Business Today

Breakthrough lessons for CEOs

Two consultants—who graduated out of Harvard as Baker scholars—unveil four simple laws to put companies on the high growth path.

Sridhar K. Chari        Print Edition: November 30 2008

Two Harvard Business School Baker scholars with decades of managerial and consulting experience have produced a deeply substantive, immensely practical management howto in The Breakthrough Imperative: How the Best Managers Get Outstanding Results.

Clearly addressing themselves to CEOs and “General Managers”, Mark Gottfredson and Steve Schaubert highlight the need for top managements to achieve “performance breakthroughs” fast. The fact that managers seem to have increasingly less time in which to turn things around or put those crucial changes in place—a scenario of “high expectations and short time frames”—is a consistent theme underpinning the operational portions of the book. This goes along well with a nice sense of urgency that the authors create in their style and tone. The book is a brisk, albeit meaty, read for a busy business leader.

Talking about leaders, this book is not, thankfully, another “become-a-leader” book. The authors mention, in passing, a truth that often goes unrealised: Leadership attributes, while necessary, are not sufficient to explain managers’ relative performance.

What the book does, instead, is elaborate upon four deceptively simple “laws” of business. These are followed by a set of prescriptions on how to use them to analyse a business and put a company on the road to superior performance.

Very quickly into the book, the reader will realise that the principles and recommendations are anything but simplistic. There are no pop prescriptions of the management self-help variety. The authors’ claim of these four laws being “pressure-tested hypotheses”, rings true, as does their lament that business schools pay these laws only cursory attention.

Their starter message: understand these fundamental laws, and identify and follow a clear path to performance improvement. And the laws themselves?
• Costs and Prices Always Decline
• Competitive Position Determines Your Options
• Customers and Profit Pools Don’t Stand Still
• Simplicity Gets Results

The first law, that costs and prices always decline, resurrects the outof-fashion notion of the experience curve. This is an extension of the learning curve, and shows that people and companies get better at what they do over the years; so, costs come down, and quality goes up.

Over the long run, the experience curve holds true. If costs are not going down in your company, you can be pretty sure that a competitor is driving them down elsewhere, and with it, prices. The corollary, which the authors stress, is that market leaders are experience curve leaders. A company’s options are circumscribed by its position vis-à-vis its competitors, and strategies in isolation are doomed to failure. Know where you stand relative to your competitor, and what that implies for your actions, the authors say while talking about their second law.

The Breakthrough Imperative
Mark Gottfredson & Steve Schaubert Collins, 2008
Pages: 367
Price: $26.95

A solid #2 or #3 player, for example, will need to invest aggressively, innovate, cut costs and improve customer loyalty. Even market leaders have to be careful about possible pitfalls like lack of innovation, and collapsing price umbrellas, and pay attention to segmentation and branding. The third law highlights the fact that customer preferences and behaviour are always changing, and the profit pool, covering the entire value chain in a specific business, shifts and changes with it. New innovations or modifications in the business environment have their own impact. Apple’s iPod and the iTunes market it created is a classic example.

If law #4 sounds the most simplistic of all, just consider what it actually means—understanding and navigating your way through the complexities of the modern business environment, including product complexity.

Complexity, say Gottfredson and Schaubert, can have serious cost implications, and a good manager has to learn to keep things simple. It is fashionable these days to talk of “segments of one” and “long tails”. This is a scenario where large numbers of products and services are offered and customised to the specific needs of customers in small segments. But this, they warn, applies only to select businesses, and is fraught with peril in most sectors. “Complexity doesn’t show up on a balance sheet… it can sneak up on an organisation without being noticed.” Even the ode to simplicity, however, is not a prescription by itself. As the authors insist, none of these laws is prescriptions—they are descriptions of the way business actually works.

The prescriptions come later; the authors offer readers a PLOT (Plan, Lead, Operate and Track) template for change, which will take them from their point of departure to their intended point of arrival. These sections, apart from using the four laws, also place the onus for change on finding the right people and building a core team. Get the “rowers” on your team, eliminate the “drillers,” and shuffle and motivate the “passengers.”

One of the reasons why the book is so convincing in its formulations and recommendations is its customer-centricity, a theme implicit throughout the book. It is made explicit right up front, when they say: “Great managers know that everything begins and ends with an understanding of customer needs and perspectives on value.”

Revisiting the classics
Whether a company has its own manufacturing plant or is ‘asset-light’, quality management has become more critical. Pick up the bible again.

Was big because:
Out of the Crisis brought out of obscurity the man credited with powering post-War Japan into industrial supremacy with the use of statistical methods of quality management. In 1946, Deming went to Japan to help set up a census but ended up guiding Japanese managers on quality issues. Public hero in Japan, he was ignored back home in the US until the 1980s, when US industry was reeling under the Japanese onslaught and Deming published the book. Out of the Crisis gave rise to the theory of Total Quality Control (a term it did not use).

Why read It now:
Ahem; Deming blamed management (or mismanagement), and not workers, for most quality issues. Although quality management has almost become a cliché, it was never as important as it is now, with companies shifting production bases from country to country in search of lower costs as they struggle to protect margins. Just follow his 14-point management system. You don’t have to be a statistician like him (he had graduate degrees in physics and math, and a PhD from Yale). And please don’t put up another slogan-poster on the shop floor.

  • Print

A    A   A