What Management Is : How It Works and Why It's Everyone's Business

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  • Format: Hardcover
  • Copyright: 2002-04-30
  • Publisher: Free Press
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"This book will help managers in any type of organization, including nonprofits and the public sector, do their jobs better."-- Michael E. PorterHarvard Business SchoolWhether you're new to the field or a seasoned executive, this book will give you a firm grasp on what it takes to make an organization perform. It presents the basic principles of management simply, but not simplistically. Why did an eBay succeed where a Webvan did not? Why do you needbotha business modelanda strategy? Why is it impossible to manage without the right performance measures, and do yours pass the test?What Management Isis both a beginner's guide and a bible for one of the greatest social innovations of modern times: the discipline of management. Joan Magretta, a former top editor at theHarvard Business Review,distills the wisdom of a bewildering sea of books and articles into one simple, clear volume, explaining both the logic of successful organizations and how that logic is embodied in practice.Magretta makes rich use of examples -- contemporary and historical -- to bring to life management's High Concepts: value creation, business models, competitive strategy, and organizational design. She devotes equal attention to the often unwritten rules of execution that characterize the best-performing organizations. Throughout she shows how the principles of management that work in for-profit businesses can -- and must -- be applied to nonprofits as well.Most management books preach a single formula or a single fad. This one roams knowledgeably over the best that has been thought and written with a practical eye for what matters in real organizations. Not since Peter Drucker's great work of the 1950s and 1960s has there been a comparable effort to present the work of management as a coherent whole, to take stock of the current state of play, and to write about it thoughtfully for readers of all backgrounds. Newcomers will find the basics demystified. More experienced readers will recognize a store of useful wisdom and a framework for improving their own performance.This is the big-picture management book for our times. It defines a common standard of managerial literacy that will help all of us lead more productive lives, whether we aspire to be managers or not.

Author Biography

Joan Magretta, M.B.A., Ph.D., is an award-winning contributor to the Harvard Business Review, where she was the strategy editor during the 1990s. Before that she was a partner at Bain & Company, a leading management consulting firm.

Table of Contents

Introduction: The Universal Discipline 1(16)
Part I. Design: Why People Work Together and How 17(100)
Value Creation: From the Outside In
Business Models: Converting Insight to Enterprise
Strategy: The Logic of Superior Performance
Organization: Where to Draw the Lines
Part II. Execution: Making It Happen 117(98)
Facing Reality: Which Numbers Matter and Why
The Real Bottom Line: Mission and Measures
Betting on the Future: Innovation and Uncertainty
Delivering Results: First, You Focus
Managing People: Which Values Matter and Why
Epilogue: Next Steps 215(8)
Sources and Related Readings 223(10)
Index 233


Introduction: The Universal Discipline

From the outside, business can look like "a seemingly mindless game of chance at which any donkey could win provided only that he be ruthless. But that is of course how any human activity looks to the outsider unless it can be shown to be purposeful, organized, systematic; that is unless it can be presented as the generalized knowledge of a discipline."

-- Peter F. Drucker

What were the most important innovations of the past century? Antibiotics and vaccines that doubled, or even tripled, human life spans? Automobiles and airplanes that redefined our idea of distance? New agents of communication, like the telephone and the television, or the chips, computers, and networks that are propelling us into a new economy?

All of these innovations transformed our lives, yet none of them could have taken hold so rapidly or spread so widely without another. That innovation is the discipline of management, the accumulating body of thought and practice that makes organizations work. When we take stock of the productivity gains that drive our prosperity, technology gets all of the credit. In fact, management is doing a lot of the heavy lifting.

The human ability tomanage,to organize purposefully, is as characteristic of the species -- and probably as old -- as the opposable thumb. But the discipline of management is new. Its roots can be traced to the mid-nineteenth century. Its coming of age as a discipline, however, is an unfolding event of our lifetime. During the past several decades, management has discovered its true genius -- turning complexity and specialization into performance. Even free agents owe their freedom to management's ability to make their specialized contributions productive.

One sign of this coming of age is the explosion of yearly M.B.A. graduates. In the United States, the number grew from just five thousand in 1960 to roughly one hundred thousand by the year 2000. Over the same period, what began as a trickle of writing about management has turned into a flood. Despite this sea of words -- or maybe because the volume is so overwhelming -- most people are more confused than ever about what management is, and the popular conception has a lot of catching up to do with the advancing state of the discipline.

As editors of theHarvard Business Review,we had front-row seats at the floodgates. Our mission was to help a wide audience of practicing managers and professionals gain access to the ideas of specialists who normally spoke to a narrow circle of insiders. We asked every author who they wanted to reach and why that reader would be better off as a result. We listened for the punchline or, in our shorthand, theso-what.Now it's our turn to answer those questions.

Most management books are for managers only. This one is for everyone -- for the simple reason that, today, all of us live in a world of management's making. Whether we realize it or not, every one of us stakes our well-being on the performance of management. If we want to make better choices about the organizations we join, support, invest in, or start, we must know concretely what management is, and when it is good or bad. If we want to make smarter choices about our own careers -- how we can translate our talents into performance, what we do that causes us to succeed or fail -- we need to apply the discipline of management to ourselves. If we want better communities and a better world for our children, we need a clear-headed understanding of how management performs in the nonprofit sector, and how the discipline can be properly applied to fields such as education and health care.

Wherever our needs exceed our resources, we need management. Wherever we work or volunteer, we need management. Doing well in today's world -- and even doing good -- requires that we all learn to think like managers, even if that's not what we're called.

Unlike most other professions -- law or medicine or accounting, for example -- you don't need a license to practice management. In fact, it's the only field we can think of where practice precedes formal training. The Harvard Business School, for example, has traditionally required students to work before they will be considered for admission to the M.B.A. program. What you get from the education, the theory goes, will depend in part on the experience you bring to it.

The same will be true of this book.

Newcomers to the field will find an inviting, jargon free introduction to the basics. This is a book about a set of powerful ideas, but it conveys those ideas concretely, through stories about real people and organizations. If you find, as we do, that those stories are interesting, the book will give you a richer appreciation of the breadth and the difficulty of management's work. Looked at from a distance, it's easy to think that management is only about economics and engineering but, up close, it's very much about people. Rightly understood, management is a liberal art, drawing freely from all the disciplines that help us make sense of ourselves and our world. That's ultimately why it is work worth doing -- and so hard to do well.

Readers with more experience will find a differentso-what.The book offers a concise synthesis of important ideas and practices -- for example, value creation, business models, competitive strategy, the 80-20 rule, performance metrics, decision analysis. We believe that these, and the many other ideas that constitute the core of the discipline, are meant to be used. We present them in a way that will help readers apply them across a broad spectrum of managerial and professional work, in commercial organizations and nonprofits. For those who find the language of management to be more of a barrier than an aid to understanding, think of this book as everything you wanted to know about management but were afraid to ask.

Readers who bring the most sophistication to this book will get something different, a framework for stepping back and seeing the big picture, as well as a clear articulation of important, but often unwritten, rules. They may also gain some insight into their own organization's performance and their own practice as managers. They will find, we hope, that, although this is a book about the basics, the basics aren't always obvious.

A Discipline Often Misunderstood

The emergence of a discipline propels any field forward. Society has always had managers, using the word loosely, to refer to people in positions of institutional power, such as owners and overseers. In the same way, we've always had doctors. However, until medicine became a codified discipline that could be taught, practiced, and improved upon, we didn't expect much from them. Today, there are better doctors and worse ones -- individual practitioners differ -- but the discipline of medicine has raised the performance level of the average physician well beyond the most gifted of his predecessors a century ago. In the same way, the discipline of management has made possible a world in which organizations are so integral to the fabric of our lives that we take them for granted.

Despite this unprecedented success, management remains the least understood of the professions that shape modern life. For many, management is something to be tolerated. The cynical view is that we've inherited a society of organizations, therefore we need management to run them. That's getting the story backwards, mistaking cause and effect. It's because we've become so good at managing that we choose to create organizations to achieve a vast array of purposes that none of us could achieve acting alone.

Management's growing effectiveness has made organizations the vehicle of choice for carrying out much of the work of modern society. From art museums and advertising agencies to zipper manufacturers and zoos, the variety reflects the breadth of human purposes. Management makes organizations possible; good management makes them work well. Over the past century, the discipline of management has transformed the experience of work and multiplied its productivity.

Yet we rarely see management in this light. While the reputation of business continues to rise, the reputation of management continues to decline. Can you remember the last time you heard a talented young person say that he or she wanted to be a manager? An entrepreneur, yes. A consultant or investment banker or venture capitalist, yes. A manager, not likely.

Ironically, the world's most admired manager, GE's legendary CEO Jack Welch, is part of the problem. In the 1980s, at a time when GE needed to be picked up by the lapels and given a good shake, Welch consciously rejected the wordmanager.It carried too much bad baggage. It smacked of control and bureaucracy. Welch was on a crusade. His call forleadersstruck a responsive chord. Around the same time, Peter Drucker, the world's most widely read writer on management, also backed away from the label, shifting instead toexecutive.

Welch, Drucker, and others were on to something. The name change helped to clear the way for a new attitude, a new focus on performance, and what it takes to produce it in a modern economy. At the same time, however, it also created more confusion about what management is and contributed to its disrepute.

For most of us, the direct experience of being managed has not been the high point of our working lives. Bad bosses abound, and we tend to equate management with the bosses fate has dealt us, with the personalities and the politics that can loom so large in our lives. The more we are left to infer what management is from the behavior of the individual who is our boss, the less likely we are to grasp the underlying method. It's no surprise, then, that we don't immediately think of management as one of the transforming innovations of modern civilization.

Indeed, for many people, one of the most positive aspects of the new economy is its promise to do away with management and traditional organizations altogether. New-economy apostles proclaim that technology and virtual organizations will make managers -- and management itself -- disappear. Self-organizing work teams will take the place of managerial hierarchies. Leadership will be everyone's responsibility. More and more of us will work independently, as free agents, rather than as employees.

There is enough reality in this scenario to make it seductive. Essentially, however, it is not only wishful thinking, but the conception of management on which it is based is fundamentally flawed. Supervision may be disappearing, but management isn't primarily about supervising others. Hierarchical corporate structures may be flattening, but management isn't primarily about occupying a privileged rung in the chain of command. Management's real genius is turning complexity and specialization into performance. As the world economy becomes increasingly knowledge based and global, work will continue to grow more specialized and complex, not less. So, management will play a larger role in our lives, not a smaller one.

This, then, is a fundamental paradox at the heart of modern economies: The more highly educated and specialized we become, the more we need other people to perform. The Internet, which allows so many people to work as individual contributors and to think of themselves as free agents or independent professionals, underscores this interdependency but, ironically, also makes it less immediately apparent. We think we live in worlds of our own and can contribute as individuals, but this is only possible because some form of organization makes the specialized work we do productive.

Management's business is building organizations that work. Underneath all the theory and the tools, underneath all the specialized knowledge, lies a commitment to performance that has powerfully altered our economy and our lives. That, ultimately, is why management is everyone's business.

Organizations are changing dramatically, and they are taking new forms but, without organization of some sort, nothing would get done. As competition forces organizations to become more flexible and as technology enables organizations to work in new ways, they are less likely to provide structure and stability in people's lives. Once we looked to organizations to place us in the right jobs, to look after our careers, to structure our working lives. That has become a thing of the past. Whatever forms they take, today's organizations demand greater initiative and responsibility from individuals. In essence, they demand that we all think like managers. Much as we now take charge of our own health rather than leaving it entirely to the doctors, working in a knowledge economy requires us to take charge of our own performance.

No one would question the proposition that effective participation in twenty-first century life and work will require basic computer literacy. We contend it will require basic managerial literacy as well. This doesn't mean that there is a canon of great management literature everyone should read, nor does it mean that everyone needs an M.B.A. Management is a discipline open to all who are willing to work at it. Some of the most prominent and effective managers in the world are self-taught. In fact, much of the codified discipline has come from observing what works and what doesn't. (Conversely, an M.B.A. is no guarantee that a person will be a good manager.)

Managerial literacymeans that we will all need to learn to think like managers, whether or not that is what we're called. It means we will all need a working grasp of the discipline of management.

Not Another Management Book!

In 1954, Peter Drucker published a book often hailed as the best introduction to management ever written. BeforeThe Practice of Management,there were books on accounting, books on sales, books on labor relations -- books on all the many individual functions of management. But Drucker's book was one of the first to see management as a discipline and a coherent whole.

As a young man, Drucker sampled a variety of jobs, but the one that stuck was journalism. Through a lifetime of writing, teaching, and consulting, he never lost his reporter's nose for a good story. As recovery from World War II was shifting the locus of power to large corporations, Drucker realized that making sense of the modern world would mean making sense of management -- a task he initially undertook by engaging in a study of General Motors. What ensued for Drucker was a life's work of explaining management, not only to the general public, but to managers themselves.

In the decades that followed, the number of people studying and writing about management grew exponentially. Academics who once looked down their noses at management began to take it seriously. Consultants found that publishing their ideas was a valuable form of marketing. By the 1990s, most writers understood there was enormous value inbrandingan idea: establishing a connection between your name and a program that organizations might want to adopt. Reengineering was an idea that launched a thousand books.

In fact, the number of books and major articles has grown to over two thousand every year. Most of these focus on a single idea, one piece of the management puzzle seen in depth, but also in isolation and often out of context. Because readers rightly want ideas they can use, the literature is full of lessons learned and concrete to-do lists -- the ten things you can do today to be an effective leader or a savvy negotiator.

What's wrong with this picture? Do the math. Multiply the ten things to do by the two thousand publications and, suddenly, the simple list of ten has turned into an overwhelming and bewildering twenty thousand things to do -- and that's just this year's crop of reading. The busier we all get, the more seductive a short to-do list becomes. But which list of ten fits you and your situation? How will you know if you've chosen the right one? This is the problem of advice without context. With the field fragmented into so many small pieces, how will you put Humpty Dumpty together again?

That is the goal of this book -- to present a coherent view of the whole, of the work known asgeneral management.This is not a how-to book. Its purpose is to explain the underlyingwhyof both the theory and practice of management. It was written to help a wide audience understand the fundamental principles of the discipline that makes modern organizations -- and modern prosperity -- possible. You will still be able to laugh at Dilbert -- management is easier to describe than it is to practice, and there will always be more of us who get it wrong than who get it right. But you will also understand what management is capable of on a very good day. And on those bad days when things are going wrong, you will be far more likely to figure out what needs to be fixed.

We use the wordtheorywith some trepidation. The work of management, the messy business of getting organizations and people to perform, is not particle physics. If you're looking for abstract formulations, you've come to the wrong book. But without a theory of some sort it's hard to make sense of what's happening in the world around you. If you want to know whether you work for a well-managed organization -- as opposed to whether you like your boss -- you need a working theory of management. Similarly, if your job includes hiring other managers or deciding which ones to promote, you need a theory of what management is.

Good theory doesn't give you today's marching orders in the form of a to-do list. Instead, it helps you to make sense of things. It helps you to see patterns, to separate what matters from what doesn't, to ask the right questions. That's always valuable, but never more so than when things are changing, as they most decidedly are today. Old rules of thumb, or even radical new rules, may help you cope with a well-defined problem. However, few of the important problems that plague us arrive neatly labelled. True mastery of change comes from understandingwhythe world works as it does. The more things change, the more fundamental principles matter.

During the past two decades, both the discipline of management and the context in which it operates have changed at least as dramatically as they did in the era in which Drucker first studied the modern corporation. Power has shifted from Washington to Wall Street to Silicon Valley, and now seems to be shifting back to Wall Street. Those are metaphoric places, of course, icons for the shift from political power to economic power, and from statesmen and national bankers to innovators, entrepreneurs, and captains of finance. Journalists, true to their calling, have been following the story as it unfolds, creating new publications likeFast CompanyandWired,or relocating the center of gravity at older magazines and media outlets. EvenThe New Yorkerhas added a regular management feature.

Sometimes, the journalist's lens shows us our culture with clarity and insight. Often, however, it's like looking into a fun-house mirror. Some elements, the role of money, for example, are exaggerated beyond all proportion -- the fabulous wealth created and destroyed in a heartbeat, the drama of the big deal, the daily swings of the financial markets. The popular press also knows that good stories need colorful personalities, hence the prominence of celebrity CEOs, and the endless curiosity about the lifestyles of powerful men and women.

With a grateful nod to Peter Drucker, then, the purpose of this book is to present management as a discipline, and to see it whole. Through the successes and failures of real organizations, past and present, we will explore the core concepts of management in their natural setting -- at work. Our mission is to see the forest for the trees, and to present what can be complex ideas simply, but not simplistically. We will provide a sense of how management thinking has evolved and how the big ideas relate to one another. We try throughout to present these concepts not as technical tools -- many textbooks do that far better than we could hope to do here -- but as ways of approaching the questions that define a manager's world. Increasingly, those are everyone's questions.

How This Book Is Organized

The book is divided into two parts. The first part, "Design," deals with the big picture. Together the first four chapters answer the overarching question:Why do people work together and how?We create organizations to accomplish ends none of us could achieve acting alone. The design concepts presented in part I provide a disciplined way of thinking about those ends and about viable alternatives for achieving them.

The story begins in chapter 1 withvalue creation,one of the most abused buzzwords in the management lexicon. Far from being a meaningless platitude, however, value creation is the animating principle of modern management and its chief responsibility. Value creation answers thewhypart of management's basic question; it goes to the heart of an organization's purpose, the mission it exists to accomplish. An organization's business model lays out how it will accomplish its purpose, the system of players it must depend on to create value. This is the subject of chapter 2. "Strategy," chapter 3, addresses how that system will differ from competing alternatives and, by so doing, create enough value to satisfy its owners and to be self-sustaining. Chapter 4 completes the answer to the question by placing the people who work together inside (or outside) the organization's boundaries, and establishing the rules of engagement that will best align all the players in the common pursuit.

Value creation and business models tend to get short shrift in most management books. That's not the case with strategy and organization. For management writers, this is the battleground on which many bloody ideological wars are fought: whether it's one school of strategy versus another, or the chicken-and-egg argument over whether strategy or organization comes first. For the increasingly specialized academics who study management, this lively debate can be a good thing. But like all wars, these too have their civilian casualties, people in organizations, who are trying to get on with their jobs amid the confusion of competing claims and theories.

Having helped some of the most influential thinkers of the past couple of decades figure out how to present their ideas to the world, we are acutely aware of the chief points of contention. Our own approach is best explained, perhaps, through a metaphor. Start digging and you will pass through many layers of the earth's surface, each one genuinely different from the others. At some point, however, you will hit bedrock -- the common layer underneath it all, the solid foundation.

Part I is our attempt to hit bedrock, to define the conceptual core of management. Anyone with experience inside an organization of any size will immediately associate these core concepts with an annual event calledplanning.Most organizations have their own versions of this corporate ritual. It is often tied to other important management processes such as budget setting or leadership-team building. While rituals give shape and structure to our lives, they can also become a substitute for the meaning they were initially created to foster. This has been especially the case with planning, which -- like many organizational rituals -- has taken on a life of its own.

Part I, then, puts aside the rituals and processes to focus on the meaning. The real output of planning isn't meetings or strategy books. It's insight as to where an organization is headed and what it needs to do to get there. Properly used, the core concepts of management can and should lead to powerful, practical insights. Because these are the high concepts, however, the buzz surrounding them can be deafening. We hope part I offers a refreshing take on the fundamentals, free of sound and fury.

Translating plans into performance --execution-- is the subject of part II. Strategy -- and the organizational design it implies -- is a living blueprint for superior performance. But a blueprint is nothing more than a design. Creating that design may require both rigorous analysis and flashes of insight but, getting from the drawing board to reality is notjustexecution. Execution may lack glamor, but it's very, very hard to do. What happens when Tiger Woods picks up a golf club, or Murray Perahia sits down at the piano, isn'tjustexecution. We all know exactly what they're supposed to do. The actual doing is a lot harder than it looks.

Here, the doing is also a lot harder than it sounds. Words likeexecutionandimplementationmake management sound like nothing more than following a recipe, or carrying out a set of orders. In fact, execution requires both discipline and judgment, on the part of everyone in the organization, not just the people who occupy formal management positions. Managers may be nominally in charge, but they are rarely in control of anyone's performance but their own. So, if everyone is to perform in ways that will contribute to the organization's success, everyone has to understand what success is and what will be required to achieve it. Making this joint performance possible is often the most challenging part of management.

To begin with, everyone in the organization must be focused on a common reality, even though it may be far from obvious to everyone whatrealityis. To accomplish this, management relies heavily on numbers, and chapter 5 looks at how good managers know which numbers to focus on and why basic numeracy is so powerful. Equally important, management must make the organization's purpose concrete, so that everyone can pull in the same direction and all their efforts will add up to success. Chapter 6 explains how good performance metrics do this and, thereby, make an organization'srealbottom line clear.

Chapter 7 looks at how management deals with another of its imperatives: balancing short-term and long-term performance. Managers must commit resources today, in the face of uncertainty, to create the future. In other words, they must know how to invest and how to innovate -- activities about which management has a great deal to say. Managers must also keep themselves and everyone else focused on the critical tasks at hand, making sure that resources are deployed where they're needed, and that the organization is constantly moving forward. This is the subject of chapter 8. Last not least, managers must engage the energies and talents of individuals who are just that, uniquely individual. Chapter 9 looks at why values are such an important part of management's work and how good managers use, rather than abuse, them.

In one way or another, each of these "musts" goes against the grain. Each requires us to act in ways that don't just "come naturally" for most people, and that rarely happen by themselves in organizations. Wherever an unnatural act is critical to performance, the practice of management has given rise to a discipline, a way of thinking and acting that managers learn from each other. Part II is about these disciplines, which have evolved over decades of practice to meet the universal and enduring performance challenges that every organization must confront. While most good M.B.A. or executive education programs at least touch on the body of theory that underlies the big design concepts presented in part I, these performance disciplines are more likely learned apprentice-style, on the job.

The Case Method: A Word About Examples

To the extent that general management can be taught in the classroom or through books, it is best done by looking at case studies. It's not just that stories are more entertaining, although that is certainly true. It's that cases come closest to capturing the multidimensional nature of the work, the need to understand concepts in a specific context.

That said, there is an occupational hazard peculiar to those who write about living organizations. Management is the art of performance. It is also, like the performing arts, done in real time without a net, enacted in a present that is constantly passing. It neither stands still, nor looks back. Use living organizations to illustrate ideas and, inevitably, those organizations will change. Tomorrow's hero is today's chump -- and vice versa. When writers extract a lesson or a concept that may be valuable to others, some mistake it for a blanket endorsement of everything that organization has done, and will do, for all time. It doesn't work that way.

Nevertheless, examples are the only way to show that the principles apply as much to Henry Ford in 1910 as they will to whomever makes the cover ofFortuneorBusiness Weekin 2010. A few companies we describe are very new organizations that may no longer exist by the time you read this. However, most of the organizations we've chosen have sustained performance over one or more decades, and their successes reflect more than one or two seasons of good luck. Even so, while some will undoubtedly continue to outperform, others surely won't.

Nothing that eventually happens, however, is likely to change the enduring principles these organizations were chosen to illustrate. Business news focuses on who's in and who's out. This book is about ideas with a longer shelf life. Henry Ford achieved a kind of greatness -- and then, in subsequent decades, he not only floundered, he performed (and behaved) spectacularly badly. Nevertheless what he did will still help anyone understand what strategy is, and the relationship between strategy and organization. Similarly, we talk about Dell's or eBay's business models not because we believe those models will enjoy a thousand-year reign, but because they'll help you understand and evaluate any business model. And, finally, we talk about a host of nonprofit organizations -- from The Nature Conservancy to the Aravind Eye Hospital in India -- to suggest how broadly the concepts of management apply.

Copyright © 2002 by Joan Magretta

Excerpted from What Management Is: How It Works and Why It's Everyone's Business by Joan Magretta, Nan Stone
All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.

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