Favoured management strategy of UK businesses fatally flawed

The preferred 2014 business strategy of the vast majority (77%) of UK managers and leaders – closely controlling costs rather than increasing investment – is likely to be successful for just 3% of businesses, according to a leading business Professor.

Dr Jules Goddard of London Business School labelled businesses’ over-reliance on cost cutting as a ‘perilous, nonsensical and lazy option’ as he picked up the top prize in the CMI Management Articles of the Year competition, for his article on the subject.

A top crop of UK managers voted the article, entitled ‘The Fatal Bias’, as the must-read piece of research to come out of British business schools over the last year. It explores why controlling costs has become the most prevalent management strategy of modern times despite the fact that evidence shows it is counterproductive as a route to long term growth. In the article, Dr Goddard sets out why companies increasing costs and making bolder, less risk averse investments are the ones that stand to be successful in the future, and suggests new rules for business management that concentrate on ‘better rather than cheaper’, and ‘revenue rather than costs’.

Routes to innovation and growth were at the heart of this year’s collection of CMI Management Articles of the Year, with topics ranging from the use of competitions to solve complex business issues to innovating for sustainable business.

The competition aims to reduce the gap between theory and practice in management and leadership, by directing time-poor managers to the five articles from the past year their peers believe will most help boost performance.

Petra Wilton, Director of Strategy at the CMI (Chartered Management Institute), said: “This competition helps managers to get their hands on the best of academic research and thinking. Jules Goddard’s winning article shows powerfully how management thinking needs to change if the UK is to compete globally and get fit for the future. This is exactly the reason why CMI will be putting managers and leaders in the spotlight with our Commission on the Future of Management and Leadership with the All-Party Parliamentary Group on Management, to identify how management behaviour needs to change and how this change needs to be embraced.”

Dr Jules Goddard, author of the winning article, said: “I’m interested in business success and business failure – and if we want more of the former, we have to challenge the attitude that ‘costs are generally too high and if they are made to be lower it would create more wealth’. I am thrilled to have been recognised with the CMI Management Article of the Year award and pleased that respected business practitioners and senior leaders are taking note of this argument. Too many managers think that they will win with cost reduction strategies, but in practice, the chances of turning cost leadership into a sustainable profitable strategy are roughly 3%.

“The boards of UK companies spend almost 10 times as much time measuring and evaluating cash flow as working out where it comes from and how it can be increased. Clever managers will turn these outmoded and lazy management habits on their heads if they want to take advantage of the healthier economy in 2104.”

Articles were submitted to the competition by academics the reviewed and rated online by CMI members. Those with the highest ratings were then assessed by CMI’s Academic Advisory Council, a committee of leading UK academics, who selected the following as the top five and overall winner:

  • The Fatal Bias: the prevailing managerial bias towards cost efficiency is seriously harmful to corporate performance by Dr Jules Goddard, Fellow, London Business School (overall winner).
  • Does Management Really Work? How three essential practices can address even the most complex global problems by Professor Nicholas Bloom, Professor of Economics at Stanford University, Professor Raffaella Sadun, Assistant Professor at Harvard Business School, Professor John Van Reenen, Director of the Centre for Economic Performance at the London School of Economics and Political Science.
  • Managing for sustainable employee engagement by Dr Rachel Lewis, Lecturer and Course Director in Occupational and Business Psychology at Kingston Business School and Director of Affinity Health at Work and Emma Donaldson-Feilder, Occupational Psychologist and Director of Affinity Health at Work.
  • Innovating for sustainability: a user’s guide by Dr Richard Adams, NEMODE Senior Research Fellow in the Centre for Innovation and Service Research, University of Exeter, Dr Sally Jeanrenaud, Senior Research Fellow in Sustainable Development,  University of Exeter, Professor John Bessant, Chair in Innovation and Entrepreneurship, University of Exeter , Patrick Overy, Subject Librarian for Law & Business, Library of the University of Exeter and Professor David Denyer, Professor of Organisational Change and Director of Research at Cranfield School of Management, Cranfield University
  • Test-Driving the Future: how design competitions are changing innovation by Professor Joseph Lampel, Professor of Strategy and Innovation at Cass Business School, City University, London, Dr Pushkar P Jha, Lecturer in Strategy at Newcastle University Business School and Professor Ajay Bhalla,  Professor of Global Innovation Management at Cass Business School, City University, London.

To download the articles or find out more about the competition, visit articlesoftheyear. Entries can be submitted for next year’s competition from the 7th March 2014 by visiting toparticles. CMI Management Articles of the Year is supported by the British Academy of Management, the Association of Business Schools and the British Library, and is sponsored by John Wiley and Sons Ltd.