The new geography of management

07 April 2017 -

The future norms of management are being hatched in China, India, the Gulf states, Germany, Japan and Scandinavia, not in good old Anglophonia. Time to get out more

Simon Caulkin

It’s hard to admit, but Trump and Brexit may have done us a favour. By bringing to a juddering end nearly a decade of denial, these devastating aftershocks of the 2008 financial crash destroy any lingering illusion of a return to business as usual.

In the public mind, it’s business as usual that’s the problem. Shareholder returns have soared, but in real terms the US middle class hasn’t had a pay rise since the 1980s, while the UK ranks with Portugal and Greece as the only OECD countries where the median wage is yet to return to pre-crisis levels.

And employment is shifting from career to job to project to gig.

After 40 years, it’s clear that Anglo-Saxon capitalism – aka the US-UK management model – is unfit for keeping most people in jobs, pensions, shelter and security. Full-time work is no longer even a reliable route out of poverty.

In terms of power, US business no longer bestrides the globe unchallenged. The rise of China, India and other Asian economies certainly hasn’t occurred through inferior management. Capital today resides in Middle East and Chinese sovereign wealth funds.

Manufacturing prowess is shared with Japan, Korea, China, Germany and even the UK. India is the world’s software champion, and Israel the master of innovation. Northern Europe’s social democratic economies rest on foundations of distinctive corporate governance arrangements.

As their companies muscle onto the world stage, these countries are developing the confidence to assert their own ways of working, notes Professor Julian Birkinshaw at London Business School (LBS). Not all of their experiences are transferable, at least in the short term, but all provide lessons to absorb.

So what do emerging alternative management approaches look like? Predictably, they offer a contrast to the shareholder-driven, hierarchically managed, efficiency-obsessed Anglo-Saxon model. They’re more likely to stress continuity and the long view, the collective as opposed to the individual, relationships over transactions, and loyalty over performance.

Like Peter Drucker (“Profit is the cost of survival”), they view profit as a means, not an end. Indeed, shareholders are not uppermost in these managers’ minds.

Here are some of the places where the future of management is taking shape.

India

Indians have long been quietly influential in management, both in the academy (Rakesh Khurana’s definitive history of business schools; Nitin Nohria, dean of Harvard Business School; the late Sumantra Ghoshal at LBS) and in practice. Indians run or are very high up in a striking number of large US tech and other companies (Google, Microsoft, Oracle and Pepsi); Indian software service companies and outsourcers are world leaders (Infosys, Wipro and HCL Technologies).

Indians “think in English and act in Indian”, a prominent executive told the authors of The India Way, which suggests reasons for India’s success. English thought is reflected in a focus on performance, but it goes with a more holistic Indian view of the importance of employees and their development – Infosys, for example, made a strategic bet on putting employees first and customers second.

Juggling volatile business conditions, red tape and meagre resources, Indian managers have developed an enviable ability to adapt and improvise almost in real time, summed up in the Hindi term ‘jugaad’ (roughly, ‘frugal innovation’) – the idea behind CMI’s Management Book of the Year in 2016. Indian managers are adept at devising products and services for demanding consumers of modest means – for example, the Tata Nano car.

Finally, drawing on ancient cultural traditions, Indian leaders’ sense of mission and purpose includes societal, as well as material, progress. UK business sat up with a start when Tata Motors had the temerity to buy Jaguar and Land Rover from Ford in 2008.

In the event, the British heritage marques have flourished spectacularly under the Indian group’s ownership – further proof that there’s nothing wrong with British workmanship that superior long-term (that is, foreign) governance can’t cure.

China

No-one has yet written an equivalent ‘The China Way’, but, suggests LBS’s Birkinshaw, one won’t be long coming.

Chinese companies are now full members of the global corporate elite. Lenovo snapped up IBM’s PC and later its server business; Haier, the world’s largest white-goods manufacturer, bought GE’s appliance company; and – sign of the times – Uber sold its China business to domestic rival Didi Chuxing. Alibaba is the world’s largest B2B auction site; it and other internet and telecom giants (Tencent and Huawei) are emphatically not the low-tech copyists that they were initially taken for.

For management sophistication, try Haier, which has taken decentralisation to unprecedented lengths, breaking itself up into 2,000 family-like business units at the level of the team. Its CEO is a confident performer at management conferences, describing how and why he has set up this system.

Cultural theorists Charles Hampden-Turner and Fons Trompenaars believe that such companies owe their success to ignoring Western advice and plotting a distinctively Chinese course. Their genius, they posit, has been to integrate elements that, to the West, are opposites – so apparent oxymorons like ‘one nation, two systems’ and market-driven socialism make perfect sense in the context.

Crucial to the emerging Chinese management style was the return of the overseas Chinese diaspora after 1979, unleashing a surge of suppressed domestic entrepreneurial vigour that’s at the heart of corporate, as well as individual, performance. It’s this drive that underpins what George Yip and Bruce McKern describe in China’s Next Strategic Advantage: From Imitation to Innovation.

A tight focus on local customers, incremental innovation, ‘good enough’ standards, rapid trial and error, fluid processes and instant deployment of hard-working employees are the keys to China’s increasingly impressive innovation performance, they believe.

Interestingly, as the Washington Consensus fades, a ‘Beijing Consensus’ is being mooted around the idea of an entrepreneurial state marrying Western self-interest with networked family-style relationships and incentives to work for the common good. Hampden-Turner and Trompenaars see the Chinese on the verge of becoming “the best business practitioners in the world”.

Gulf States

Perhaps the most surprising new candidates for Western management scrutiny are the Gulf states. Gulf Arab management is often dismissed by Westerners as opaque, inefficient, nepotistic and arbitrary – the very opposite of ‘best practice’. But more culturally attuned commentators respect a Gulf Arab leadership style (GALS) that appears to achieve many of the outcomes that are more talked about than realised in the West.

Such methods might individually seem baffling but are “perfectly internally consistent”, says Professor William Scott-Jackson of Oxford Strategic Consulting, which has worked with many companies in the region.

As in China, values and cause and effect are reversed: engagement, loyalty, stable relationships, reputation and continuity are the drivers that in good time result in profits and success generally. From these values derive habits and practices that drive Westerners crazy.

Relationships, say, trump money. So a deal might go through on the nod if the relationship is strong; if it isn’t, there could be lengthy delay or the deal may not happen at all, however profitable.

Similarly, the ‘cavalier’ Gulf attitude to time isn’t because time doesn’t matter but because “GALS treasures time and so doesn’t want to waste it in pointless meetings and uninteresting events”, notes Scott-Jackson.

Long-standing meetings may be elbowed out by something more important on the day. “Our priorities drive our time, while, for you, the timings seem to drive your priorities,” one executive told Scott-Jackson.

The large pools of managers without clearly defined functions or seemingly much to do in many Gulf organisations – shocking to Westerners – are there to smooth relationships and react to changing circumstances on the ground. And so on.

“We in the West have much to learn about building long-term, high-engagement companies,” sums up Scott-Jackson.

One of the weaknesses of Gulf Arab management is that the traditional ‘father of the family’ leadership style is less effective in middle management, but that is being addressed by grafting on modern project-management techniques.

More insidious, ironically, may be the temptation to import Western performance-management and HR practices that undermine the overall culture and, in some cases, may make performance worse.

Japan

Japan may have dropped out of fashion due to its stagnant economy, but its manufacturing sophistication remains unsurpassed.

If there’s a wonder of the world in management, it is the Toyota Production System – “One of the greatest management innovations of the last century,” says LBS’s Birkinshaw – a complex, adaptive system that in ‘pull’ and ‘just in time’ – making ‘only what is needed, when it is needed, and in the amount needed’ – has given us something that is more a different philosophy than a set of techniques.

Scandinavia

Scandinavian virtues are often undervalued. The region contains a disproportionately large number of high-performing and highly distinctive companies that come nearest in Europe to embodying the much-desired high-trust, high-commitment workplace.

Stable ownership (often through controlling foundations), egalitarian values, gender balance and an international outlook help. Fast-expanding Handelsbanken, Lego, IKEA, Novo Nordisk and Statoil all have important stories to tell.

Germany

Other sources of management inspiration lie hidden in plain sight – for instance, the German Mittelstand, and the ‘hidden champions’ identified by Professor Hermann Simon of consultancy Simon-Kucher & Partners.

Of 2,800 worldwide hidden champions charted by Simon – defined as being in the top three in their global market or number one on their continent, having less than $5 billion in revenues and being little known to the public – nearly half are German.

In the past decade German hidden champions have created a million new jobs, increased market share and surfed an unparalleled wave of innovation. What do they do differently from large, conventional companies? Almost everything, says Simon.

They set themselves dauntingly high growth targets; focus religiously on their niches; globalise; innovate (generating five times more patents per employee than larger companies); stick to their customers like glue; benefit from high staff loyalty and minimal turnover; and display leadership that is ruthless on principles but flexible in practice.

Hidden champions don’t outsource manufacturing, are massively export-led and encourage workforce participation. Overwhelmingly family-owned and self-financing, they promote women to top jobs and benefit from remarkable continuity: the average CEO tenure is 20 years, compared with six in larger firms.

They also have no need to publicise themselves, given their market prominence, so they do not attract competition or need to give away secrets. While they may need to beef up their profits performance in future, thinks Simon, the best of the Mittelstand are an object lesson in the value of going your own way, and ignoring fads and fashions, in pursuit of the essentials that you have determined for yourself.