Being a good manager
Back to basics
Mar 7th 2002
From The Economist print edition
This survey suggests that the core of good management is a set of three old-fashioned virtues that were often forgotten in the bubble years, when anything seemed to go. At a minimum, good managers have to meet the following criteria:
• be honest;
• be frugal;
• be prepared
Being honest, of course, is not just a matter of keeping within the law. Most managers do that, which is why the few who step outside it receive so much attention. For the law-abiding majority, it is a matter of escaping from self-delusion. That requires setting up systems in which rewards are not related to numbers which can be massaged and exaggerated at will.
Above all, it is a matter of being honest about a company's value and its potential. Warren Buffett, the chairman of Berkshire Hathaway and one of the most successful “value creators” in American business over the past 20 years, wrote in one of his celebrated annual letters to shareholders: “We do not want to maximise the price at which Berkshire shares trade...we wish for them to trade in a narrow range centred at [their] intrinsic business value.” Managers need to think about what is their own company's “intrinsic business value”. And so do the investment bankers, analysts, consultants and the rest on the merry-go-round of business hype.
In a similar vein, being frugal is not just a matter of cutting costs in a downturn. It is a question of being sparing with resources at all times, of continually looking for new ways to cut costs, and of creating an atmosphere in which waste and excess are unacceptable, no matter what the market conditions. The extremes to which Wal-Mart's managers take this-such as sharing bedrooms on business trips, and being expected to bring back free pens from conferences-may be counterproductive, to the point of repelling able managers. But the enduring success of many businesses-from Andrew Carnegie's and J.P. Morgan's in the 1900s to Warren Buffett's and Sam Walton's today-have been built on a frugality bordering on stinginess.
Lastly, managers need to return to the idea that it is worth planning for the future. “Chance favours only the prepared mind,” said Louis Pasteur, the 19th-century French chemist. Planning was further undermined by the myths surrounding the so-called “new economy”. Its champions seemed to dismiss planning, saying that business had to think differently not only about today but also about tomorrow. In a world where change was said to take place at the speed of light, and where even mighty Microsoft could have its markets usurped by an unforeseen upstart in less time than it takes to launch a new version of Windows, looking ahead beyond the next dollop of venture capital seemed pointless. Why be prepared, the argument went, when nobody knew what to be prepared for?
Today, many companies-including giants such as Nokia, Hewlett-Packard and EDS-are once again taking strategic planning seriously. Some never abandoned it. At Emerson, a remarkable engineering-based business in America's mid-west (of which more later), planning has always been a top priority. Its chief executive spends 60% of his time meeting heads of divisions to discuss and challenge their plans. In good years and bad, the company is prepared for most eventualities.
Mar 7th 2002
From The Economist print edition
This survey suggests that the core of good management is a set of three old-fashioned virtues that were often forgotten in the bubble years, when anything seemed to go. At a minimum, good managers have to meet the following criteria:
• be honest;
• be frugal;
• be prepared
Being honest, of course, is not just a matter of keeping within the law. Most managers do that, which is why the few who step outside it receive so much attention. For the law-abiding majority, it is a matter of escaping from self-delusion. That requires setting up systems in which rewards are not related to numbers which can be massaged and exaggerated at will.
Above all, it is a matter of being honest about a company's value and its potential. Warren Buffett, the chairman of Berkshire Hathaway and one of the most successful “value creators” in American business over the past 20 years, wrote in one of his celebrated annual letters to shareholders: “We do not want to maximise the price at which Berkshire shares trade...we wish for them to trade in a narrow range centred at [their] intrinsic business value.” Managers need to think about what is their own company's “intrinsic business value”. And so do the investment bankers, analysts, consultants and the rest on the merry-go-round of business hype.
In a similar vein, being frugal is not just a matter of cutting costs in a downturn. It is a question of being sparing with resources at all times, of continually looking for new ways to cut costs, and of creating an atmosphere in which waste and excess are unacceptable, no matter what the market conditions. The extremes to which Wal-Mart's managers take this-such as sharing bedrooms on business trips, and being expected to bring back free pens from conferences-may be counterproductive, to the point of repelling able managers. But the enduring success of many businesses-from Andrew Carnegie's and J.P. Morgan's in the 1900s to Warren Buffett's and Sam Walton's today-have been built on a frugality bordering on stinginess.
Lastly, managers need to return to the idea that it is worth planning for the future. “Chance favours only the prepared mind,” said Louis Pasteur, the 19th-century French chemist. Planning was further undermined by the myths surrounding the so-called “new economy”. Its champions seemed to dismiss planning, saying that business had to think differently not only about today but also about tomorrow. In a world where change was said to take place at the speed of light, and where even mighty Microsoft could have its markets usurped by an unforeseen upstart in less time than it takes to launch a new version of Windows, looking ahead beyond the next dollop of venture capital seemed pointless. Why be prepared, the argument went, when nobody knew what to be prepared for?
Today, many companies-including giants such as Nokia, Hewlett-Packard and EDS-are once again taking strategic planning seriously. Some never abandoned it. At Emerson, a remarkable engineering-based business in America's mid-west (of which more later), planning has always been a top priority. Its chief executive spends 60% of his time meeting heads of divisions to discuss and challenge their plans. In good years and bad, the company is prepared for most eventualities.
