Monthly Archives: February 2008

Adam Jones

No matter how cushy it might appear to outsiders, being chosen to run your family’s business has its negative points. Just ask William Lauder, the chief executive of Estée Lauder, the US cosmetics firm. “Leading a public company is a sentence but leading a publicly held, family-controlled business is a life sentence,” Mr Lauder is quoted as saying in a Wall Street Journal article analysing his decision to bring in an outsider as his eventual successor.

Mr Lauder is the grandson of Estée Lauder, who founded the company with her husband in 1946, and is the son of Leonard Lauder, who preceded him as ceo and who remains chairman. Working in the family business meant he had to work ”twice as hard for half the credit”, William complains, adding that it didn’t help that some board members knew him from when he was a child.

Running a family business does indeed create peculiar strains. The Earl of March and Kinrara -the British hereditary peer who is trying to diversify a leisure business located at Goodwood, the family seat – admits that it can be disconcerting having ancestors peering down at him from their portraits. “Every time I walk up to bed, I see them all up on the wall, and think ‘Oh Christ, what do they think’s going on?’”

Tension between the various members of a business dynasty can lead to all-out conflict, as detailed in Family Wars, a new book reviewed in the FT today. But how can family-owned companies avoid being poisoned by the sometimes toxic mixture of blood and bottom line?

Earlier this year, Professor Josèp Tapies and Alfonso Chiner of IESE, the Spanish business school, came up with a list of ten governance tips for family businesses. Among other things, they stressed the need for each generation to be given the freedom to partly reshape the business. Old grievances between relatives needed to be addressed and healed, while family employees were to be referred to by both given name and surname. Meanwhile, the role of spouses of family members also had to be thought through, they added.

Perhaps Mr Lauder could add an 11th commandment: allow no-one to be appointed to the board who has seen you frolicking naked in a paddling pool.

Adam Jones

Two extremes of managerial behaviour are dissected on successive pages in today’s FT. On the comment page, Michael Skapinker gingerly picks his way through the sensitive issue of whether men and women run things differently – and whether biology can explain any such differences. Turn over and you see a Business Life feature analysing the popularity of those ghastly plastic deal trophies that sit on the desks of macho bankers and lawyers. I loved the anecdote about the angry company which subverted the genre by sending its banker a little model of a garbage bag filled with real, shredded money to express their annoyance at a badly under-priced IPO.

Stefan Stern

Can a leopard change its spots? Has Microsoft converted to the spirit of open innovation?

Hardly. But what the software giant has said it will now do is, for this particular company, a pretty big step.

Microsoft has announced that it will create “open connections” to its most highly-used products, make it easier for customers to shift their data out of Microsoft software packages, act “more transparently” over its use and adoption of industry standards, and try to build better relations with others in the software industry.

Sceptics and rivals are, as you might expect, unconvinced. This is all a far cry from genuine openness and “co-creation”.

But why should we always think the worst of people? And why should Microsoft bother to make any further effort to change and open up if their first nervous steps in this direction are mocked and rejected?

Give the kids from Redmond a chance, I say.

Stefan Stern

“What, me worry?”, asked the cheerfully gap-toothed and freckle-faced Alfred E. Neumann from the front cover of Mad magazine all through my youth. I wonder how long his outlook would last if he spent any time reading today’s newspapers.

Last week, for example, my colleague Martin Wolf took us through Professor Nouriel Roubini’s “12 steps to financial ruin” scenario, a scarily plausible account of how the world could be facing a deep US recession soon. By step eight I had to take a time-out and head to the canteen for a doughnut. What, me worry? You betcha.

On returning home later that same day I finally opened a threateningly bulky package that had been sitting by the front door for a few days and, guess what? Panic-relief was at hand.

The padded envelope contained a book called Just Enough Anxiety, which, its sub-heading informed me, is “the hidden driver of business success”. The cover of the book shows a rubber band being stretched – not too much of course – by a mystery pair of hands. The not terribly subtle point being made by the use of this image is that people (and organisations) are a bit like rubber bands: we have to be stretched to perform a useful function, but stretch us too far and we will snap.

Adam Jones

Peter Lorange has a double life. On the one hand he is a management theorist and the long-serving president of IMD, the Swiss business school. But he is also a successful businessman. When he popped into the FT yesterday, I was more interested in Lorange the doer rather than Lorange the thinker. I wanted to quiz him on the way he was handling his business affairs in order to get first-hand tips for managing in choppy economic conditions. The affable Norwegian’s responses were not what I expected at all.

peter-lorange.jpgFor a start, it turned out that he sold his shipping business – which moves supplies to and from oil rigs – last year. With disarming candour, he says he has given half of the deal proceeds to UBS to be placed in relatively low-risk investments. The other half has been earmarked for opportunities chosen by him and family members. In contrast to his patiently-constructed shipping company, these are likely to be shorter-term investments that have a clear potential to be “flipped” after 2-4 years. “That requires new thinking for me,” he says, declaring that he has already had success buying shares during recent stock market dips.

I hadn’t been prepared for such a pillar of the management establishment to be so fervent about flipping. Maybe global economic uncertainty has made other approaches to capital allocation too risky at the moment: a clear path to payback outweighs everything else.

But Professor Lorange, who is due to stand down as IMD president at the start of April, has not entirely ditched his old ways. He is also trying to buy two ships that transport live salmon from farm to slaughterhouse, arguing that they occupy an attractive, highly-specialised niche in an industry he knows well.

As a postcript, Lorange the theorist has two pieces of general advice for those trying to manage and lead in a downturn. The first is to promote team unity by stressing the ”we, we, we” rather than the “me, me, me”. The second is to focus any job cuts on less-promising divisions rather than trying to spread them out in an even-handed way across the organisation.

Adam Jones

Ciaran Fenton asks, in a comment on my last post, whether readers will be allowed to start a debate on other management topics themselves. Be our guest Ciaran – and that goes for anyone else who would like to explore a particular theme. Just post a suggestion below and we’ll find a way of creating a separate post on the subject in order to open things up for discussion.

Adam Jones

Business school professors are often chided for being out of touch with the real world of management. They churn out unreadable research that is only of interest to a narrow community of academic peers – or so the argument runs - instead of addressing the day-to-day problems arising in the workplace. (For a summary of the prosecution case, see Michael Skapinker’s recent FT column on the matter, mildly entitled “Why business ignores the business schools“.)

freek4.jpgThere is a much truth in these criticisms but not all b-school profs have difficulty being accessible. Freek Vermeulen, a Dutch associate professor at London Business School  (pictured left), is a case in point.  Dr Vermeulen - whose first name, rather disappointingly, is pronounced “Frake” rather than “Freak” - has been blogging enthusiastically since the start of the year on his site, “Random Rantings“. It is lively and engaging stuff.

Highlights have included lessons in innovation derived from an Asian contemporary dance troupe (if you want to be be innovative, forget about what you think the customer wants) and a homily about a plumber who spotted a niche in the market for artistically-shaped radiators (the moral being that it is not enough to get lucky - you also have to recognise and exploit what fate throws up). His research into how bad management ideas spread also fuelled a rant against management consultants (he describes them as pin-striped pigeons that transmit dodgy ideas like avian flu).

News of any other illuminating professorial blogs shall be gratefully received.

Adam Jones

It is hard to find a chief executive these days who doesn’t claim to be fostering innovation. Gary Hamel, the influential management theorist, has a sensible way of figuring out which ones are lying.

In an interview published in the latest edition of McKinsey Quarterly, he reveals a series of questions that he puts to rank-and-file employees when trying to assess whether their bosses are wholeheartedly committed to grass roots experimentation. The second of these questions is particularly astute. If you have a new idea, Mr Hamel asks, how long would it take you to get clearance to devote 20 per cent of your time and $5,000 of the company’s cash to testing it in practice?

Mr Hamel, co-author of The Future of Management, is a fan of Google, whose employees are encouraged to develop side projects on company time in the hope that these ideas will eventually pay off commercially. He clearly believes that less funky companies could and should give staff the same leeway – but accepts that this is far from being the case in the majority of cases. “In most companies there’s still a big gap between the rhetoric of innovation and the reality,” he concludes.  

Adam Jones

Banks, airlines and other big companies often use software to find out, among other things, which of their customers contribute little to their bottom line. Those marked down as low rollers might have to wait longer to have their call answered, or miss out on special offers. Some companies might even be tempted to sever ties with their least remunerative clients, reasoning that they can never be made profitable.

But firing your worst customers might not be a good idea, according to research by Upender Subramanian, Jagmohan Raju and Z. John Zhang of the Wharton business school at the University of Pennsylvania.

For one thing, the customer relationship management (CRM) software might not be very accurate in the way it segments people, creating a risk that the company might fire some profitable clients by accident. Secondly, the authors claim that jettisoning the less valuable customers would also send a signal to competitors that the remaining clients were of high quality. The competitors might then poach these high rollers.

I find the first threat to be more plausible than the second. Having just moved back from Paris to London – with all the address changes and other administrative hassles that entails – I have been struck by how bad many companies are at maintaining and updating basic personal details (a certain UK bank shall remain nameless). My faith in their ability to keep a running tally of my profitability to them is limited. But it is useful to be reminded that customer service decisions do not happen in a competitive vacuum.

Stefan Stern

Hello and welcome to the FT’s latest contribution to the blogosphere – the management blog.

This is the place to come and read about the ideas, trends and fads that are preoccupying managers around the world. Here you will find discussions and debate about what is working – and what isn’t – in businesses and organisations. You will be able to read excerpts from under-reported (but useful) academic papers. You will get a snapshot of the realities of managers’ working lives today.

It is also the place to share your observations, and sound off about your own concerns. Perhaps you are a high-flying VP well on the way to the boardroom. Maybe you are a newly-minted MBA, about to launch yourself on the next stage of your career. Perhaps you are just looking for inspiration and want something interesting to read for the next five minutes.

Whoever you are – welcome. And, this being a management blog, of course we want your feedback.

About the authors

Stefan Stern writes a column on Tuesdays on management. He is winner of the 2010 Towers Watson award for excellence in HR journalism, and has previously won awards from the Work Foundation and the Management Consultancies Association.

Ravi Mattu is the editor of Business Life, the FT's management features section, and a former editor of the Mastering Management series. He joined the FT in 2000 from Prospect magazine

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