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Published: November 22, 2011
 / Winter 2011 / Issue 65

 
 

Best Business Books 2011: Management

Bob Lutz’s charisma comes through in his writing, and it’s easy to see how he became an icon in the industry and the champion of car guys everywhere. In the book’s next-to-last chapter, he speculates on what he would have done had he become CEO of GM, although he points out that boards of directors typically don’t appoint “creative right-brainers” to that post. He would have focused on products first and foremost, creating joint ventures for R&D, and done everything possible to eliminate superfluous activities, scrapping the hallowed PMP and reducing the power of product planning. GM’s current leaders may agree. Lutz was retained by the company on a part-time consultancy basis a few months after the book was published.

Lutz wouldn’t have acquired many of the car companies that GM actually purchased, but he says he would have bought Chrysler for the significant savings the two companies could have realized in scale and scope. As for trimming the too-numerous GM brands and the inefficiency of GM’s sprawling dealership network, he acknowledges that Chapter 11 was a huge enabler in this regard, allowing reductions in both.

Lutz also contends that in the car business, a knowledgeable, autocratic management style is much more effective than the bland “‘respect other people’s emotional equity’ approach that so long characterized GM.” But he places the emphasis on knowledgeable; executives must be steeped in the business and have almost infallible “taste, skill, intuition, and sense for the customer.” He may be right for the car business, although the constraints on unilateral action, even by the CEO, in pre-bankruptcy GM must have been formidable. Lutz’s broader recommendation that U.S. companies need to throw out the intellectuals and get back to business will probably not be heeded, but his pragmatic warning that schemes that appear sound in theory often fail in practice is bolstered by many of the findings from behavioral economics, and managers will ignore them at their peril.

The Parasite Hunter

Roger L. Martin, dean of the Rotman School of Business at the University of Toronto, is fighting to change the way we think about and teach management. His newest book, Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL, has its origins in a fine, prescient article he wrote for Barron’s in 2003 and is one of the very few business books that is better for the expanded treatment.

Martin sets out to show why capitalism in America has gotten into trouble over the past few decades. He argues that agency theory, derived from neoclassical economics, together with the gospel of shareholder value, has led to managers being compensated for doing the wrong things. Stock-based compensation, for example, focuses executives on expectations markets rather than real markets, where customer value is created. It is this focus on maximizing what should be an ancillary goal that has led to the marginalizing of customers as “marks” to be exploited.

Martin says that executives fix the game of business and try to manage expectations in much the same ways professional athletes would, if they were allowed to bet on games in which they play. Executives indulge in the business equivalents of “point shaving” (sacrificing a few points of advantage to win a game by a lower margin than expected) and “tanking” (making results appear worse than they are to lower expectations and make beating them easier).

The unintended consequence of agency theory, according to the author, has been the creation of a business environment that is akin to a casino, with zero-sum gambling games in which executives win and everyone else loses. Hence the lessons that capitalism (presumably in the guise of regulators) can learn from the National Football League (NFL): Keep real and expectations markets separate (players are banned from gambling), and focus on creating customer value, continually adjusting the playing field to ensure that the players concentrate on improving their performance in the real game.

 
 
 
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