapt their labor market and social policies in order to prevent people from falling into the trap of long-term unemployment.

Most OECD countries have introduced measures to support labor demand. These include temporary cuts in employers’ social security contributions and short-time working subsidies to compensate workers for working fewer hours or to encourage firms to hire. In the short-term, the OECD acknowledges that these measures are playing a positive role.

The unemployment rate has already reached a post-war record high at 8.5% in the OECD area

But, the report warns, they must be temporary and well-targeted, otherwise they could become an obstacle to recovery by propping up declining firms and making it harder for expanding ones to hire new workers. As part of an overall strategy to tackle the jobs crisis, the OECD also recommends governments to:

Help young people who have been hardest hit by the crisis, especially those with few or no qualifications. Targeting this group will reduce the risk of a “lost generation” of young people falling into long-term unemployment and losing touch with the job market.

Reinforce social safety nets to avoid jobless people falling into poverty: on average in the OECD area, 37% of individuals living in jobless households are poor - five times higher than for individuals living in a household where at least one person has a job.

Increase spending on active labor market policies, such as job search assistance, and training, to help the unemployed back to work. Spending on these policies has risen in many countries over the past year, but only modestly compared with the magnitude and pace of job losses. In Ireland, Spain and the United States, which have seen the fastest rise in unemployment in OECD countries, spending per unemployed person on active labor market policies has fallen by 40% or more over the past year.

Foster skill formation to ensure that workers are well-equipped with the appropriate skills for emerging jobs, including green jobs.

Source: OECD; September 16^th 2009

The importance of local culture in this era of Globality

2009-09-18T18:05:48-04:00

"Culture is the means by which a people expresses itself, through language, traditional wisdom, politics, religion, architecture, music, tools, greetings, symbols, festivals, ethics, values and collective identity. Whether written or oral, the political, historical and spiritual heritage of a community forms its cultural record, passed from one generation to another, with each generation building upon the experience of a previous one.

Culture gives people self-identity and character. It allows them to be in harmony with their physical and spiritual environment, to form the basis for their sense of fulfillment and personal peace. It enhances their ability to guide themselves, make their own decisions, and protect their interests.

It is their reference point to the past and their antenna to the future.”

Wangari Maathai, The Challenge for Africa (2009)

Libya: the son also rises?

2009-09-15T21:43:10-04:00

Since the end of international sanctions against Libya, leader Muammar Gaddafi’s son Saif al-Islam has symbolized hope in the West that a secretive, authoritarian oil and gas exporter can reform itself from within.

The sharp-suited, western-educated Islam has called for a new constitution, a freer press and an independent judiciary, music to the ears of the U.S. and of European governments all desperate to give a moral basis to their re-engagement with the oil-rich north African state.

Islam took the end of diplomatic isolation as the cue to press for a cautious public debate among ordinary Libyans about their future. Two newspapers and a TV station linked to Islam have been holding government officials to account for their failings. A new constitution that would bolster press freedom and an independent judiciary is ready for approval by Libya’s General People’s Congress, a newspaper editor and close ally of Islam told Reuters this month.

Optimism among advocates of liberal reform has turned to disquiet however, as attention shifts to Islam’s brother Mutassim, Libya’s head of national security who is viewed by some observers as a rival for power. Mutassim is reported to have built a strong support base in Libya’s conservative
Revolutionary Committees and he held talks with U.S. Secretary of State Hillary Clinton in Washington in April.

Analysts are divided over whether the showdown between the Gaddafi scions is genuine or merely window dressing to keep Western governments believing in the chances of peaceful reform.

Islam’s globe trotting helped secure the end of sanctions and Libya’s return from
diplomatic isolation, but his liberal message has also grabbed the spotlight from exiled Libyan dissidents, whose voice is now seldom heard in the debate about Libya’s future. “A scene has been set that portrays Saif al-Islam as the rebel successor to his father. But this scene is of course managed and controlled by the regime itself,” said Amel Boubekeur of the Carnegie Middle East Center in Beirut.

Source: Reuters, September 15^th, 2009