Getting management right: bigamy, burning platforms and bottlenecks

In 1910, Ralph Furse joined the Colonial Office's 'patronage office' and set about improving the way that young men were selected for their roles directly governing large swathes of Africa and Asia. The system had suffered from a high failure rate but Furse increased the length of interviews and instituted much more robust referencing. There was some scepticism about the value of the extra work involved but, after a well-recommended candidate was shown to be a bigamist and trickster, Furse was given the green light to apply his approach to all those who applied. The effect on the competence and morale of administrators, as well as on the flow of good candidates, raised the reputation of British colonial management over that found in the colonies of other countries.

One hundred years later, the importance of good management has not lessened but, curiously, the thoroughness with which the issue is approached in mid-size British businesses often struggles to reach the effectiveness of what Furse did with his small team. This is not because of any intrinsic complexity in the subject but rather due to confusion in understanding the task and a troubling lethargy in taking action.

Take senior executive recruitment as a case in point. When James Wheeler asked me to write this piece he told me I needn't give away any real secrets of my trade. But, after nearly twenty years working as an investor and an adviser, and having spent some years doing doctoral research on management recruitment and selection, I can say in truth that there are no clever tricks of great significance to getting the right people into the right roles. The 'magic formula' - which produces 90% success rates rather than 50% - requires an hour or two of work to specify the role around business needs; a decent shortlist; some hours of focused interviewing; referencing with five to ten high relevance referees; and finally a 'wash-up' process that makes sense of the information collected.

Hopefully none of that formula comes as a surprise or needs much justification. Yet, despite the high stakes involved (typically an overall cost to the business of a failed appointment equivalent to fifteen times the executive's salary), one still hears excuses about lack of time for following a robust process. No-one would make a million pound capex decision (at least not amongst the august readers of this publication) on that basis.

A second damaging confusion lies in the conflation of management and managers so that investors can believe they are assessing management when in fact they only talk to and about a top team. This may flatter executives when things are going well and provides apparent justification for big financial incentives. But it can also create a false rationale for the panic removal of managers whose companies may just need time and a new plan to survive and thrive. But, more importantly, it leaves the various mechanisms by which human and other resources are brought together to create value for customers – i.e. management as an activity - insufficiently examined and addressed. That is a shame because most organisations are woefully sub-optimal in articulating their strategic priorities, setting accountabilities, ensuring efficient decision-making, sharing information, managing performance, et al. This almost certainly means that your biggest source of untapped improvement and profit lies in upgrading deficient management processes. If you don't believe this applies to your company or investments then put away the financial spreadsheets for a few hours and talk with a few middle managers, salespeople and customers who will convince you that they face multiple needless bottlenecks. Or ask them to provide anonymous feedback via an online questionnaire and then be prepared to act on the answers. Doing so will not only identify important priorities for creating upside but usually also engage the interest and energy of those who can help make a difference.

A third confusion lies in expecting long term value (which offers profitable exits) to be built by the same methods used to preserve short term value in turnaround situations. During turnarounds a burning platform of financial crisis can help focus minds on the few things that will determine the survival of a business. That atmosphere of crisis is a necessary evil to bring costs under control and allow longer term value creation to resume. What it cannot be is a substitute for the less exciting nurturing of client relationships, improvement of processes, changes in behaviour, workforce training, good communication etc. I doubt anyone will disagree with the principles I am describing but go and look at the businesses you are involved with: somehow too many managers are left to run around hyperactively solving short term urgencies with too little time to plan activities, manage and improve performance, innovate - or delegate. The result? Ineffective organisations whose earnings are limited by low productivity growth and whose quality of earnings is unreliable. The good news is that expectations for positive improvement in most companies are so low that actually implementing quite small changes can generate a disproportionate amount of goodwill – as well as energy for additional change.

In all three cases, most investors and managers know what needs to be done and why but too frequently fail to actually do it. The reasons for this are multiple: an over-focus on short term financial measures; accounting measures that treat people (and training) as costs but machines as investments; an almost total lack of meaningful measures of organisational effectiveness; a reactive approach to managerial effectiveness. Happily, dealing with these need not be a scary adventure. There are plenty of models of businesses who have transformed their processes and performance successfully which can be adapted to your circumstances. Improving management is not a particularly expensive exercise and has well proven business and financial pay-offs; staff are likely to welcome most changes. This issue is more directly under the influence of the senior team than virtually any other aspect of business. As a result, gaining competitive advantage in this area is really a matter of board judgement and willpower.

Over the last hundred years the number of sources of productivity gains and profits for companies and investors has been large and varied with waves of technological advances to ride, lack of competition then liberalisation, population growth and globalisation. So the need to incorporate lessons learned by people such as Ralph Furse was not pressing. However, those sources will likely yield less in future while well capitalised and aggressive competitors are increasingly vying to displace the economic positions of British and other western companies. Consequently, it is likely to become increasingly risky to ignore the large and demonstrated benefits offered by improving management practice. Over to you!