Mullins L.J. Management and organisational behaviour, Seventh edition

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This Business Press section provides a range of Financial Times articles relating to issues

and situations explored throughout the book. Topics in management and organisational

behaviour are not free-standing and therefore links with the most relevant chapters are

indicated for each article.

Many of the articles have an international theme, and cover both private and public

sector organisations. Collectively, the articles promote a greater awareness and apprecia-

tion of the subject and help bring your studies to life.

Discussion questions encourage you to reflect critically on key issues, to relate ideas

and principles to actual situations, and to debate views with your colleagues. You might

also consider how the context of the articles compares to the particular characteristics

and culture of your own organisation, or one familiar to you.

Use these articles as a starting point to broaden your studies, and search the daily edi-

tions of the Financial Times, or the FT.com, and other appropriate business press sources

for the most recent updates.

Article 1 A safe way to hold on to staff 1006

Article 2 Business schools share Enron blame 1007

Article 3 Recruitment: facing the next brain drain 1008

Article 4 Companies pressed to adopt higher standards 1010

Article 5 Forget how the crow flies 1012

Article 6 Public sector: go home and prepare for e-government 1017

Article 7 Employees as investors 1019

Article 8 Leader of the band who likes to run the show 1020

Article 9 Great leaders: pioneer and a shrewd strategist 1022

Article 10 Endangered species 1023

Article 11 Mentoring moves into a leading role 1025

Article 12 Driving your employees up the wall 1027

Article 13 A focus on workers' individual needs 1028

Article 14 Advantages of promoting a boutique mindset 1029

Article 15 Avoiding the madness of groupthink 1030

Article 16 End to 'departmentalism' a vision of things to come 1031

Article 17 A long-distance relationship 1032

Article 18 Network protection is a key stroke 1034

Article 19 Relentless rise of the pleasure seekers 1035

Article 20 EU & US: Where are the best workplaces? 1037

Article 21 Marrying performance with reward 1038

Article 22 Human capital: is it 'personnel' with yet more make-up? 1040

Article 23 New learning modelsare under scrutiny 1041

Article 24 Patterns can show if you are up to the job 1043

Article 25 Massive US effort to set up control systems 1044

Article 26 Asda: the listening store 1045

Article 27 Organisations, too, can be put on the couch 1047

Article 28 Swiss group at top of learning tree 1048

Article 29 The rise and rise of the corporate learning officer 1049

BUSINESS PRESS

For nearly a year, the 85,000 people

who work for Safeway, the British

food retailer, have been living

with uncertainty. When William

Morrison, a north of England super-

market group, set off a battle to

acquire its rival in January, Safeway

managers feared an exodus of staff.

Investors assumed that its trading

performance would suffer as competi-

tion authorities spent months

considering potential counter-bids

from Tesco, J. Sainsbury, Asda/

Wal-Mart and Philip Green, the retail

entrepreneur.

So far, however, Safeway has con-

founded expectations. Its trading

performance has not suffered as

badly as some had feared and the

predicted haemorrhage of staff has

not materialised. The company says

staff turnover is broadly in line with

last year’s and has even fallen by

8 per cent in the stores division since

January, while customer service, as

measured by an independent market

research firm, has improved.

Safeway, which is awaiting a

fresh offer after Morrison’s path was

cleared by the competition authori-

ties, was fortunate in having a loyal

workforce. Staff have been with the

company for more than nine years

on average, and managers for more

than 15.

Even so, their loyalty to a retailer

that does not pay the best wages in

its industry has surprised human

resources managers. ‘We sometimes

can’t believe it,’ admits Cathy Mercer,

head of organisational development.

After Morrison launched its bid,

Safeway’s HR team faced the chal-

lenge of trying to maintain morale

among a large workforce worried

about the fate of their company. The

response involved a series of meas-

ures, involving training, information

and incentives. Senior managers

have been through a leadership pro-

gramme to help them withstand the

pressure of the bid situation and

enable them to reassure staff.

Employees have been offered training

in new skills, in the absence of long-

term job security. The company has

started using new ways to communi-

cate with staff in an effort to prevent

unsettling rumours. Retention

bonuses have been made available,

linked to achieving short-term busi-

ness objectives.

These efforts illustrate what can

be achieved by respecting the ties

that bind employees to their organisa-

tion, says Valerie Garrow, author of

a report, Managing on the Edge:

Psychological Contracts in Transition.

‘This is an impressive example of

the benefits of managing the psycho-

logical contract during change,’ says

Ms Garrow, principal researcher at

Roffey Park, a management research

and training institute. ‘The company

has not been able to make promises

about the future, as this is still not

clear. However, it has been able to be

open in communication, listen to its

employees and fulfil obligations.’

Her report, which includes the

Safeway story, examines the damage

to morale, productivity and creativity

that can be caused when these ties

are ignored or mis-handled, and how

companies can avoid this.

The psychological contract, a

term first used in 1960 by Chris

Argyris of Harvard Business School,

is most simply defined as what

employees give their employers and

what they receive in return. The

employer’s obligations include pay,

benefits and training, plus fairness,

recognition and consultation.

Employees who feel they are well

treated on these measures will offer

hard work, flexibility, loyalty and

honesty in return.

The contract is informal, unwrit-

ten and based on trust. Companies

need to understand what shape it is

in before implementing any change,

says Ms Garrow.

When British Airways staff at

Heathrow were told to start clocking

on and off with a swipe card this

year, they went on a paralysing

strike that damaged the airline’s

reputation.

‘The procedure represented a

threat to the employment relation-

ship, particularly as it was linked to

low trust in management inten-

tions,’ she says.

Safeway already knew from

internal research that many

employees stayed with the company

out of loyalty to colleagues. The

agreed bid from Morrison provoked

mixed reactions. Some greeted it

with excitement; others felt a sense

of betrayal.

‘We probably had a number of

weeks where individuals didn’t have

their eye fully on the ball as they

were exploring their own emotions,’

says Rebecca Ivers, head of learning

and development. ‘There was an

allowance for this and a recognition

that people needed time to talk.’

However, about 100 jobs were cut

because of a decline in workload fol-

lowing the bid.

Many store staff found it hard to

understand how they could be taken

over by a smaller company. People

had lots of questions: some wanted

to know the bid timetable, others to

understand the impact on their own

financial situation.

A ‘culture team’, working with the

HR department, took control of com-

munications. New channels include a

help desk to answer questions by

phone or e-mail, ‘colleague councils’

that feed the concerns of store man-

agers to a board director, and an

intranet-based ‘morale monitor’ that

gathers feedback from managers.

Jim White, HR director, and

Fiona Bailey, director for culture,

make a weekly ‘state of the nation’

report to the board on how employ-

ees are responding to developments.

Mr White also reports monthly on

the state of morale and customer

service ratings.

The HR team also realised that

managers and staff needed a differ-

1006

BUSINESS PRESS

A safe way to hold on to staff

Alison Maitland

ARTICLE 1

ent kind of training. They intro-

duced a ‘Looking to the Future’

programme to enable employees to

gain new skills. Requests for train-

ing have increased by more than

50 per cent since March and staff

report that they would rather have

this than any other benefit.

Senior managers needed new

skills, too. With the future looking

foggy, they could no longer be expected

to ‘provide a clear vision’. A pro-

gramme called Leadership Now was

designed to help managers under-

stand the impact of the changing

situation, encourage open discussion

and maintain people’s commitment to

the business. To underline the impor-

tance with which the board takes this,

a director has attended every work-

shop. Bonuses are tied to how well

managers achieve their new goals.

Ms Garrow says the Safeway

case puts into practice the main

principles in her report: ‘They kept

the relationship with employees

going and the mutual expectations

were still clear, in spite of the ambi-

guity of the situation.’

There can be serious conse-

quences when the psychological

contract is ignored or broken, she

says. Employees of acquired compa-

nies can find that the managers on

whom they relied to observe the

psychological contract have left or

been relocated.

‘To the employee, these are the

people who have been keeping

the tally of the ‘brownie points’, or

the entitlement to future benefits or

rewards in return for past hard

work and effort. Past commitment

and loyalty are unlikely to be recog-

nised by an acquiring organisation.’

Employees can react in a variety

of ways, depending on how seriously

they perceive the breach of contract

to be. They may cut back on what

they give the organisation, for

example by keeping good ideas to

themselves until they have decided

whether to stay. They may try to get

more from the company by taking

sick days, arriving late or even

resorting to petty theft.

If they feel the contract has been

violated, they may react emotionally

by walking out, bad-mouthing the

organisation externally, or commit-

ting sabotage. Such negative

reactions can seriously damage a

newly combined company just as it is

trying to demonstrate the short-term

benefits of the deal to shareholders.

While it awaits a new partner,

Safeway will have to continue its

efforts to maintain morale. But the

HR team are pleased they have man-

aged to hang on to their people.

Kellam Greenwood, people potential

manager, says: ‘We expected our

retention figures to be worse year on

year and feel that the combination of

all the factors to enhance retention

and motivation has worked.’

(Reproduced with permission from the Financial

Times Limited, © Financial Times 28 November 2003)

BUSINESS PRESS

1007

Relevance to other chapters

Chapter 2 The Nature of Organisational Behaviour

Chapter 19 Human Resource Management

Questions

Discuss critically the extent to

which you:

1 Accept the concept of the

psychological contract.

2 Believe that Safeway has

effectively managed the

psychological contract.

3 Support the idea of a ‘Looking

to the Future’ programme.

The corporate scandals in the US

have stimulated a frenzy of activity in

business schools around the world.

Deans are busy pointing out how

much their curricula focus on busi-

ness ethics. New courses on corporate

social responsibility are being devel-

oped. Old, laudatory case studies on

Enron and Tyco are being rewritten

to show how bad their senior man-

agers were. In earnest seminars and

over lunch, faculty members are

asking themselves what more they

must do.

Business schools do not need to

do a great deal more to help prevent

future Enrons; they need to stop

doing a lot that they currently do.

They do not need to create new

courses; they need to stop teaching

some old ones. But first, faculty

members need to own up to their

own role in creating Enrons. It is

their ideas that have done much to

strengthen the practices they are all

now so loudly condemning.

For decades, one of the most popu-

lar MBA courses at Harvard was

taught by Michael Jensen, the cre-

ator of agency theory. This course

taught students why, given the fun-

damental nature of ‘man’, managers

could not be trusted to do their job –

which, of course, was to maximise

shareholder value – and how to over-

come ‘agency problems’ by aligning

managers’ and shareholders’ inter-

ests and incentives. Making large

stock options an important part of

managers’ compensation was clearly

one of the most effective ways for

achieving such alignment.

Business schools share Enron blame

Sumantra Ghoshal

ARTICLE 2

At Berkeley and Stanford, busi-

ness students have been taught the

transaction cost economics devel-

oped by Oliver Williamson. In

essence, this argues that the only

reason companies exist is because

their managers can exercise author-

ity to ensure that all employees do

what they are told. Managers must

ensure that staff are tightly moni-

tored and controlled – these courses

described this as the exercise of ‘fiat’

– while creating sharp, individual-

level performance incentives.

And wherever in the world one

studies management, there is

Michael Porter’s theory of strategy.

This asserts that to make good prof-

its, a company must actively

compete not only with its competi-

tors but also with its suppliers,

customers, regulators and employ-

ees. Profits come from restricting or

distorting competition, bad though

this may be for society. It is one of

the most important tasks that man-

agers are paid to do.

It is not only MBA students who

have, for decades, learnt these theo-

ries. Many thousands of executives

have been taught the same lessons

on business courses. Even those who

never attended a business school

learnt to think this way because

these theories were in the air, legit-

imising some managerial actions

and delegitimising others and shap-

ing the intellectual background

against which day-to-day decisions

were made. Is it any surprise, then,

that executives in Enron, Global

Crossing and scores of other compa-

nies granted themselves excessive

stock options, treated their employ-

ees badly and took their customers

for a ride when they could?

Much of the problem has arisen

from the excesses of business school

academics in pretending that busi-

ness is a science. Not only

economists but also those in areas

such as marketing and organisa-

tional behaviour increasingly treat

business as if it were a kind of

physics, in which individual inten-

tions and choices either do not play

a role or, if they do, can safely be

taken as being determined by eco-

nomic, social and psychological laws.

The problem is that, unlike theo-

ries in the physical sciences,

theories in the social sciences tend

to be self-fulfilling. A theory of sub-

atomic particles does not change the

behaviour of those particles. A man-

agement theory, if it gains enough

currency, changes the behaviour of

managers. Whether right or wrong

to begin with, the theory becomes

‘true’ as the world comes to conform

with its doctrine.

This is why it is nonsense to pre-

tend that management theories can

be completely objective and value-

free. Even if the theorists pretend to

be objective, the subjects and users of

the theory cannot. By incorporating

negative and highly pessimistic

assumptions about people and insti-

tutions, pseudo-scientific theories of

management have done much to rein-

force, if not create, pathological

behaviour on the part of managers

and companies. It is time the academ-

ics who propose these theories, and

the business schools and universities

that employ them, acknowledged

the consequences.

(Reproduced with permission from FT.com, 17 July

2003, © Sumantra Ghoshal)

1008

BUSINESS PRESS

Relevance to other chapters

Chapter 3 Approaches to Organisation and Management

Chapter 5 Organisational Goals, Strategy and Responsibilities

Chapter 6 The Nature of Management

Questions

Discuss critically the extent to

which you:

1 Believe that business schools

need to change their curricula

and stop teaching old

concepts.

2 Support the Michael Porter’s

theory of strategy.

3 Accept the criticisms of

management theories.

The trend for people to leave public

sector employment is nothing new,

nor is there anything particularly

21st century about selling one’s

services back to the public sector.

What is arguably different today

is the increase in numbers leaving

as public sector bodies continue to

contract-out an increasing propor-

tion of their work, and the impact

that this could have when com-

bined with other important

socio-economic factors.

‘Demographics indicate that

there will be a brain drain from the

public sector over the next 15 years

as a significant wave of government

employees retire,’ says Peter Morris

of Pegasystems, an IT vendor servic-

ing the public sector.

In some eyes, this inevitably rep-

resents a threat to accumulated

corporate knowledge in the public

sector, and underlines the urgency

of replicating that accumulated

knowledge in electronic form.

But is such an exodus necessarily

a bad thing? Not according to

Hamish Davidson, chairman of

Veredus Executive Resourcing.

Recruitment: facing the next brain drain

Brian Bollen

ARTICLE 3

‘I think it’s a factor that must

always be taken into account,

whether private or public,’ he says.

‘Part of the job of a chief executive

is to manage risk, and that risk

includes the loss of key people with

corporate knowledge and history.’

Christine de Largy, a director

at Harvey Nash, firmly believes

that the trend is good for the

public sector.

‘Our experience of working with

interim managers hired back in for

a specific project is that they enjoy

an independence that they would

normally have been denied,’

she says.

‘Freed from the traditional con-

straints of career management and

organisational politics, they are

confident in their ability to achieve

specific deliverables to a specific

timescale and on budget.’

‘People hiring themselves back

to the public sector might bring an

injection of fresh enthusiasm and

fresh thinking,’ says Paul Ballard,

of Hudson.

‘There is less pressure on them

to present conformist solutions.’ In

other words, such workers are freer

to think out of the box, and to

speak out of the box.

It can often be an effective way

of getting specialist tasks done

quickly and effectively, especially in

smaller organisations where

the skill sets and competences

required are not present to a

sufficient depth in the in-house

workforce, according to Richard

Mills, Functional Head of Employee

Relations, Surrey County Council.

‘Freelancers can bring in a

wealth of experience without the

baggage and overheads of a large

consultancy firm.

‘Best suited to this approach

are discrete areas of work rather than

longer-term relationships. Examples

would be developing/launching a

change programme; developing

leadership/management programmes;

pay and grading reviews.’

Lynton Barker, vice-president of

the Management Consultancies

Association (MCA) and executive

chairman of Hedra, a UK manage-

ment and technology consulting

partner for public service organisa-

tions, says: ‘Based on my

experience, it is only good for the

industry if a public sector profes-

sional leaves the public sector to

join a firm where there is a clear

development plan that adds to

their skill base.

‘Therefore, when they are

offered as a consultant to the public

sector, the managers they are work-

ing with can see that they are not

only getting public sector knowl-

edge and experience but also

additional skills.

‘It just does not work when

public sector employees are sent

back into government departments

without previously following a clear

development plan.’

People leave public service for

many different reasons, but demor-

alisation, demotivation and

frustration will loom large in any

discussion of the topic.

So, too, will redundancy and

rationalisation, as not all who have

left have wanted to go, or had

another job to go to.

The first-hand experience of

Tom Pinnington echoes many of the

comments made.

Mr Pinnington used to work for

Sport England and the National

Lottery’s New Opportunities fund,

both quangos offering fairly typical

public sector terms and conditions

of employment.

In a classic case of gamekeeper

turned poacher, he now works at

the Symonds Group’s Sport and

Leisure Consultancy, in London’s

Holborn, helping local authorities

to access the funding controlled by

Sport England and the New

Opportunities fund.

Why did he leave? He lists sev-

eral reasons: the lack of operational

autonomy, an overly strict and

bureaucratic hierarchical organisa-

tion and poor promotion prospects.

The private sector, by contrast,

is more dynamic and, to put it

bluntly, better paid.

‘You also have more freedom to

use your initiative,’ he argues.

’If you spot an opportunity for

the company to make money, you

can investigate it rather than wait

for approval from above.

‘There is more freedom to make

choices. You have more control over

your own career.’

The view from the coal face,

then, is that it is the better quality

staff who get most frustrated and

leave most quickly.

‘If you want to get on in two to

five years, the public sector is

not necessarily for you,’ says

Mr Pinnington. ‘They’re losing

bright people.’

All is not lost, though, in spite of

this bleak prognosis.

‘It depends on your point of view

as to the relative worth of those

leaving,’ says Hamish Davidson.

‘One of the criticisms of parts of

the public sector has been that

some people have been in their

jobs and in the same organisations

for decades, and that this explains

why they have been slow to change

or to embrace the notions of

‘modernisation’.

‘Some have taken the view that

spaces have had to be created so

that fresh blood, new ideas and

new ways of thinking can be

recruited.

‘It is also the case that there has

been a desire to increase the

‘permeability’ of organisations –

that is to say, encouraging the

movement of staff and talent

within and between different parts

of the public sector, and between

private and public, and public and

private sector.

‘This is a government-backed

initiative. The promotion of ‘choice’

for the end-user or customer, which

is one of the prime minister’s four

pillars of reform, has required new

types of skills to be brought into

organisations.’

Interestingly, there are those –

albeit with a vested interest – who

use many of the same arguments to

push the case for working in the

public sector as disillusioned

former employees do for leaving it.

‘Public sector employers offer

not just challenging work, many

have working practices that ensure

work will not take over your life,’

says Graham Trickey, editor of

Getalife,a recognised graduate

recruitment resource.

BUSINESS PRESS

1009

‘The public sector is the place for

people who want a good fit between

time spent inside and outside

work,’ he says.

But will graduates saddled with

debt as a result of deliberate gov-

ernment policy really be flocking to

lower paid jobs in the public sector?

The predicted brain drain could

hit the country’s public services

harder and quicker than anyone has

suggested, driving demand for out-

sourced consultancy services to new

levels.

(Reproduced with permission from FT.com,

27 February 2004, © Brian Bollen)

1010

BUSINESS PRESS

Questions

Discuss critically the extent to

which you:

1 Would defend people leaving

and then hiring themselves

back to the public sector as a

good thing.

2 Believe people leave public

service largely because of

demoralisation, demotivation

and frustration.

3 Think that if people are in the

same job and organisation for

too long they may be slow to

change or to embrace

‘modernisation’.

Relevance to other chapters

Chapter 4 The Nature of Organisations

Chapter 12 Work Motivation and Rewards

Chapter 20 Resourcing the Organisation

Asia’s remarkable growth has freed

millions from poverty. But economic

success has come at a heavy cost.

Environmental degradation in the

region is now ‘pervasive, accelerat-

ing and unabated,’ according to the

Asian Development Bank.

In the past four decades Asia has

lost half its forest cover and half its

fish stocks. China, the region’s biggest

economy, has suffered chronic air pol-

lution from burning coal, water

pollution from untreated waste and

soil erosion from deforestation.

The environmental implications

of Asia’s growth could reverberate

around the world. ‘With 1.3bn

people and an official goal to

quadruple economic growth by

2020, China’s environmental per-

formance will not only determine

the well-being of its own people but

will have consequences for the

whole planet,’ says Klaus Toepfer,

executive director of the United

Nations’ Environment Programme.

There is also a wider lesson to be

learned from the development chal-

lenges facing Asia. Is pollution

simply the price of development?

Does this generation have to endure

an environmental tragedy for the

sake of future generations?

Not in the opinion of a World

Bank report on ‘Greening Industry’.

In what it described as ‘an intrigu-

ing and hopeful story’, it said that

many developing countries have

already turned the corner in the

fight against industrial pollution.

Factories are cleaner than a

decade ago and total emissions are

starting to fall even in areas where

industry continues to grow rapidly.

‘The clean-up has begun because

developing countries have decided

that the benefits of pollution control

outweigh the costs,’ says the report.

A similar point is made by the

Association for Sustainable and

Responsible Investment in Asia, a

Hong Kong-based not-for-profit group:

‘Only 10 years ago, corporations and

investors would have seen China as a

pollution haven where environmental

standards were allowed to ‘let slip’

and of secondary importance to rapid

economic growth.

‘However, the authorities have

tightened their grip and businesses

setting up in China can expect

growing levels of scrutiny.’

Foreign investors can play an

important role. ‘Stronger enforce-

ment of these regulations is needed

by government and market forces

can reinforce government action,’

says Asria.

The pressure on companies to

adopt higher environmental and

social standards is being applied

through supply-chain initiatives

and the growth of ‘socially responsi-

ble’ investment funds.

Shareholder activists are target-

ing companies operating in

developing countries. In the US,

more than 300 shareholder resolu-

tions were filed last year, up from

223 in 1999.

Calls for companies to produce

sustainability reports received more

than 20 per cent of the votes on

average, while resolutions about cli-

mate change, human rights and

labour standards attracted more

than 10 per cent of votes.

The International Finance

Corporation argues that champi-

oning environmental and social

issues serves companies’ own inter-

ests. It can help them save costs,

increase revenues, reduce risk, build

Companies pressed to adopt higher standards

Vanessa Houlder

ARTICLE 4

their reputation and improve access

to financing.

‘There are compelling commercial

reasons to take action, despite a

common assumption that sustain-

ability is a luxury which emerging

markets cannot afford,’ it concludes.

But the question of how far compa-

nies should take responsibility for

social and environmental problems

remains hugely controversial. At last

year’s World Summit on Sustainable

Development, partnerships between

business, governments and non-gov-

ernmental organisations (or NGOs –

often the most effective voices for the

concerns of ordinary people in

the international arena), were hailed

as the most promising approach

to turning good intentions into practi-

cal action.

Already, private provision of

health, education and water has

increased in poor countries over the

last two decades, as a result of a

lack of government funds, poor qual-

ity public provision and pressure to

liberalise the economy, according to

the UN’s recently-published Human

Development Report.

But the growing role of the pri-

vate sector has often met with fierce

opposition from local communities

and NGOs. This year’s Kyoto water

summit, which was meant to focus

on how access to water and sanita-

tion could be improved, was dogged

by bitter arguments over the impli-

cations for poor communities of

entrusting water provision to large

private-sector companies.

Many NGOs and community

groups also distrust attempts by

multinationals to reduce the

damage they inflict on the environ-

ment through their operations.

These attempts have continued to

gather pace this year, most recently

in a decision by Shell and 15 lead-

ing mining companies to treat

World Heritage Sites as ‘no go’

areas for exploration.

But environmental initiatives of

this sort are criticised as inadequate

by many observers in academia and

NGOs. ‘In the absence of stronger

forms of regulation and more con-

certed civil society pressure, the

process of greening business in

developing countries will remain

lukewarm,’ says a report on The

Greening of Business in Developing

Countries, sponsored by the United

Nations Research Institute for

Social Development.

This report also criticised compa-

nies for failing to promote sustainable

consumption. ‘Initiatives associated

with corporate environmentalism

rarely encourage consumers to adopt

very different consumption patterns

that would significantly reduce envi-

ronmental degradation,’ it said.

This criticism highlights a cen-

tral concern about the gap between

the efforts of businesses to reduce

their impact on the environment

and the worsening state of the

planet. This partly stems from the

relatively small number of busi-

nesses that are integrating social

and environmental factors into busi-

ness decisions.

But in addition, environmental

improvements are being overtaken

by economic growth and increased

demand for goods and services.

A growing world population and

increasing affluence will pile on the

pressure. The biggest aspect of the

problem is global warming, which is

likely to result in more extreme

storms, floods and droughts that

will, in turn, pose a threat to devel-

opment. ‘Climate change will

further reduce access to drinking

water and negatively affect the

health and food security of poor

people in many countries of Africa,

Asia and Latin America,’ according

to a recent reports by the World

Bank and other multilateral devel-

opment-oriented institutions.

Here, once again, the remarkable

growth of the Asian economies

underlines the seriousness of the

challenges. If car ownership in

China, India and Indonesia reached

the global average, 200m vehicles

would be added to the global fleet,

twice the number of all cars in the

US today, according to UNEP.

It argues that the earth’s ecosys-

tems could not cope with the

widespread adoption of the con-

sumption and production patterns

found in developed countries.

Environmental degradation could

undermine future economic growth

and pose a substantial obstacle to

poverty reduction.

Clean production processes and

sustainable consumption patterns

must become a crucial component of

the development agenda, according

to UNEP’s Mr Toepfer. ‘We must

delink economic growth and envi-

ronmental degradation.’

(Reproduced with permission from the Financial

Times Limited, © Financial Times 16 October 2003)

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Questions

Discuss critically the extent to

which you:

1 Believe companies should

integrate social and

environmental factors into

business decisions.

2 Support shareholder activities

on resolutions for sustainability

reports, climate change, and

human rights.

Relevance to other chapters

Chapter 4 The Nature of Organisations

Chapter 5 Organisational Goals, Strategy and Responsibilities

If you want to go in one direction,

the best route may involve going in

the other. Paradoxical as it sounds,

goals are more likely to be achieved

when pursued indirectly. So the

most profitable companies are not

the most profit-oriented, and the

happiest people are not those who

make happiness their main aim.

The name of this idea? Obliquity

The American continent sepa-

rates the Atlantic Ocean in the east

from the Pacific Ocean in the west.

But the shortest crossing of America

follows the route of the Panama

Canal, and you arrive at Balboa

Port on the Pacific Coast some 30

miles to the east of the Atlantic

entrance at Colon.

A map of the isthmus shows how

the best route west follows a south-

easterly direction. The builders of

the Panama Canal had comprehen-

sive maps, and understood the

paradoxical character of the best

route. But only rarely in life do we

have such detailed knowledge. We

are lucky even to have a rough out-

line of the terrain.

Before the canal, anyone looking

for the shortest traverse from the

Atlantic to the Pacific would natu-

rally have gazed westward. The

south-east route was found by Vasco

Nunez de Balboa, a Spanish con-

quistador who was looking for gold,

not oceans.

George W. Bush speaks mangled

English rather than mangled French

because James Wolfe captured

Quebec in 1759 and made the British

crown the dominant influence in

Northern America. Eschewing obvi-

ous lines of attack, Wolfe’s men

scaled the precipitous Heights of

Abraham and took the city from the

unprepared defenders. There are

many such episodes in military his-

tory. The Germans defeated the

Maginot Line by going round it,

while Japanese invaders bicycled

through the Malayan jungle to cap-

ture Singapore, whose guns faced

out to sea. Oblique approaches are

most effective in difficult terrain, or

where outcomes depend on interac-

tions with other people. Obliquity is

the idea that goals are often best

achieved when pursued indirectly.

Obliquity is characteristic of sys-

tems that are complex, imperfectly

understood, and change their nature

as we engage with them. Forests

have all these features. Fire is the

greatest enemy of the forest. From

the late 19th century, the policy of

the US National Parks Service was

of zero tolerance towards fire. Every

outbreak, however small, would be

extinguished. But the incidence of

fire did not fall: it increased.

Computer simulation of fire con-

trol policies suggests the explanation.

Most forest fires are small, and burn

themselves out. In doing so, they

remove combustible undergrowth,

and create firebreaks that limit

the spread of future fires. In 1972,

the National Park Service determined

a new policy: it would put out

man-made fires, but allow natural

ones to burn.

Sixteen years later, the largest fire

known swept through Yellowstone

National Park. In extremely dry con-

ditions, several fires – some sparked

by lightning, some by arsonists –

joined together. The blaze was fought

by 25,000 firefighters at a cost of $120

million; more than a third of the

park’s vegetation was destroyed.

Today’s guidelines allow forest

rangers to use their judgment in

deciding which fires should be tack-

led and which left to burn.

Experience has shown that too

much effort devoted to fire extinc-

tion is counterproductive. Time

demonstrates, but only slowly,

whether policy has gone too far in

one direction, or the other. Forest

management illustrates obliquity:

the preservation of the forest is not

best pursued directly, but managed

through a holistic approach that

considers and balances multiple

objectives.

Forests are not the only systems

structured in this way. Obliquity is

equally relevant to our businesses

and our bodies, to the management

of our lives and our national

economies. We do not maximise

shareholder value or the length of

our lives, our happiness or the gross

national product, for the simple but

fundamental reason that we do not

know how to and never will. No one

will ever be buried with the epitaph

‘He maximised shareholder value’.

Not just because it is a less than

inspiring objective, but because even

with hindsight there is no way of

recognising whether the objective

has been achieved.

For most of the 20th century, ICI

was Britain’s largest and most suc-

cessful manufacturing company. In

1987, ICI described its business pur-

pose thus: ‘ICI aims to be the

world’s leading chemical company,

serving customers internationally

through the innovative and respon-

sible application of chemistry and

related science.

‘Through achievement of our

aim, we will enhance the wealth and

well-being of our shareholders, our

employees, our customers and the

communities which we serve and in

which we operate.’

ICI’s corporate portfolio had

evolved over the decades – the com-

pany’s traditional strengths had

been dyes and explosives, but its

chemical expertise had taken it into

other industrial feedstocks and agri-

cultural fertilisers. After the second

world war, the management of ICI

concluded that in future ‘the respon-

sible application of chemistry’ was

most likely to be found in pharma-

ceuticals. ICI recruited a team of

able, young, academic scientists but

the team was slow to bring returns.

The pharmaceutical division was

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Forget how the crow flies

John Kay

ARTICLE 5

a drain of ICI resources until, in the

1960s, the discovery of beta-blockers

gave the company the first effective

drug for controlling hypertension.

More discoveries followed and, by the

1980s, pharmaceuticals had become

the growth engine of the company.

In 1991, Hanson, the predatory

UK conglomerate that had success-

fully acquired and reorganised

sluggish British manufacturing

businesses such as Ever Ready and

Imperial Tobacco, bought a modest

stake in ICI. While the threat to the

company’s independence did not last

long, the effects were galvanising.

ICI restructured its operations and

floated the pharmaceutical division

as a separate business, Zeneca. The

rump business of ICI declared a new

mission statement: ‘Our objective is

to maximise value for our share-

holders by focusing on businesses

where we have market leadership, a

technological edge and a world com-

petitive cost base.’

While the National Parks Service

had moved from a narrow, focused

objective to a broader holistic view

of forest management. ICI made the

opposite shift – from a grand vision

of the responsible application of

chemistry to a narrow concentration

on established, successful activities.

The aim of bringing benefit to a

wide range of stakeholders was

replaced by the specific objective of

creating shareholder value from

narrowly focused operations. The

company translated this into an

operational strategy by disposing of

the company’s interests in bulk

chemicals to acquire a niche group

of speciality businesses: ICI, once

the main supplier of chemical prod-

ucts to one third of the world, was

reinvented as a smells company.

The outcome was not successful

in any terms, including those of cre-

ating shareholder value. The share

price peaked in 1998, soon after the

new strategy was announced. The

decline since then has been relent-

less. After two successive dividend

cuts the company was ejected in

early 2003 from the FTSE 100

index, the transition from industrial

giant to mid-cap corporation had

taken only 12 years.

ICI is not the only company for

whom greater emphasis on corporate

financial goals led to less success in

achieving them. I once said that

Boeing’s grip on the world civil avia-

tion market made it the most

powerful market leader in world busi-

ness. Bill Allen was chief executive

from 1945 to 1968, as the company

created its dominant position. He said

that his spirit and that of his col-

leagues was to eat, breathe, and sleep

the world of aeronautics. ‘The greatest

pleasure life has to offer is the satis-

faction that flows from participating

in a difficult and constructive under-

taking,’ he explained.

Boeing’s 737, with almost 4,000

planes in the air, is the most suc-

cessful commercial airliner in

history. But the company’s largest

and riskiest project was the develop-

ment of the 747 jumbo jet. When a

non-executive director asked about

the expected return on investment,

he was brushed off: there had been

some studies, he was told, but the

manager concerned couldn’t remem-

ber the results.

It took only 10 years for Boeing

to prove me wrong in asserting that

its market position in civil aviation

was impregnable. The decisive shift

in corporate culture followed the

acquisition of its principal US rival,

McDonnell Douglas, in 1997. The

transformation was exemplified by

the CEO, Phil Condit. The com-

pany’s previous preoccupation with

meeting ‘technological challenges of

supreme magnitude’ would, he told

Business Week, now have to change.

‘We are going into a value-based

environment where unit cost, return

on investment and shareholder

return are the measures by which

you’ll be judged. That’s a big shift.’

The company’s senior executives

agreed to move from Seattle, where

the main production facilities were

located, to Chicago. More impor-

tantly, the more focused business

reviewed risky investments in new

civil projects with much greater

scepticism. The strategic decision

was to redirect resources towards

projects for the US military that

involved low financial risk. Chicago

had the advantage of being nearer

to Washington, where government

funds were dispensed.

So Boeing’s civil orderbook today

lags that of Airbus, the European

consortium whose aims were not ini-

tially commercial but which has,

almost by chance, become a prof-

itable business. And the strategy of

getting close to the Pentagon proved

counter- productive: the company got

too close to the Pentagon, and faced

allegations of corruption. And what

was the market’s verdict on the com-

pany’s performance in terms of unit

cost, return on investment and

shareholder return? Boeing stock,

$48 when Condit took over, rose to

$70 as he affirmed the commitment

to shareholder value; by the time of

his enforced resignation in December

2003 it had fallen to $38.

In Yellowstone National Park,

at ICI and at Boeing, the attempt

to focus on simple, well defined

objectives proved less successful

than management with a broader,

more comprehensive conception

of objectives.

The 20th century saw the rise

and fall of modernist rationalism in

many activities. Nowhere was the

change more visible, or the results

more disastrous, than in architec-

ture and town planning. In the

modernist vision, technology eman-

cipated builders from tradition and

accumulated knowledge. Twentieth-

century planners could redesign our

environment from first principles.

Charles Jencks, the architectural

commentator, announced that mod-

ernism ended at 3.32pm on July 15

1972, when demolition contractors

detonated the fuses to blow up the

Pruitt-Igoe housing project in St

Louis, Missouri. Less than two

decades earlier, the scheme had won

awards for its pioneering, visionary

architecture. Tower blocks were the

supreme expression of Le

Corbusier’s view that ‘a house is a

machine for living in’. Corbusier

himself designed the first such

buildings, the Unite d’Habitation on

the edge of Marseille.

But a house is not simply a

machine for living in. There is a dif-

ference between a house and a

home. The functions of a home are

complex and the utility of a building

depends not only on its design but

on the reactions of those who live in

BUSINESS PRESS

1013

it. The occupants of the Pruitt-Igoe

scheme, like those of similar build-

ings, were alienated by the isolation

of a living environment that saw no

need for accidental, unplanned

social interactions. They showed no

respect for its public spaces. The

functionality of the blocks proved, in

the end, not to be functional.

Communities are complex organ-

isms, imperfectly understood, and

their functioning depends on their

social relations. Great architects

implicitly understand obliquity, but

obliquity is so important to the

design of towns that the most suc-

cessful towns have no designer at

all. The planned city was conceived

in the late 19th century. Baron

Hausmann swept away the jumble

of Paris streets that had developed

over the centuries to create grand

boulevards. From the 1920s to 1968,

the powerful, autocratic Robert

Moses controlled the physical envi-

ronment of New York, driving

expressways through apartments,

offices and factories.

The zenith of these ideas was

reached in planned cities such as

the designed capitals of Brasilia,

Canberra and Chandigarh. But all

these cities are dull. They lack the

vitality of real communities. As with

tower blocks, their very functional-

ity is dysfunctional.

The National Park officials who

thought they could eliminate fire;

the managers who thought they

could reinvent ICI and Boeing; the

architects who believed they could

discard thousands of years of expe-

rience and redesign buildings on

purely functional lines; the planners

who attempted to rationalise the

patchwork evolution of historic

cities: all made the same mistake of

underestimating the complexity of

the system with which they dealt

and the value of the traditional

knowledge they inherited. And the

answer to their problem is not

better analysis and more sophisti-

cated modelling, but more humility.

Such humility is not commonly

found in the business world. Re-engi-

neering the Corporation by Michael

Hammer and James Champy

became a New York Times bestseller

in 1993. Hammer and Champy are

as radical in aspiration as Le

Corbusier: ‘Re-engineering means

asking the question `If I were re-cre-

ating this company today, given what

I know and given current technology,

what would it look like?’ Re-

engineering a company means toss-

ing aside old systems and starting

over. It involves going back to the

beginning and inventing a better

way of doing work.’

Obliquity gives rise to the profit-

seeking paradox: the most profitable

companies are not the most profit-ori-

ented. ICI and Boeing illustrate how a

greater focus on shareholder returns

was self-defeating in its own narrow

terms. Comparisons of the same com-

panies over time are mirrored in

contrasts between different compa-

nies in the same industries. In their

2002 book, Built to Last: Successful

Habits of Visionary Companies, Jim

Collins and Jerry Porras compared

outstanding companies with adequate

but less remarkable companies with

similar operations.

Merck and Pfizer was one such

comparison. Collins and Porras com-

pared the philosophy of George

Merck (’We try never to forget that

medicine is for the people. It is not

for the profits. The profits follow,

and if we have remembered that,

they have never failed to appear.

The better we have remembered it,

the larger they have been’) with

that of John McKeen of Pfizer (’So

far as humanly possible, we aim to

get profit out of everything we do.’)

Collins and Porras also paired

Hewlett Packard with Texas

Instruments, Procter & Gamble with

Colgate, Marriott with Howard

Johnson, and found the same result

in each case: the company that put

more emphasis on profit in its decla-

ration of objectives was the less

profitable in its financial statements.

Similarly the richest men are not

the most materialistic. Sam Walton,

founder and principal shareholder

of Wal-Mart, the world’s largest

retailer, drove himself around in a

pick-up truck. ‘I have concentrated

all along on building the finest

retailing company that we possibly

could. Period. Creating a huge per-

sonal fortune was never particularly

a goal of mine,’ Walton said. Still,

five of the top 10 places in the

Forbes rich list are occupied by

members of the Walton family.

Henry Ford was sued by stock-

holders who resented his

determination to expand his auto-

motive business rather than

distribute the profits. When they

won their case, most of the dividend

that the court required the Ford

Motor Company to pay went to

Henry himself. He used the money

to buy back stock and regain free-

dom of operations. The dissatisfied

stockholders would have done better

to keep quiet.

Warren Buffett, the most success-

ful investor in history, still lives in

the Omaha bungalow he bought

almost 50 years ago and continues

to take pleasure in a Nebraskan

steak washed down with cherry

Coke. For Buffett: ‘It’s not that I

want money. It’s the fun of making

money and watching it grow.’

The individuals who are most

successful at making money are not

those who are most interested in

making money. This is not surpris-

ing. The principal route to great

wealth is the creation of a successful

business, and building a successful

business demands exceptional tal-

ents and hard work. There is no

reason to think these characteristics

are associated with greed and mate-

rialism: rather the opposite. People

who are obsessively interested in

money are drawn to get-rich-quick

schemes rather than to business

opportunities, and when these

schemes come off, as occasionally

they do, they retire to their villas in

the sun.

And so, the greatest happiness is

rarely achieved by those who set out

to be happy. The development of psy-

chology and neurophysiology gives us

more insight into the real determi-

nants of happiness. Author and

psychologist Mihaly Csikszentmihalyi

explores the nature of happiness by

listening to what people say about

their activities through what he calls

experience sampling. He pages people

frequently to write down structured

reports of exactly how they feel about

what they are doing at that moment.

Although we crave time for passive

leisure, people engaged in watching

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