management thinkers

Principles of Management: Project 1 Management Thinkers and Companies

© 2005 Aditya Anupkumar

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Principles of Management:

An Analysis of the contributions of various thinkers to the field of Management,

and a review of the management practices of five companies.

#3 Aditya Anupkumar



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Section I: Management Thinkers



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Henri Fayol (1841-1925): Principles of Management

One of the first persons to sit down and try to work out what managers do (and

what they should do) was a Frenchman called Henri Fayol. Fayol was a mining engineer

who became the managing director of an ailing coal mining firm and turned it into a

highly successful coal and steel business. All this took place between 1888 and 1918,

when he retired. In 1916, after many years of thinking about the job of the manager, he

published a small book called General and Industrial Management.

Henry Fayol was years ahead of his time in linking strategy and organizational

theory and in emphasizing the need for management development and the qualities of

leadership. Igor Ansoff, in Corporate Strategy (1965) said that Fayol ‘anticipated

imaginatively and soundly most of the more recent analyses of modern business

practice,’ although Peter Drucker in his great compendium Management: Tasks,

Responsibilities and Practice (1973), criticized the application of Fayol’s functional

approach to larger and more complex organizations than the one he knew and managed.

Oddly enough, it was years before a translation appeared in English, even though

it contains a great deal of wisdom and sense.

Part of the book deals with the ‘elements’ or ‘functions’ of management, and

Fayol identifies five such functions. They are:

• Forecasting and Planning

• Organizing

• Command

• Co-ordination

• Control

It is important to appreciate what Fayol meant by these five functions:

• Forecasting and Planning is looking ahead, examining and making provision

for the future, and drawing up a plan of action. Failure to plan signifies

managerial incompetence.



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• Organizing is in building up the structure of the business/undertaking, and

providing it with everything it needs to operate (equipment, materials, finance,

people) and includes management training as a key part in it.

• Command is how organizing gets achieved; in a nutshell, it is directing and

maintaining activity among your personnel.

• Co-ordination is binding together, unifying, and harmonizing activities and

efforts for successful results.

• Control is seeing that everything occurs in conformity with established rule

and expressed command…

The first and last functions—planning and control—are immediately recognizable

from the analysis that has just been carried out, and indeed there tends to be less

argument generally about these two functions than about others.

Organizing is, of course, similar to planning in that it is concerned with

preparation for some future events. But whereas planning is the more glamorous activity

of deciding on the overall future direction of the business, organization is that tough,

demanding business of putting together the elements in such a way that the overall plans

succeed.

Command is seen as the function that actually makes things happen. It is really

derived from military practice, and no doubt in Fayol’s time all employees in

organizations responded to command. The very word suggests ‘ordering about’ and has

been the subject of a great deal of debate and argument. Fayol did not really intend it to

be taken in a very narrow sense, but rather in the sense of making sure that things get

done—the actual operations of the organization. As a result, all kinds of substitute words

have been used in its place—like ‘direction’ and (horribly) ‘actuating’.

The fifth function of management in Fayol’s view is that of co-ordination. It is

concerned with harmony, with making sure that all the bits work together, and, like an

orchestra under its conductor, play the same tune. This is the only function that does not

seem easily to stand on its own and will be found to be part of planning, of organizing, of

control, and the key to successful operations themselves.

An organization, therefore, begins with a strategic plan or definition of goals,

progresses to a structure to put that plan into action, is carried forward by controlled



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activity between manager and workforce, has the work of its disparate departments

harmonized by coordinated management and, finally, is subject to checks on the

efficiency of its working, preferably by the independent ‘staff’ departments separate from

the functional departments.

The five functions of management have been adequately discussed, but there are

two other aspects of management that Fayol mentioned that must be looked at separately.

Fayol believed that a manager obtained the best performance from his workforce

by leadership qualities, by his knowledge of the business and his workers, and by the

ability to instill sense of mission.

From his own long experience in Industry, Fayol identified fourteen General

Principles of Management, or guidelines, and he emphasized that these are not rigid but

have to be adapted to suit the particular needs of the situation.

1. Division of work—with specialization allowing individuals to build up skills

and become more productive. ‘The objective of division of work is to produce

more and better work with the same effort.’

2. Authority—both official and personal, and matching responsibility.

‘Generally speaking, responsibility is feared as much as authority is sought

after, and fear of responsibility paralyzes much initiative and destroys many

good qualities. A good leader should possess and infuse into those around him

courage to accept responsibility’

3. Discipline—‘in essence, obedience, application, energy, behavior and

outward marks of respect observed in accordance with the standing

agreements between the firm and its employees… when a defect in discipline

is apparent or when relations between superiors and subordinates leave much

to be desired… the ill mostly results from the ineptitude of leaders.

4. Unity of Command—each man should have only one boss with no

conflicting lines of command. ‘In all human associations, in industry,

commerce, army, home, State, dual command is a perpetual source of

conflicts…’

5. Unity of direction—‘one head and one plan for a group of activities having

the same objective. It is the condition essential to unity of action, coordination

of strength, and focusing of effort.’



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6. Subordination of individual interests to general interests, reconciling

conflicting interests where necessary—‘that represents one of the great

difficulties of management.’

Means of affecting it are (1) firmness and good example on the part of the

superiors (2) agreements as fair as possible (3) constant supervision.

7. Fair Remuneration for effort—‘every mode of payment likely to make the

personnel more valuable and improve its lot in life, and also to inspire

keenness on the part of employees at all levels, should be a matter for

managers’ constant attention.’

8. Centralization or decentralization—the choice to depend on the condition of

the business and the culture of its staff. ‘The finding of the measure which

shall give the best overall yield; that is the problem of centralization or

decentralization. Everything which goes to increase the importance of the

subordinate’s role is decentralization; everything which goes to reduce it is

centralization.’

9. The scalar chain or hierarchical principle of management—a path ‘dictated

both by the need for some transmission and by the principle of unity of

command, but it is not always the swiftest… it is an error to depart needlessly

from the line of authority but an even greater one to keep to it when detriment

to the business ensues… when an employee is obliged to choose between the

two practices, and it is impossible for him to take advice from his superiors,

he should be courageous enough and feel free enough to adopt the line

dictated by the general interest.’

10. Order, both managerial and social—‘Social order demands a precise

knowledge of the human requirements and resources of the concern and a

constant balance between these.’ In terms of managerial order—‘a place for

everything and everything in its place’, e.g. the organization chart and

statement of areas of responsibility

11. Equity in the treatment of employees—‘the head of the business should strive

to instill a sense of equity throughout all levels of the scalar chain.’—i.e.

kindliness and justice by managers help to produce loyalty from staff



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12. Stability of tenure among personnel—‘generally the managerial concern of

prosperous personnel is stable, that of unsuccessful ones is unstable.

Instability of tenure is at one and the same time cause and effect of bad

running. Nevertheless, changes of personnel are also a question of

proportion.’

13. Initiative—‘thinking out a plan and ensuring its success is one of the keenest

satisfactions for an intelligent man to experience. It is also one of the most

powerful stimulants of human endeavor… the initiative of all, added to that of

the manager and supplementing it if need be, represents a great source of

strength for business… the manager must be able to sacrifice some personal

vanity in order to grant this sort of satisfaction to subordinates.’

14. A sense of Esprit de corps—essential for management to foster the morale of

its workforce. ‘Real talent is needed,’ said Fayol, ‘to coordinate effort,

encourage keenness, use each person’s abilities, and reward each one’s merit

without arousing possible jealousies and disturbing harmonious relations.’

Qualities needed in a manger:

• Physical: healthy, vigorous;

• Mental: ability to understand and learn, judgment, mental vigor, adaptability;

• Moral: firmness, acceptance of responsibility, initiative, loyalty, tact;

• General Education: good general knowledge;

• Special Knowledge: for the work;

• Experience

Fayol also stressed on the importance of managerial training, ‘steady, methodical training

of all employees at all levels’, and made the point that a manager should not ignore his

responsibility for his own training.



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Elton Mayo (1880-1949): Human relations in industry and respect for individuals

Australian-born Mayo is regarded as the founder, of Industrial sociology,

particularly the ‘Human Relations Movement,’ based on his discoveries in the

Hawthorne Experiments of 1927-32 of what really motivates workers to higher

performance.

A graduate of Adelaide University and a medical student in London and

Edinburgh, Mayo taught mental and moral- philosophy at the University of Queensland

between 1911 and 1919. In 1923 he immigrated to the United States, where he worked

first on a three-year research project at a Pennsylvania textile mill, prior to joining

Harvard University, as associate professor of industrial research in 1926.

Mayo spent most of his career at Harvard, ending up as professor of industrial

research in the Graduate School of Business Administration. He was also a consultant on

industrial problems to the postwar British Labor government led by Clement Attlee.

Elton Mayo's most important finding was to identify the roots of work

‘satisfaction as non-economic and to connect them more with the interest taken in a

worker's performance than with financial reward. In this, he reversed the emphasis on the

incentive of monetary reward which had been the conventional wisdom ever since the

writings of F. W. Taylor. Workers rejected 'Taylorism,' Mayo explained, because in spite

of its aids to efficiency it was basically an imposed system, not one that took account of

the employees' own views.

The vital importance of management-worker communication, a key Mayo

discovery, laid the foundation for the work of many later management thinkers and

writers, including Peters and Waterman (In Search of Excellence) and the 1950s school of

sociologists headed by Chris Argyris, Frederick Herzberg and Abraham Maslow.

The Hawthorne Experiments with which Mayo's name is forever linked were

named after Western Electric's Hawthorne Works in Chicago. They ran from 1927 to

1932 under Mayo's leadership (and a further five years after that), and were conducted by

a team of Harvard scientists and between 75 and 100 investigators working with 20,000

Western Electric employees.



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The experiments arose from an earlier series of tests by Western Electric which

had involved changes in working conditions and produced unexpected results in

employee performance. Two teams of workers took part in these tests, in which the

lighting conditions for one group only were improved. Production in that group rose

dramatically - but so it did in the group for which the lighting remained unchanged.

Mayo took these further, making as many as ten changes in working conditions such as

shorter hours, varied rest breaks and a number of incentives. Mayo's research team spent

a great deal of time with the work groups—each consisting of six women—discussing the

changes before they were put into effect. Output increased each time a change was made.

Yet when the teams were asked to return to their original working conditions, with a 48-

hour week, no incentives and no rest breaks, output rose again—indeed, to the highest

ever recorded at Hawthorne. Other significant results included a decline in absenteeism

of 80 per cent.

The only explanation, Mayo concluded in one of his later works, was that the employees

had gained enormously in work satisfaction by, the feeling that they were teams of

individuals, not cogs in a machine, and by the communication between researchers and

workers, leading to everyone feeling more valued and responsible for her performance

and that of the group as a whole. This sense of cohesiveness and self-esteem was more

important to performance than any number of improvements ill the working environment.

Although Mayo did not crystallize his findings until years after the Hawthorne

Experiments, a contemporary series of interviews in the Chicago works established an

equally important discovery: that worker-management conflict may often be due less to

the ostensible reasons for a dispute, such as tea-breaks or insufficient light, than to basic

emotional attitudes. Workers were ruled by the logic of sentiment, thought Mayo,

whereas managers were activated by the ‘logic of cost and efficiency.’ Thus, without

understanding the compromise, conflict was inevitable.

The ultimate importance of the Hawthorne experiments was their demonstration,

in Mayo's view; that the dour Taylorist philosophy of ‘self-interest was disproved: that

workers valued spontaneous cooperation and creative relationships among those with,

whom they worked, and would perform accordingly. ‘The desire to stand well with one's

fellows, the so-called human instinct of association, easily outweighs the merely



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individual interest and the logic of reasoning upon which so many spurious principles of

management are based,’ wrote Mayo in the Social Problems of an Industrial Civilization.

Mayo was not, however, against scientific management, for all that he debunked

Taylor's rigid application of it. ‘Observation - skill - experiment and logic—these must be

regarded as the three stages of advancement,’ he observed in the same book. Mayo

believed that his findings disproved what he called the ‘rabble hypotheses of society as ‘a

horde of unorganized individuals,’ each of whom ‘acts in a manner calculated to secure

his self-preservation or self-interest.’

Two later sociological writers, D. C. Miller and W. H. Form, developed eight

principal conclusions from Mayo's researches in their book Industrial Sociology, quoted

in J. A. C. Brown's The Social Psychology of Industry (1954):

(1) Work is a group activity.

(2) The social world of the adult is primarily patterned about work activity.

(3) The need for recognition, security, and sense of belonging is more important

in determining a worker's morale and productivity than the physical

conditions under which he works.

(4) A complaint is not necessarily an objective recital, of facts; it is commonly a

symptom manifesting disturbance of an individual's status position.

(5) The worker is a person whose attitudes and effectiveness are conditioned by

social demands from both inside and outside the work plant.

(6) Informal groups within the work plant exercise strong social controls over the

work habits and attitudes of the individual worker.

(7) The change from an established to an adaptive society . . . tends continually to

disrupt the social organization of a work plant and industry generally.

(8) Group collaboration does not occur by accident; it must be planned for and

developed. If group collaboration is achieved, the work relations within a

work plant may reach a cohesion which resists the disrupting effects of

adaptive society.

Another writer on industrial psychology in the 1950s, Gordon Rattray Taylor,

estimated from his observations of firms which had put similar principles into practice



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that by using such methods Britain could expand its national income by 50 per cent

within five years without additional capital investment, and that the price of many

manufactured goods could be reduced by a third. Needless, to say, the experiment has

never been carried out on a sufficiently wide scale to prove or disprove his theory.

Mayo's discovery of the importance of the peer group at work led/him to conclude

that within each formal organization existed many informal ones which could be

encouraged to greater productivity by being led to do it themselves, through interest and

respect on the part of their managers.

More profoundly, Mayo believed that by creating such an atmosphere of

spontaneous cooperation in industry, society at large should help to combat the postwar

collapse in traditional values. This, for him, remained one of the most important tasks

facing a manager. The whole Human Relations movement, as engendered by Mayo's

work, became concerned with discovering, through scientific research, how to harness the

motivation and commitment of individuals to corporate goals. .

Mayo's contribution to management thinking was seminal. It revealed the

importance, in hard bottom-line terms, of human emotions, reactions and respect to the

business of managing others. It also pioneered the whole concept of proper management-

worker communication—again a new idea because of the respect for the individual it

required between bosses and workers.

Management, Mayo demonstrated once and for all, could only succeed in leading

an organization's employees if the workers in their informal groups, accepted that

leadership without reservation. In his own words, Mayo identified the importance of the

Hawthorne findings as specifying, quite clearly, that the relation of working groups to

management was one of ‘the fundamental problems of large-scale industry. Organizing

teamwork—developing and

Sustaining cooperation—had to be a major preoccupation of management. Above all,

management needed to think less about what ‘we’ wanted to get across to ‘them’ than to

listen to what ‘they’ wanted to know and would be receptive to.

‘The human relations prescription, though rarely practiced, remains the classic

formula,’ wrote Peter Drucker in 1973. It is still too rarely practiced; though every

management pays lip service to it.



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W. Edwards Deming (1900-1993): The key to quality: reducing variation

US statistician and founding father of the quality movement, who was responsible,

with his fellow-American Joseph Juran, for instilling the quality philosophy into postwar

Japanese industry. The message had been rejected or ignored by American companies

and was only re-imported after Japanese manufacturing began its competitive march into

American markets.

Deming and Juran remain icons of Japanese industry, whose companies compete

annually for a Deming Prize, awarded since 1951 for major improvements in quality.

Both men were honored by the Emperor with the Order of the Sacred Treasure, second

class, the highest Japanese award ever given to foreigners.

Deming is regarded by the Japanese as the chief architect of their phenomenal

industrial success, but his home country only began to recognize him in 1980, as a result

of an NBC television documentary on Japanese industry called ‘If Japan Can, Why Can't

We’' Overnight, American industry discovered his existence. Now he is revered

internationally for his simple yet revolutionary principle that all processes are vulnerable

to loss of quality through variation: if the levels of variation are managed, they can be

decreased and quality raised.

After US industry finally woke up to Deming's theories, several large

corporations suffering intractable problems came to credit Deming as the key to their

revival; most notably Ford Motor Company in the early 1970s. Nashua Corporation in

New Hampshire, a Fortune 500 company making computer disks, copiers and other

office products, was one of the first Western companies to adopt Deming's principles.

Nashua subsequently managed to cut its order-entry lead times from eight days to one

hour and achieved a 70 per cent reduction in customer claims.

William E. Conway, Nashua's president and later chief executive officer, who

‘discovered’ Deming when the guru was 78, has called him ‘the father of the Third Wave

of the Industrial Revolution’ for the way in which he developed statistical control of

quality levels into a new way of managing business. ‘The Japanese manufacturers,

utilizing the statistical control of quality are sweeping the world in the second half of the

20th century, just as American manufacturers utilizing mass production swept the world

in the first half,’ said Conway.



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‘In the UK, Sir John Egan applied Deming principles to turning round the ailing

fortunes of Jaguar Cars in the early 1980s. Egan wrote of Deming's 1986 book Out of

the Crisis that it was ‘required reading for every chief executive in British industry who

is serious about ensuring the international competitiveness of his company’ (Director

Magazine, September 1988).

Deming, an electrical engineer by training (University of Wyoming, 1921) and a

Ph.D. in mathematical physics from Yale, worked for a time in the 1920s at the Western

Electric Hawthorne plant in Chicago where Elton Mayo carried out his famous

experiments in communication and motivation. Here Deming discovered the work of

Walter Shewhart, the pioneer of controlled and uncontrolled variables and the statistical

control of processes. He later became a statistician for the US government, working on

data for the national census of 1939/40. In 1942 he set up courses to teach Shewhart's

methods to industrialists and engineers. After the war he was invited to Japan by General

Macarthur to advise on the Japanese census. Contacts made then resulted in the

watershed invitation of 1950 which was to have such reverberating effects.

Deming's approach to quality control is basically that of a statistician (his

compatriot and fellow quality guru J. M. Juran has criticized him for it), but it is also

firmly rooted in the belief that quality is about people, not products—an approach which

made a particular impact on the Japanese. He also believes that 85 per cent of

production faults are the responsibility of management, not workers. The famous Deming

‘Fourteen Points’ of management are at the heart of his philosophy.

In 1950, when W. Edwards Deming made his first visit to Japan, the country was

still recovering from the atomic bombing raids of August 1945. The economy was

struggling to stand upright, much less move ahead, and Japanese goods still suffered from

their prewar reputation for shoddiness.

Deming embarked on an exhausting series of lectures to engineers, from 8am to

5pm day after day in punishing heat. ‘I was dripping wet by 8.30am,’ he recalled in the

BBC2 television series Nippon. ‘The Japanese appreciated it. They were sorely afraid that

they had established a reputation for shoddy quality and that they could never undo it. I

assured them that it would take only a short while to undo that reputation and develop a

new one. ‘I think I was the only man in Japan in 1950 who believed my prediction—that



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within five years manufacturers the world over would be screaming for protection. It took

four years.’

The core element in this apparent miracle was the ‘management circle’—still known in

Japan as the ‘Deming circle’—of planning, implementation, check and action. Above all,

it rested on the belief in ‘Management for Quality’ (Deming uses this term where Juran

'brands' his approach as 'Company-Wide Quality'.)

Deming’s basic management philosophy, as impressed on his eager Japanese

audiences, was to regard the consumer as ‘the most important part of the production line.’

Developing this in Out of the Crisis (1984), he insisted that merely having a satisfied

customer was not enough. ‘Profit in business comes from repeat customers, customers

that boast about your product and service, and that bring friends with them.’

Deming also teaches the necessity of staying ahead of the customer, anticipating

what his needs will be in years to come.

His Fourteen Points for management were developed over some twenty years and

are still being refined and re-worded by the master. Henry Neave, author of The Deming

Dimension (SPC Press, Knoxville, 1990), explains that they are not instructions or

techniques, but rather ‘vehicles for opening up the mind to new thinking, to the

possibility that there are radically different and better ways of organizing our businesses

and working with people.’

These, as quoted in Neave's book and Deming's own words, are the basic Fourteen

Points:

1. Create constancy of purpose for continual improvement of products and

service.

2. Adopt the new philosophy created in Japan.

3. Cease dependence on mass inspection: build quality into the product in the

first place.

4. End lowest-tender contracts; instead, require meaningful measures of quality

along with price.

5. Improve constantly and forever every process for planning, production and

service.

6. Institute modern methods of training on the job for all, including management.

7. Adopt and institute leadership aimed at helping people to do a better job.



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8. Drive out fear, encourage effective two-way communication.

9. Break down barriers between departments and staff areas.

10. Eliminate exhortations for the workforce - they only create adversarial

relationships.

11. Eliminate quotas and numerical targets. Substitute aid and helpful leadership

12. Remove barriers to pride of workmanship, including annual appraisals and

Management by Objectives.

13. Encourage education and self-improvement for everyone

14. Define top management's permanent commitment to ever-improving quality

and productivity, and their obligation to implement all these principles

The Fourteen Points are comprehensively expounded, chapter by chapter, in The

Deming Dimension, a fascinating exposition of the guru's work and its development since

publication of Out of the Crisis.

Deming himself has said: ‘If I had to reduce my message for management to just

a few words, I’d say it all had to do with reducing variation’



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Joseph M Juran (b. 1904): Company-wide quality cannot be delegated

US electrical engineer born in Romania, worked contemporaneously with W.

Edwards Deming on pioneering the quality management revolution that began in

postwar Japan. Ironically, no industrialist in the US was interested in the theories of

Deming and Juran - the production mentality ruled at the time - until Japanese

manufacturing, practicing the quality philosophy, began driving American products to

the wall.

By coincidence, bath Deming and Juran had became interested in the techniques

of assuring quality in manufacturing based an statistical control while working in the

1920s at Western Electric, the manufacturing division of Bell Telephone System. Juran

joined Western in 1924, three years before the famous Elton Mayo experiments at

Western's Hawthorne plant in Chicago, which revolutionized thinking about motivation

and the human element in industry.

Juran then joined the manufacturing side of AT&T in the 1920s. He became a

corporate industrial engineer and later branched out as a quality consultant.

Juran established his reputation in 1951 with the publication of his Quality

Control Handbook, the first manual of its kind. The Japanese, who had already absorbed

Deming's lessons to the extent of instituting a Deming Prize that year, invited Juran to

Tokyo in 1953 for a series of lectures. In the early 1980s his contribution to Japanese

quality achievements was recognized with the award of the Order of the Sacred Treasure,

second class, an honor also conferred on Deming.

Since 1954 he has preached his gospel in Japan and claims some of the credit for

turning round Japan's initially poor reputation for quality: His ‘Management of Quality’

courses have been attended by more than 20,000 managers in over 30 countries. As a

consultant, his clients include Texas Instruments, Du Pont, Monsanto, Xerox, Motorola

and the Internal Revenue Service.

Juran’s principal contribution to quality management thinking is his methodology

for determining the avoidable and the unavoidable costs of quality, thus providing a

yardstick for measuring the cost of a quality programme.



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Juran has devised a structured concept known as CWQM - Company-Wide

Quality Management. He believes it absolutely essential for senior managers to involve

themselves, to define the goals, to assign responsibilities and to measure progress.

Quality, Juran teaches, cannot be delegated.

Like other management thinkers - notably Peter Drucker, Charles Handy and

Rosabeth Moss Kanter - Juran has developed a vision of the future corporation, in which

he sees quality targets being incorporated in business plans as routinely, as targets for

sales, profits, return on capital and earnings per share. Like Moss Kanter, Juran sees

greater 'empowerment' of the workforce as a key - in this case to achieving quality

through self-organization and self-supervision. For Juran, quality has always been

indissolubly linked with human relations and teamwork.

Joseph M. Juran and W. Edwards Deming are so closely linked - by age, experience and

their part in the Japanese economic miracle, that it is sometimes hard to differentiate their

contribution. Juran himself has set out to develop Company-Wide Quality Management

into a full-blown corporate philosophy, and has criticized the Deming approach for being

more at home with statistics than with management.

Juran’s approach is heavily oriented towards the human side of achieving quality,

and he has praised the Japanese use of quality circles for their effect on human relations

in the workplace, while acknowledging that QCs have accounted for less than ten per

cent of Japan’s improvement in quality.

The Juran methodology has most recently been laid out in Juran on Planning for

Quality (1988), which sets out to demonstrate how quality planning affects different

levels of quality planning, quality management and quality improvement—by which

managers learn how to implement strategic quality planning across the company.

Key elements include: identifying customers and their needs; creating

measurements of quality; planning processes that are capable of meeting quality goals

under operating conditions; producing continuing improvements in market share and

premium prices and in reducing the error rate.

The book emphasizes the universal application of quality commitment throughout

an organization—to all products, both goods and services; to all corporate levels from

CEO downwards; to all corporate functions from general management to product

development; and to all industries, in both manufacturing and service sectors.



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Peter Drucker (b.1909): Primary tasks for effective managers

The management guru’s management guru… Born in Vienna during the heyday of

that city’s pre-1914 culture, Drucker has invented or prefigured most of the leading

management theories of the last half century, from “Management by Objectives” to

privatization; from putting the customer first to the role of the chief executive in

corporate strategy; from “structure follows strategy” to “stick to the knitting”, from

decentralization to the implications of the information age.

His five basic principles of management remain as valid as ever: setting

objectives, organizing, motivating and communicating, establishing measurements of

performance and developing people.

Tom Peters, whose co-authored book In Search of Excellence developed many of

Drucker’s ideas, says the Viennese sage deserves much of the credit for “moving 75 to

80 percent of the Fortune 500 to radical decentralization,” adding that no true

“discipline of management” existed before Drucker.

For many years a pillar of New York University Business School, Drucker since

1971 has been Clarke Professor of Social Science at Claremont Graduate School,

Claremont California. He is still writing prolifically in his eighties, adding to the 24-odd

books he has published since The End of the Economic Man appeared in 1939. They

divide almost equally between works on management theory and technique and works of

economic, political and social analysis. Many of the latter are seminal works which

mapped out whole landscapes of the future with much wider horizons than those bounded

by management. Philip Sadler, vice-president and former director of Ashridge

Management College, found his thinking entirely changed by Drucker’s 1969 book The

Age of Discontinuity, which for Sadler pointed clearly to the coming decline of Britain’s

manufacturing industry.

This book, still well worth study, prefigured many of the business best-sellers of

the late 1980s and early 1990s on managing chaos and disruptive change. Drucker’s

books have anticipated those of Charles Handy, Tom Peters, and Richard Pascale, to

name only three. In some of its ideas, The Age of Discontinuity was 20 years ahead of

John Naisbitt’s Megatrends and Charles Handy’s The Age of Unreason.



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It was in The Age of Discontinuity, incidentally, that Drucker introduced the

concept of privatization, though he called it “re-privatization”. He accurately forecasted

the disillusionment with government arising from the discovery that governments could

now, after all, produce miracles. “There is little doubt, for instance, that the British in

adopting the National Health Service believed that medical case would cost nothing …

Nurses, doctors, hospitals, drugs, and so on have to be paid for by somebody. But

everybody expected this “somebody” to be somebody else.”

Drucker advocated privatization on the grounds that the purpose of government

was to govern, not to “do”, and that the two roles were incompatible. His vision, unlike

the Conservative Party’s realization of it, was for privatization to cover all institutions,

not merely business ones—universities, for example.

A year or so after publication of The Age of Discontinuity, the word

“privatization” made its first appearance in a Conservative Central Office pamphlet in

May 1970 (“A New Style of Government”), crediting Drucker with the coinage.

The son of an Austrian government official who helped found the Salzburg

Festival, Drucker came to Britain in the late 1920s, and his first job was as an apprentice

clerk in a Bradford wool exporting firm, working with a quill pen in 80-ound brassbound

ledgers chained to the desk. Between 1933 and 1936 he worked as an economist in a

London merchant bank and then decided to throw in his lot with the United States. He

immigrated to the US in 1937, produced his first book two years later and in 1942 took a

consultant’s job with General Motors, then the world’s largest company.

Out of this experience came his influential 1946 book Concept of the

Corporation, still one of the best and most perceptive analyses if the successful large

organization. As well as General Motors, other companies studied in the book were

General Electric, IBM, Sears Roebuck, and Drucker identified their success with certain

managerial characteristics, notably delegation and goal=setting (Management by

Objectives) and certain structural characteristics, such as decentralization.

Drucker believed that the ultimate key to success in all these companies was that

“they knew what businesses they were in, what their competencies were and how to keep

their efforts focused on their goals.” (Organization Theory, ed. D.S. Pugh) Nearly 30

years later, Peters and Waterman reached much the same conclusion, set out in more

populist style, in their best-seller In Search of Excellence.



20

Concept of the Corporation also analyzed the importance of marketing—at that

time an almost universally neglected function—and the delicate balance which a

company mush seek to achieve between long-term strategy and short-term performance.

Drucker figures in more management-book indexes than any other individual by

far. In Makers of Management, by David Clutterbuck and Stuart Crainer, he rates no

fewer than 40 separate page references.

Peter Drucker’s reputation as a management guru was established with The

Practice of Management (1954), a work still regarded by later theorists as one of the best

and clearest in the field. In this, he identified management by objectives as the first of

seven primary tasks of management. MBO, dignified with capital letters, became a

movement of its own, and Britain’s John Humble made a speciality of developing its

theory and practice.

Management by Objectives emerged out of Drucker’s work with General Electric

among his studies for Concept of the Corporation. Each GE managed was responsible for

a profit center and given targets to achieve—seven percent return on sales and 20 percent

return on Investment. These were severely applied; you lost your job if you didn’t meet

them.

Drucker perceived that, since businesses survive or fall by the bottom line

corporate goals should be divided into objectives and clearly assigned to units and

individuals. “Management by Objectives,” as Richard Pascale observes in Managing on

the Edge, “ensures that each link in the chain of command does its part…”

A subsequent handbook, Managing for Results (1964) is, in Drucker’s own

words of introduction, a “what-to-do book.” It was, he believed, “the first attempt at an

organized presentation of the economic tasks of the business executive and the first

halting step towards a discipline of economic performance in business enterprise.” It sets

out in clear, no-nonsense prose, guidelines for understanding business realities and for

analyzing a company in terms of revenues, resources, prospects, cost centers, customer

needs, building on strengths, finding potential, making key decisions, and building

strategies for the future. It is still one of the best practical vade mecums for anyone

running a business enterprise. Drucker believes that every three years or so a company



21

should be put under the microscope and every product, process, technology, service or

market subjected to a grueling assessment.

Throughout his work, Drucker’s emphasis has been on the effectiveness of

managers—particularly in making good use of their human resources—as key to a

productive and profitable organization. Management, says Drucker, is the job of

organizing resources to achieve the satisfactory performance of an enterprise. Managers

must in the end be measured by their economic performance, though this is not

necessarily synonymous with maximum profits; rather, with sufficient profit that will

cover the risks which have been taken, and to avoid the enterprise making a loss.

Management by objectives is the key to this.

Drucker has sometimes been criticized for neglecting theories of motivation,

though he was one of the first to recognize and praise Douglas McGregor’s Theory Y of

consultative management as early as 1954.

Drucker’s emphasis on objective-setting for management is most clearly set out in

his mammoth compendium Management: Tasks, Responsibilities and Practices (1973).

This represents an encyclopedia of his earlier writings and is recommended as the

bedrock of any aspiring manager’s reading list. Studded with illuminating case studies,

the massive volume (weighing 3 ½ pounds in hardback) defines every aspect of

managerial skills and pinpoints eight areas where clear objectives are vital: marketing,

innovation, human organization, financial resources, physical resources, productivity,

social responsibility, and profit requirements. A thorough grounding in this vast work is

virtually the equivalent of a do-it-yourself business-school course.

Shortly before it was published, Drucker had defined his broad view of

management in People and Performance (1973): “To fulfill the specific purpose and

mission of the organization to make work productive and the worker achieving; and to

manage the social impacts and responsibilities”

In Management: Tasks, Responsibilities, Practices, he identified five basic

operations in the work of the manager, which together “result in the integration of

resources into a viable growing organism.” These summarize the essentials of

management with more clarity than any other book before or since:

“A manager, in the first place, sets objectives. He determines what the objectives

should be. He determines what the goals in each area of objectives should be. He decides



22

what has to be done to reach these objectives. He makes the objectives effective by

communicating them to the people whose performance is needed to attain them.

“Second, a manager organizes. He analyses the activities, decisions and relations

needed. He classifies the work. He divides it into manageable activities and further

divides it into manageable jobs. He groups these units and jobs into an organization

structure. He selects people for the management of these units and for jobs to be done.

“Next, a manager motivates and communicates. He makes a team out of the

people that are responsible for various jobs. He does that through the practices with

which he works. He does it in his own relations to the men with whom he works. He does

it through his “people decisions” on pay, placement and promotion. And he does it

through constant communication, to and from his subordinates and to and from his

superior, and to and from his colleagues.”

“The fourth basic element in the work of the manager is measurement. The

manager establishes the yardsticks—and few factors are as important to the performance

of the organization and of every man in it. He sees to it that each man has measurements

available to him which are focused on the performance of the whole organization and

which, at the same time, focus on the work of the individual and help him do it. He

analyses, appraises and interprets performance. As in all other areas of his work, he

communicates the meaning of the measurements and their findings to his subordinates, to

his superiors and to colleagues.”

“Finally, a manager develops people, including himself.”

Taking a historical perspective, Drucker has since identified seven key elements in

postwar management development:

(1) Scientific management of work as the key to productivity;

(2) Decentralization as a basic principle of organization;

(3) Personnel management as the orderly way of fitting people into organization

structures;

(4) Manager development to provide for the needs of tomorrow;

(5) Managerial accounting—use of analysis and information as the foundation for

firm decision-making;

(6) Marketing;



23

(7) Long-range planning.

In recent years, Drucker’s books have included Innovation and Entrepreneurship

(1985), a typically wide-ranging study of growth sectors of the US Economy in the early

1980s, including many businesses not normally considered as suck: private health care,

for example, non-profit-making private schools and public/private partnerships in which

government units contract out services to competitive private companies. The New

Realities (1989) ranged over a global stage, anticipating the development of such

contemporary phenomena as the transnational economy, the democratization of the

Soviet Republics, the changing ethos of the United States and the demands of a post-

industrial, post-business society.

Drucker’s breadth of vision, and eclectic range of publications spring from his

belief that management is central to life; not merely to business… One of his recurring

concepts is that of the Chief Executive as conductor of an Orchestra. As he says, “We are

beginning to realize that management itself is the central institution of our present

society, and that there are very few differences between managing a business, managing a

diocese, managing a research lab, managing a labor union, managing a hospital,

managing a university, or managing a government agency. All along, this has been the

main thrust of my work, and one that distinguishes it from practically all my

contemporaries working in the field.”

Rosabeth Moss Kanter views his goals as even more embracing. In an article in

New Management (winter 1985), she wrote: “Good management is also our best hope for

world peace. In the Drucker perspective, imperatives for growth push organizations

beyond national borders in the search for new markets. The world becomes inter-

connected by a series of cross-cutting trade relationships in which the interests of

managers in the survival of their multinational enterprises outweigh the interests of

politicians. Quality of life, technological progress, and world peace, then, are all the

products of good management… at root, Drucker is a management utopian, descended as

much from Robert Owen as Max Weber.”

To Drucker, the business organization, as any organization, is “a human, a social,

indeed a moral phenomenon.” Customer service rather than profit should dominate



24

management thinking, profit being the means of continued investment in innovation and

improvement.

“Contrary to the approach to the study of political and social organization that has

prevailed in the West since Machiavelli, I stressed all along that organization does not

deal with power but with responsibility. This is the keynote of my work that has remained

constant over more than 40 years.”

Drucker sums up his own vast contribution to management thinking in these

words, quoted in Makers of Management (Clutterbuck and Crainer):

“I was the first one to see that the purpose of a business lies outside of itself—that

is, in creating and satisfying a customer. I was the first to see the decision process as

central, the first to see that structure has to follow strategy, and the first one to see, or at

leas the first to say, that management has to be management by objectives and self-

control.”



25

Michael E. Porter (b. 1947): Strategies for competitive advantage, both national and

international.

Michael E. Porter is the Bishop William Lawrence University Professor, based at

Harvard Business School. A University professorship is the highest professional

recognition that can be awarded to a Harvard faculty member. Michael Porter is the

fourth faculty member in Harvard Business School history to earn this distinction, and is

one of about 15 current University Professors at Harvard. In 2001, Harvard Business

School and Harvard University jointly created the Institute for Strategy and

Competitiveness, to further Michael Porter’s work.

Michael Porter, the author of 17 books and over 125 articles, is a leading

authority on competitive strategy and the competitiveness and economic development of

nations, states, and regions. He received a B.S.E. with high honors in aerospace and

mechanical engineering from Princeton University in 1969, where he was elected to Phi

Beta Kappa and Tau Beta Pi. He received an M.B.A. with high distinction in 1971 from

the Harvard Business School, where he was a George F. Baker Scholar and a Ph.D. in

Business Economics from Harvard University in 1973.

Porter joined the Harvard faculty at the age of twenty six after earning his Ph.D.

Books such as Competitive Strategy, and the Competitive Advantage of Nations analyze

various factors of strategy,--corporate and governmental/trans-national

Teaching

Michael Porter's ideas on strategy have now become the foundation for the

required strategy course at the Harvard Business School, and his work is taught in

virtually every business school in the world. Michael Porter’s primary course for Harvard

graduate students is a University-wide course, Microeconomics of Competitiveness,

which is taught not only at Harvard but at 56 other universities around the world using

video content and instructor support developed at Harvard. Michael Porter also created

and chairs Harvard's program for newly appointed CEOs of billion dollar corporations.



26

Michael Porter speaks widely on competitive strategy, competitiveness, and

related subjects to business and government leaders throughout the world.

Research on Strategy

Michael Porter’s core field is strategy, and this remains a primary focus of his

research. His book, Competitive Strategy: Techniques for Analyzing Industries and

Competitors, was his first book-length publication on strategy. The book is in its 58th

printing and has been translated into 17 languages. His second major strategy book,

Competitive Advantage: Creating and Sustaining Superior Performance, was published

in 1985 and is in its 34th printing. His book On Competition (1998) includes a series of

articles on strategy and competition, including his Harvard Business Review article 'What

is Strategy?' (1996). 'Strategy and the Internet' was published in 2001.

Competitiveness of Nations and Regions

Michael Porter's 1990 book The Competitive Advantage of Nations was motivated

by his appointment by President Ronald Reagan in 1983 to the President's Commission

on Industrial Competitiveness. This book kicked off his second major body of work,

which addresses competitiveness and economic development. The book presents a new

theory of how nations, states, and regions compete, and their sources of economic

prosperity. It was followed by an extensive body of publications on the influence of

locations on competition, with a special focus on the role of clusters. These ideas have

guided economic policy throughout the world.

National Competitiveness: Building on The Competitive Advantage of Nations,

Michael Porter has published books about national competitiveness on New Zealand,

Canada, Sweden, and Switzerland. Most recently, his book Can Japan Compete? (2000)

challenges long-held views about the sources of Japan's economic miracle and offers a

new path for that nation's future. It was selected as one of the top three non-fiction books

of 2000 by The Economist.

Michael Porter co-chairs the Global Competitiveness Report, an annual ranking of

the competitiveness and growth prospects of more than 100 countries released by the

World Economic Forum.



27

Clusters: Michael Porter’s ideas on clusters, first introduced in 1990, have given

rise to a large body of research on new cluster-based economic development approaches

and hundreds of public-private cluster initiatives throughout the world. Michael Porter’s

research on clusters is summarized in “Clusters and Competition: New Agendas for

Companies, Governments, and Institutions” in On Competition (1998) and other

publications listed in his curriculum vitae.

Regional Competitiveness: Michael Porter has extended his work on

competitiveness to sub-national regions. He led the Clusters of Innovation project (2001-

2002) which studied five major U.S. regions, developing new theory, new sources of

data, and new methodologies for fostering innovation and prosperity in regional

economies. Growing out of this research, the Harvard Cluster Mapping Project was

developed and provides rich data on the economic geography of U.S. regions and clusters

from 1990 to 2002. The Cluster Mapping Project has over 7,900 registered users. His

article ‘The Economic Performance of Regions’ (2003) summarizes some of the

important findings.

Michael Porter has led studies on the role of private capital investment in

competitiveness, including Capital Choices (1992) and Lifting All Boats (1995). He has

also written on competition policy, including 'Competition and Antitrust: Towards a

Productivity-based Approach to Evaluating Mergers and Joint Ventures' (2002).

Competition and Society

Michael Porter's research on economic development gave rise to his third major

body of work: the relationship between competition and society.

Inner Cities: Michael Porter has conducted extensive research on economic

development in America's distressed inner city areas, beginning with the Harvard

Business Review article 'The Competitive Advantage of the Inner City'. In 1994, he

founded The Initiative for a Competitive Inner City (ICIC), a non-profit, private-sector

organization to catalyze inner-city business development across the country. Michael

Porter is Chairman and CEO of the ICIC, a national organization with a staff of more

than 40 professionals. The ICIC has conducted extensive research and practiced

extensively in this field, and a bibliography of work is available on the organization’s

website.



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Environment: Michael Porter has examined the relationship between

competitiveness and the natural environment. His Scientific American essay 'America's

Green Strategy', showed that economic competitiveness and environmental improvement

could and should be complementary. This essay triggered a body of literature and new

policy thinking, including publications by Michael Porter: ‘Green and Competitive’

(1995), 'Toward a New Conception of the Environment-Competitiveness Relationship'

(1995), and 'National Environmental Performance Measurement and Determinants'

(2002).

Philanthropy: Michael Porter has devoted growing attention to philanthropy and

especially the role of corporations in society. His Harvard Business Review article with

Mark Kramer, 'Philanthropy's New Agenda: Creating Value' (1999), offers a new

framework for developing strategy in foundations and other philanthropic organizations.

He co-founded the Center for Effective Philanthropy, an organization dedicated to

creating concepts and measurement tools to improve foundation performance.

Michael Porter’s Harvard Business Review article, 'The Competitive Advantage of

Corporate Philanthropy' (2002), addresses how corporations can create more social

benefit by integrating their philanthropy with their business context. A forthcoming

article tackles the strategic underpinnings of corporate social responsibility.

Health Care: Recently, Michael Porter has devoted considerable attention to

competition in health care and the reform of the U.S. health care system. His article with

Elizabeth Teisberg, ‘Redefining Competition in Health Care’ (2004), has stimulated a

national dialog. His joint book with Teisberg, Redefining Health Care (Harvard Business

School Press) is due to be published in September 2005.

The very words “competitive strategy” or “competitive advantage” are enough to

identify Michael Porter wherever management gurus gather. Some critics claim that his

ideas for analyzing markets and industries are based on old economic theories, and Porter

himself has acknowledged his debt to Joseph A Schumpeter, among others, in The

Competitive Advantage of Nations. What he does brilliantly, however, is to package and

simplify analytical models that would otherwise be dauntingly difficult for most working



29

businessmen to understand. His seminars, in particular, are as lively as those of Tom

Peters.

On joining the Harvard faculty, Porter was among the first to project corporate

strategy in marketplace terms rather than as a theoretical concept linking various

functions in an organization.

His basic tool for managers seeking to analyze their own company’s competitive

position employs five factors or forces that drive competition:

(1) Existing rivalry between firms

(2) The threat of new entrants to a market

(3) The threat of substitute products and services

(4) The bargaining power of suppliers

(5) The bargaining power of buyers.



30

He then identifies five generic descriptions of industries: fragmented, emerging,

mature, declining, and global.

Porter says a firm may possess two kinds of competitive advantage: low cost or

differentiation. “Competitive advantage is a function of either providing comparable

buyer value more efficiently than competitors (low cost), or in performing activities at

comparable cost but in unique ways that generate more buyer value than competitors and,

hence, command a premium price (differentiation).”

Firms that operate in a number of different countries can locate processes where

the best advantage lies—e.g. low labor costs, or proximity to vast markets like Japanese

firms based in the UK—but at the same time, Porter argues, the most competitive ones

come from home bases that are themselves strong and competitive. This sharpens up the

instinct to succeed and provides valuable “cluster” support from equally successful linked

industries that act as buyers and suppliers.

This theory, developed over several books and numerous articles, reaches its full,

flowering in The Competitive Advantage of Nations, which takes as its key a “diamond”

of factors that makes some nations (and consequently their industries) more competitive

than others.

The four points of this diamond are:

(1) Factor conditions: the nation’s position in factors of production (such as

skilled labor or infrastructure) necessary to compete in a particular industry.

(2) Demand Conditions: the nature of home demand for the industry’s product or

service and how discriminating it is.

(3) Related and supporting industries” the presence or absence of supplier

industries and related industries that are internationally competitive

themselves.

(4) Company strategy, structure, and rivalry: the conditions governing how firms

are created, organized, and managed, as well as the nature of domestic rivalry.

Tough domestic rivalry breeds international success.

Firms gain competitive advantage outside their home markets, Porter argues,

when their own countries provide a dynamic competitive environment, characterized by

an accumulation of specialized assets and skills and a constant stimulus to upgrade and



31

improve their products and processes. “Clusters” of mutually supporting industries are

important to success; one reason why Britain’s performance has declined over the years.

Among Michael Porter’s strategic recommendations for the competitive company

are:

(1) Sell to the most sophisticated and demanding buyers: they will set a standard

for the organization.

(2) Seek out buyers with the most difficult needs; they become a part of the firm’s

R&D program.

(3) Establish norms of exceeding the toughest regulations, hurdles or product

standards: these provide targets that will force improvement.

(4) Source from the most advanced and international home-based suppliers; those

with competitive advantage already will challenge the firm to improve and

upgrade.

(5) Treat employees as permanent instead of demoralizing hire-and-fire approach.

(6) Establish outstanding competitors as motivators.

One of Porter’s favorite methods of identifying a firm’s competitive position is to

analyze its “value chain”—all the activities it performs and how they interact. Examining

these components sheds lights on the roots of costs and how they behave, and picks out

existing and potential sources of differentiation. “A firm gains competitive advantage by

performing these strategically important activities more cheaply or better than its

competitors.”

Kathryn Rudie Harrigan, a former student of Porter’s—and now a guru in her own

right as well as being professor of strategic management at New York’s Columbia

University—says the ideas in Competitive Strategy are required reading in every US

Business School and most executive education programs. “The framework he

popularized forms the cornerstone for the next decade of research concerning strategy

formulation… the first chapter of the book Competition in Global Industry provides what

has become a the dominant framework for looking at issues in Global Strategy.



32

Tom Peters (b. 1942): The “excellence” cult and prescriptions for managing chaotic

change

Tom Peters and Robert Waterman will forever be linked because of the

phenomenal success of In Search of Excellence, although it was the only book the two

former McKinsey consultants wrote together. Since its publication in 192, each has

carved out his own distinctive niche in authorship on the lecture trail.

Excellence is by far the world’s best selling business book. It was slow to take off

on both sides of the Atlanta, but its reputation rocketed by word of mouth, and suddenly

companies were ordering “50, 100, 200 copies to give to their executives,” as their

British publisher recalls. It reached the million mark in sales in record time, within a

year, and has now sold over 5m copies. Despite the fact that 2/3rds of its “excellent”

companies have since faded in performance—Peters began his 1987 book Thriving on

Chaos with bold words, “There are no excellent companies”—In Search of Excellence

still endlessly reprints in paperback and its distinctive black, white and gold cover

continues to walk off the airport bookstalls where most business books are sold in the

UK.

Before joining McKinsey in 1974, Peters worked in the Pentagon for two years,

where he became “fascinated by complex organizations.” He then took a master’s degree

in civil engineering at Cornell University before serving in Vietnam. Later, he took an

MBA at Stanford and worked again in Washington for the Office of management and

Budget. Today, he and Michael Porter can probably claim to be the most sought-after

and expensive management lecturers in the world. The Tom Peters Group has built a

huge business in videos, cassettes, and TV series as well as personal appearances and

Consultancy work.

Peters left McKinsey after Excellence was published. As Waterman was not

enthusiastic about a sequel, Peters wrote the sequel—A Passion for Excellence with

Nancy Austin. Peters’ work took on a new direction with Thriving on Chaos (1987) which

inaugurated a genre of books on managing change.

Peters and Waterman have almost branded the word “excellence” as a branch of

management theory. Their phenomenally successful book has spawned a host of other



33

imitators and this was indeed the subject of a fascinated study by Japan’s Kenichi

Ohmae, also a McKinsey man. At the time, Waterman says they had no idea it would

prove such a watershed.

Its simple idea was the extension of a McKinsey project that began in 1977, to

analyze the lessons from 43 of Fortune’s top 500 companies that had consistently beaten

their competitors over twenty years by six financial yardsticks:

(1) Compound asset growth

(2) Compound equity growth

(3) Ratio of market value to book value

(4) Return on Capital

(5) Return on Equity

(6) Return on Sales

Peters and Waterman developed the famous McKinsey “Seven-S” formula to

analyze an organization: structure, strategy, systems, style of management, skills

(corporate strengths), staff and shared values.

Applying this framework to their 43 companies, they identified their eight by now

well-known characteristics shared by all of them:

(1) A bias for action: getting on with it

(2) Close to the customer: learning from the people they serve



34

(3) Autonomy and entrepreneurship: fostering innovation and nurturing

“champions”

(4) Productivity through people: treating rank and file as a source of quality

(5) Hands-on, value-driver: management showing its commitment

(6) Stick to the knitting: stay with the business you know

(7) Simple form, lean staff: some of the best companies have a minimum of

headquarters staff

(8) Simultaneous loose-tight properties: autonomy in shop floor activities plus

centralized values.

All their 43 companies, Peters and Waterman found, were “brilliant on the basics”

Also, in almost every case, a strong leader had been influential at some stage in forming

the culture of excellence.

Five years later, only 14 companies of the original 43 could still be described as

excellent by the original criteria.

Peters concluded that nothing in today’s chaotic business environment stays the

same long enough for excellence of the sustained type possible before 1982 to be

developed. In Thriving on Chaos, he cited IBM—“declared dead in 1979, the best of the

best in 1982, and dead again in 1986.” People Express, one star of Excellence, collapsed

completely!

Excellence, suggested Peters, required redefining—excellent firms were now

those that believed only in constant improvement and the demands of constant change.

A key concept behind Thriving on Chaos, a title that struck a chord with many

gurus in the late 80s, was the need to move from a hierarchical pyramid of management,

to a horizontal, fast, cross-functional cooperative one.

Peters evolved 42 precepts for managers across every level. They ran as follows:

(1) Quality Revolution

(2) Become a Service addict

(3) Achieve total customer responsiveness

(4) Become true internationalists, both small and large firms

(5) Strive to achieve uniqueness

(6) Listen to customers, end users, suppliers, retailers

(7) Make manufacturing the prime marketing tool



35

(8) “Over-invest” in people, frontline sales, service, distribution (make the company heroes)

(9) Become customer-obsessed

(10) Develop an innovation strategy

(11) Use multi-function teams for all development activities

(12) Substitute pilots and prototypes for proposals

(13) Ignore “Not invented Here” and learn to adapt from the best (practice “creative swiping”)

(14) Use systematic word of mouth for launching

(15) Applaud champions

(16) Symbolize innovativeness

(17) Support failures by publicly rewarding well throughout mistakes

(18) Measure innovation

(19) Make innovation a way of life for everyone

(20) Involve all personnel in all functions in virtually everything

(21) Organize as much as possible around teams

(22) Invest time in recruiting

(23) Invest human capital as much as hardware

(24) Provide bold financial incentives for all

(25) Guarantee continuous employment for a large slice of the workforce

(26) Radically reduce layers of management

(27) Re-conceive middle managers as facilitators instead of guardians

(28) Reduce and simplify paperwork and bureaucratic procedures

(29) Challenge conventional management wisdom on a day-to-day basis

(30) Develop and live an “enabling and empowering vision” (effective leadership at all levels is

marked by a core philosophy [values] and a vision of how the enterprise or department wishes

to make its mark)

(31) Lead by personal example

(32) Practice visible management

(33) Become a compulsive listener

(34) Ensure that frontline people know they are heroes

(35) Examine each act of delegation and increase it radically

(36) Destroy bureaucratic baggage

(37) Focus on exactly what you have changed recently—what your subordinates have changed.

Ask the question a dozen times a day at least, induce a sense of urgency throughout

(38) Develop simple systems to encourage participation and understanding

(39) Simplify control systems (e.g. performance appraisals, setting of objectives, job descriptions)

(40) Share information with everyone

(41) Set conservative financial targets

(42) Demand total integrity in all dealings, both inside and outside the firm.



36

Henry Mintzberg (b. 1939): How strategy is made, and how managers use their time

Canadian-born professor of Management at McGill University, Montreal, whose

immensely influential work falls into three main categories: strategy-making, what

managers actually do with their time (as opposed to what they think they do), and how

mental processes work (left-brain and right-brain theories), and how organizations

design themselves to suit their needs.

Mintzberg studied engineering at McGill and later studied management at the

Sloan School in MIT. In all, Mintzberg has published about 130 articles and about 10

books. Honors accorded to him have included election as an Officer of the Order of

Canada, and of l'Ordre national du Quebec, and selection as Distinguished Scholar for

the year 2000 by the Academy of Management.

Henry Mintzberg believes that both management and management education are

deeply troubled, but that neither can be changed without changing the other.

In his latest book, Managers not MBA, Mintzberg asserts that conventional MBA

classrooms overemphasize the science of management while ignoring its art and

denigrating its craft, leaving a distorted impression of its practice. We need to get back to

a more engaging style of management, to build stronger organizations, not bloated share

prices. This calls for another approach to management education, whereby practicing

mangers learn from their own experience. We need to build the art and the craft back into

management education, and into management itself.

Mintzberg examines what is wrong with our current system. Conventional MBA

programs are mostly for young people with little or no experience. These are the wrong

people. Programs to train them emphasize analysis and technique. These are the wrong

ways. They leave graduates with the false impression that they have been trained as

managers, which has had a corrupting effect on the practice of management as well as on

our organizations and societies. These are the wrong consequences.

Mintzberg describes a very different approach to management education, which

encourages practicing mangers to learn from their own experience. No one can create a

manager in a classroom. But existing managers can significantly improve their practice in

a thoughtful classroom that makes use of that experience.



37

Mintzberg’s reputation was made by The Nature of Managerial Work (1973) and

the article in the Harvard Business Review in 1975, which brought it to a wider public—

The Manager’s Job: Folklore and Fact. In researching the book, he spent a week in each

of five middle- to large-sized organizations—a consulting firm, a technology company, a

hospital, a consumer goods company and a school system, observing how CEOs used

their time, as well as reporting other studies of managers lower down the line.

Far from confirming any grand all-embracing role, such as Peter Drucker

proposed in his analogy of the manager as orchestra conductor, Mintzberg found that a

manger’s time is constantly being fragmented by interruptions, but that these appeared to

produce adrenaline of their own and to convince the manager that he was achieving a

great deal through responding to pressures of the job over a great many issues, even in

summary and incomplete fashion.

“Jumping from topic to topic, he (the manager) thrives on interruptions, and, more

often than not, disposes of items in ten minutes or less. Though he may have 50 projects

going on, they all are delegated. He juggles them, checking each one periodically before

sending it back into orbit”

The four definitions of managerial work laid down by Fayol in 1916—planning,

organization, coordination and control—have very little bearing on actually daily routine,

Mintzberg discovered. Yet, as he explained in the Harvard Business Review article,

“Without a proper answer, how can we teach management? How can we design planning

or information systems for managers? How can we improve the practice of management

at all? ... The traditional literature notwithstanding, the job of managing does not breed

reflective planners; the manager responds to stimuli as an individual who is conditioned

by his job to prefer live to delayed action?

Indeed, Mintzberg concluded in a memorable finding, “the executives I was

studying—all very competent by any standard—were fundamentally indistinguishable

from their counterparts of 100 years ago, or a 1000. The information they need differs,

but they seek it in the same way-by word of mouth.”

Mintzberg identified ten principle managerial roles, grouped into 3 main areas—

interpersonal, informational, and decisional.



38

Interpersonal roles, in his definition, compromise three functions—those of

figurehead, leader, and liaison. The first two are “ceremonial”, rather, while the third

covers a manager’s network of relationships within and without the organization, outside

his vertical chain of command, and mainly in pursuit of building up a private information

system.

Informational roles involve those of monitor (keeping tabs on what’s going on),

disseminator (transmitting essential information to subordinates), and spokesman (the

public voice of the unit). The manager emerges as the nerve center of any organization,

even though he may not know everything. It is the way in which the manager develops

information that communicates it, that is what defines the organization.

Decisional roles, not surprisingly, are described as the most important. Mintzberg

divided these into 4 categories—entrepreneur, disturbance handler, resource allocator,

and negotiator.

As an entrepreneur, the manager “seeks to improve his unit and to adapt it to

changing conditions” sometimes juggling more than 50 different projects at a time

As a disturbance handler, the manager reacts to events and change beyond

foresight or control; a strike, the bankruptcy of a major customer, or the failure of a key

supplier—Mintzberg parts company with Drucker’s idea of the Orchestral conductor

strikingly at this point, by saying, “in effect, every manager must spend a good part of his

time responding to high pressure disturbances.”

As a resource allocator, the manager must decide how to best deploy human,

intellectual, time-based and physical assets of the company; and must use his abilities as

a negotiator to ensure smooth process flow.

All the variables contained within these permutations led Mintzberg to conclude

that management is an art rather than a teachable science, and that it requires a

continuous process of self-education and assessment.

Management schools, he concluded, would only begin “the serious training of

managers when skill training takes a serious place next to cognitive learning… cognitive

learning no more makes a manager than it does a swimmer. The latter will drown the first

time he jumps into the water if hic coach never takes him out of a lecture hall, gets him

wet, and gives him feedback on his performance.



39

“No job is more vital to our society,” declared Mintzberg. “it is the manager who

determines whether our institutions serve us well or whether they squander our talents

and resources. It is time to strip away the folklore about managerial work, and time to

study it realistically so that we can begin the difficult task of making significant

improvements in its performance.”

He concluded that most organizational structures fall into 5 basic categories:

simple, machine bureaucracy, professional bureaucracy, divisionalized form and

adhocracy.



40

Section II: Companies



41

Wockhardt

Established nearly four decades ago, Wockhardt Limited today is among India's

top research and technology oriented pharmaceutical companies, with global presence.

Wockhardt has emerged as a leading player in domestic as well as international markets,

with widely accepted and efficacious drugs and formulations. The company has

developed leading brands in Anti-infectives, Pain & Inflammation, Cough, Psychiatry,

Medical nutrition and Biotechnology segments.

Wockhardt has an active multi-disciplinary R&D program involving over 300

scientists, largely focused on developing innovative technologies and New Drug

Discovery. The company has a team of over 90 scientists engaged in new drug discovery

research and has several new chemical entities in the field of sepsis and anti-infectives.

Some facts about Wockhardt:

• 24th largest wealth creator

• Ranked amongst the 50 most valuable companies in India

• Rated among the Top 10 emerging Corporates in India (Economic Times,

1999)

• Wockhardt employs 2700 people of which more than 1300 constitute the field

force covering 1,50,000 Doctors

• 35% of total sales come from International Business

• Listed on Bombay Stock Exchange, National Stock Exchange and on

Luxembourg Stock Exchange

• R&D programme rated among the top 3 in the country with R&D spend of 7%

of sales - one of the highest in the country.

• Managed by the "Best" Board of Directors in the pharmaceutical industry

(Source: Business Today, May, 1997 survey.)



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Corporate Mission

"Pursuit of growth with excellence in the field of pharmaceuticals and healthcare"

Profitability through:

• Quality of products and services

• Increasing investment in R & D

• Competent scientific and managerial manpower

Wockhardt Business Philosophy

“Creating value by understanding and communicating with our customers and

business partners”

Wockhardt Vision

“To be the most admired Pharmaceutical company in India”

Globalization Initiatives

Wockhardt’s presence covers more than 90 countries across the globe, with its

International Business now constituting more than 60% of the sales turnover, a

significant leap from a mere 9%, ten years ago (1993).

80% of the international business comes from developed markets of the US and

Europe, and 20% comes from the rest of the world.

Wockhardt UK Limited

Wockhardt is now the largest Indian pharmaceutical company in the United

Kingdom and among the top 10 generic pharmaceutical companies in the UK. In July

2003, Wockhardt acquired Wales-based CP Pharmaceuticals, a fully integrated

pharmaceutical firm with four key business areas - hospital brands, generics, contract

manufacturing and exports. It has 225 product licenses. The company has a special

manufacturing license from MCA, which allows it to manufacture patent protected drugs

under development. It also has Home Office license for the manufacture of Schedule 1

controlled drugs (highest schedule). It also has a USFDA approved injectible facility for

manufacturing injectibles (cartridges, vials & ampoules) including freeze dried products.



43

Wallis Laboratory, UK, was acquired in 1998. Wallis is a private label manufacturer for

pharmacy and OTC retailers.

Wockhardt’s German presence

In May 2004, Wockhardt acquired the business and the sales and marketing

organization of esparma, GmbH, signaling its entry in the German market and

strengthening its European presence. esparma has a portfolio of 135 marketing

authorizations, of which 67 are in Germany. The company has nine international patents

and 94 trademarks. esparma’s strong presence in urology, neurology and diabetology, is

in line with Wockhardt’s therapeutic strengths.

Wockhardt US Inc.

With a view to increase its presence in the US, the world’s largest pharmaceutical

market, Wockhardt, in April 2004, sets up Wockhardt USA Inc., a sales and marketing

subsidiary in the US, and appointed a President to head the sales, marketing and

distribution operations in the US.

Wockhardt has so far applied for 17 ANDAs for marketing its packaged

formulations in the US, of which the US FDA has approved nine. The company plans to

apply for 15 ANDAs this year (2004). It has filed 32 DMF (drug master file) applications

for export of active pharmaceutical ingredients to the US.

Wockhardt currently sells four products in the US – ranitidine, enalapril,

bethanecol chloride and captopril. More than 150 professionals at various levels at

Wockhardt in India are supporting the company’s US generics business by working on

non-infringing technologies, filing ANDAs and liaising with US regulatory bodies. Key

officials handling corporate scientific affairs and intellectual property, were relocated

from Wockhardt’s Mumbai headquarters to the newly-established Wockhardt USA Inc.

in 2004.

Leading world manufacturer of Bulk Actives:

As a quality manufacturer of active pharmaceutical ingredients (APIs),

Wockhardt is among the world’s top three suppliers of Dextropropoxyphene,

Dextromethorphan, Vitamin B12 and Captopril.



44

Growing presence around the world:

Wockhardt also has full-fledged operations in Russia, Brazil, Vietnam, Myanmar,

Sri Lanka, and African countries of Kenya, Ghana, Nigeria and Tanzania.

Motivational, Recruitment Principles:

To make people successful

create success

be ambitious, realistic in strategies and goals

ensure your people hired have the necessary skills

conduct impartial assessments and reward accordingly

When recruiting, look for

skill sets

potential for growth of candidate

understand ability

Strategic Planning:

Centralized planning in terms of final scope; however, the company’s sub-units

build their own plans from the bottom-up, and the central management executes. Once

the strategic plan is implemented, no autonomy is available to the various units to change

plans, without prior approval.

Firm plan created for every year; broader, flexible defined three year plan also

tabulated, with room for maneuvering.

Marketing Efforts:

Marketing efforts not towards end-user, but rather only doctors. Wockhardt is

involved in “informed individuals thrust of marketing” and focuses primarily on Doctors

and requests by Doctors. They do however, conduct occasionally focus groups.

As Wockhardt is completely a generic drugs company, it does not conduct new

molecule research, and most of its development occurs through secondary data such as

IMS reports.



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Business Structure:

Wockhardt is controlled by a single CMD, who presides over the board. All

further subdivisions are in the form of Strategic Business Units, and are largely

autonomous and answer directly to the Board.

WTO regulation implications:

Only product patents after 1997 are affected.

Many thanks to Mr. Lalit Kumar, President, International Business, Wockhardt



46

Pfizer

Pfizer: Pfizer Inc discovers, develops, manufactures, and markets leading

prescription medicines for humans and animals and many of the world's best-known

consumer brands. Our innovative, value-added products improve the quality of life of

people around the world and help them enjoy longer, healthier, and more productive

lives. The company has three business segments: health care, animal health and consumer

health care. Our products are available in more than 150 countries.

Mission Statement:

“We will become the world's most valued company to patients, customers,

colleagues, investors, business partners, and the communities where we work and live.

We dedicate ourselves to humanity's quest for longer, healthier, happier lives through

innovation in pharmaceutical, consumer, and animal health products.”

“To achieve our Purpose and Mission, we affirm our values of Integrity, Respect for

People, Customer Focus, Community, Innovation, Teamwork, Performance,

Leadership, and Quality.”

We demand of ourselves and others the highest ethical standards, and our

products and processes will be of the highest quality.

We recognize that people are the cornerstone of Pfizer's success, we value

our diversity as a source of strength, and we are proud of Pfizer's history of

treating people with respect and dignity.

We are deeply committed to meeting the needs of our customers, and we

constantly focus on customer satisfaction.

We play an active role in making every country and community in which

we operate a better place to live and work, knowing that the ongoing vitality

of our host nations and local communities has a direct impact on the long-



47

term health of our business.

Innovation is the key to improving health and sustaining Pfizer's growth and

profitability.

We know that to be a successful company we must work together,

frequently transcending organizational and geographical boundaries to meet

the changing needs of our customers.

We strive for continuous improvement in our performance, measuring

results carefully, and ensuring that integrity and respect for people are never

compromised.

We believe that leaders empower those around them by sharing knowledge

and rewarding outstanding individual effort. Leaders are those who step

forward to achieve difficult goals, envisioning what needs to happen and

motivating others.

Since 1849, the Pfizer name has been synonymous with the trust and

reliability inherent in the word Quality. Quality is ingrained in the work of

our colleagues and all our Values. We are dedicated to the delivery of

quality healthcare around the world. Our business practices and processes

are designed to achieve quality results that exceed the expectations of

patients, customers, colleagues, investors, business partners and regulators.

We have a relentless passion for Quality in everything we do.

Information

The strategy for Pfizer is heavily based upon remaining at the cutting edge

Research and Development of Medicine and Molecules; and of their ground sales

representatives.



48

Pfizer’s strategy in India is largely linked to marketing and brand development,

convincing people to pay the comparatively (as compared to generics) high prices that

they charge.

However, it was not until 97-99 did they actually bring in their high end or user-

specific products. Their launch however, was deterred due to the generic products of

local competition, due to the lack of Patent and IP restrictions,

Their prices as compared to competitors’ products are already competitive, and

they will really benefit them once the TRIP rule is enforced.

Not many know that Pfizer India compromises of 4 companies:

Park Davis, Pharacia, Pharmacia HealthCare and Pfizer

Since new molecules are what Pfizer sells, Pfizer has billions invested in R&D.

They phase out old drugs, but phasing them out with a newer molecule of it. Pfizer is

currently no.1 in the world for HealthCare products, and they lead due to this constant

innovation. Their Quality is perhaps flawless, as they have no registered complaints

against them. With the new WTO restrictions, Pfizer expect to be more competitive.

Many thanks to District Manager of Pfizer India, Mr. Sunil Kelkar for his time



49

Hewlett Packard

About HP:

What does HP do?

“HP delivers vital technology for business and life. The company's solutions span

IT infrastructure, personal computing and access devices, global services and imaging

and printing for consumers, enterprises and small and medium business. Our $4 billion

annual R&D investment fuels the invention of products, solutions and new technologies,

so that we can better serve customers and enter new markets. We invent, engineer and

deliver technology solutions that drive business value, create social value and improve

the lives of our customers. HP has a dynamic, powerful team of 150,000 employees with

capabilities in 170 countries doing business in more than 40 currencies and more than 10

languages. Revenues were $79.9 billion for the fiscal year that ended October 31, 2004.”

When was HP established?

HP co-founders Bill Hewlett and Dave Packard established the company in 1939

after successfully launching their first product, an audio oscillator, from a small garage in

Palo Alto. For more information, see a detailed history of HP.

Where does HP stand in the industry?

HP is:

#1 globally in inkjet, all-in-one and single-function printers, mono and color laser

printers, large format printing, scanners, print servers, and ink and laser supplies*

#1 globally in x86*, Windows*, Linux*, UNIX* and Blade servers**

#1 in total disk storage systems*

#2 globally in notebook PCs*

#1 globally in Pocket PCs*

#1 in Customer Support**

#1 position in customer satisfaction for ProLiant servers***

* Refers to units, except storage referred in factory revenue. Source: IDC Q1 2004

** Source: Gartner, January 2004, Gartner May 2004

*** Source: Technology Business Research, Inc., May 4, 2004



50

Corporate Objectives:

“It is necessary that people work together in unison toward common objectives

and avoid working at cross purposes at all levels if the ultimate in efficiency and

achievement is to be obtained.”

— Dave Packard

HP's Corporate Objectives have guided the company in the conduct of its business since

1957, when first written by co-founders Bill Hewlett and Dave Packard.

Customer loyalty

“To provide products, services and solutions of the highest quality and deliver

more value to our customers that earns their respect and loyalty.

Underlying beliefs supporting this objective:

• Our continued success is dependent on increasing the loyalty of our

customers.

• Listening attentively to customers to truly understands their needs, then

delivering solutions that translate into customer success is essential to earn

customer loyalty.

• Competitive total cost of ownership, quality, inventiveness, and the way we

do business drives customer loyalty.”

Profit

“To achieve sufficient profit to finance our company growth, create value for our

shareholders and provide the resources we need to achieve our other corporate objectives.


• Profit is the responsibility of all.

• Balance of long-term and short-term objectives is key to profitability.

• Profit allows us to reinvest in new and emerging business opportunities.

• Profit is highly correlated to generating cash, which brings more flexibility to

the business at a lower cost.

• Profit enables the achievement of our corporate objectives.”



51

Market leadership

“To grow by continually providing useful and significant products, services and

solutions to markets we already serve—and to expand into new areas that build on our

technologies, competencies and customer interests.


• There are more places we can contribute than we will be capable of

contributing: We must focus.

• To be average in the marketplace is not good enough, we play to win.

• We must be No. 1 or No. 2 in our chosen fields.”

Growth

“To view change in the market as an opportunity to grow; to use our profits and

our ability to develop and produce innovative products, services and solutions that satisfy

emerging customer needs.


• Growth comes from taking smart risks, based on the state of the industry—

that requires both a conviction in studying the trends, but also in inducing

change in our industry.

• Our size (and diversity of businesses) gives us an ability to weather economic

cycles and turn them to our favor.”

Employee commitment

“To help HP employees share in the company's success that they make possible;

to provide people with employment opportunities based on performance; to create with

them a safe, exciting and inclusive work environment that values their diversity and

recognizes individual contributions; and to help them gain a sense of satisfaction and

accomplishment from their work.




52

• HP's performance starts with motivated employees; their loyalty is key.

• We trust our employees to do the right thing and to make a difference.

• Everyone has something to contribute: It's not about title, level or tenure.

• An exciting, stimulating work environment is critical to invention.

• A diverse workforce gives us a competitive advantage.

• Employees are responsible for lifelong learning.”

Leadership capability

“To develop leaders at every level who are accountable for achieving business

results and exemplifying our values.


• Leaders inspire, foster collaboration and turn vision and strategies into

action—with focused, clear goals.

• Effective leaders coach, relay good news and bad, and give feedback that

works.

• Leaders demonstrate self-awareness and a willingness to accept feedback and

continuously develop.

• Leaders speak with one voice and act to eliminate busy work.

• It is important to measure people on the results they achieve against goals they

helped to create.”

Global citizenship

“Good citizenship is good business. We live up to our responsibility to society by

being an economic, intellectual and social asset to each country and community in which

we do business.


• The highest standards of honesty and integrity are critical to developing

customer and stakeholder loyalty.



53

• The betterment of our society is not a job to be left to a few; it is the

responsibility to be shared by all.

• This objective is essential to delivering on the brand promise.”

HP and the Environment

“HP is committed to providing customers with inventive, high quality products

and services that are environmentally sound and to conduct our operations in an

environmentally responsible manner. That commitment continues to be one of our

guiding principles that are deeply ingrained in our values. It is from this history and these

values that HP has become a leader in delivery of environmentally sustainable solutions

for the common good.”

HP Recruitment

“HP's employee compensation and benefits program puts us among the leaders in

our industry. See Working at HP for more information. HP’s compensation and benefits

program both encourages and rewards employees by linking compensation to individual,

business organization and company performance.”

HP Information Obtained via interaction with the HP Corporate Communications

Department, Hewlett Packard Company, USA



54

IBM

About IBM

Values of IBM: an email from Sam Palmisano, Chairman, President and CEO, IBM

“We've been spending a great deal of time thinking, debating and determining the

fundamentals of this company. It has been important to do so. When IBMers have been

crystal clear and united about our strategies and purpose, it's amazing what we've been

able to create and accomplish. When we've been uncertain, conflicted or hesitant, we've

squandered opportunities and even made blunders that would have sunk smaller

companies.

It may not surprise you, then, that last year we examined IBM's core values for

the first time since the company's founding. In this time of great change, we needed to

affirm IBM's reason for being, what sets the company apart and what should drive our

actions as individual IBMers.

Importantly, we needed to find a way to engage everyone in the company and get

them to speak up on these important issues. Given the realities of a smart, global,

independent-minded, 21st-century workforce like ours, I don't believe something as vital

and personal as values could be dictated from the top.

So, for 72 hours last summer, we invited all 319,000 IBMers around the world to

engage in an open "values jam" on our global intranet. IBMers by the tens of thousands

weighed in. They were thoughtful and passionate about the company they want to be a

part of. They were also brutally honest. Some of what they wrote was painful to read,

because they pointed out all the bureaucratic and dysfunctional things that get in the way

of serving clients, working as a team or implementing new ideas. But we were resolute in

keeping the dialog free-flowing and candid. And I don't think what resulted - broad,

enthusiastic, grass-roots consensus - could have been obtained in any other way.

In the end, IBMers determined that our actions will be driven by these values:

• Dedication to every client's success

• Innovation that matters, for our company and for the world

• Trust and personal responsibility in all relationships

I must tell you, this process has been very meaningful to me. We are getting back

in touch with what IBM has always been about - and always will be about - in a very



55

concrete way. And I feel that I've been handed something every CEO craves: a mandate,

for exactly the right kinds of transformation, from an entire workforce.

Where will this lead? It is a work in progress, and many of the implications

remain to be discovered. What I can tell you is that we are rolling up our sleeves to bring

IBM's values to life in our policies, procedures and daily operations.

I've already touched on a number of things relating to clients and innovation, but

our values of trust and personal responsibility are being managed just as seriously - from

changes in how we measure and reward performance, to how we equip and support

IBMers' community volunteerism.

Our values underpin our relationships with investors, as well. In late February, the

board of directors approved sweeping changes in executive compensation. They include

innovative programs that ensure investors first receive meaningful returns - a 10 percent

increase in the stock price - before IBM's top 300 executives can realize a penny of profit

from their stock option grants. Putting that into perspective, IBM's market value would

have to increase by $17 billion before executives saw any benefit from this year's option

awards. In addition, these executives will be able to acquire market-priced stock options

only if they first invest their own money in IBM stock. We believe these programs are

unprecedented, certainly in our industry and perhaps in business.

Clearly, leading by values is very different from some kinds of leadership

demonstrated in the past by business. It is empowering, and I think that's much healthier.

Rather than burden our people with excessive controls, we are trusting them to make

decisions and to act based on values - values they themselves shaped.

To me, it's also just common sense. In today's world, where everyone is so

interconnected and interdependent, it is simply essential that we work for each other's

success. If we're going to solve the biggest, thorniest and most widespread problems in

business and society, we have to innovate in ways that truly matter. And we have to do

all this by taking personal responsibility for all of our relationships - with clients,

colleagues, partners, investors and the public at large. This is IBM's mission as an

enterprise, and a goal toward which we hope to work with many others, in our industry

and beyond.

Samuel J. Palmisano, Chairman, President and Chief Executive Officer”



56

Corporate

• “IBM is the world's largest information technology company. Measured by

revenue, IBM is the biggest provider of IT services ($43B), hardware ($28B)

and rental and financing ($3B). 2003 revenues were $89B. (2/04)

• IBM has approximately 319,000 employees and conducts business in some

170 countries. (3/04)

• In 2002, Business Week (with data from Interbrand, Corp. and J.P. Morgan

Chase & Co.) ranked IBM the third most valuable brand worldwide, after

Coca-Cola and Microsoft. (8/02)

• Forbes Magazine's annual "Super 500" composite ranking of the most

powerful companies in the U.S. named IBM the highest-ranking technology

industry company on their 'Computers and Electronics' list, and number nine

overall. Fortune Magazine's 'Fortune 500,' named IBM the highest-ranking

technology company on its 'Computers and Office Equipment' list and number

eight overall. (4/03)

• In the Wall Street Journal's eighth annual Shareholder Scoreboard -- which

ranked returns for stockholders based on total return -- IBM ranked sixth

among 30 DJIA stocks on the basis of five-year-returns. (3/03)

• In Fortune Magazine's 21st annual "Top Ten Most Admired Companies -

Computer Industry" list, IBM ranked number one. Ten thousand executives

and analysts rated companies based on innovation, financial soundness,

employee talent, use of corporate assets, long-term investment value, social

responsibility, quality of management, and quality of products and services.

(3/03)

• In IBM's 2003 Employee Charitable Contribution Campaign, US employees,

executives and retirees pledged a total of $32.34 million to deserving,

community-based causes, up more than six percent from 2002. (2/04)

• In 2004, IBM became the only company chosen for 17 consecutive years by

Working Mothers Magazine to be on the Top Ten List of the 100 Best

Companies for working mothers. (9/04)



57

• Over the past five years, the number of female executives in IBM has risen

from 185 to 692. (3/03)

• Since 1995, IBM has invested $70 million in its Reinventing Education

program - which will touch 100,000 teachers and 10 million students in 10

countries by the end of 2003. IBM provides research and technical expertise,

as well as equipment and cash contributions, to improve teaching and learning

and raise student achievement. (3/03)

• Through the MentorPlace program more than 6,000 IBM volunteers provide

academic assistance and career counseling to students in grades 3-12 in 11

countries - part of the 4 million hours IBM employees volunteered to

community organizations in 2002. (3/03)

• Chief Executive magazine's "Top 20 Companies For Leaders" survey in its

June 2002 issue ranked IBM as the number one company for grooming

talented senior executives. The corporate leadership development survey was

conducted in conjunction with Hewitt Associates and included 240 large U.S.

companies. (6/02)

• IBM was named number 38 on the Fortune Magazine 2003 list of the 100 Best

Companies to Work For. IBM was selected from among 1,000 firms. To

select this year's list, the Great Place to Work Institute in San Francisco

surveyed a random sample of employees from 269 company finalists. More

than 40,000 employees responded to the survey, and nearly half of them gave

additional written comments. (2/03)

• IBM, Fannie Mae and American Express, were named the three best U.S.

employers of minority women in 2003, according to Working Mother

magazine. (5/03)”

Global Financing

• “IBM Global Financing is the largest IT financier in the world, with an asset

base of $35.9 billion. It delivers financial services to nearly 125,000

customers in more than 40 countries. (3/04)



58

• By assets, IBM Global Financing would be a top 25 U.S. commercial bank.

(3/04)

• Financial originations in 2003 were $38 billion. $14 billion for customer and

government financing and $24 billion for commercial financing, primarily for

IBM Business Partners. (3/04)”

Global Services

• “IBM Global Services (IGS) is the world's largest business and technology

services provider, with 2003 revenues of more than $42.6 billion and more

than 175,000 professionals. IGS generated $55 billion in services signings in

2003, including seven contracts over $1 billion and an additional 56 contracts

in excess of $100 million each. (3/04)

• In 2001, IBM services revenue surpassed IBM hardware revenue for the first

time. IBM Global Services finished 2002 with a $112 billion backlog. (2/03)

• In October 2002 IBM acquired PricewaterhouseCoopers (PwC)

Consulting.With some 30,000 employees and offices in 52 countries, PwC

Consulting brought additional depth and leadership capabilities to IBM's

services-led business. At $3.5 billion, it is one of the most significant

acquisitions in IBM's history. IBM created the world's largest consulting

services organization - Business Consulting Services - following this

acquisition. (2/03)”

Technology

• “In 2003, Dataquest named IBM the industry leader in custom ASICs chips

for the fifth year in a row. (April '04)

• In 2004, IBM's partially complete Blue Gene/L supercomputer ascended to

No.4 on the top 500 supercomputer list, based on the Linpack benchmark test.

The Blue Gene/L DD1 Prototype, with a sustained speed of 11.68 teraflops

and a peak speed of 16 teraflops, uses more than 8,000 PowerPC processors

packed into just four refrigerator-sized racks. This system is only 1/16 of its

planned final capacity. When complete in 2005, it will achieve a peak



59

performance of 360 teraflops, use less than one third the power and be ten

times smaller than the current No.1 ranked supercomputer. (6/04)

• In 2004, IBM collaborated with Cisco Systems, Inc., to design and build the

world's most complex, programmable custom chip -- the Cisco Silicon Packet

Processor (SPP), a 40-Gbps (gigabits per second) application specific

integrated circuit (ASIC), featuring an unprecedented 38 million gates,

approximately 185 million transistors and 188 high-performance

programmable 32-bit RISC processors executing 47 billion instructions per

second (BIPS). The chip powers the Cisco Carrier Routing System (Cisco

CRS-1), that Guinness World Records certified as the highest capacity

Internet router at 92 terabits -- 92 trillion bits per second -- of total

throughput. It is the first networking technology to be recognized by

Guinness World Records. (6/04)

• In May 2001, IBM introduced "pixie dust," IBM's newest storage

breakthrough, which uses new material – anti-ferro-magnetically-coupled

(AFC) media -- to quadruple the areal density of current hard disk drive

products and surpass 100 billion bits/square inch, something previously

thought impossible. IBM plans to implement AFC media across its hard disc

drive product lines. (2/02)

• In 2001, IBM introduced the world's quietest high-capacity mobile disk drive

that also enables the longest battery life among leading notebook drives on the

market. This new family of drives -- the 60GH and 40GN -- also includes

enhanced availability features for nontraditional applications. These industry-

first models increase available hard disk drive "power-on hours" and are

designed to meet the requirements for emerging applications such as those

found in 24x7 blade server environments. (2/02)”

Personal Systems

• “IBM's Personal Systems Group (PSG) is made up of three worldwide

business units: the Personal Computing Division, the Printing Systems

Division, and Retail Store Solutions. The Personal Systems Group was an

$11.5 billion annual business in 2003. (3/04)



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• The IBM ThinkPad notebook boasts more than 50 patents alone, and that

number increases yearly. The 20 millionth ThinkPad laptop computer was

shipped in October 2002, making the product the best-selling laptop in

history. (3/04)

• Virtually every U.S. household receives customized documents printed on

IBM digital printers, including telephone, power and insurance bills, financial

statements and more. IBM's heritage in printers dates back more than 40

years, and IBM continues to lead in printing innovations. (3/04)

• IBM is the worldwide leader in retail point-of-sale hardware and software

systems. (3/04)”

Research & Intellectual Property

• “IBM Research is the world's largest information technology research

organization, with more than 3,000 scientists and engineers at eight labs in six

countries. (3/04)

• IBM's Carbon Nanotube technology uses tiny cylinders of carbon atoms -

50,000 times thinner than the average human hair -- roughly 10 atoms across,

but with five times the strength of steel-- to build transistors, which could lead

to smaller, faster, lower-power computer chips. In 2003, IBM announced the

first use of molecular self-assebmly, one example of nanotechnology, to

improve semiconductor manufacturing. (3/04)

• For the eleventh consecutive year, IBM received the most U.S. patents over

any other company -- 3,415 U.S. patents in 2003 -- 1,400 more than the

nearest patent recipient and more than 1,600 above the closest IT competitor.

Over the past four years, IBM inventors received more than 13,000 patents --

approximately 5,400 more than any other patent recipient. (2/04)

• IBM Research boasts numerous awards, including 5 Nobel Laureates, 5

National Medals of Technology, and 4 National Medals of Science. (3/04)

• IBM's On Demand Innovation Services (ODIS) unit was formed in 2002,

combining the talents of IBM Research with IBM's Business Consulting

Services. In 2003, the group's first full year of operation, ODIS worked in



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partnership with IBM consultants on more than 70 customer engagements

worldwide, across multiple industries. (3/04)

• The potential size of silicon transistors was reduced by a factor of 10 in 2002,

when IBM developed the world's smallest working silicon transistor,

measuring just six nanometers. (3/03)”

Servers

• “According to IDC (4Q 2003), IBM is the #1 server provider in the world

based on annual global server factory market share. (2/04)

• IBM is the fastest growing vendor of Intel-based server systems, surpassing

the growth of HP and Dell. (IDC 4Q03) (2/04)

• IBM is the top blade-server vendor, making it the first time it has led the

market in shipments and revenue in the Intel space and dethroning HP. (IDC)

(2/04)

• IBM is the world's leading provider of supercomputing power with a record

total of 186 teraflops of power in the TOP500 list of the world's most

powerful supercomputers. With 35.4 percent share, IBM dominates the global

market with 55 percent more processing power than runner-up HP, which

claims 22.7 percent share. (2/04)

• IBM is the top vendor of computer systems running the Linux operating

system. IBM has more than 10,000 Linux engagements worldwide. (2/04)

• IBM is leading some of the largest and most complex supercomputer projects

in the world;

• In 1999, IBM unveiled "Blue Gene," a supercomputer capable of more than

one quadrillion floating-point operations per second (one petaflop) to address

fundamental and challenging questions in computer science and

computational biology.

• In 2000, IBM announced the delivery of ASCI White, capable of 16 trillion

calculations per second. The system is being used by the U.S. Department of

Energy's Lawrence Livermore National Laboratory to simulate nuclear

testing.



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• In 2002, the U.S. Defense Department purchased an IBM supercomputer

named "BlueOcean." The Naval Oceanographic Office will use BlueOcean in

developing vaccines and to aid in other research initiatives. BlueOcean will

process more than six trillion calculations per second. (7/02)”

Software

• “IBM Software Group had 2003 revenues of $14.3 billion. (3/04)

• IBM's e-business strategy is being fueled by the world's largest portfolio of

software patents. Software accounted for more than 40 percent of the 3,415

U.S. patents awarded to IBM in 2003. IBM received nearly three times as

many patents as Microsoft, and twice the combined total awarded to its four

closest software industry competitors. (2/04)

• In 2003, revenue from IBM middleware increased 11 percent to $11 billion,

primarily driven by continued strength in demand for WebSphere, DB2

database and Tivoli middleware products. (3/04)

• In 2003, Linux revenue grew over 50 percent to more than $2 billion, as the

rate of related software and services combined nearly doubled year to year.

(3/04)”

IBM as an e-business

• “By the end of 2003, the work of transforming and integrating the supply

chain resulted in the lowest inventory levels for IBM in more than 20 years.

(3/04)

• IBM's supply chain transformation efforts have reduced the amount of time

the sales force spends on activities like checking on order status, proposal

generation and contracts by 20 percent. (3/04)

• By speeding inventory turns and improving client collections and supplier

payment terms, IBM's supply chain efforts generated more than $700 million

in cash in 2003. (3/04)



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• With more than 2,000 clients, e-business Hosting Services revenue increased

by more than 20 percent each of the past three years, topping $1 billion in

revenue in 2003. (3/04)

• IBM clients have more than $10 billion in dormant computing capacity

installed, which can be turned on and paid for on demand. More than $500

million in capacity was turned on in 2003. (3/04)”

IBM and Intellectual Property

“In 2004, IBM received 3,248 U.S. patents from the USPTO. This is the twelfth

consecutive year that IBM has received more US patents than any other company in the

world. In addition to delivering these innovations through its products and services, IBM

maintains an active patent and technology licensing program.

The IBM Corporation’s Intellectual Property and Licensing team is responsible

for licensing IBM's patents, as well as other forms of intellectual property, such as

technology, know-how and trademarks. These pages provide an introduction to IBM’s

licensing practices as well as a portfolio of patents and technologies currently available

for licensing.”

IBM and the Environment

“IBM is committed to environmental leadership in all of its business activities,

from its operations to the design of its products and use of its technology. IBM's

corporate policy on environmental affairs, first issued in 1971, is supported by the

company's global environmental management system, which is the key element of

company's efforts to achieve results consistent with environmental leadership and ensures

the company is vigilant in protecting the environment across all of its operations

worldwide.”

IBM and Philanthropy

"Good Philanthropy is Good Business......"

“IBM corporate philanthropy spans the globe with diverse and sustained programs

that support initiatives in education, workforce development and arts and culture to

benefit communities in need. IBM provides grant recipients with technology, project



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funds, and employee time and talent. IBM's On Demand Community is a first-of-its kind

initiative to encourage and sustain corporate philanthropy through employee

volunteerism.”

IBM and its Commitment to Education

“IBM counts education as the top priority in its philanthropic efforts. Through

Reinventing Education and other strategic efforts, we're solving education's toughest

problems with solutions that draw on advanced information technologies and the best

minds IBM can apply. Our programs pave the way for systematic reform in school

systems nationwide through partnerships with whole school districts and entire states.”

Information provided by Kariappa A Ballachanda, Anand K Anantharaman, Corporate

Communications, IBM USA



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Federal Express

FedEx facts:

Fed Ex is the world's largest express transportation company, it began operations

in 1973.

It has 5 major head quarters across the world—Memphis (Worldwide), Hongkong

(Asia), Toronto (Canada), Brussels (Europe), and Miami (Latin America).

David Bronczek is the President and CEO of FedEx

Revenues:

• $3.8 billion (U.S. dollars) 3rd Qtr., Fiscal 2000

• $4.0 billion (U.S. dollars) 4th Qtr., Fiscal 2000

• $3.9 billion (U.S. dollars) 1st Qtr., Fiscal 2001

FedEx employs more than 145,000 people worldwide, in 215 countries. Their logistical

difficulties are taken care of drastically due to the number of transportation mechanisms

available to FedEx at any given time.

They have a total fleet of 638 aircraft serving 365 Airports.

Their fleet includes:

• 31 MD11s (30 on order)

• 36 A300

• 44 A310

• 73 McDonnell Douglas DC 10-10s (9 on order)

• 22 McDonnell Douglas DC 10-30s

• 152 Boeing 727s

• 261 Cessna 308s

• 32 Fokker F-27s

• 11 Shorts SD3-60

• 0 Ayers LM 200 (75 on order)



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In addition, they have a Ground Fleet of about 43,000 units, and more than 100,000

FedEx Powerships.

Other miscellaneous facts:

• FedEx Ships & FedEx Ship Manager at fedex.coms: More than 2.0 million

• World Service Centers: Approximately 1,200 worldwide

• Drop Boxes: Approximately 34,000

• FedEx Ship Sites: More than 2,000

• Authorized Shipcenters: More than 7,800

• Average Package Volume: More than 3.1 million packages daily

• Global Lift Capacity: Approximately 26.5 million pounds daily

• Airfreight Volume: More than 7.0 million pounds daily

• Average Call Volume: More than 500,000 calls daily

• Average Number of Electronic Transmissions: Approximately 63 million

daily

• Distance Driven Per Day: More than 2.7 million miles (United States only)

FedEx then and now:

• 1973: Federal Express became the FIRST company to offer overnight

delivery in the US.

• 1986: Federal Express was the FIRST express company to introduce a

Money-Back Guarantee.

• 1994: FedEx achieves ISO 9001 quality certification (PDF) for its entire

worldwide operation, the FIRST major carrier to be recognized in this way.

• 1996: FedEx launches FedEx International First, an 8 am door-to-door

delivery service to nearly 5000 zip codes across the USA.

• 1996: FedEx expands its European service, further improving the range of

solutions offered to customers and its International capabilities.

Today, FedEx is the world's largest express transportation company, with 638 aircraft and

service to over 215 countries. There are 46 call centers across the globe handling over



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500,000 telephone calls daily. FedEx employs over 145,000 people, including 42,500

couriers who deliver more than 3.1 million packages every single working day.

FedEx Value Addition Programs

• On-time delivery or your money back

• Call Customer Service centres throughout the world

• Easy to use shipment paperwork

• Free packaging

• Effective & fast customs clearance systems

• Sophisticated real-time tracking information

• Free shipping software products

• Proof of delivery on every invoice

Information provided by Kristine, Corporate Communications, FedEx USA



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Bibliography

• Carol Kennedy: Guide to the Management Gurus (ISBN 0-09-174810-0)

• Carol Kennedy: The next big idea (ISBN 0-7126-8444-1)

• Roger Oldcorn: Management (ISBN 0-333-59360-X)

• Tom Peters and Bob Waterman: In Search of Excellence (ISBN 0-06-

054878-9)

• Peter Drucker: Managing for Results

• Joel Kurtzman: MBA in a Box (ISBN 0-609-61088-0)

• HenryMintzberg.com

• Harvard Business School: Faculty Profiles: Michael Porter

management thinkers

Documents