Rewriting Management Theory

An excellent provocative piece by Schumpeter in The Economist in December challenged four decades of orthodoxy in management theory. I think he has a point.

Schumpeter claimed that sometime around 1980 – the time of the great wrong turning as far as I am concerned – some sort of consensus emerged in business about the key factors to understand and master. These factors then spawned plenty of literature, even more management good practice and justification for pay rises, and even more obscene invoices from management consultants.

The four pillars are claimed by Schumpeter start with the inevitability of mounting competition. Better information and mobility and fewer business barriers were supposed to drive an age of competition, where you either compete and win or are swiftly devoured. Like the other pillars, this is a convenient story for consultants and senior leaders. They could justify rounds of firing staff, constantly keeping people on age, and vast rewards for staying in business.

But the evidence suggests otherwise. One of the most remarkable trends in the last fifteen years, especially in the US, has been the reduction in competition in most industries, allowing leaders to squeeze margins upwards and enjoy a sustained oligopoly. The Economist argues sometimes that reversing this trend would be an excellent mantra for policymakers, via challenging regulations and other hidden advantages for incumbents.

More and more businesses are built around the logic that sustainable success requires a defensible monopoly. Peter Thiel’s Zero to One argues this, and firms like Google have developed one, and plotted moon-shot investments focused on creating others. Businesses like Tesco, embracing competition while “piling it high and selling it cheap” have become rarer and many have struggled.

The second pillar is that we are in the age of the entrepreneur. Chistensen quotes examples of disruptive innovations and Chan and Mauborgne look for Blue Ocean strategies, and all businesses are told to follow the model of disruption or suffer ignominious deaths.

Well, again, evidence works the other way. Playing defence has worked very well for many – look at pharmaceuticals as an example of a cozy industry that has thrived for a long time by protecting privileged positions and preventing innovation by others. True, Amazon and Apple are great examples of successful disruptors, but the bankruptcy courts hide the bodies of countless failures. An unusual number of the world’s top 100 companies have been in the list for a generation or longer.

The third pillar is the need and inevitability for speed. Technology ups the pace for everyone, and many leaders are constantly stressed. Financial market makers now look to trade in microseconds. Because of competition and entrepreneurs around every corner, the slow will die, or so the theory goes.

On this one, I think the evidence is more mixed, but Schumpeter still has a point. Speed as a goal does not usually work, because someone else will soon run faster. The successful strategy is the one that seeks to control the pace, the one that owns the clock and forces time pressure on others. Time is the strongest weapon of the dealmaker. Pace is something to use or manage, not to seek or to succumb to.

The fourth pillar is the one that has broken most spectacularly recently. We had been led to believe that globalisation was inevitable and irreversible. Successful businesses had to find ways to think global and act local, to satisfy customers in multiple markets and to build flexible supply chains.

Once again, this suited the consultants and megalomaniac bosses, who could exploit larger cakes, greater uncertainty and grander scale. But Trump isn’t the first to signal a pause in the wave of globalisation, and to punish those who may have gone too far too fast and left themselves vulnerable to a backlash.

This belief in perfect markets and structures favouring constant growth and innovation (and rising inequality too) was always rather naïve, as Schumpeter has shown. He also leaves an answered question about what core management theories might replace it?

I have something of an answer, based on one trusted model and one pet idea of my own.

The trusted model is Porter’s five forces. An industry, and many other situations, can be assessed for its attractiveness by analysing the degree of internal competition, the power of buyers and suppliers, the potential for substitution and barriers to entrants.

Essentially, the five forces determine how much gunge is in the works of the perfect model of competition, entrepreneurialism, pace and globalisation. The more gunge, the better the chance of profits for longer.

Some sectors have inherently more gunge than others. Markets like healthcare, where information cannot be perfect, have gunge, and it is a mistake for the state to pretend these can be fully privatised and treated like perfect markets. As Thiel says, it is in the interest of managers to maximise the gunge and for investors to seek out gunge.

There are good ways to create gunge, such as Amazon’s or Google’s network effects. But there are bad ways too. National protection, corruption, excessive regulation and lack of transparency all create gunge, and lobbyists work hard to add to it.

Linked to this but starting from the issue of incentives is something I named the 10,001 customer problem. Many situations have 10,001 customers. I can improve my marketing and pull in more of the 10,000. Or instead I can focus on the one. The one might be an industry regulation, or a key raw material or a tax treatment.

At a micro level, as an individual I can look widely at my productivity, motivating my staff, or at creating something brilliant. Or instead, I could focus solely on keeping my boss off my back. The boss is the one, while everything else is the 10,000. Many people have built a lazy but successful career doing nothing but building boss resilience.

In the same way, a politician can choose to build an authentic platform to benefit the people and then sell it to them. But it might be easier to gerrymander boundaries, restrict voting, peddle a few slogans and put the opposition and antagonistic media in jail. I know the Mr. Putin understands all about the 10,0001 customer problem! Mr. Trump might understand it too: certainly many of his Republican congressmen do.

10,001 is a problem because progress comes from the 10,000, but it is usually easier and more successful to focus on the one. A smart boss will look for gunge and how to grow it, while pretending to support the naïve world of free competition and creativity.

These two related principles might offer part of a rather cynical answer to Schumpeter’s question – but Schumpeter is nothing if he is not cynical, so he might like it. It also shows a way forward. As voters, employees and honest policymakers we can look for ways to force attention on the 10,000 and the removal of gunge. And as individuals, we can preach the same, even do the same when we can, but have half an eye to the one as well.     

Time for Resistance!

The world is angry. Insults are flying, courts are busy, demonstrations are everywhere, hate attacks are increasing, and strikes are rumoured. And the inauguration was only three weeks ago!

But caution is in order. Complaining is easy, and tempting targets are plentiful. But complaining changes nothing without action. And action can also be counter-productive. Trump and his entourage are experts at playing public opinion. It is important to separate out key goals and to act towards achieving them.

To start with, is resistance even fair? Trump won the election. He has a right to sit in the White House and govern. The Republicans have a right to use their congressional majorities to pass laws as well. Just because the Republicans abused the system last year, for example on the Supreme Court nominee, doesn’t make it right to abuse the system in revenge.

But some resistance is certainly fair, and demanded by the current situation. It is always right to defend the law, the constitution and international conventions, and to hold leaders accountable to them, as well as to their campaign promises. And politicking is also fair – pointing out lies, hypocrisy, affronts to decency, and the impact of actions on voters and other stakeholders.

The challenge is to make resistance effective. Less can be more. Furthermore, it is very likely that the administration will eventually collapse without much outside help. Scandals will arise for sure. Battles will divide the executive from Republicans in congress. Many appointees are clearly incompetent as well as divisive. And Trump has a destructive habit of making unnecessary enemies. Patience is a virtue in this situation.

Thinking about this unprecedented situation, I have grouped what I see as valuable resistance under three themes. They are contingency planning, undermining the coalition, and preparing a counter narrative. So far, I see little evidence of a smart approach to any of the three themes.

Contingency planning is about avoiding global disaster. While patience makes sense in the big picture, there is a real risk that Trump will unleash lasting damage to our world while he remains in power. It is already clear that hopes that he will govern differently to his campaign are misplaced. And as his problems will inevitably mount, he has shown that his natural tendency is to double down, and he is hardly surrounding himself with wise counsel. The potential for disaster is real and frightening.

Domestically, catastrophe is unlikely. True, congress will be further polarised, the Supreme Court may be skewed and public trust in institutions will decline even further. Disadvantaged groups will suffer as well. But these things can all cycle around; indeed Trump may finally signal the nadir and prove a spur for lasting progress once he is out of the way.

The real risks are the global ones. Trump will incite wars and then escalate them. The current proxy conflict between Saudi Arabia and Iran in Yemen could become a full-scale war, with Israel waiting to intervene and cherry pick. Russia will seek to bring satellite states back within its orbit. China could be lured into shooting fights over Taiwan, Japan and the South China Sea. North Korea will be goaded as well.

Global diplomats must not hope away these challenges but be ready for them. Paradoxically, I think Trump will serve the good purpose of pulling Europe back together again, once people realise their protector is no longer reliable while they squabble like kids. It is time for Europe and others to pursue active contingency plans with China and even Russia, and to be ready to show backbone in the Middle East. This applies both to the war scenarios and the climate trashing that Trump seems set to unleash. Waiting for a crisis will be too late.

The second focus of resistance should be systematic weakening of the Trump coalition. Here, the current activity seems misguided. It is all very well, and even correct, to demonstrate against Muslim bans, abandonment of refugees, and threats to LGBT and non-white rights, but the white voters in Michigan may rightly conclude that this does nothing for them, and perpetuates the belief that coastal liberals have lost the plot.

Voters are obviously a key part of the coalition – barring impeachment, the only ones to end the nightmare – so a large share of the resistance has to be targeted to influence their opinion. The challenge is tough – mid term elections always favour Republicans.

A solution is via guerrilla communication. Liberal papers and websites are targeted at educated types and are boring to many. We need some outlets that are honest but also edgy, exposing the hypocrisy of Trump, the greed of congress, and also the impact of Republican actions on white working class voters.

There is plenty of ammunition. In the last month, Republicans have tried to gut their own ethical watchdog, permitted miners to pollute streams and oil companies to pay bribes, and allowed banking advisors to act against client interest. Soon will follow tax cuts for fat cats – implying spending cuts harming everyone else. Health care will be a minefield. For sure, the Trump and Republican agendas will only harm most people who voted for them – and this harm must be exposed to them in a way they will listen. The satirical late night TV shows offer an excellent template – but again are tainted as liberal, coastal and remote from ordinary people.

There are other elements of the coalition to target. Last week, I proposed embarrassing Catholic cardinals into revolt against a leader who is the antithesis of their gospel. A few Republican senators have a conscience, so work relentlessly on them.

The best place to hurt many of the coalition leaders is in their wallet. Here is an idea. Trump has declared America first, so everyone else last. So consumers could justifiably respond with everyone else first, America last. What if Mexicans stopped drinking Coca Cola en masse? They are the biggest consumers of the stuff, and could decimate the share price overnight, and after all the stuff is only water and sugar and could easily be substituted. Globally, consumers could decide not to buy the products of those companies represented on Trump’s business advisory group. That would make them think a bit about the advice they chose to offer. Consumers can make clear they have nothing against America or Americans, just against the hateful current leadership.

Then there is the third leg about building a winning narrative. This is the real lesson of Hillary. A flawed personality and hypocritical platform will not win, even against empty populism and a bully. So where is the next Obama, the next Trudeau? Where is the honest analysis about which parts of the Sanders platform would benefit everyone except lobbyists and members of the Democrat hierarchy and donors? Where is the realisation that an empty Republican platform has control of two thirds of the governor’s mansions and what that says about Democratic candidates and campaigns? I have been heartened by some good recent articles on these subjects. It should not be hard – demographics favour progressives and the opposition will commit own goals weekly, but mid-term turnout is a challenge.

I have lost what optimism I ever had about Trump, and we are in for a bumpy ride. But, as long as we can avoid nuclear catastrophe, we have to remember than progress comes in cycles, and sometimes the worst tyrants create conditions for the best backlashes. In the meantime, let us hope that the resistance becomes smarter than we have seen so far. Contingency planning, chipping at the coalition and building a new narrative are good goals. Individually, we can lobby and hope – and cut out that Coca Cola habit!

Calling all Cardinals

I remember when Margaret Thatcher was applying a meat cleaver to decent society in the UK in the early eighties. She vindictively picked fights with unions, dismantled much of the welfare state and progressive taxation and seemed to think that making society safer required locking lots of people up and reducing civil liberties.

It was an ugly time. I also remember where the resistance came from. Labour was in disarray after the winter of discontent and the subsequent election of unreconstructed lefty Michael Foot. The traditional wing of the Conservatives were bullied and cowed. The EU was weaker then and muted in its criticism. There were protesters – students, feminists, everything – but Thatcher successfully portrayed them as extreme representatives of past failure. But a surprisingly effective source of challenge came from the Church of England, and the then Archbishop of Canterbury Ronald Runcie. He spoke out for decency, humility and acceptance. Thatcher hated it.

I recalled this after enduring the first days of the Trump presidency, portending something much uglier and more dangerous than Thatcher. Where can we look for resistance?

There are similarities. Democrats are licking wounds, Republicans are cowed and bullied, foreigners are belittled, and protesters run the risk of strengthening the emerging hateful regime. So where is the Church?

On Sunday, I went to mass, as usual. The readings were typical. The first one exalted us to be humble and just. The psalm focused on how the Lord gives food to the hungry, sets captives free and protects strangers. St Paul noted that the early apostles were men of lowly birth and limited education. And the Gospel quoted the beatitudes from the Sermon on the Mount. Blessed are the poor in spirit, those who mourn, are meek or hungry or merciful, are clean of heart and are peacemakers.

Whether or not we believe in afterlives or Eucharistic rituals, it is easy enough to deduce a life code from these readings. Because the life code is sound, and because it works, not just in some theoretical future life but also in the real one we are living now, it has endured for two centuries. Most religions can be boiled into similar life codes.

And now the antithesis of this life code is sitting in the White House. In two weeks we have seen brazen lying, petulance, vindictiveness and intolerance. And this is just the beginning.

Yet where are the cardinals? The Pope has spoken up and will do again – he is a courageous man clearly guided by the gospels. But the local Churches appear to be silent so far, especially the Catholic one.

The national Church has input into the prayers of the faithful used in most churches each Sunday. This week’s included the usual formulation about national leaders respecting the rights of humans from conception until natural death. That is the code used as a plea to restrict abortion.

Sadly, abortion has consumed the Catholic Church in the US. The Church has almost reduced itself to a single-issue lobby group. Almost every time the Catholic Church seeks publicity, it is about abortion. My Church does a lot of good locally and internationally, but the only regional or national campaign to which I am ever asked to give my energy is the one against abortion.

Now I am not saying the Church is wrong about abortion. It is a tough issue. Plainly making it too easy to terminate a late pregnancy is disrespectful of human life. Whether that applies as early as conception is moot, and the balance of policies to reduce unwanted pregnancy, share the burden on fathers and help children born into tough circumstances is difficult. What I will say is that the formulation from the prayers of the faithful indicates an imbalance of priorities. If life is precious from conception to natural death, where are the Catholic marches against capital punishment or gun violence?

I’m also not condemning Trump’s policy program, though I personally hate most of it. He won the election and is implementing what he said he would do. Some of it might even work. He has shown he will stand up to the venality in Congress. China should be called to account for trade abuses. Supporting communities ravaged by the loss of manufacturing jobs is an excellent goal, even if his means seem unconvincing. Immigration control is a valid goal – indeed, the rule of citizenship by birth is astoundingly generous and could reasonably be challenged. Entitlement programs do need to be put on a sustainable basis. He could make progress on some of this, whereas Obama could not and Clinton could not have.

No, his policy deserves a fair opportunity; it is his attitude that is reprehensible. Go back to the beatitudes, which speak to good attitudes. One poor in spirit would not consider wealth a key criterion for job applicants. One who mourned (respecting and learning from the past) would reflect on the sad precedents of his nation before announcing a travel ban discriminating by religion. A meek man would not recklessly disregard something as uncertain as climate change. Someone respecting the hungry would not incite white revenge. A merciful person would never, ever, advocate torture. Someone clean of heart would not feel the need to inflate the numbers at his own inauguration, and then double down in the face of evidence. And a peacemaker would never loosely threaten an arms race.

These attitudes are the antithesis of the Beatitudes. Jesus could have used Trump as a case study! Similar policies could have been couched in an acceptable attitude. The attitudes displayed now should not be acceptable to any Christian leader (or any religious leader), since leadership provides attitudinal role models to the led, setting a tone.

So again, where are the cardinals? Where are the local priests too? The challenge is not just in the USA. Three of the six highest global populations of Catholics attending regular mass are the USA, the Philippines and Poland. Is it a coincidence that recently elected leaders from each of those countries are displaying attitudes so contrary to the gospel?

Sadly, in the US the Catholic Church has largely retreated to the position of a single-issue lobby group. One reason may be money. I suspect many of the key Catholic donors are driving the public positions. But surely another message from Jesus is that church leaders have a duty to rise above that?

These will be tough years, and the world will need people of courage to defend civilised attitudes. I pray that church leaders can find the courage to take on such a role. The current Pope shows the way, but others must follow that lead. Last Sunday, I listened to the readings and shook my head in sadness. I have a horrible feeling that this experience will be repeated week after week for the next four years, or even longer. I suspect many parishioners, priests and even cardinals may be experiencing the same emotions. Let us pray that we then act on them.