Wednesday, May 21, 2008

Management speak ...

I'm often faced with some fairly strange ideas about business, management and economics. I collectively call these Brentisms, after the David Brent School of Management Theory.

I've listed a few of my favourite, with some glib Brent-like counter statements.

BrentismsBrent-like Counter
We only focus on core activities.1If you only focus on core activities then the one thing that isn't core is a future.
If it can't be measured, then it can't be managed.2Just because we can't measure the future doesn't mean we should give up.
We manage by ROI.3Whilst a hammer might be good for banging in nails, it's not suitable for every job.
Prince 2 is the right methodology.4You might be the best hammer expert in the world but we need a hole drilled.
We should outsource IT.5Certain things are suitable for outsourcing; the company's future isn't one of them.
Our people are an important asset.6Try building a future without people.
The customer is always right.7If you do what your customers want, all of the time, then you will end up with no customers.
We are an innovative company and we reward success.8You shouldn't reward people on how well they can predict the future but instead how well they try to make it happen.


1. As per Schumpterian economics, creative destruction is the continual process of how the old ways of doing things are destroyed and replaced by innovative activities. These innovations may not be sustaining but instead maybe disruptive (as per the work of Christensen). Historically, firms that are unable to transition to the new value (non-core) networks created by such disruptive innovations have a high failure rate.

2. Unlike the incremental improvements of an existing product, the implementation of an entirely new concept is a highly uncertain activity. With these uncertain innovations, there are no market studies, no established value networks and no way to accurately predict what is going to happen. There is nothing to measure against. Any organisation embarking on such a venture must be ready to adapt to any emergent opportunities.

3. Utility services need to be managed on price and quality of service whereas highly uncertain activities, such as innovations, often need to be managed on worth. For those activities in-between such extremes you need to use ROI. The key is to use the right methods for the right stages of an activity's life-cycle.

4. The actual methodology here is not important, it could be Prince, Six Sigma, XP or any number of others. What needs to be considered are the organisational activities those methodologies are applied to. All activities start as highly uncertain innovations becoming more ubiquitous and defined with time. For example the act of installing a telephone system is a far more well known and defined activity today (having been repeated millions of times) than when the telephone first appeared. A defined and certain activity is more effectively managed with static methodology designed to reduce variation. An undefined and uncertain activity is more effectively managed with a dynamic methodology designed to adapt to change. Since any organisation contains a mix of innovative and common or commodity-like activities, it is important to apply the right methodology to the right sort of activity.

5. An organisational function such as IT is simply a grouping of similar organisational activities. IT deals with IT, marketing deals with marketing and so on. Within such a function there is a range of commodity and innovative like activities. The key advantage of outsourcing is the benefits that can be obtained through economies of scale. This can only occur for commodity-like activities which are well defined and ubiquitous in use. The outsourcing of innovation will in effect hand over control of future potential sources of profit to a third party provider and it is unlikely to be cost effective unless :-

  1. The organisation, for whatever reasons, has a fluctuating demand for innovation.
  2. The innovation provider or market can undercut the cost of research. For example it could be parasitical on some other establishment, such as Universities.
  3. The innovation relates to operational improvements to something supplied as a service.

Whilst external collaboration and innovation markets are useful tools, there are many practical, economic and strategic reasons for keeping control of innovation within the organisation. When it comes to outsourcing, you should therefore be looking to outsource those common and commodity-like activities only. For these reasons you shouldn't outsource the function of IT but instead you should outsource those activities of IT that are common and commodity-like.

6. Many organisations in the communications industry (for example, newspaper, music and broadcasting) have undergone significant changes with the onset of the internet and the digitisation of content. Most of these changes relate to the commoditisation of the means for mass communication. For example, at one point in time, these industries depended upon huge physical installations such as printing presses. These installations where expensive and the industries were described as being physical capital intensive. If you wanted to be a journalist, musician or any of the other roles in these industries, you needed to go and work for one of these big players. The internet and digitisation of content have effectively removed the need for the physical capital items like printing presses. Anyone today can setup as an online musician, journalist or broadcaster. The big players have lost a powerful mechanism for controlling their staff and talent as they no longer control access to the means for mass communication. Without such a method of control, these organisations must look at other means to attract and manage staff and talent whether it's through financial, human (working with experts) or social capital (a beneficial network, reputation). In such circumstances, people aren't an important asset, they are your only asset. This effect is likely to become more pronounced with the the looming commoditisation of the manufacturing process through 3D printing.

7. Many large companies fail not because they are badly managed and don't listen to their customers, but precisely because they do. Rather than repeat the work of Christensen, I would recommend you read it.

8. At best this statement is pointless as everyone wants to succeed, at worst it is counterproductive. Excluding the plethora of trivial product improvements or features, innovation is about implementing an idea for the first time. It is a highly uncertain activity and more often than not it fails. Innovation is independent of success or failure and it can result in either. By only rewarding success, you will discourage failure and this will discourage experimentation and innovation.