As previously discussed, the original approach to strategic planning, a new strategy was chosen to match the historical strengths of the firm. In a discontinuous environment, historical strength by definition becomes future weaknesses. It is necessary therefore to replace the strengths/weakness concept by a more general concept of organizational capability .
In this chapter, we develop this concept with particular emphasis on the general management capability .
Functional Capability
Environmental turbulence is described by the difference between present and future critical success factors within the SBA. The strategic aggressiveness is measured by the match between the characteristics of the firm’s competitive strategy and the critical success factors. The responsiveness criterion is measured by the match between the critical capability success factors and the capability profile of the firm.
The capability profile is composed of the functional capabilities: marketing, R&D, HR, finance, production, etc., as well as the general management know-how (management of growth, diversification, and acquisition).
Invention of the functional capability occurred early in the history of the business firm when it was discovered that a firm runs more smoothly and more efficiently when the work of the firm is divided among specialized organizational units called functions, each of which possesses a distinctive capability. DuPont managers made such subdivisions early in the twentieth century and referred to that process as ‘putting like things together.’
The evolution of the functional capabilities followed shifts in the priority of different success factors. During the 1930s, low-cost production was the key to success in most industries. As a result, organizational builders focused on perfecting the production function: mass production technology in consumer industries, batch and continuous production in process industries, serial production in manufacturing of capital goods. Great progress was made in subdivision of work, plant layout, automation, equipment replacement, machine loading, inventory control, warehousing, and distribution and use of the learning curve. All this knowledge was brought together into a ‘turnkey know-how’ for timely and efficient creation of a complete production organization.
Starting in the 1940s, while concern with internal operations continued, the focus of attention shifted outward to markets. What had been a rather straightforward, if vigorous, sales activity, quickly became marketing, focused on recognizing, anticipating, and eventually shaping the needs of the customers. Attention turned to new product development, artificial obsolescence, shaping of customer needs and tastes. The newly developed capabilities included sales analysis, market research , consumer preference measurement techniques, salesmanship techniques, deployment of sales personnel, motivation of salesmen, advertising, promotion, and as in the case of operations, the design of a balanced marketing organization.
With the exception of technology-intensive industries, R&D activity played little more than a second role until after World War II, primarily focused on improving production and process technologies and on product durability. As the firm’s attention increasingly focused on new product development, the focus of R&D shifted from durability and standardization to product differentiation , annual model changes, and artificial obsolescence. Thus, R&D increasingly became a handmaiden of the marketing function.
After World War II, R&D changed from a handmaiden to the leader. A torrent of technology unleashed by the war began to change the face of many industries, sent others into decline , and created new industries. The specter of an ungovernable ‘R&D monster’ turned management attention to innovation. What was previously regarded as a secondary and essentially unmanageable province of scientists and inventors increasingly became a key factor to success . As a result, the R&D function was progressively organized and structured; project selection, evaluation, and control techniques proliferated; budgeting and control of R&D were introduced; and leadership techniques for managing creative people and creative processes were developed.
A great deal has been learned about the nature of functional capability and about the capability building process.
- 1.
The manner in which tasks are subdivided. Highly subdivided, narrowly specified tasks produce a capability that is highly efficient but rigid. Aggregated, loosely defined tasks produce creativity at the cost of efficiency.
- 2.
The manner in which the tasks are related to one another. Partitioned tasks produce functional stability, coupled tasks produce flexibility.
- 3.
The organizational culture within the function shared norms, values, models of reality, rewards, incentives. A culture which is inimical to change contributes to efficiency but suppresses flexibility.
- 4.
The power structure within and among functions, and the manner in which power is exercised. An autocratic structure contributes to stability and efficiency; shared power contributes to changeability but at the expense of efficiency.
These systemic characteristics are as important to the quality of a functional capability as the specific skills, technology, and capacity.
As we shall presently see, the same systemic characteristics are of even greater importance to the effectiveness of general management .
Evolution of General Management Capability
Another discovery made early in the history of the firm, which was comparable in importance to the invention of functional groupings, was that, after work was functionally subdivided, it was necessary to integrate, coordinate, and direct the functional efforts toward common goals. This integrative and coordinating task became known as general management.
Originally, general management was the exclusive prerogative of the top entrepreneur . However, as firms grew larger, the entrepreneur had increasingly to share his authority and responsibility with others. Today, general management is shared by members of the upper part of the organizational triangle where the necessary visibility and span of control are available for directing the overall thrust of the firm.
The entrepreneur was clearly the key actor during the creation of the modern firm. But as the firm turned its attention to perfecting its production function, the role of top management underwent a drastic change.
The inventors of the functional groupings in the DuPont Company saw the role as partitioning and standardizing the work of the firm. Once partitioned and standardized, the functions could run with a minimum of interference from general management . In fact, it was discovered the firm ran better when authority and responsibility were decentralized as near as possible to the level where the functional work of the firm was done. From this experience emerged the maximal decentralization principle which states that the top management of the firm should reduce its involvement in daily operations to a minimum and ‘manage by exception,’ involving itself in decision making only when unforeseen discontinuities and conflicts arise among functions.
So long as efficient production was the key to success, discontinuities were few and conflicts rare; the production function dominated the firm. As a result, corporate offices were minimally staffed and contributed little to the success of the firm.
When marketing emerged as a critical activity, the new marketing mentality focused on flexible response to the needs of the market, which interfered with the efficiency of standardized mass production.
As a result, conflicts arose between the production and the marketing functions, each trying to influence the firm’s work in a direction which optimizes its own goals (maximal sales for marketing and minimal costs for production).
Therefore, top management increasingly had to play the role of an arbiter of the conflicts and optimizer of the opposing tendencies. The workload on general management grew and, as we shall see in Chapter 17, a new divisional structure was invented which introduced a new level of general management below the level of the headquarters.
As the R&D function grew in importance, general management workload increased again, because it now had to manage a three-way tug of war between marketing, production, and R&D. From management by exception, the role of general management evolved into one of an essential coordinator of the functional activities. Until the 1970s, while it was recognized that the functional capability was a complex combination of factors, the capability of general management remained personalized by the general manager, following the tradition established by the early entrepreneurs. When the role of the general management shifted to that of a functional coordinator, the profile of the successful general manager became one of a multifunctional expert.
Thus, the best way to qualify for a company’s presidency was to be rotated through functional work assignments and then to understudy the incumbent president to get a feel for the complexity of such problems as setting prices, determining inventory and production levels, managing inter-functional conflicts, and developing key managers.
Business schools of the time reflected (and many still do) this perception of general management in their curricula. General management was treated as an empty box whose characteristics were totally determined by the functional inputs. A student was first exposed to the theory and practice of the respective functional skills and then to a series of integrative general management case studies augmented by complex computer simulations designed to replicate marketing, production, finance, and strategic decision making.
Since the middle of the century, as strategic response to the environment became increasingly important, it became evident in practice that general management was more than a simple sum of the functions. Just as knowledge of plumbing, structure, carpentry, electricity, heating, and air-conditioning for a house does not make an architect, neither does knowledge of the functions make a strategist. If anything, preoccupation with functional concerns produces a strategic myopia .
The problem-solving skills developed by functional management were recognized to be too structured and convergent for the job of the strategic manager, who must be a divergent, creative solver of ill-structured problems, and whose abilities should include be sensitivity to the environment, and skills in strategy analysis and in the design of strategically responsive structures. His leadership skills and style should be, in part, those of the entrepreneur : vision, risk-taking, change management, charisma and, in part, those of a political statesman .
As the strategic role of the general manager acquired importance, a curious paradox developed. The multifunctional manager clearly had to understand the functions of his firm and his industry, but the general manager was increasingly perceived as a generalist capable of giving strategic guidance to any firm in any industry.
Thus, a major US company saw nothing wrong in appointing a successful manager of its US consumer goods division to run a newly acquired computer subsidiary in France. The transfer did not succeed, not only because the business, the culture , and the social climate of the subsidiary were foreign to the manager, but also because he landed in the middle of a major political upheaval in the new country. This example was not singular. General managers who moved from low turbulence industries into fast-growing technology-intensive ones frequently found that their managerial skills were either insufficient or totally inadequate for managing in the new industry.
The personal experiences were matched by general ones. One source was disappointments in diversification. Numerous companies, having diversified into attractive but unfamiliar industries, found that the management style necessary for success in the new industry did not match that of the parent. Some firms found the mismatch to be serious enough to warrant divesting from the recent acquisition.
A second source of disappointment was frequent cases of the inability of a firm to adapt to the turbulence brought about by a technology substitution in its own industry.
- 1.
A general manager’s capability is not universal. His successful performance in one environment is no guarantee that he will succeed in an environment which is on a different (higher or lower) level of turbulence .
- 2.
General managers are only one, albeit critical, component of general management capability . As Chandler’s studies have shown, other essential components are structure, the decision-making system, the information system, organizational climate , etc.
- 3.
Different general management capabilities are appropriate to different environments.
- 4.
The key characteristic of the environment which determines the characteristics of the general management capability is the level of the environmental turbulence (as compared to the key success factors which determine the appropriate functional capabilities).
- 5.
The responsiveness of general management becomes a critical success factor when the firm needs or wants to make a discontinuous change in its strategy.
- 6.
Since discontinuous change will be the rule rather than the exception, the quality of general management will be critical to the success and survival of the firm in the last part of the twentieth century.
- 7.
When discontinuous changes are not only frequent but also rapid, as they will be during the last quarter of the century, the reactive unplanned adaptation of general management capability will be too slow. Therefore, the needs for changes of capability must be anticipated and installed in advance.
In the following pages, we shall develop a practical methodology for diagnosing the present capability, anticipating the need for change, and for determining the capability which must be put in place.
Definition of General Management Capability
General management is the organizational function responsible for the overall performance of the firm. This responsibility includes strategic positioning of the firm in its environment in a way which assures a coordinated performance toward its near-term objective. We now define capability of general management as its propensity and its ability to engage in behavior which will optimize attainment of the firm’s near- and long-term objectives .
General management (as well as functional capability ) can be assessed in two complementary ways. The first is by observing the characteristics of the firm’s behavior; for example, whether the firm anticipates or reacts to discontinuities in the environment. We shall call this approach assessing the responsiveness . The other way is to identify the capability profiles of the firm which produce different types of responsiveness.
General management capability
Managers | Organization | |
|---|---|---|
Climate (will to respond) | Mentality power position | Culture Power structure |
Competence (ability to respond) | Talents Skills Knowledge | Structures Systems Shared knowledge |
Capacity (volume of response) | Personal | Organizational |
Climate is the management propensity to respond in a particular way, for example, to welcome, control, or reject change.
Competence is the management’s ability to respond. For example, to anticipate change in a complex environment, the firm needs a sophisticated environmental surveillance system. Without it, the propensity to welcome change is an intent without the means.
Capacity is the volume of work that the general management can handle. Its adequacy is related to the type of response used. For example, the number of general managers needed for change controlling management by exception is very much fewer than for vigorous change-generating strategic development.
Table 7.1 shows that the major determinants of the climate are the mentality/culture and the power positions/structure of the firm. The competence is determined by the abilities of managers on the one hand and the systemic abilities of the organization on the other. Organizational capacity can be measured by multiplying the work capacity of the individual managers (some produce 24 hours of work in 8 hours, and some play golf half of their working time) by the headcount.
The concept of capacity helps explain a part of the ‘resistance to planning ’ problem which was encountered in introducing strategic planning into the firm. Typically, the new strategic work was ‘dumped’ on top of the operating workload, which already fully occupied the general managers’ time. If, as was typically the case, at the time of introduction the capacity of general management was minimal, the strategic planning workload conflicted with the operations workload. For reasons which we shall be discussing in Part V, this conflict was typically resolved in favor of the operations work. The low priority accorded to the strategic work appeared as resistance.
The concept of competence helps explain another cause of the resistance to planning . It has been common to introduce strategic planning by means of one-day seminars during which general managers were converted into ‘instant’ strategic planners. Since a majority had no prior experience in strategic analysis, the quality of their plans was, at best, marginal. The poor quality of plans produced ineffective actions which again was perceived as resistance to planning .
The third source of resistance was the historical climate of the firm. Since at the time of introduction of strategic planning the climate was typically change controlling, both managers and organization rejected the change-generating’ strategic management as irrelevant to the way things ought to be done.
The preceding discussion illustrates the important systemic property of general management capability which we have already observed in functional capability , namely which describes the way climate , competence , and capacity are matched. The overall capability is no stronger than its weakest attribute.
General Management Capability Profile
For diagnostic and planning purposes, we need to define the respective components of capability in greater detail than was done in Table 7.1. This is done below:
- 1.Managers
- (a)Mentality
The relative preoccupation with external vs. internal problems.
The past vs. future time orientation.
Propensity to take risks.
The manager’s personal model of the world: What he perceives to be the critical success factors and behaviors.
Values, norms, and personal goals.
- (b)Power
The strength of his power position within the firm.
His ambition and drive to use power.
- (c)Competence
Talents/personality.
Problem-solving skills.
Leadership style/skills (e.g., political vs. custodial vs. inspirational vs. entrepreneurial vs. charismatic leadership).
Knowledge about the firm and about the environment.
- (d)Capacity
Personal work capacity.
Work habits (e.g., the typical ‘workaholic’).
- (a)
- 2.Climate
- (e)Culture
The organizational attitude toward change : Whether the organization is hostile, passive, or predisposed to change.
The propensity toward risk: Whether, as a group, management avoids, tolerates or seeks risks, whether it is only comfortable with familiar risks, or whether it seeks novel ones.
The time perspective in which management perceives its problems: Whether it puts full reliance on past experience, prefers to deal with the present, or puts emphasis on the future.
The action perspective : Whether organizational attention and energies are focused on internal operations or on the external environment.
The goals of behavior : Whether it is stability, efficiency, effectiveness, growth, or innovation.
The trigger of change: Whether a crisis or accumulation of unsatisfactory performance is necessary, or whether the firm continuously seeks change.
The shared model of the world : perception of the critical success factors.
- (e)
- (f)Power
The distribution of power among groups with different cultures.
Stability of the power structure.
Militancy of the power centers.
(Not surprisingly, the group characteristics which determine the collective culture are quite similar to the behavioral attributes of individual key managers.)
- 3.Competence
- (g)
The organizational problem-solving skills and style: Whether they are based on precedents, trial and error, optimization of available alternatives, or creation of new alternatives.
- (h)
The problem-solving process: Whether it is compartmentalized and hierarchical, or firm-wide and problem-centered.
- (i)
The management process (informal as well as formal systems ): Whether it controls to past performance, anticipates familiar futures, or creates new futures.
- (j)
The information used in managing, whether, it is derived from historical performance, extrapolation, or wide-ranging environmental surveillance .
- (k)
Organizational structure : the degree and type of complexity it can handle, its flexibility and adaptability.
- (l)
The rewards and incentives : Whether managers are rewarded for historical performance, growth, initiative, or creativity.
- (m)
The job definition: Whether it is narrowly circumscribed or open, encouraging venture and initiative.
- (n)
The technological aids to decision making (computation procedures, rules, models, computer programs, etc.): Whether they assist routine and repetition or innovation and change.
- (o)
Organizational capacity: Headcount of line and staff managers converted into volume of work which general management can produce.
- (g)
An Illustrative Example
Capability profile
In this case, the existing planning system is the only link which is out of balance with a capability for strategic responsiveness . As the reader will recall, the functional capability needed by a successful firm is determined by the critical capability success factors in the firm’s marketplace.
On the other hand, the required general management capability of a firm is determined by the turbulence level of the firm’s environment. In the following chapter, we present the long version of strategic diagnosis which can be used to relate the future turbulence in the firm’s environment to the general management capability it must develop in order to succeed.
Summary
Successful firms entered the second half of the twentieth century with impressive strengths in the production, marketing, and R&D functions. The functions were supervised and coordinated by general management in the firms’ upward thrust for growth.
From mid-century on, the firm increasingly had to turn attention to strategic repositioning of the firm in order to assure future profitability and offset maturity and decline . In the beginning, it was felt that the historical strengths would apply to the new strategic posture. But the strengths of yesteryear frequently turned into the weaknesses of today. Thus, as firms change their external strategies, they also have to change their internal capabilities,
When repositioning is discontinuous, then the general management capability to anticipate the need and to assure timely repositioning becomes the key to success. Thus, general management graduated from a secondary role of a coordinator of growth, to a vital role of developer of the firm’s future.
Successful performance of this role requires a climate within the firm which welcomes and seeks change, a competence to anticipate, analyze, and select attractive opportunities.
This chapter lays a theory-based foundation for developing systematic general management capability by defining the components of a management capability profile.
Exercises
- 1.
Arrange (and group if desirable) the fifteen capability elements in the general management capability section, in the order of their relative importance to effective action by general management. Which components would you consider vital?
- 2.
If the firm needs to develop a new capability profile, in what order should the respective components be developed to assure a transition with the minimum of organizational resistance?
- 3.
What programs of action would you initiate for the transition?
- 4.
Refer to the turbulence scale, Table 6.1 and, using the profiles of general management capability , present in two columns the characteristics of the fifteen components appropriate to levels of turbulence 2 and 4.