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Best Business Books 2005: Management

Two key components of GE’s culture discussed in Winning come to mind. The first is its budgeting process, wherein the functions of financial forecasting and performance management are clearly separated. Performance bonuses are not based on budgets; rather, they are calculated retrospectively against the performance of the same individuals in prior years and against the performance of competitors. Very few companies make this commonsense separation between the need for financial forecasting and the demands of performance management. Most practice more dysfunctional budgeting and performance-management processes, which all too often encourage otherwise smart people to do dumb things — or worse, to compromise their integrity.

The second crucial component of GE’s culture is the genuine elevation of the human resources (HR) function to the equivalent of finance and marketing or an even higher function (this was one of Mr. Nardelli’s first moves at Home Depot). Could any action be better calculated than this to underline the importance of “people development” in an organization, heighten the critical role of differentiation, and give the process the right “spin”? In many, if not most, corporations, HR is at the bottom of the functional totem pole, where it mocks all those pious statements about people being our “most important asset.”

Winning has much to commend it, especially for young managers setting out on their careers. There are excellent sections on the role of leaders, straightforward strategy, and the handling of crises and mergers. If only there had been more emphasis on history and context, the reader might have learned a great deal more from this highly successful manager’s experience. There is, for example, anecdotal evidence that even GE’s star “alumni” often struggle on their first managerial assignments after they leave GE. If that is true, there are many possible explanations, but one leading candidate has to be that these alumni fail to appreciate how different the contexts of most firms are from that of GE.

Disastrous Situations
It is generally acknowledged that tough assignments and hardships are among the best developers of leadership skills, and that managers usually learn much more from mistakes and even failures than they do from successes. In Will Your Next Mistake Be Fatal? Robert E. Mittelstaedt Jr., dean of the W.P. Carey School of Business at Arizona State University (and former entrepreneur and submariner in the U.S. Navy), examines some of the more notorious business and physical calamities of recent times.

Professor Mittelstaedt suggests that there is a common sequence of failure:

  1. An initial problem, often minor, that goes uncorrected
  2. A subsequent problem that compounds the effect
  3. An inept corrective effort
  4. Disbelief at the accelerating situation
  5. An attempt to remedy the situation while hiding the facts
  6. Sudden recognition that the situation is out of control
  7. The disaster scenario — with loss of life and/or financial resources

All these elements are intimately connected with the power of context to sway the perceptions and behaviors of the actors in a given situation. The Ford Explorer/Firestone tire debacle of 2000 is a perfect example of a complex situation with numerous actors in multiple contexts that produced a disastrous result. The first clues that there might be a problem with the tires on the Explorer sport utility vehicle came, as they often do in complex situations, from the periphery of the system — tire failures occurring in extremely hot countries like Saudi Arabia and Venezuela as early as 1997. Both Ford and Firestone discounted the significance of these results for the U.S. market, but by 1998 an analyst for the State Farm insurance company had already identified a pattern. It was not until 2000 that the media picked up on the problems and the issue mushroomed in the public’s awareness. A complex set of causes, including numerous cost-driven design and specification issues at Ford and labor strife at one of Firestone’s older manufacturing plants, had interacted to tip the system over the edge and create a disaster that damaged both companies severely.

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