Myths taught in Business Schools

The management principles taught by even the top schools might be outdated. Much of the foundation for our modern business management comes from the Industrial revolution of the 19th century.

We’ve all heard about what we need to do to turn mediocre companies around and make them stellar. I’ve either worked for or had first-hand knowledge about companies that have done all these things. I’m sure you have, too. We’ll step through them one by one.

The problem is that objective research has shown that NONE of these initiatives is pivotal in driving a meteoric improvement in a company’s performance! Jim Collins and his team of researchers from Stanford undertook a meticulous study of companies that rose from mediocrity to stardom and published their results in their book Good to Great: Why Some Companies Make the Leap. This is what they learned.

Myth 1: Bring in a star CEO from the outside. This doesn’t work. In fact, the evidence shows that bringing in these star performers from the outside negatively impacts revenues and profits. The companies that managed turn arounds successfully have been promoted from within.

Myth 2: The right compensation program drives the right behaviors. The facts don’t bear this out. You need to offer the right pay to attract the right executives, but they will be star performers because they believe in what the company is doing and they have the freedom to be effective. Tweaking the compensation system does not tweak behavior.

Myth 3: Top companies have better strategies than the low performers. Again, not true. The run-of-the-mill companies had strategic plans and implementation plans that were just as well thought through as the top performers. There is an excellent book, Execution – The Discipline of Getting Things Done – that shows that enterprises fail because they fail to execute their plans, not because they fail to plan.

Myth 4: Top companies focus on what they need to do. Again, as counterintuitive as that seems, it’s not true. They focus on what not to do! Steve Jobs’ biography is particularly instructive on this point. When Jobs came back to take over the helm of Apple, he cut out hundreds of projects. He focused on building just a few products. He wanted products that were mind-bendingly great. To do that, he started by cutting out all but a handful of projects.

Myth 5: Technology investments will help turn a company around. Not true! Technology investments accelerate turnarounds but do not launch them.

Myth 6: Mergers and acquisitions will pick a company up by filling in missing parts of a product portfolio and trigger a rebirth. The merger of two mediocre companies does not make a great company. A company needs to be on a success trajectory first and then merge or acquire to accelerate that growth later.

Myth 7: Turnarounds require close attention to managing change, motivating staff, and ensuring alignment. The data does not support any of that. Companies that actually make the move from mediocrity to superior performance do it one day at a time. One tiny step at a time. They take the right steps and the alignment, staff motivation, and organizational change falls into place naturally. No need to make a big deal of it.

Myth 8: The launch from mediocrity to superiority is launched with a tag line, major announcement, and well-defined programs. Actually, it doesn’t work that way at all. What turn around companies really do is far more mundane. They make thousands of small adjustments. Take thousands of small steps. Move people around as the opportunities present themselves. Drop the deadwood when possible. Make one sale at a time. There is no major trigger event or major announcement.

Myth 9: Good-to-great companies are in great industries. Again, the evidence does not bear this out. These companies come from run-of-the-mill industries. Industries like the mortgage industry or the grocery industry. Moving an enterprise from adequate to exceptional can – and does – occur in all industries.

Here is the lesson we need to take away. Forget the hoopla. Instead, management needs to think through its business, develop its core values, and start making gradual progress. Middle management will eventually sense a change in the environment. Then the rank and file will sense the change. Then the market will sense the change. Then the investment community will sense the change. All the parties will see the results without big announcements. When the change is finally recognized, it will look like an overnight success. In fact, it will be anything but that.