The Management Challenge

Our management systems have since time immemorial used ONLY OUTPUT as the single point of evaluation, to measure performance, to monitor and define growth, to reward human resource, and as a planning tool. ( The majority response to this is: ‘obviously what else is there?') Our teaching and instructions are however focused on INPUTS. What we do is an input and it is expected that the output will follow. This was correct in the linear era where INPUTS would generally EQUAL INPUTS.

This is no longer relevant in this Non Linear Era, where we have started to see huge variations when compared to our historical norms and our new experience which seem to require an increasing level of input for the same historical level of output. The mathematical link between the two is no longer linear.

The INPUTS that are creating the largest variation in OUTPUT can no longer be defined accurately as they are intangible and subjective. In the Non Linear era the principal inputs that have started to control OUTPUT; are R&D, Technology, design, advertising, legal issues, timing and customer perception. The tangible INPUTS of money, machine, labour and even quality are no longer providing the returns as before, disturbing the patterned formula that would was expected to yield the equivalent OUTPUT. We are however, now being convinced that larger budgets are required to launch products, and the cost of product development is getting higher. The only common feature to the trends seem to be, that they ‘exclude’ new entrants by theory and design. We should not accept this linear logic.

Output and its quantum is increasingly dependant on the SUBJECTIVE INPUTS OF HUMAN RESOURCE. Yet our systems can only evaluate them based on the OUTPUT. This implies OUR INABILITY to evaluate , reward and hence motivate our human resource as before.

THE MANAGEMENT CHALLENGE FOR THIS MILLENIUM AND WITHIN THIS NON LINEAR ERA IS TO DESIGN SYSTEMS THAT CAN EVALUATE HUMAN RESOURCE BEFORE AND WITHOUT THE NEED TO AWAIT OUTPUT. (The difficulty in perceiving this by many is indicative of our fixed perception and norm based reflex.)

Control based systems remain our only management tool and despite their failing we have yet to identify another method of management.

Linear logic perceives a Manager to mean ONE person who is assigned and required to control others. But, control promotes the natural human instinct to dominate. Management as per current perception thus tends to create “Conflict” within conventional structures. Non- Linear logic requires management systems to be enlarged ( down the organisation) to promote self management as the basic teaching for almost all employees who are currently “being managed”. Todays managers then have to be pushed laterally to become teachers not controllers!

Management systems and books continue to stress on words like push and assert. Everyone must PUSH for sales of a product, and ASSERT their point of view. The advised goal for all is usually to “WIN” and come out on “top”. Linear logic by design teaches us to focus on using strength ( to achieve more output) rather than correcting weakness( to improve input).

Within most educational institutions, corporates or markets , the linear extension of competition now means that there are fewer successes. Winning has started to imply that a small minority must not merely come out ahead but strive to virtually eliminate the majority.

This view must be proved to be a MYTH and totally irrelevant for the future of ASIA, where the populous millions have to be accomodated within any progress.

While it is perhaps utopian to recommend or expect abdication of control and executive power, it could be practical for future executives and controllers to consider creation of input evaluation systems independent of “output”.

• Changing the current systems that have separated the power and hierarchy of execution from planning and thinking. What is now required is that the latter (planning and thinking) requires to be classified as a ‘simpler input function suitable for most employees' and need not be considered a sacred top management skill currently credited to their output.
• New systems that give the highest reward to teaching and transfer of skills, rather than self execution.
• Systems that redirect the motivation of competition from external to self. Promoting self-management, and using our own past performance for improvement on a continuous basis. ( benchmarking with other companies has started to become irrelevant because the gap between the market leaders and new entrants/small corporates is too high to attempt emulation. We are assuming that those reading this are unlikely to be market leaders and controllers of their markets. (Read 'Who needs NLT ?' )
• HRD Systems must transparently show to each employee his or her function in terms of economic value, and the clear existence of additional added - value opportunities, that are available if the employee can offer changed inputs. We have already started to see progressive companies allowing internal company employees to apply for new jobs within the company irrespective of their past remuneration. Unfortunately this is rare ! Why? It is difficult to understand.

In Asian countries, Idle human resource cannot be assumed to be a detached and silent minority. They can disrupt all economic activity and negate the perceived cost savings that are assumed based on hire and fire linear logic.

We in South Asia / India must develop systems voluntarily and with optimism - that shows human resource to be the lowest cost resource - because it can create “profit” if given the motivation and tangibility.

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Despite proof of the past, Big Size can no longer retain their dominance !

Our current management systems seem to imply that the majority will “not succeed” – unless they are led and managed. This infers that only the “Giants” will survive, because they are the saviours! Is this our future vision, based on increasing levels of awareness and education? Should this be our belief when we have seen the entrepreneurial skills of our Indian citizens in every corner of the World (excluding within their own country)? Despite them starting as immigrants with little resource; they have been successful by not even attempting to compete. They have created their own niche and markets.

"Why do we then attempt to compete with MNC’s or larger companies using the same inputs as they do ?"

We cannot compete with them unless we can start to focus on identifying the unique and new inputs which have the least linear link to capital or their strengths.

Linear systems of past education and management have without doubt proved that leadership - based theories have been sound and profitable. They have led us to our current pinnacle of success, through decades of resource management. This was the Linear era where there was always seemingly unlimited basic opportunity and uncharted potential for all. Linear inputs of education and management have given us our growth reward through the 19th and most of the 20th Century - based on the creation of professionals who were educated and trained primarily for OUTPUT!

However despite the “geometric growth” of literate population, income and education - we have now started to see a 'narrowing of output'. The number of successful companies and leaders seems to shrink. Closure and mergers are needed for even the successful to survive.

Some future forecasts indicate that only 5 manufacturers will survive in every “product group” on a worldwide basis! This must be considered as negative brain washing. This is an archaic extension of old linear logic to help existing controllers to somehow retain their concentrated “control” structures. We have experienced that concentrated Political Control is no longer acceptable to most citizens of the World. WE therefore need not accept the linear logic that concentrated economic control can come “in” as a replacement.

The future must be about progression; not substitution!

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Identifying which inputs are the 'New Controllers' !

Information is on the input side and ultimately controls economics which is merely a mathematical expression of output.

Those in control, are supported by linear systems that convince us that economics is the critical input and controller of output. This error is due to our own inability to give an economic valuation to input - independent of output .

New Technologies are clearly indicating that less volume is viable. Though we believe that the demand for human labour inputs must reduce - we must note that this always happens when we attempt to “mass produce a product or or attempt replicate services with similar inputs”.

The services and speciality manufacturing sector always indicate a high employment potential - if niche requirements are well identified. The falling market for manufacture of a certain product is being substituted by increasing levels of pricing and features within the same product group. The customer and market demand for new, innovative products seems to be limitless. The shortfall is therefore in “our” ability to exploit this through flexibility. The continued use of our linear thinking skills and inputs to create dominating products and big markets now almost always results in failure in Non Linear markets.

We must give more credit to technology and human innovation, and reduce the perception that only economics has the awesome power to dominate and initiate commercial activity.

With increasing automation and flexible technologies, biotechnology, shared resources, positioning, niche identification, innovation, new services opportunity - the size of markets, employment potential MUST be seen as infinite.

A few Million dollars in turnover MUST be considered substantial and “economically viable”. The technology and markets are in existence “today” that are ready for "small" business. Our management teaching and systems have yet to help us take advantage of this. Size need not be the prerequisite for competitiveness.

At the stage when Apple Inc. USA had less than a Billion Dollars in turnover, they were perhaps “Convinced” that the minimum needed size was much larger. Their perception however must have been based on the linear logic of output - relative to IBM, and not on an economic theory.

Apple created and developed a need, while others sought to “fill a demand”. They faltered only in strategy, while their products were never threatened. Despite being creative; the management growth strategy was based on control of customer by deciding to keep hardware and operating systems within a closed architecture. The linear logic of attempting to control paradoxically undid the success of technologically superior products despite them being preferred by customers.

Innovation and success in this Non Linear era with extremely competitive market must increasingly be based on the input of human resources and the minimal use of the old resources of Capital and Machinery. As soon as “output” becomes the focus – there is the inevitable decline of innovation and profitability.

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The power of 'Shared Resources'

We are seeing that successful companies are increasingly outsourcing their manufacturing ; basically making that a shared resource. ( this is an economic admission that the input to output link is no longer linear within manufacturing)

Dell Computers focused on the technologies of purchase, to lower cost through the “supply chain”. They could thus choose to place product manufacture and technology outside their focus and responsibility. Customer benefit and convenience was positioned to provide all the added - value to the company and value perception to the customer. Technology and product thus became a “shared resource” allowing them to purchase wherever they found the best value and quality. Scaleability and flexibility to source from any geography permitted them to grow faster.

The longevity of any success however, is always threatened, as competition and lower cost smaller companies are quick to “emulate” successes that are not technology controlled. Extreme competition creates a Non Linear environment where there is an exponential growth of variables and factors that are outside the control of a purely marketing and sales organizations.( taxes, tariff, anti-trust laws,trade relations between countries, currency fluctuation etc). Technology can be the protector.

Internally innovation in technology, systems and market positioning allow retention of control and permit continued profitability. Size and turnover are finally just as a number, which tend to decrease innovation.

The size and turnover of corporates such as IBM and GM have in their past been partially responsible for their poor performances. The inevitable result has always been to break up into “smaller” more manageable and “responsive” units - even if the corporate umbrella is retained for financial visibility. Most large and successful corporate balance sheets are either based on or resemble Banking as the primary business.

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Big Fiscal Turnovers will thus only come from many smaller businesses !

Despite all indications that small, lean and responsive is the future need - the quest for size, volume, turnover (output) continues - and linear logic pushes us to believe that this is the correct direction!

Today in a Non Linear era - while the large turnover remains a symbol of strength, the large companies themselves are perpetually struggling to find a “niche” or “small market” positioning or a speciality product for added value.

What this actually means is that big muscle cannot find “big market”, and therefore uses its fiscal muscle to take control of “small segments of markets”. (In the developed World this is actually a regression to the 1920’s where physical muscle was used to control economics.)

The big companies have emerged from a linear era where Costs were considered relative to volume and reduced by repetitive manufacture.

In Non Linear markets there is a decreasing profit from mass production. So “niche” products are the big profit source and contributors. Technology today has moved to flexible manufacturing - allowing low volume speciality manufacture at the same cost. It is unfortunate that this is perceived to be the privy of very few dynamic companies, and not considered a common - technology skill.

We need to show our future managers, potential entrepreneurs and most importantly students that the future belongs to smaller flexible and versatile corporates.

Statistics have also revealed that employment and growth within an economy is sustainable through small business.

The successful performance of big business and big size has meant acceptance that the “return” from our human and capital resources must reduce with increase in volume.

For linear logic based systems it remains easier to attempt to focus on size, value, profit and loss within a minimal spread.

New management buzzwords like “core competence” have come up to match the limitations of our management systems. We see the exceptions where the interpretation of core competence is itself changed to include management culture, customer focus or technology. ( If core competence is merely a skill, than its rigidity must be considered a limitation of management.)

Wherever a wider spectrum of inputs (skills) are required for the future and growth - linear logic based structures have started to fail ,because they do not have broad based evaluation skills ( output focus).

WE see therefore that in this Non Linear era; a collapse triggered by Keynesian expectations – has a greater financial impact more due to the fiscal concentration in one sector than the value itself. Financial systems find it easier ( more economical ) to service larger debt with fewer customer companies. Any collapse therefore has a greater impact.

There are millions of small businesses that are deprived of long term capital needs, despite their ability to actually pay higher values of interest to cover risk to institutions. It is however our management systems that find it easier to retain control based on smaller number of customers. For financila institutions the ability to evaluate small business requires local knowledge and localised empowerment. This appears contrary to the linear direction of globalisation.

In a Non Linear era this will change!

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Diminishing Investments by Direct Investor : a legacy of the Linear era

In the past the individual investor was the backbone of the primary markets and corporate stocks. Today this market and investment is becoming increasingly institutionalized in its approach and preference. The “individual” investment surplus has obviously fallen indicated by the decreased levels of savings as societies urbanize (modernize).

Individual investment has thus been encouraged to move away into mutual funds allowing others to manage individual investor funds. The recent collapses of concentrated investments based on the excessive focus on technology as opposed to application will bring about the needed change. In the Non Linear era financial instituions will need to revive knowledge based skills that focus on local economic conditions and customer psyche, as opposed to global logic.

Local investors will once again have to be motivated based on relating investment opportunities having local association and relevance. The instability, and lack of forecastability of global economics in this Non Linear era will bring back this change. The larger the global corporate the further removed it would be perceived to be from the small investor. Primary markets can be revived if the institutions can develop these skills of localization.

Though large global institutions will most likely remain unconcerned and unaffected ,NLT suggests that there is an investible value that lies untapped. This in turn can be of great value for developing small businesses.

While we have started to experience the benefits of outsourcing, Shared resources can also extend to investment.

A free trade economic environment should ideally mean that some of the “consumers” of a product or service - must also be prime potential investors in that product maker or service provider.

This requires a modern system and interpretation of the very successful co-operative producers concept that seems no longer workable for new ventures. The same logic must now be extended making the local consumer, the shareholder. The “profit” in this case is shifted from a producers co-operative to the consumer ( a local shareholder ). This will generate localized investments that yield more than just return because they improve localized employment.

Investment schemes that relate to local community can become a huge “resource pool”, currently lying untapped because the controllers of economic activity are increasingly getting delinked from the local economy. Globalisation is their buzzword. ( see 'Globalisation - not sustainable in today's form' )

The precondition for success would be ONLY 'transparency'; which has been the ONE FEATURE that globalisation and control based structures are able to conceal.

Small business and local industry can even develop economic trading systems that “trade” in idle capacities in the same way or rather than speculate - on commodities and corporate stocks. The returns and benefits have to be higher to both the local economy and the investor. This can be expressed as a “futures” value that can become a market in itself. Such a “resource trading" market would bring in small entrepreneurs, small investors and even individuals to trade in localised capacity that is relevant to their size, their investment capability and for their benefit! The internet is already demonstrating similar application capability as a simple technology.

Venture Capital functions on the principle of future values of current resources, but mainly focussed on supporting “new” investment to trade in technology. Venture capital has thus jumped one stage ahead. In a Non Linear era we need skills that are able to identify much earlier the potential profit from the use of idle capacity and attempt to improve returns on the existing resources;before management is able to make it inefficient. While the developed world has made asset stripping and revaluing a technology, the lack of political will and poor understanding of economics within Asian/Indian political leaders would prevent this in the developing economies.

If the assumption of scarce resource in populous, developing economics is considered to be a constant; then at any one time we can assume that while an infrastructure or plant is being setup, a similar one is being shut-down elsewhere.

Free trade economists in the developed world protest, that this is the cornerstone of free trade, and provides the “correction” to increase efficiency. Capital, they say must flow from the Inefficient to the efficient.

We in the developing countries that have yet to set up efficient manufacturing infrastructure should now see clearly that the “manufactured” cost in a Non Linear era is a “minority value” in the end product price.

The new added values are those that create consumption and not production! Branding, advertising, marketing and legal costs; now constitute the “majority” in any final product price. BUT for good production infrastructure and plants the majority of investment in a developing economy has to be based on “debt”. In India and most of South Asia there is no reason to accept linear logic based which assumes that New Investment through more debt - implies better efficiency of capital or will yield a better quality of product.

We have to utilize our existing resources better, and be conscious of the “value” that is lost through business failures - rather than insist that this is a part of the “natural” system of evaluation and evolution. In India our experience with 50 years of investment made within a closed economy has shown to have yielded little or no return on capital deployed.

If “information” systems can be developed to provide easy exchange of data on capacity and capabilities - then we could find better ways to reduce costs, rather than by “lay offs” and closures.

This is an example of “input” evaluation.

Just as every newspaper has advertisements, for “human resources” - and each corporate has a “Human Resource Department” - we would in future need to have within every company - a Department of “shared resources”. This department could constantly evaluate “services”, “manufacturing” or “asset capacity” that is available with others so as to facilitate lower cost and efficient use of scarce resources. The current first response to stop manufacture and import as in the West is not necessarily a correct valuation decision because “loss to economy” is usually not considered within the definition of democratic free trade. We in Asia have to redefine this change to help retain jobs within the local economy - without resorting to protectionist strategies. ( 'Hire and Fire' is not the only way to make manpower efficient. This is discussed in this writing elsewhere. )

The electronics giants in Japan are aggressive competitors in the market place - but, they have “shared Investment” in research, technology development and even in manufacture.

The markets now show that business - rivals like, Matsushita, Sony and have finally agreed to push common Formats or standardize on the new Video/Disk products - after the BETACAM - VHS “loss”. They perhaps can now perceive that in this Non Linear era it is not relevant “who” wins because the “loss” in such a battle is mutual.

Competition can actually prevent better investment and utilization of scarce resources - if it has no direction, other than domination.

When looking at constantly falling manufacturing values - Japan is an ASIAN exception despite its won fiscal disaster. Japanese companies, unlike most Asian exporters have retained their brands. In comparision to Western companies however they have accepted a much lower added value for the “brand”. Their focus and claim to added - value has been essentially based on manufacturing and technology - and it is perhaps their great fortune that they had chosen to keep and sell their products in their brand - retaining their identity. They have at first been able to absorb their losses with the brand value supporting the manufacturing. The progressive ones then moved their manufacture to lower cost regions.

Traditional Asian economies and companies have not accorded much value to branding and thus remained generic suppliers having little flexibility to absorb economic downturns.

Perhaps unknowingly the “Japanese” brand valuation was able to absorb some of the shocks of local recession. When their currency was strong the overseas customer credited the additional value to the brand.

This may have surprised even the Japanese manufacturers, who had falling domestic sales, but a continuous export demand - that remained even without a weakening currency.

Japan thrived on the interdependence of “shared resources”. The chain of suppliers and ancillary were perhaps able to absorb increased costs/reduced prices when required. While the “impact” of a recession is always severe, it has greater sustainability in an economy built up on “shared - resources”. The economic mess within Japan including the bad debt is very widespread through the economy - and unlike South Korea where the majority is concentrated with large Cheabols.

To further emphasize the concept of “shared resources” - it would be appropriate to understand that “attitude” plays a big part. An example of a big manufacturer being able to “supply” a generic product to a company smaller than itself.

For Sony to supply a start - up appears normal and acceptable to all. ( Japan to U.S. Company).

The equal perception would be to imagine IBM playing supplier to another brand of Computers and negotiating for the business. It is suddenly difficult to imagine “IBM” as a supplier. Why not? Perhaps the Non Linear era will see the change.

ASIA MUST BELIEVE THAT ITS SUCCESS CANNOT BE BASED ON EMULATION OF WESTERN SUCCESS. OUR FUTURE CANNOT BE BASED ON INCREASED OUTPUT AS AN INDICATOR OF LINEAR PROGRESS.

MORE MAY INCREASINGLY BE AVAILABLE THROUGH CONSERVATION!!