Wednesday, October 12, 2005

The Myth of Management

The first myth of management is that it exists – Robert Heller, The Executive Dream

There is a Yiddish term, chutzpah, which is normally defined by an example: A man who would kill his mother and father, then throw himself on the mercy of the court because he is an orphan. That's chutzpah.

Here's a new example: The management of a company that is in bankruptcy petitions the court to allow it to give its executives bonuses in order to retain their expertise, despite the fact that these executives have driven the company to this point, costing thousands of ordinary employees their jobs and despite the fact that the remaining employees are being asked to take cuts in pay and benefits. Now, that's chutzpah!

When Enron did this, it was unsurprising because the company had demonstrated a callous disregard for its customers and investors. So why should they give a flip about regular employees? Now, Delphi, automotive supplier to most of the auto industry, has done the same thing. With General Motors apparently on the verge of filing Chapter 11, it's a trend we could do without.

In 1972, Robert Heller wrote a book called The Great Executive Dream, a humorous but deadly right-on look at management trends and methods. In it he proposed the Ten Truths of Management. These simple statements go a long way to explain just how we've gotten into the corporate morass that business, both here and abroad, has become. I hope Mr. Heller doesn't mind if I list a few of these with some short comments of my own.

1. Think before you act; it's not your money.
Unfortunately, I think most boards have interpreted this in a totally backwards way. It's not their money, they get paid no matter what, so what the heck ... let's buy that other company.

2. Cash in must exceed cash out.
We had an entire dot-bomb era that thought you could stay in business without following this dictum. They found out otherwise. Now we find the automotive industry has forgotten that the arrow of cash flow must be inward. They put out huge incentives to generate sales, then were surprised to find out they lost a bundle. If you’re losing a thou or two per car, you’re not going to make it up on volume. Now they're also finding out that when gasoline prices get out of hand, people stop buying over-priced SUV's and want to buy economical, but low-profit-margin little cars. Remember the '70's guys? Evidently not.

3. Management capability is always less than the organization actually needs.
But management compensation is always way more than the organization needs to pay to get that kind of “talent”.

4. If sophisticated calculations are needed to justify an action, don't do it.
The prevalence of the personal computer has made it easier to blow smoke up people's butts than ever before. The most dangerous corporate booby trap is an executive with Excel and Powerpoint on his PC.

5. If you attempting the impossible, you will fail.
Consultants get rich because they know that they can promise anti-gravity propulsion, and some executive will believe it, because it's not up to him or her to actually make it happen.

6. The easiest way of making money is to stop losing it.
Note that this doesn't mean “stop spending money”. Losing cash and using cash are two different things. Unfortunately, executives think cutting R&D, outsourcing, and laying off workers are effective cuts, while increasing their own salaries, adding executive perks, and buying money-losing concerns is an effective strategy.

Of course, if executives suddenly got smart, Scott Adams would be out of a job. It would be a sacrifice, but one I'm willing to make.

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