So-called management gurus can cause a lot of damage with their advice
The origins of the ‘guru’ are found in the US Constitution’s Bill of Rights, which guaranteed freedom of religion. It triggered a growing and competitive market for religious sects in the States, with new, evangelical ones gaining a 70 per cent market share over the old.
Their success was down to the aggressively marketed charisma of their gurus.
Management gurus of today borrow a lot from those preachers, and sprinkle it with pseudo-science. Presentation is everything.
Most begin with fire and brimstone prophecies about imminent change. Insisting we live in a volatile world urges readers to act fast. These sales techniques are vital, as the application of any kind of academic rigour to their findings often leaves them lacking.
Management ‘guru’ Peter Drucker pointed to a period after World War Two as the last “age of continuity”. Writing most prolifically in the 1970s, 80s and 90s, he consistently described the new age of turbulence that the US was entering.
Yet, US data from 1946 to 1968 versus 1985 to 2006 (he died in late 2005) shows GDP volatility reduced from three per cent to 1.2 per cent, inflation volatility from 3.2 per cent to 0.6 per cent, and corporate profit growth volatility from 16.7 per cent to 12.8 per cent.
Not so excellent
In Search Of Excellence by Tom Peters and Robert H. Waterman Jr, was the book that took management consulting out of the boardroom and into the hands of the masses. It looked at 43 businesses they defined as exhibiting long-term, successful characteristics, which were distilled into eight pithy “things that excellent businesses do”.
Within two years of its publication, a Business Week article noted about half of the 43 were in serious trouble. Financial analyst Michelle Clayman found that, at the five-year point, two-thirds underperformed the market average and all showed some clear sign of decline from the date they were selected as “excellent”.
She retrospectively created an investment portfolio of “unexcellent” firms that displayed the opposite characteristics to those listed by Peters over those same five years. It did very well, beating the “excellent” portfolio by 60 per cent.
None of this had any bearing on the success of In Search Of Excellence, which sold three million copies in its first four years alone.
Peters defended his results more recently but admits to his choices being highly subjective, and his argument in many aspects is still flimsy. He began his next book with the words: “There are no excellent companies”.
This might be a bit of fun but there is also an important truth hidden in it. There was no evidence that the eight factors picked out by Peters were a cause of each firm’s success. There was a loose correlation at best. The factors selected were based entirely on the sentiment of the authors.
That sentiment also informed the selection of the 43 firms used, with no credible control group, and simply represents public sentiment about popular firms at that time.
As public sentiment and perception is probably already baked into a company’s share price, it guarantees the “great” businesses written about in a business book will underperform in future. Business books are typically written using a combination of hindsight and loose correlations.
At best, they have no predictive power. At worst, they are damaging to anyone following their advice. These books advocate breaking the rules, yet the advice they give simply follow the popular tastes and conventions of the day.
The dotcom bubble illustrates this. Young tech businesses swimming in cash were providing desk massages and people-first policies in return for punishing hours. This creates great businesses, said the theory. But post-crash, this changed.
One such business laid off large numbers and advised the remaining employees that “underperformers” would be weeded out. Correlation and causation were confused.
It is difficult to precisely define the opposite of the eight qualities in In Search Of Excellence, because they are just another set of non-falsifiable banalities. They are the intellectual equivalent of Bill and Ted’s: “Be excellent to each other.”
Of course, it is a good idea to keep close to customers and listen to feedback. Of course, your customer may also be wrong. They might ask for a faster horse, to paraphrase Henry Ford. None and all of these statements are true. Yet the trappings of science and objectivity are often invoked.
Jim Collins claimed his book, Good To Great, was based on “384 million bytes of computer data”. This turned out to consist mainly of press clippings. He also claimed that “Peter Drucker contributed more to the triumph of freedom and free society over totalitarianism than anyone in the 20th century, including perhaps Winston Churchill.” I very much doubt that.
Perhaps the saddest fact about business books is that they are rarely read by the audience they purport to radicalise and change.
Peters’ entire oeuvre is a lengthy plea for change to corporate chief executives, and an attack on the existence of middle managers. His utopia is a world of “boss free implementation”. Yet his audience is largely made up of precisely those people. A former associate described them as: “middle managers from Domino’s Pizza and the like”.
The qualities that make a great manager are no different from those required to be a great human being. You will get more useful information from a great novel on this topic than a business book.
Phil Young is managing director of Zero Support