Magazine article Management Today

Not So Much a Cure as Part of the Disease

Magazine article Management Today

Not So Much a Cure as Part of the Disease

Article excerpt

Robert Heller questions the wisdom of the financially based management formula

Financially oriented conglomerates (or FOGs), in their time, have made a great deal of money for a great many people -- including their founders. The other achievements of the breed are neglible.

The only mystery is why so many others believed the conglomerate myth: that the assets obtained by acquisition were being transferred from weak hands to strong. That was only true if strong is equated with mercenary. There is nothing wrong intellectually (as opposed to morally) with being mercenary. But it is no way to build a business. That demands taking a long view, which may involve paying a short-term price in higher expenditure and lower profits. The philosophy of the FOG, in contrast, revolves around lower spending and higher profits. And that is short-termism with several vegeances.

Vengeance is the word. The damage wrought by the FOGs, in their worst assaults, could hardly be greater if it truly were vengeful. Take one example. The way in which Hanson tore the heart out of Ever Ready has been mercilessly documented by David Bowen, writing in The Independent on Sunday. He gives the lie to the legend of the FOG, to the myth that Hanson-style management techniques could miraculously transform mismanaged British businesses.

Like all management formulas, Hanson's sounds deeply convincing and absolutely coherent. The company has a simple, clear and comprehensive purpose: to make money. All decisions are financially based, and all managers are financially judged. If they meet or surpass their targets, they are rewarded accordingly. If they fail, they are thrown overboard. Spurred by the whip and the carrot, easily monitored through their financial reports, the managers have the enabling conditions for super-performance: responsible independence under directed, demanding control.

Now for the reality. Before takeover, in the late 1970s, Ever Ready's factory near Consett in the north of England made over three million batteries a day. After the Hanson treatment, it makes half a million units daily with a workforce reduced by 87%. The market share of what was once among Britain's dominant brands has dropped from over 80% 20 to 30% by value. The greatly reduced company no longer belongs to Hanson: Ralston Purina, the owner of US Ever Ready, bought the British rump for 132 million [Pounds].

The tragedy reads like an epitome of the English disease, the economic and management murrain to which the FOG treatment was supposed to be an antidote. Under Hanson, Ever Ready underinvested in the technology, the brand, and the factories. It traded declining volume for higher profitability -- just as British industry at large, in the first Thatcher recession, traded leanness and fitness for loss of global position in key markets. That set the stage for the reverse miracle of the post-Thatcher years.

The awful irony is that the Hanson management, with its apparently very different motives, repeated the same pattern of decline that made Ever Ready such an easy takeover target. The old management, confused by the belief that biggest was best, also underinvested in the technology, the brand and the factories. Its worst such failure, however, was driven by exactly the same motive as Hanson's: the profit motive. …

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