New Frontiers for Professional Managers (Part 2)

What follows is an excerpt from the 1956 book New Frontiers for Professional Managers by Ralph Cordiner of GE Corporation.

Within our own country, the lag between theory and practice is reflected in wasteful frictions and antagonisms between government, business, unions, education, and other institutions. Because of the national obsession with concepts that are no longer relevant—concepts of old world capitalism and old world socialism—each of these groups finds much of its own work frustrated or attacked on the basis of wholly obsolete assumptions as to the nature of economic life in the United States today.

This situation is increasingly recognized by educators, businessmen, and other informed people. It will require the efforts of all to bring an adequate resolution. The McKinsey Lectures, by recording the experiences and philosophies of men engaged in the management of large enterprises, may be helpful in reducing the gap between economic theory and practice.

Let us begin with some commentary on the rise of large-scale economic enterprises.

Whenever a society industrializes, one of the most important characteristics is a great increase in the scale of its undertakings. The drive toward more complex technologies, toward more massive use and guidance of the forces of nature, toward mass production and mass distribution, necessarily results in the development of large-scale economic organizations. England has them, Russia has them, Germany has them, other industrial nations have them, and the United States has them. Their size is generally related to the size and technical capacity of the national economy in which they operate. Without these large-scale economic enterprises, a nation today is a second-rate power and its people suffer both lower standards of living and greater vulnerability to attack by aggressive nations.

In the United States, with its deep dedication to human liberty and its competitive economic system, the characteristic form for these large-scale economic enterprises is the modern corporation, of which General Electric is an example. In other countries, with other traditions, they may take the form of state-owned or state-regulated organizations, with all that is implied in terms of state control of the life and work of the citizens. In Russia, for example, we see the strange distortion of a state which can produce thermonuclear explosions and advanced jet aircraft, yet is unwilling to provide enough bread, shoes, and housing for its people. It appears that freedom is required to assure that these large enterprises will serve the people most effectively.

The modern American corporation certainly poses problems of its own, both social and political. But on balance, most observers agree that it has delivered the goods more abundantly than any visible alternative anywhere in the world.

When I say delivered the goods, I mean that the people have in their hands, not promises, but an abundance of the material things that are desired by this country's citizens. As a consequence of this abundance, people in the United States have awakened to new opportunities for cultural and spiritual attainment, new dimensions of freedom, that become possible in an economy where the basic physical needs can be taken almost for granted.

ROLE OF LARGE ENTERPRISES

Because these lectures deal specifically with the management of large enterprises, it might be worthwhile to summarize, briefly, their role in our national life. It is a creative role which might be characterized in three points:

First, the large enterprise is a source of innovation. It operates on a scale large enough to afford the staff of managers, scientists, engineers, production men, marketing men, employee and public relations men, financial men. and other functional specialists required to create—continuously—new knowledge, new products, and new markets. Out of these innovations come that stream of new industries which we take almost for granted these days, the new industries that provide fresh business opportunity for small and large companies and provide employment for our expanding population.

Second, the large enterprise is a source of mass production and mass distribution. It has the capacity to take new-product ideas out of the research and engineering laboratory and, in a relatively short time, make them generally available to the people. Here again, it is important to remember that smaller companies always do much of the work involved in processing materials, making components, providing supplies and services, performing sales and distribution functions, and carrying on other profitable portions of the over-all business flow. But generally it is the large enterprise that energizes the great flow of work involved in serving a mass market. Without the human and material resources of the large enterprise, and its ability to take large, long-term risks, these mass-production and mass-distribution processes simply would not get started and probably would not even continue to operate successfully.

Third, the large enterprise is a source of advanced technical capacity. It is the developer, designer, producer, and distributor of the complex, advanced products and systems of our age: the turbines, the atomic-power reactors, and even the advanced defense-weapons systems that cannot be produced with limited resources either of men or facilities.

One might add other categories in describing the role of the large enterprise, but these three—innovation, mass production and distribution, and advanced technical capacity—indicate how the large enterprise serves as an energizer of business activity. It sets up a dynamic flow of work and money which moves swiftly through the nation's highly integrated economy and provides much of its living, expansive power.

I have spoken in terms of the large manufacturing company, but the description applies with equal force to the large financial and service institutions, the large power-supply and transportation enterprises, or any other large economic organization. The large enterprises provide innovation, mass service, and advanced technical capacity.

This is not the place to take up the distinctive contributions of other segments of the economy— the smaller enterprises, the professions, universities and colleges, the unions, the government, and others. But it is important to see their interdependence, each relying on the other to perform some necessary function in getting the nation's work accomplished.

The purpose of this prologue on the nature and function of large enterprises has been to indicate why it is in the public interest that the large corporations continue to be expertly, profitably, and responsibly managed. They are business enterprises. They must serve, survive, and grow in a competitive business system. They must therefore make healthy profits, as an incentive to investors to risk their savings, and as a resource for the forward-driving work of innovation which provides so much of the vitality of our expanding economy.

New Frontiers for Professional Managers (Part 1)

What follows is the 1956 book New Frontiers for Professional Managers by Ralph Cordiner of GE Corporation. I will break the book up into chapters which will be included in following posts.  What has interested me so far in this book is its emphasis on the integration between the corporation and the society in which it operates. Although the figures in the book are very out of date, the concepts and practices are as applicable now as when written.

New Frontiers for Professional Managers

By: Ralph J Cordiner

PREFACE

Our modern society is characterized by large organizations. Their effective and democratic management is of vital concern to all of us. Particularly in the field of business, the importance of achieving the efficient voluntary association of men and women in large and rapidly growing corporations gives a new and perhaps unexpected significance to the subject of the management of large organizations.

Aware of this significance, the McKinsey Foundation for Management Research, Inc., founded and supported by the partners of the management consulting firm of McKinsey & Company, made an initial grant to the Graduate School of Business to organize and sponsor a continuing series of distinguished lectures by men of conspicuous accomplishment in the management of large organizations. The reflections and thoughts of men of action, often too busy to organize and place on paper the rich usefulness of their experience, will thus be made available to present and future students of management.

In inaugurating the McKinsey Foundation Lecture Series at the Graduate School of Business, Columbia University, we were fortunate to be able to present one of the most thoughtful and effective of our contemporary business executives, who gave us a close-up picture of his approach to the problems of managing a large organization. This kind of authoritative interpretation of modern management methods is close to the heart of a real understanding of the American business system.

Mr. Ralph J. Cordiner, President of the General Electric Company, as the first McKinsey lecturer, afforded our students, our faculty, and our distinguished guests from the business community an intimate interpretation of his and his associates' managerial philosophy. His prompt grasp of the real spirit of the lectures can perhaps be best described in his own words:

"As I understand it, one of the purposes of the lectures is to coax us businessmen out of our offices and into the arena of public thought where our managerial philosophies can be put to the test of examination by men trained in other disciplines. At the same time, it is hoped that in describing our personal experiences in managing today's corporations we will help bridge the disturbing gap between academic theory and the living realities of the new American economy."

"Within our own country, the lag between theory and practice is reflected in wasteful frictions and antagonisms between government, business, unions, education and other institutions. Because of the national obsession with concepts that are no longer relevant—concepts of Old World capitalism and Old World socialism—each of these groups finds much of its own work frustrated or attacked on the basis of wholly obsolete assumptions as to the nature of economic life in the United States today.

"This situation is increasingly recognized by educators, businessmen, and other informed people. It will require the efforts of all to bring an adequate resolution. If the McKinsey Lectures can help in this process of reducing the gap between economic theory and practice, they can make an important contribution to our national life."

These lectures provide one of the ways in which the Graduate School of Business expects to respond to this opportunity to achieve a perceptive and accurate interpretation of the American business system.

The initial lectures were presented to a group of prominent businessmen and scholars on the Columbia campus and are now made available to a wider audience through the publication of this volume. The lectures are reproduced here substantially as they were given, in three parts, during late April and early May, 1956. With the editorial assistance of Professor James W. Kuhn of the Graduate School of Business and Mr. Robert L. Fegley of the General Electric Company, some additional material has been added from the tape recording of Mr. Cordiner's responses to questions and problems raised in the after-dinner discussions which followed each lecture.

Courtney C. Brown

Dean
Graduate School of Business
Columbia University
June, 1956
NEW FRONTIERS
FOR PROFESSIONAL
MANAGERS

The Role of Leadership in Promoting Business Ethics

MBA Party at All-Bar-One

Now that the semester 1 business simulations have run their course, its time to celebrate the season.  The event will be held at All-Bar-One off of Lothian Road starting at 7PM.

Full Time MBA Schedule (Semester 2a)

Business Simulation Week (Simon Earp)

Organizational Design for Intrinsic Employee Motivation

 Organizational Design for Intrinsic Employee Motivation:
  A Review of Mori Seiki’s Team-Based Structure

By: Eric Holmes

      The design of a business organization plays a major role in its ability to motivate its employees.  The software company Google continues to encourage creative employees by granting them a high degree of autonomy which leads them to engage their work with high intrinsic motivation.  According to Google spokesman Matt Furman, Google employees have a chance to engage in “constant and often amazing innovation” which keeps their morale high (WSJ, 2009).  This need for creative fulfillment is described by Herzberg’s “two factor theory of motivation” which proposed that intrinsic motivators such as an employee’s sense of accomplishment outweigh extrinsic “hygiene” factors such as increased salary (Buchanan and Huczynski, 2010: p280).  What organizational structures help to foster intrinsic employee motivation?  What balance must be made between autonomy and central control in order to maintain the performance of such organizations?  The answers to these questions will be investigated in this essay.  Organizational structures will be described at the Japanese machine tool firm Mori Seiki through the lens of intrinsic employee motivation.  The author’s experience and related literature will be cited to support the claim that a certain level of autonomy is necessary to stimulate intrinsic employee motivation, but that certain organizational structures are required to maintain a company’s focus.  Organizational structures which promote collaborative competition, team empowerment, and individual development will be shown to strongly affect levels of intrinsic employee motivation.  Drawbacks to autonomy in the organization are discussed with the goal of identifying how Mori Seiki balances team autonomy with sufficient central control to ensure that its company objectives are achieved. 

Figure 1: Mori Seiki Japan's Matrix Organizational Form

      Mori Seiki is a Japanese machine tool manufacturer that supplies lathes and machining centers to Toyota, Boeing and other top tier manufacturers.  The author was a member of Mori Seiki’s design department which is a division within the organization’s open matrix structure shown in figure 1.  In this organizational structure, design teams act to develop a new product in coordination with specialist departments such as purchasing, manufacturing, and quality assurance.  Teams are the smallest functional group at Mori Seiki, and typically consist of six employees.  Working in small teams creates a sense of camaraderie and boosts employees’ desire to contribute.  Each design team member is tasked with a crucial function, and must interface with other team members’ contributions.  This requires a large degree of information sharing among team members, and hence all design teams are clustered in a single open floor plan without cubicles or dividers.  The absence of cubicles means that each member can quickly speak to other members and what is said can be heard by everyone.  Because each member works as a specialist in a certain design area, they are given responsibility and autonomy.  As a balance to the large amount of responsibility, designers have a ready support network to rely on through their team, and because each team member is faced with a shared challenge of creating a common product, they share a common frame of reference.  Teams meet socially outside of the workplace to celebrate a new member’s entrance or a current team-member's exit from the team.  These social functions allow teammates to engage in more candid exchanges than are possible within the highly structured workplace.  By firmly supporting and enabling each employee, and by creating a strong sense of team identity, Mori Seiki's team-based structure promotes continuous individual and team learning, a key factor in maintaining employee intrinsic motivation.
In order to manage its open, team-based matrix structure, Mori Seiki has established mechanisms for maintaining central control.  Design teams are required to gather in morning meetings in which they review management communications and discuss common design problems.  Morning meetings are preceded by radio exercises which build a sense of common organizational purpose.  In between the military-like radio exercises and the morning meeting is a company-wide public announcement.  In the announcement, the number of visiting customers and a daily company slogan are announced.  Before the morning meeting commences, each employee is given the chance to discuss issues that may affect other teams, such as their interest in solving a certain design problem.  Employees take turns in presenting design issues to their department, and in this way, the wider organization can incorporate team experiences.  These organizational structures promote the cohesion of teams into departments, and similar structures preserve the cohesion of progressively larger groups until the upper management level is reached.
      Mori Seiki's team based structure is a major factor in promoting intrinsic employee motivation, but there are also drawbacks to this approach. Design teams are required to be in frequent contact with many other teams throughout the organization.  The management of these relationships is a considerable challenge, and especially the act of prioritizing the multitude of requests which are received.  Mori Seiki team leaders have no assistants to arrange their schedule and must sift through and organize a vast volume of data.  Consequently, workplace stress levels are high, and this can become a barrier for employee motivation.  There are also benefits to the high workplace stress level.  Because of the enormous work load assigned to teams, employees who are not suited for their job discover this quickly.  The rigorous work load filters out unsuitable employees.  During the author's sixty day work assignment at Mori Seiki, four employees were transferred out of their design teams in order to work in different parts of the organization.  These flexible personnel practices are a key aspect of Mori Seiki’s ability to continually refine the match between employee and job function.  By matching the right employee to the right team, Mori Seiki's is able to retain its most intrinsically motivated designers.  Employees unmotivated by design tasks are shifted into other key areas such as manufacturing.  To gain a design team assignment is a sought after privilege, and for the right type of employee a life-long learning opportunity.  High pressure team conditions also create a fertile environment for identifying and training the company’s future leadership.  Good team leaders at Mori Seiki attain a respect similar to that given to Honda’s shusa (project leaders) as described below (Womack, 1990: p113):

“Oddly, while we’re used to thinking of dedicated teamwork as the ultimate sublimation of individuality, new products inside the Japanese auto industry are commonly known by the shusa’s name: ‘That is Fuji-san’s car’ or ‘Akoika-san has really stamped his personality on that car’ are phrases commonly heard within Japanese companies.”
 
Such personal identification with ones work, coupled with the high probability for career advancement intrinsically motivates the team leader in spite of the challenges.   The motivation which results from product development authority is one of the strongest aspects of the team-based approach.  The idea of refining a worker through difficult assignments and of providing employees with necessary autonomy is not unique to Japanese culture.  Henry Kaiser, the productive American industrialist stated (Kaiser Engineers, 2011):
 
"You find your key men by piling work on them. They say, 'I can't do this anymore and you say: 'Sure you can. ‘So you pile it on and then they're doing more and more. Pretty soon you have men you can rely on absolutely. You have an organization that really can get things done." 

Finding individuals who enjoy the work at hand and then giving them as much work as they can handle is the model for developing leaders at Mori Seiki.  Although this organizational methodology derives many customs from Japanese culture, Mori Seiki’s organizational structure is capable of reaching across cultural lines as the next example will illustrate.

Figure 2: Mori Seiki's US Subsidiary (MSUS)

      Mori Seiki has a US subsidiary in California whose organization is structured in a different way from the parent company.  Although the team-based structure from the parent company is still theoretically used, in practice the work flow proceeds in a different manner due to factors such as the geographic and cultural separation.  The author’s conception of Mori Seiki’s US office organizational structure is shown in figure 2.  The separation of Mori Seiki’s US design teams led to a lack of intrinsic employee motivation, and a dramatic drop in employee productivity.  Aside from the geographic separation, the US design team was unable to directly communicate with their Japanese counterparts due to organizational barriers.  One barrier was the involvement of a separate US management structure (labeled “Admin.” in figure 2) that moderated communication with the Japanese office.  This barrier led to serious problems in achieving the US design team’s milestones.  When measuring the extent of these difficulties, Japanese management discovered that the US design team’s pace was roughly half that of similar teams in Japan.  A large part of the problem lay in the US employee’s lack of motivation due to their inability to effectively steer their project’s outcome.  In addressing this organizational and personnel problem, Mori Seiki’s Japanese management determined that a drastic approach was required to bring US designers into their existing organizational structure.  The US based design team was instructed to travel to Japan and join their Japanese counterparts in order to be part of the team-based structure there.  This solution alleviated many motivational problems among US employees, who could now speak directly with specialist teams, and develop crucial working relationships.  The responsibility of US management was removed from the organizational structure, and Japan managers supervised their US employees directly.  Although cultural and language problems remained, the effect of incorporating US designers into Mori Seiki’s organizational structure was indeed dramatic.  Productivity increases were realized as designers gained knowledge that had been difficult to obtain in the previous arrangement.  Detailed communication with vendors, a crucial part of a designer’s feasibility studies, became possible.  US designers, motivated by their increased ability to affect the success of their project, responded to the organizational shift in a surprising manner.  Many began to adopt Japanese cultural practices such as deferring their opinions in the face of higher authority and bringing up their concerns during informal “drinking sessions” after work.  One employee in particular brought whiskey to present as an omiage, or ritual gift, for their Japanese team.  Team morale was boosted as individuals gained intrinsic motivation, and project progress continued to accelerate.
      The importance of integrating human resource considerations into the design and manufacturing process cannot be overstated.  In Mori Seiki’s case, the use of “lean design” principles dictated that wasted effort in mis-matching employees with job functions leads to wasted effort in the design process.   Similar statements could be made for other job functions including manufacturing, sales and product procurement. In viewing human resources in this way, a certain realism and practicality permeates Mori Seiki’s management approach.  A 2002 survey conducted by PricewaterhouseCoopers suggests that Japanese managers are ahead of their Western counterparts in understanding what motivates their employees (Brislin et al, 2005).  In the survey, Japanese managers ranked what they considered as motivational factors for their employees, and employees ranked what motivated them.  From the list of twelve factors, only one ranking differed by more than two places between managers and employees.  Although the homogeneity of Japanese culture can be cited as an explanation for Japanese manager’s motivational understanding, in Mori Seiki’s case, management was able to effectively motivate its US designers alongside its Japanese designers.  The important common factor was the ability to enforce an organizational structure which provided autonomy with support, and that matched the right individuals into the right functions.  Similar to Womack’s proposal for non-Japanese manufacturers to adopt waste-reducing practices (Womack, 1990), non-Japanese employers can take note of motivating organizational structures like those described at Mori Seiki.  The common elements of employee empowerment, access to necessary expertise and fostering of employee pride are fully transferrable given the correct organizational layout.  In a future of diminishing resources, every effort must be taken to remove waste wherever it exists.  Like maintaining any piece of manufacturing line equipment, maintaining the drive of an organization’s employees should remain a management’s central focus.  Ultimately it is people who compose an organization, and it is quite logical that any discussions regarding organizational structures should begin and end with their effect on people.

References:

1.    Wall Street Journal, 2009. Google Searches for Staffing Answers. [online] Available at <http://online.wsj.com/article/SB124269038041932531.html>
2.    Buchannan, D. and Huczynski, A., 2010. Organizational Behaviour. Essex: Pearson Education Limited.
3.    Womack, J., Jones, D., and Roos, D., 1990. The Machine that Changed the World. New York: Ralston Associates.
4.    Kaiser Engineers, 2011. Henry J. Kaiser: The Legacy Continues. [online]  Available at <http://home.earthlink.net/~peterferko/keweb/aboutke/history.htm>
5.    Brislin et al., 2005. Evolving Perceptions of Japanese Workplace Motivation: An Employee-Manager Comparison. International Journal of Cross Cultural Management, 2005 Vol5(1): pp87-104.
6.    Rehu, M, Lusk, E, & Wolff, B 2005, 'A PERFORMANCE MOTIVATOR IN ONE COUNTRY, A NON-MOTIVATOR IN ANOTHER? AN EMPIRICAL STUDY', Academy of Management Annual Meeting Proceedings, pp. K1-K6, Business Source Premier, EBSCOhost, viewed 30 October 2011.

Strategic Analysis: Virgin Group

1. 2011 PESTLE analysis
1. Political:
1. austerity in Euro-zone
2. governments (and US states) desperate to court big business for tax revenue
3. anti capitalist protests in US and UK
4. 2012 US election will involve the most money ever spent on campaigning
5. New governments in the Middle East, Europe and Asia (Tunisia, Egypt, Libya, Italy, Spain, Kazakhstan, South Sudan, Thailand, Japan, North Korea)
6. Reform possible in Syria, Bahrain, Saudi Arabia, Morocco
7. Rebalancing of influence in Asian South Pacific Region and Eastern Europe
1. New US base in Australia
2. US Missile Defence abandoned in Poland
2. Economic:
1. high unemployment in US, UK and wider Europe
2. evolving consumer behaviour away from high personal debt load
3. slowly recovering US economy, rapidly growing Chinese middle class (approx. 250m)
4. large Government measures to continue QE into 2012
5. limited bank lending, very distressed European bond market. Even German bond yields are climbing
3. Social:
1. General feeling of new global order (F. Zakaria's book: Post American World)
2. US hegemony waning, Chinese consumer beginning to replace US as target market
3. Border-free communication through the internet, price transparency
4. Technology:
1. IT evolving rapidly, and software becoming easier to use.  This has the effect of raising consumer expectations.  Companies such as Google offer many useful tools for free.
2. Phone service is now less important to many consumers than internet service
3. Mobile applications and content are preferred by many (especially younger) consumers
4. Facebook is the de-facto standard for social networking, and most companies are marketing through its interface rather than "reinventing the wheel" with their own offerings.
5. Twitter messaging allows millions to share information rapidly, including deal and promotion information.
5.  Legal:
1. IT legislation, British Rail Law, Airline regulation (eg. FAA in US)
2. Increase in anti-corruption legal watchdogs in recent years (eg. SFO in UK)
6. Environmental:
1. Consumers are aware of climate change and environmental degradation
2. Many consumers select businesses based on perceived "clean and green" image
2. Assessment of Virgin Group

1. Too much autonomy among some businesses leading to a lack of consistency in the Virgin portfolio.  Does Virgin need a Cola? Did you know they sell wine also? More organizational "learning" could be shared between operations.  Look to GE to structure an improved talent search, retention and indoctrination process.
2. Succession plan must be developed.  R. Branson will continue for another decade, but what then?  A successor must be trained and prepared for the group CEO role, or the organizational structure must evolve.
3. Follow GE or PG's strategy and divest businesses which don't fit or are not profitable.  Welch famously strove for number 1 or 2 in industry.
4. Focus on transportation and entertainment industries. Customers are willing to pay a premium for good service here.  Even Virgin Galactic can be considered transportation of a sorts (my favorite of the Virgin brands ;))
5. One core competency of Virgin has been the brand itself, and attaching it to the various businesses has added value in the minds of customers who know that a certain innovative approach will be taken on their behalf.  Care should be taken that this brand doesn't get associated with Richard Branson the man, but rather the vision that will outlive him.  Disney can be cited as an example of a Brand that outlived its founder.  Just as Levitt noted that the railroad was in the transportation business and not trains, Branson must realize that Virgin is in the creative brand licensizing business, whereby the company continually identifies promising talent to run new businesses and then allows them the autonomy to do so.  In another analogy, Virgin Group resembles Ryan International (not to be confused with RyanAir) which employs pilots and crew, but doesn't own its planes.  Branson has been effective in identifying prime talent to run what are in effect, serial entrepreneurial ventures.  Branson himself is like an angel investor, and he has shown a keen ability to find the right people to run each business. In this way, the group is more like a HR recruitment and deployment firm than a centrally administered hub for all businesses.    
6. Perhaps the most bizarre Virgin businesses, which probably makes more sense upon further study, is this one:  Virgin Health Bank

Review of Strategy Literature

1. 1930 PG promotes interbrand competition
2. 1962 Alfred Chandler 
3. 1963 Alfred Sloan: My Years with General Motors
1. "From decentralization we get initiative, responsibility, development of personnel...
2. "From centralization we get efficiencies and economies
4. 1970's Chandler, Wrigley, Rumelt
5. 1971 Galbraith 
6. 1978 Davis, Lawrence
7. 1980 Porter's generic strategies, competitive positioning
1. low cost
2. differentiation
3. focus
8. 1986 Miller
9. 1990 Pascale: "inherent tension within organizations is the primary, if not the only, vehicle for self-regeneration"
10. 1992 Senge: The fifth discipline : the art and practice of the learning organization
11. 1993 Prahalad, Hamel 
12. 1994: Ghoshal, Mintzberg "pendulum swing"
13. 1998 Ghoshal, Bartlett: "portfolio of processes" along with competencies