MANAGEMENT
The current furore around the mismanagement of big banks has made me wonder if what Kevin Kelly writes in his book ‘Out of Control’ is true. “It is generally much easier to kill an organisation than change it substantially,” he says.
The evidence is compelling. In the USA, 60% of companies listed in the Forbes 100 in 1917 had fallen by the wayside 17 years later. Only two – GE and Kodak – had consistently outperformed the market. Kodak has also dropped out. Only 74 members of the 1957 S&P 500 listing were still alive 40 years later, a fallout rate of 85%.
Here are a few names that have disappeared from the Kenyan corporate world: Agip, Alico, AT&H, BCCI, Block Hotels, Caltex, Castle Brewing, Diners Club, Form-Net, GTV, Mobil, Motormart, Sulmac, Trade Bank. The list continues. The reasons for their vanishing are as disparate as the sectors they represent.
But someone somewhere once took a decision to let them go. The 1997 recession destroyed half of Korea’s large conglomerates. And the current global crisis, now into its fifth year, is putting lights out all over the corporate world. Big business, it seems, might be a big mistake.
Small may, after all, be more beautiful. Running a big business is hard for at least two reasons. One is that you are separated from the real world of work and workers. You have little idea what’s really going on unless you make a deliberate effort to get out onto the front line. Not many CEOs do this. The other reason has to do with decision-making.
Many CEOs seem to lack the courage to make the necessary decisions to move their organisations forward. Even more find getting people to act on their decisions is nigh on impossible.
The business simply cruises on like a super-tanker. No matter how firmly you spin the steering wheel, it takes forever to change direction. The media attention on the highest levels of management of big banks reveals another perspective – the arrogance that power and big bonuses can deliver.
The outrage of former Barclays CEO Bob Diamond made it clear he had not the faintest idea how his bank’s retail customers see things. The bank’s share price during his tenure seemed to bear no relationship to his take-home. So if not customers nor shareholders, who was he working for?
Paradoxically, some businesses disappear for the very reason that they are successful, and are bought up and submerged into a larger entity. But it’s at least as common that once successful businesses are overtaken by events and simply fail to evolve in tune with a changing environment.
“It is not the strongest of the species that survives nor the most intelligent,” wrote Charles Darwin, “but the one most responsive to change.” Driving evolution and leading change seem to present the biggest challenges to CEOs and owner-managers.
All too often, the people at the top are those with the greatest reverence for the past. Maybe the product was their idea. Likely, it was past success that led to their present position. Their skills and knowledge were gained earlier in their career. But these are no excuses for short sightedness and a failure to perceive the future as different territory.
Too often, CEOs talk about the need for change and then carry on much as usual. Evolutionary change can be achieved. After much pain, IBM shifted from being a maker of out of fashion mainframe computers to a global technology consultancy.
You can read about it in ‘Who Says Elephants Can’t Dance’ by turnaround chairman Lou Gerstner. Keep your eye now on RIM (makers of Blackberry) and Yahoo! Their time, energy and sheer new-ness seem to be running out and they may not survive much longer, at least in their present guise, unless they too can evolve.
If collapse, disintegration or disappearance seem to present easy options, growth on the other hand is hard. Why do companies find it difficult to grow? Many of my small business colleagues blame two things.
One is the dearth of employable people. You don’t notice this so much in bigger organisations because overall performance doesn’t depend so heavily on one individual. Owner-managers typically complain that job seekers’ educational attainments fail to equip them for the real world, while competent employees seem too ready to set up in competition once they’ve been taught the ropes.
Another constraint to the growth of small businesses is over-regulation. While Kenya’s business environment was formerly relatively liberal, an avalanche of legislation coupled with predatory taxes and levies (think KEBS, NEMA) has created a fiscal disincentive to growth.
Kenya’s service industry is further hamstrung by a punitive 10% withholding tax, which means that the government makes profit from your hard work before you do. Bigger businesses suffer from something I call ‘growth aversion’.
They produce a strategic plan, maybe even shout about it and then consign it to the bottom drawer because implementation is beyond them. The document becomes the strategy, whereas it’s action that really counts.
“We have a ‘strategic’ plan”, claimed Herb Kelleher, founder and former CEO of the acclaimed Southwest Airlines.
“It’s called doing things.” But the ultimate reason for consigning East African businesses to the third league is that we inhabit such a tiny marketplace. The collective GDP of the whole of the East African bloc, plus oil-rich Sudan, is still less than half of Greece, a country considered to be the basket case of Europe.
In other words, there are simply not enough customers to go round. The sooner we get unfettered access to the whole of Africa, the better.
Steve Shelley has run TACK Internal in East Africa for more than 25 years. His mission, he says, is to drive business performance onto a whole new level.
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