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There is no secret to create a great company ... there is only artisti..2012-01-16Hit:7902

There is no secret to create a great company ... there is only artistic business.

Written By Chang-yang Lee, a professor at KAIST business school

What is the ultimate goal or purpose of corporate management? This question is quite philosophical; the answer for it depends on managers and time. A typical example is Henry Ford, a legendary executive, who opened the auto industry and pursued a unique business objective. He believed that management’s calling is to popularize cheap and good quality cars among farmers in the U.S, which leads the farmers to live more comfortably. Of course, in order to cut costs, he devoted to improve productivity. His big hit was ‘Model T’ whose color was consistently solid-black for 20 years in spite of consumer needs for a variety of colors. Also, the introduction of the conveyor belt system raised the productivity. All are the result of his devotion to raising productivity.

While, the ultimate purpose of management has been different over time. During the 1970s, social responsibility of corporation began to be emphasized in opposition to the conventional profit-maximization. In recent years, there is a claim that a corporation should aim at the shared values. However, these could be one of values for consideration; these can hardly be the ultimate goal of management. Without a lot of disagreement, sustainable growth is still the ultimate goal of management. It is no exaggeration that social responsibility and efforts for creating a shared value are part of the strategies maintaining positive relationships with stakeholders and pursuing sustainable growth.

Then, are there any secrets for the company showing excellent performance as well as the sustainable growth? Case studies which tell the secret of the so-called "great" companies’ success has been published over the last 30 years, and they became huge best sellers. Typical things are the following: ‘In Search of Excellence’, published by Tom Peters and Robert Waterman in 1982, ‘Built to Last’, published by Jim Collins and Jerry Porras in 1994, and ‘Good to Great’, published by Jim Collins in 2001.

However, their analysis and solutions are not so much reliable. For example, a significant number of companies out of 43 corporations selected as ‘the blue chip companies’ faced hardship in management. In 1984, even Business Week carried an article, ‘Oops! Who"s excellent now?’. Half of 18 companies having been selected as ‘Successful companies" went worse during the next 10 years. Circuit City and Fannie Mae, which had been selected as ‘great companies’, were virtually bankrupt.

Why? Andrew Henderson, a Professor at UT Austin, published a study answering for the question in 2009. They estimated the range of corporation performance from the return on assets for the past 41 years. Then, they analyzed whether actual performance of the companies is a superior level of accreditation that can be beyond the scope. Surprisingly, most excellent management performance is at the level of lucky ordinary companies. This means that a significant portion of management performance is random.

As the fight back to these results, Jim Collins et al published ‘Choices of Great Companies’ in October 2011, which insists that great companies have their management behaviors and qualities of CEO of their own. Based on stock returns for 30 years until 2002, they selected the seven companies such as Microsoft, and Intel as great companies; they drew common management behaviors of the great companies from their study. First of all, management behavior of these companies is very disciplined rather than adventurous, or a future-oriented. Second, these companies have fad behind the market, rather than lead innovation and change. Third, these companiesare humble rather than self-righteous.

The first reaction toward their claim, however, was cold. The Economist, Britain"s leading weekly magazine, pointed out that even though their insights is not unworthy, their study should be supported by a more rigorous and scientific methodologies. In addition, the Wall Street Journal insists that the management style of Apple and Steve Jobs are different from great management behaviors they proposed. It is difficult to say that Steve Jobs does not lead innovation and he is a modest CEO. First and foremost, their solutionis are so general and abstract thatthey can fit any management behaviors of any successful companies.

After all, until now we finally know a large portion of management performance is random. This is very thought provoking in terms of the awareness of management’ essence and the purpose of management training. First of all, the essence of management is closer to art than a science. Steve Jobs, who has management experience for a long time, regards himself as an artist. At the present time, it is hard to say much more than the saying of Joseph Schumpeter: "the cores of business activities are continuous innovation and entrepreneurship". 1% inspiration or luck might be given to those who help themselves by their own efforts.

Management education, whose approach is that the management is the subject of scientific analysis, should be changed. Traditional MBA education is helpful to gain practical knowledge in the short term, but it is insufficient to foster good management qualities. Two new major suggestions can be considered. The first one is to foster historical knowledge. This is because historical knowledge about Economy, industry, and companies can be a basis of insight. The second one is to foster humanities literacy. This is because management is dealing with business people in the end. Members in companies, customers, competitors and partners are all composed of humans. Product & service innovations as well as skill and ability to communicate and to induce motivation, which can be core of management, are connected with high-level understanding of human nature.


Contact : Lee, Sohyun ( sohyun.c.lee@kaist.ac.kr )