Management by Values – NOT by Economics

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

Lets put this in perspective – in the 30’s and 40’s in theUS, 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 fourthchild who had nothing to inherit.

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

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

In 1959, the best performing associate in the office wasGerry 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 achange and creation of a new division and position to the client. Herecommended himself for that position, not in writing or formally but in verbalcommunication. The CEO happened to be a good friend of Marvin and told him whathad happened.  Marvin asked Gerryif 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 whereexpressing dissent was encouraged.. Many people thus alarmed by the potentialloss of business expressed their dissent on Marvin’s hasty solution. Theyargued that it was an informal chat and Gerry, given his record, could havebeen given a warning. Marvin simply responded by saying, “if you are notwilling to take the pain to live by your principles, then why have theprinciples.”

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

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

Just examine the Gerry example. How many companies do youknow 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 trackfor business goals.

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

Establishing sound economics is essential to creating anorganization, though nothing can beat a sterling reputation and outstandingpeople. Financials over reputation (of providing excellence) will leadbusinesses to compromises and therefore to losing independence to provideexcellence. Think of this within your organization, how many times have youprovided a service or product to a client because ‘he wanted it’ or because ’itwas easier  to sell’ versus ‘asolution that you knew would really be the right one???? How many times? I’llanswer it for you – plenty… The reason is the pressure on you to deliver on thefinancial results.

Though all of this sounds very normal and correct – thereis a downside. Management through economic orientation does not always dothe right thing.What is the right thing? You exist because you have a customer. The right thingtherefore is whatever is in the best interest of the customer, whether or nothe 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 anda CEO of a 3000 CR company. They have a goal – to be 7500 CR in the next fiveyears. A year back they hired one of the big (BIG) consulting firms to helpthem structure and strategize to achieve this. My friend tells me he told themwhat he had in mind, his vision, his goals etc and the consulting company didan outstanding job. So much so that he is about to give them a new project. Iwas going through some of the stuff that this ‘highly reputed’ firm did and tosay the least I was totally disgusted. Let me give you an example of what Ihave been saying so far – the firm met with the CEO, listened to his big plansand dreams of achieving this monstrous financial goal and started putting theirthoughts in place.. I was going through this very beautifully designed,aesthetically flawless ‘values’ document that has been arrived at. Of those SIXvalues, not one mentions the customer, not one mentions integrity and ethics inreaching a vision and not mentions ‘people inside’… They do mention things likefocus, speed, profit, risks etc…

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

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

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

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

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

My friend couldn’t believe the end of our two hour meetingthat 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 peopleconsulting with the company on behalf of the firm are not to be blamed. Theywork hard, really do, and give their all to the client. It’s the cultureprevailing inside the firm of financial goals that prevents them to take therisk to act independently and fearlessly – thus they are unable to question theCEO and tell him he is wrong.

I remember three or four years ago, we were consultingwith a smallish company. We together brainstormed hundreds of ideas andstrategies, implemented too.. It didn’t work. I now realize why.. All the timewe were focused on business results. The client couldn’t understand that with agreat team why the results weren’t coming, neither could I so we kept tryingnew, 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 justthat, the rest would have fallen in place.

Professional values are not personal values, theyfundamentally differ in substance and purpose. However the leadership mustdemonstrate the same vigor and integrity in living by business values. Businessvalues 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 mustrealize that business values, whichever one it may be provide parameters thatdefine 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 achievegoals and guidelines for all decisions in pursuit. This statement to me suggeststhat it is a no-brainer for any business to center it’s goals around thecustomer. Logically, even if someone has half a brain, customer oriented valueswill chose decisions in their interest, chose actions in their interest, willensure the customer wins, will ensure that he’s with you. Will ensurereputation and thereby ensure market capitalization and profits as a byproduct. If only we applied a quarter of that half, we’ll immediately realizethat financial objectives are not values and cannot be allowed as a guideline, unfortunately welead it to become the parameter.

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

Think about it!!

Yours,

Chetan Walia