Strategy (99 page)

every year to think about the future
.

—Participant in a fifteen-part course on business strategy given
by a leading name in the field, quoted by John Micklethwait
and Adrian Wooldridge.

W
E NOW NEED
to follow the second strand in management scholarship, drawn more from sociology than economics, which was inclined from the start to consider human beings as social actors and organizations as bundles of social relationships. Although this strand had a separate course, there were overlaps with the economic strand in the challenge to managerialism and in the propensity to follow fashion. It was influenced by the counterculture of the 1960s in two respects. The first was distaste for bureaucratic rigidity and hierarchy. This challenged the processes of rationalization and bureaucratization, arguing that a new and more enriching form of organization needed to be devised. The second was the influence of postmodernism, not only in the critique of the modernist forms of rationalist bureaucracy but also in offering a completely new way of considering human affairs.

The critical anti-managerialist literature of the 1950s presented a monolithic, homogenized dystopian vision, only one step short of George Orwell's
1984
. The elites of large corporations were described as presiding over armies of white-collar workers, formed in their own bland—and obedient—image. During the 1960s and 1970s, however, demographic trends and lifestyle choices worked against conformity. The new businesses based on information and communication technologies often seemed to celebrate relaxed workplace practices and freethinking rather than crude hierarchy. Moreover there was a better anthropological understanding of organizations, the complex social formations that developed within and between individual units, and the incentives for individuals to develop practices that satisfied their needs as much as those of the organization for which they were supposed to be working.

The human relations school provided the foundations for this work, but it moved on after the war and turned into a rich field of organizational studies. Once organizations began to be viewed as social systems in their own right rather than as means to some management goal, questions arose not only about how this insight could lead to greater efficiency—which had been the concern of Elton Mayo and Chester Barnard—but how organizations could be arranged to make for a more fulfilling life for the workforce. This also fit in with a trend for individual pathologies to be explained by reference to their social settings. Structures that encouraged harmony, solidarity, and support should also therefore promote general well-being. An example of this was the book by the influential British social psychologist, James Brown, who after his experiences in the army and industry had concluded that mental illness was more of a social than a biological problem. He argued that organizations should be judged by their social as much as their technical and economic efficiency.
¹

Douglas McGregor's
The Human Side of Enterprise
opened with the question, “What are your assumptions (implicit as well explicit) about the most effective way to manage people?”
²
He offered two alternative theories. Under Theory X, which had developed with the factory shop floor, the presumption was that people disliked work and preferred direction rather than initiative, and so they must be controlled by means of threats and rewards. Under Theory Y, individuals wished for fulfillment and responsibility, and if offered the chance, they would commit themselves more thoroughly to the organization. He developed these ideas while on the staff at MIT and then had a chance to put them into practice as president of Antioch College. While he found support for his theory, the experience of coping with fractious students and faculty convinced him of the need for active leadership. He had believed, he later recalled, “that a leader could operate successfully as a kind of adviser to his organization. I thought I could avoid being a ‘boss' … I hoped to duck
the unpleasant necessity of making difficult decisions … I finally began to realize that a leader cannot avoid the exercise of authority any more than he can avoid responsibility for what happens to his organization.”
³
He did not, however, reject his more humanistic approach to management or embrace authoritarianism. While critics might have worried that the dichotomy between Theory X and Theory Y was too sharp, and that actual practice would be contingent on circumstances, McGregor appeared as a champion of consent against coercion, the democratic against the autocratic, the active against the passive.

Herbert Simon's ideas of bounded rationality encouraged a realistic assessment of how managers actually went about their business.
⁴
Another organizational psychologist, Karl Weick, challenged standard models in his book
The Social Psychology of Organizing
by demonstrating how uncoordinated and apparently chaotic systems could nonetheless prove adaptable when faced with the unexpected—more so than systems geared to assumptions of linearity. Weick drew on a range of disciplines, and introduced into the lexicon concepts such as “loose-coupling” (a distance and lack of responsiveness between individual parts of an organization created a form of adaptability), “enactment” (how structures and events are brought into existence by individual actions), and “sensemaking” (the processes by which people give meaning to experiences). Sensemaking was necessary because individuals must operate in inherently uncertain and unpredictable environments (“equivocality”). There were a variety of ways individuals could make sense of things, and his work focused on the different forms communication could take within an organization, notably in the face of external shocks. Weick's theories were, however, complex and did not offer the easiest read. His definition of an organization, for example, was “the resolving of equivocality in an enacted environment by means of interlocked behaviors in conditionally related processes.”
⁵

The idea that management should focus on the softer side of organizational life came to be developed and promoted by two McKinsey analysts, Tom Peters and Robert Waterman. The starting point was the pressure felt by McKinsey's in the late 1970s to come up with a credible response to Henderson's Boston Consulting Group. Peters, who had recently returned from completing a Ph.D. at Stanford in organization theory, was asked to work on a project out of the San Francisco office that addressed “organization effectiveness” and “implementation issues.” At the time McKinsey's was
still working largely with Chandler's concept of structure following strategy. At Stanford, Peters had been influenced by the work of Simon and Weick, both of whom challenged simple models of rational strategy formation and decision-making. He was joined by Waterman, who was also heavily influenced by Weick (“mesmerized,” according to Peters), and wanted to reshape the way McKinsey's thought about organizations. One weekend with Tony Athos of the Harvard Business School and another McKinsey's consultant, Richard Pascale, who had been working on the success of Japanese firms, they developed what came to be known as the “7-S framework.” Athos insisted—correctly, as it turned out—that any model had to be alliterative. A memorable shape was also required, in this case demonstrating, in contrast to the idea that strategy drives structure, that no a priori assumption could be made about which of the seven would make the difference at a particular time. The seven S's were structure, strategy, systems, style, skills, staff, and the somewhat awkward “superordinate goals.”

The model was launched in a 1980 article. “At its most powerful and complex,” the authors suggested, “the framework forces us to concentrate on interactions and fit. The real energy required to re-direct an institution comes when all the variables in the model are aligned.”
⁶

Athos and Pascale used the model specifically in a Japanese context. They argued that the Japanese scored on the softer side of management, by developing a sense of common purpose and culture in ways that American management had forgotten, if it had ever known.
⁷
A translated book, originally published in 1975, by Kenichi Ohmae, who had been head of McKinsey's Tokyo office, explained how strategy in Japan would not come from a large analytical department, fully formed in terms of rational, structured steps, but as something more ambiguous and intuitive, relying on a key figure with a grasp of the market whose ideas could be grasped in terms of the organization's culture.
⁸

The most important book to emerge using the model was Peters and Waterman's
In Search of Excellence
.
⁹
Their book was presented as an answer to a straightforward question: what makes an excellent company? Possible candidates were identified by what appeared to be a sophisticated methodology. Sixty-two companies that appeared fairly successful were evaluated according to six performance criteria. The forty-three truly successful companies were those that were above the fiftieth percentile in four of the six performance metrics for twenty consecutive years. These were then studied in more detail, with key executives being interviewed. Out of this they distilled eight shared keys to excellence: a bias for action, customer focus, entrepreneurship, productivity through people, value-oriented CEOs, sticking to the
knitting (that is, do what you know well), keeping things simple and lean, and simultaneously centralized and decentralized (that is, tight centralized control combined with maximum individual autonomy).
¹⁰

Twenty years after publication, Peters acknowledged that the research that had gone into the book had been unsystematic though he remained convinced by the message.
¹¹
The book was, he claimed, “an inflection point—a punctuation mark—that signaled the end of one era and the beginning of another.” The target was not so much the Japanese as the American management model. Peters described his motivation at the time and since as being “genuinely, deeply, sincerely, and passionately pissed off!” His targets included Peter Drucker, because he encouraged “hierarchy and command-and-control, top-down business operation” and organizations in which everyone knew their place, and Robert McNamara, besotted by systems at the Pentagon which had led to people being “driven out of the equation.” A third target was Xerox Corporation, where he had worked as a consultant, which to Peters demonstrated all that was wrong with the modern corporation: “the bureaucracy, the great strategy that never got implemented, the slavish attention to numbers rather than to people, the reverence for MBAs.” He therefore saw the book as challenging “Management 101” based on Taylorism, reinforced by Drucker, and implemented by McNamara. He objected in particular to the bean-counting mentality focused entirely on numbers and finance. “The numerative, rationalist approach to management is right enough to be dangerously wrong, and it has arguably already led us astray.”
¹²

Waterman provided a slightly different, although not contradictory, account. In an article he coauthored, published in 1999, claims were made about the role of the book in translating the key themes in organizational studies, to the point of describing it as an accessible version of Weick.
¹³
They addressed the issue of whether it was possible to simplify without being simplistic. Even if the situation demanded complex theories, managers would not find them interesting and so good theory would not affect practice. The article claimed immodestly that
In Search of Excellence
succeeded by saying “pretty much everything there was to say about behavior in organizations and got it right, by virtue of the experts cited.” Ideas of learning organizations, bounded rationality, narratives, and agenda-setting could all be found, with key theorists getting mentioned. Yet a description of the key messages suggested a set of values as much as scholarly findings, for example that “it's OK for guys to have feelings”; “don't take yourself too seriously”; it's “not your fault” if the world does not look neat and tidy; and “people who espouse rational models of decision-making want you to feel responsible for
the disorder in the world, but don't for a moment let them get away with that silliness.”

Whether or not this was truly an act of translating academic theory for practitioner consumption, the account of the book's gestation did reveal the effort that went into ensuring its appeal. There were some two hundred briefings to managerial audiences before publication. “During this process it became apparent that if the examples were retold in the form of a story then they compelled attention and promoted retention.” Their audiences were averse to “numbers, charts and graphs,” and also to “mid-level abstraction.” Feedback also suggested that the original twenty-two attributes seemed too many, so they were whittled down to eight. The original number was seen as “too confusing not to mention also antithetical to the basic premise that it isn't as complex as you think if you pay attention to people!”

The book's positive message (America did have excellent companies) and uplifting prescription for success (work closely with your staff and customers and do not get bogged down with committees and reports) was a runaway success. It was the first business book to become a national bestseller, and eventually sold well over six million copies. Neither author stayed long at McKinsey's. Peters, resenting the patronizing attitude of the New York headquarters toward the marginal endeavors at the San Francisco office, had left before the book was published and was soon in demand as an inspirational, though expensive, speaker. His style, in speaking and writing, was dramatic and extravagant. The message and its ebullient communication were more important than the method. Whatever the original sources,
In Search of Excellence
relied on anecdote and secondary material rather than hard research.
¹⁴
It had failed to identify a reliable basis for sustainable growth or even survival. The excellent companies often struggled: soon after the book was published, a third were reported to be in financial difficulties.
¹⁵