Management by Values – NOT by Economics

Marvin Bower, a law graduate, joined McKinsey in 1933. A mere six years later upon the death of James O. Mckinsey, Bower  bought over the then 18 person management accounting firm with regional presence and 13 year history of problematic existence. The 35 year old Marvin Bower was the founder, creator and inventor of ‘management consulting.’

Lets put this in perspective – in the 30’s and 40’s in the US, business was regarded as a job less desirable than any profession like law, medicine, armed forces etc. it was usually meant for the third or the fourth child who had nothing to inherit.

Marvin after taking over the company, shut down the accounting division and the cash flow as a result. He was certain that the business McKinsey will be in will be management consulting. In the journey he envisioned working with top managements to solve their biggest problems.

His decision making, philosophy and concept of management and that he laid down for his firm was this – do what is in the interest of the client and in the ‘long-term’ interest of the firm, else don’t do it. From the moment of acquiring ownership until his formal retirement in 1992 Marvin lived and breathed this vision. He led by values, the economics came by.

In 1959, the best performing associate in the office was Gerry Adlinger. He was smart, in charge of significant revenues (almost 30%) and was viewed as  future leader. He was working on a top management organization study. He had recommended a change and creation of a new division and position to the client. He recommended himself for that position, not in writing or formally but in verbal communication. The CEO happened to be a good friend of Marvin and told him what had happened.  Marvin asked Gerry if it were true and Gerry said ‘Yes’….  Marvin told him,” you have 30 minutes to clear out. Its done and over.”

McKinsey during the days had promoted a culture where expressing dissent was encouraged.. Many people thus alarmed by the potential loss of business expressed their dissent on Marvin’s hasty solution. They argued that it was an informal chat and Gerry, given his record, could have been given a warning. Marvin simply responded by saying, “if you are not willing to take the pain to live by your principles, then why have the principles.”

A few days later Gerry told one of his close friends at the company, “he did the right thing.  I violated values. And knowingly. Had he not done this, this would have only grown. And values would have been consumed by economics.”

You must be wondering why I am narrating this story. Its to emphasize and re-emphasize a very critical point about modern day management. Most organizations, my guess is 90% of them, most likely yours too govern by economics of the business. Most organizations I speak to or happen to visit these days have very exciting visions and goals. Some doubling their business in two years, some in five and some even tripling it. Anything wrong with that? Absolutely not. Just that in my view, it’s an incorrect approach to achieve the economic goals of the business and will eventually be defeated in the very goal.

Just examine the Gerry example. How many companies do you know who will fire a guy controlling 30% of your business on a ‘value based’ issue? Will yours?

You might say why should they? After all we are on track for business goals.

Economic goals and missions do not achieve it’s objective if they become the prime objective. There is a reason for that – which is that performance gets tolerated and rewarded over inherent business values. Thus the executives behaving against the core values lead you to culture of ‘money mindedness’, jealousies, bickering etc. This may serve your financial goals in the short term though lead you to a possible collapse in the long.

Establishing sound economics is essential to creating an organization, though nothing can beat a sterling reputation and outstanding people. Financials over reputation (of providing excellence) will lead businesses to compromises and therefore to losing independence to provide excellence. Think of this within your organization, how many times have you provided a service or product to a client because ‘he wanted it’ or because ’it was easier  to sell’ versus ‘a solution that you knew would really be the right one???? How many times? I’ll answer it for you – plenty… The reason is the pressure on you to deliver on the financial results.

Though all of this sounds very normal and correct – there is a downside. Management through economic orientation does not always do the right thing. What is the right thing? You exist because you have a customer. The right thing therefore is whatever is in the best interest of the customer, whether or not he knows or realizes it!! Management through economics cannot achieve this, management through values can. The number one value has to be the customer.

A couple of days back, I was meeting with an ex-client and a CEO of a 3000 CR company. They have a goal – to be 7500 CR in the next five years. A year back they hired one of the big (BIG) consulting firms to help them structure and strategize to achieve this. My friend tells me he told them what he had in mind, his vision, his goals etc and the consulting company did an outstanding job. So much so that he is about to give them a new project. I was going through some of the stuff that this ‘highly reputed’ firm did and to say the least I was totally disgusted. Let me give you an example of what I have been saying so far – the firm met with the CEO, listened to his big plans and dreams of achieving this monstrous financial goal and started putting their thoughts in place.. I was going through this very beautifully designed, aesthetically flawless ‘values’ document that has been arrived at. Of those SIX values, not one mentions the customer, not one mentions integrity and ethics in reaching a vision and not mentions ‘people inside’… They do mention things like focus, speed, profit, risks etc…

For anyone who has studied or experienced management will know that this is flawed. You see our values (individually or as a business) will guide our behaviors. Our behaviors will achieve the performance. I asked my friend what is the number one reason that will be instrumental in his achieving 7500 cr. He said “we already have pipeline of assured orders. All we need is our customer to stay with us and our people to serve them well.” I looked at him and asked him a very simple question “which one of your values encourage this?”

You see the consulting company did what the client wanted to see. They didn’t by any stretch of imagination even attempt to figure what might be the right thing to do. The reason is simple – the consulting companies more than anyone is guided by ‘economic results’ internally… I said it before and I say this again Management through economic orientation does not always do the right thing.

Will values like focus, speed, profit, risks bring in results – yes they might.. Will they create an organization for the long term… NO.. People create organizations and businesses, people, internally and externally. An organization that does not adopt an ‘outside-in’ approach cannot survive the test of time. Outside-In means looking at everything from the point of view of the customer.

The final question I asked my friend was “which company do you think your customers want to do business with? The one that has a vision statement saying 7500cr in 5 yrs or one that endures customers? What do you want your people to do? Chase customers, get them, then push the plant, do something and the end of the day somehow deliver it too OR focus on servicing the customer in areas critical to them, provide solutions, develop excellent relations and create a reputation of being trusted the most” 

The answers were simple. One is a result of management by economics. One can be an outcome of focusing on values.

My friend couldn’t believe the end of our two hour meeting that he paid a couple of crores to the consulting firm. I wasn’t surprised. This isn’t the first time I have seen value destroyed. See, the people consulting with the company on behalf of the firm are not to be blamed. They work hard, really do, and give their all to the client. It’s the culture prevailing inside the firm of financial goals that prevents them to take the risk to act independently and fearlessly – thus they are unable to question the CEO and tell him he is wrong.

I remember three or four years ago, we were consulting with a smallish company. We together brainstormed hundreds of ideas and strategies, implemented too.. It didn’t work. I now realize why.. All the time we were focused on business results. The client couldn’t understand that with a great team why the results weren’t coming, neither could I so we kept trying new, different things. We forgot ’values’. It got ignored, whether the values, were being lived and implemented. In hindsight I am 110% sure, if we did just that, the rest would have fallen in place.

Professional values are not personal values, they fundamentally differ in substance and purpose. However the leadership must demonstrate the same vigor and integrity in living by business values. Business values establish a mind-set and a compass for decisions made and actions taken.

Invariably, irrespective of the documented values, economics and financial goals tend to become the prime drivers. One must realize that business values, whichever one it may be provide parameters that define the business’s objectives and means of competition and serving customers – thus defining the long term gain of the business.

Values involve a DELIBERATE CHOICE of means to achieve goals and guidelines for all decisions in pursuit. This statement to me suggests that it is a no-brainer for any business to center it’s goals around the customer. Logically, even if someone has half a brain, customer oriented values will chose decisions in their interest, chose actions in their interest, will ensure the customer wins, will ensure that he’s with you. Will ensure reputation and thereby ensure market capitalization and profits as a by product. If only we applied a quarter of that half, we’ll immediately realize that financial objectives are not values and cannot be allowed as a guideline, unfortunately we lead it to become the parameter.

Professional values are not financial objectives. While financial considerations cannot be ignored, business goals must not be financial. If they are, the business will fail to serve it’s customers and ultimately enjoy less profit.

Think about it!!

Yours,

Chetan Walia