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A leader will help you grow into someone you never thought possible.

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This article helped me understand how to plan, organize and supervise in the contexts of production.

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Operations management is a field that can sometimes be misunderstood because of its multidisciplinary nature. However, its functions form the lynchpin of businesses the world over and success can often rest squarely on its shoulders. The MBA in operations management is a common specialization among leading business schools worldwide. So, what is operations management and what makes a good operations manager?

What does operations management involve?

Operations management is chiefly concerned with planning, organizing and supervising in the contexts of production, manufacturing or the provision of services. As such, it is delivery-focused, ensuring that an organization successfully turns inputs to outputs in an efficient manner. The inputs themselves could represent anything from materials, equipment and technology to human resources such as staff or workers.

Examples of the types of duties or specialist positions this encompasses are procurement (acquiring goods or services from external sources), managing relations with those involved in processes and improving a company's sustainability with regard to their use of resources.

There are two key terms that can help answer the question of what operations management is more precisely: supply chain management and logistics. Operations management has firm foundations in both areas. For example, understanding global trends in supply chain management in order to meet client demand is often critical. With logistics the careful and considered use of resources, as well as cost-effectiveness, has become increasingly important in an era in which resources can often be in short supply and customer expectations have skyrocketed.

Skills required of an operations manager

There are strong parallels between the skills required for effective operations management and those needed in both logistics and supply chain management. Excellent organizational ability is crucial in successfully enhancing efficiency and driving productivity as an operations manager.

One must be able to understand the series of processes within a company to get them to flow seamlessly, and in this sense the role is directly related to supply chain management. Meanwhile, the coordination involved in setting up these processes in practice represents logistics; the combination of understanding and coordinating the work of a company are central to becoming a successful operations manager.

The MBA in operations management

An MBA in operations management or a specialization in a related field, such as logistics or supply chain management, should help students to enter the industry by developing the requisite skillset or to help those already in the industry to widen their knowledge and push on into a business leadership role.

Studying an MBA in operations management commonly offers a global perspective on industry trends and an awareness of any financial regulations or political uncertainties that could impact an organization. Risk management, getting to grips with the industry's inherent complexities and responding well to change will be a strong consideration for students during their course.

Emphasizing the importance of strategic thinking is also a cornerstone of many leading operations management programs, something that should enable graduates to ensure their organization stays ahead of its competition.

Links to supply chain management highlighted by course options

MIT Sloan offers a dual degree with its engineering school, highlighting its interrelations with other disciplines. At the end of two years, graduates leave the Leaders for Global Operations (LGO) program with both an MBA and an MSc. The course has a wealth of company partners in the field of global operations and manufacturing who host plant visits and provide opportunities for the program's six-month internship segment. Indeed, 61 percent of 2018 students found their post-graduate jobs through the LGO network, from a list including Boeing and American Industrial Partners (AIP).

The UK's Cass Business School, meanwhile, offers a specialized master's in Global Supply Chain Management (GSCM). The one-year course places operations management alongside insights into strategic supply chain, global procurement, business sustainability and finance.

Contextualizing the role of the operations manager

The operations manager is able to transcend industries so exact job functions can vary based on the company you work for. At the base level, the two main streams an operations manager might belong to can be reduced to companies with a concentration on manufacturing and production, or those that provide services.

Operations management roles within say, a pharmaceutical company fall under the category of production. Planning and coordinating the use of resources to ensure products are designed, created and dispatched to hospitals, chemists and so on, ensure not only that these products are prepared, but also that they are available to customers.

Meanwhile, an airline company will often see the operations manager focus on services - transporting passengers and/or cargo from one place to another.

In addition, it is likely that a manufacturing focus on the delivery of a tangible product will involve less direct contact with customers than a services role.

These examples illustrate the clear distinction between the roles of an operations manager in two distinct industries.

However, in reality most companies will not fit easily into one category or the other in the entirety of its operations. A car company doesn't simply manufacture cars, it also services them. A café serving coffee might very easily also produce their own coffee. There is also what is known as quasi-manufacturing organizations, which seem more like manufacturing firms, but are clearly providing a service, such as an automated warehouse dispatching goods.

The more one analyses the question of what operations management is, the more one sees how integral the position can be to any given company, be it small or large. There can be strong overlap with supply chain management, logistics or engineering, but there are many other industries and areas where operations functions and the skills of an effective operations manager are strongly tied to an organization's lasting success.

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Operations management is a field that can sometimes be misunderstood because of its multidisciplinary nature. However, its functions form the lynchpin of businesses the world over and success can often rest squarely on its shoulders. The MBA in operations management is a common specialization among leading business schools worldwide.

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If you don't learn to control your thoughts, you will never learn how to control your behavior.

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Page 5: Monitoring and controlling performance

While the Commercial Manager is generating enough sales to meet the forecast, and the Personnel Manager is controlling the agreed staffing budget, the Financial Manager will monitor all other costs. Costs are broadly broken down into direct costs and indirect costs. Direct costs are those clearly identified with the sales volume. They include carrier bags, food waste and staffing costs. Indirect costs include stationery, telephone expenses, security and electricity.

Making the store more profitable involves looking not just at the large direct costs but also examining the smaller indirect costs. (Savings in stationery in one store may be small, but across the whole Marks & Spencer Group, it may represent a considerable sum.)

Some costs are easier to control than others. For example, notices near light switches may be a simple way to save electricity by encouraging staff to turn off unnecessary lights. The use of stationery may simply be limited to the amount ordered. Costs such as theft and loss, however, may take up much more time, involving maximising the benefits of close-circuit television, using security guards efficiently to deter crime and deciding how to use store detectives. With around 35 tills in an average store, possibly being using by up to eight to ten staff each day and with large volumes of stock coming in at the back door, it will also involve close scrutiny of all areas of business organisation.

Line Manager

The Financial Manager is also a Line Manager with established responsibilities for decision-making. Every store has an administration office comprising a team of people dealing with expense-related issues. The team may be between 2 to 25 staff (depending on the size of store) and may include a Finance Supervisor reporting directly to either the Financial Manager or Assistant Financial Manager. The team will also be responsible for security staff.

The administration office is responsible for various information systems, such as Food Stock Management, Textile Ordering and Point-of-Sale information from the tills. Although staff across the store use these systems, reports from the systems will be extracted by the Financial Team for accounting purposes, for example, information from the tills provides key sales information which feeds into staffing costs. The Financial Manager will be consulted when problems arise with these systems and will take responsibility for decisions which have to be made. They will be responsible for data protection and computer security.

The team of managers within the store are not there all of the time, particularly when there is late opening. From time-to-time, therefore, the Financial Manager takes responsibility for the whole store, dealing with operational problems wherever they arise within the store, such as a customer problem, a distressed member of staff or a stock issue. The Financial Manager takes joint responsibility for legal requirements within the store, such as temperature issues, pricing issues, hygiene and waste disposal.

Problem solving

Problem solving is not just about day-to-day issues. It also involves understanding the complex relationship between variables so that the Financial Manager can respond flexibly to locally-based issues and problems as and when they arise. This may include feasibility issues, such as advising about the costs and benefits of working on Sundays, which may require considerable research and planning. The Financial Manager may also advise about general opening times.

Acting as an auditor

The Financial Manager acts as an internal auditor responsible for many different areas within each store. Every year, the store will be audited by the Company's internal audit team from Head Office. The Financial Manager will therefore develop an audit trail for key issues which show the paperwork and procedures followed in responding to a particular problem to prove the integrity of the Company's procedures.

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Monitoring and controlling performance - Financial management in a retail setting - Marks and Spencer | Marks and Spencer case studies and information | Business Case Studies

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While the Commercial Manager is generating enough sales to meet the forecast, and the Personnel Manager is controlling the agreed staffing budget, the Financial Manager will monitor all other costs. Costs are broadly broken down into direct costs and indirect costs. Direct costs are those clearly identified with the sales volume.

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This article helped me realize controls need to focus on results.

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References

1. See H. Koontz, C. O'Donnell, and H. Weihrich. Management, 7th ed. (New York: McGraw-Hill, 1980). p. 722.

2. See W. D. Brinckloe and M. T. Coughlin, Managing Organizations (Encino, CA: Glencoe Press. 1977). p. 298.

3. See P. F. Drucker. Management: Tasks, Responsibilities, Practices (New York: Harper & Row. 1974). p. 497.

4. A recent summary of many of the findings in this area (illustrating such cognitive limitations as conservative revision of prior subjective probabilities when new information is provided. and the use of simplifying decision-making heuristics when faced with complex problems) is provided by W. F. Wright, "Cognitive Information Processing Biases: Implications for Producers and Users of Financial Information," Decision Sciences (April 1980): 284-298.

5. A similar scheme is presented in W. G. Ouchi, "A Conceptual Framework for the Design of Organizational Control Mechanisms," Management Science (September 1979): 833-848.

6. See H. Klein, "At Harley-Davidson, Life without AMF Is Upbeat but Full of Financial Problems," Wall Street Journal. 13 April 1982, p. 37.

7. See N. Babchukand W. J. Goode. "Work Incentives in a Self-Determined Group," American Sociological Review (1951): 679-687.

8. For a summary of criticisms of return-an-investment (ROI) measures of performance, see J. Dearden, "The Case against ROI Control," Harvard Business Review, May-June 1969, pp. 124-135.

9. See D. Mitchell. Control without Bureaucracy (London: McGraw-Hill Book Company Limited, 1979), p. 6.

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References 1. See H. Koontz, C. O'Donnell, and H. Weihrich. Management, 7th ed. (New York: McGraw-Hill, 1980). p. 722. 2. See W. D. Brinckloe and M. T. Coughlin, Managing Organizations (Encino, CA: Glencoe Press. 1977). p. 298. 3. See P. F. Drucker. Management: Tasks, Responsibilities, Practices (New York: Harper & Row.

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Once you complete a goal set harder ones and nothing can touch you.

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Motivation is the key to success. Fake it until you make it.

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This article helped me understand that you can motivate employees beyond money.

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Most successful entrepreneurs will tell you that their primary motivation is to "change the world" and to build something lasting, not to make a lot of money. But the conventional wisdom is that employees work for money, above all else. Yet my own experience, and a recent McKinsey survey, leads me to believe that non-cash motivators may be more effective in the long term than financial incentives.

I agree with Charles P. Garcia, who ties motivation most strongly to leadership, in his book " Leadership Lessons of the White House Fellows," based on this group of more than 600 prominent leaders from every sector of American society. They assert that employees value having strong leaders, who incent them to do their best, just as much if not more than money.

For action, he provides a list of principles for entrepreneurs and managers alike, derived from his first-hand discussions with some of the nation's greatest leaders. We all need to learn from these as we rebuild employee morale following tough economic times, with limited budgets:

1. Energize your team. Instead of being the type of leader who sucks the energy away from others, resolve to be the kind of leader who strives to bring passion and positive energy to the workplace every day. Your employees have just helped you pull your company through one of the nation's worst economic periods. It's time they had a source of positive energy.

2. There's more to life than work. Great leaders have deep reserves of physical, spiritual, and emotional energy, and that energy is usually fueled by a strong and supportive relationship with the people they love, regular exercise, a healthy lifestyle, and setting aside time for reflection.

3. Put your people first. No organization is better than the people who run it. The fact is that you are in the people business-the business of hiring, training, and managing people to deliver the product or service you provide. If the people are the engine of your success, to be a great leader you need to attend to your people with a laser-like focus.

4. Act with integrity. In a time when news reports are filled with the stories of private and public leaders who've acted inappropriately and have gone against the best interests of their employees or constituents, showing your employees that you value integrity can help motivate them and create a sense of pride for your organization.

5. Be a great communicator. Leadership is influencing others, and this cannot be achieved without effective communication. If you're struggling with communicating to your employees, first work on your ability to influence individuals by choosing words that are impactful to carry your message. Then you need to figure out how to communicate to a larger audience.

6. Be a great listener. The most effective leaders are the ones who take the time to listen not just to their team members' words but to the priceless hidden meaning beneath them. Remember that during good times and bad, sometimes your employees just need someone to talk to. Communicate to them that you are always waiting with open ears.

7. Be a problem solver. Post a sign above your office door that reads, "Don't Bring Me Problems. Bring Me Solutions." Then set about the task of guiding each person on your team toward the goal of becoming a top-notch problem solver during this crucial period.

8. Lead through experience and competence, not through title or position. Mentor your employees, encourage them, make partners out of them, and your organization is sure to benefit. If you want to survive the tough economy, that's exactly the kind of leadership motif you need for your organization.

The fundamentals of leadership don't change between good times and bad. But when money is in short supply, these principles can be the difference between success and failure. Now is the time to start motivating your employees by applying these principles, and your team will lead you through the hard times.

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8 Ways Leaders Can Motivate Employees Beyond Money

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Credit: Rice University Baker Institute Most successful entrepreneurs will tell you that their primary motivation is to "change the world" and to build something lasting, not to make a lot of money. But the conventional wisdom is that employees work for money, above all else. Yet my own experience, and a [...]

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This article helped me understand how its important to set many goals.

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An effective leader must understand the basic needs of employees, peers and his superiors. Learn in detail how Leadership is used as a means of motivating others.

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This quote states if you work hard and gain the skills people will want to come to you.

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Its great to have experts on the team. Staffing is the way to go.

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Managers decide who gets what training and who gets the best projects.

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Profit and growth. Put your energy towards your goals.

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In the Dallas airport the other day I saw many tall, well-dressed, and impressive-looking men wearing large, immaculate Stetson cowboy hats. As I walked by one such hat-wearer, I noticed two middle-aged, sunburned men in faded blue jeans standing nearby. They eyed the same fellow, looked him up and down, and then one said quietly to the other, "Big hat, no cattle."

A version of this article appeared in the September 1981 issue of Harvard Business Review.

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In the Dallas airport the other day I saw many tall, well-dressed, and impressive-looking men wearing large, immaculate Stetson cowboy hats. As I walked by one such hat-wearer, I noticed two middle-aged, sunburned men in faded blue jeans standing nearby. They eyed the same fellow, looked him up and down, and then one said quietly [...]

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Become your own boss. Straight A students end up working for C students.

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This article helped me understand how to structure my organization skills.

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This is going to be a five part post that explores various types of organizational structures that either already exist in today's business landscape or are starting to emerge as viable options for the future of work. Each post will explore one of these structures and then I'll provide a final summary post on all five. These concepts and ideas are taken from my book, The Future of Work: Attract New Talent, Build Better Leaders, and Create a Competitive Organization. The five types of organizational structures that I will explore are:

1. The traditional hierarchy (part 1 is already available)

2. Flatter organizations (part 2 is already available)

3. Flat organizations (part 3 is already available)

4. Flatarchies (part 4 is already available)

5. Holacratic organizations (part 5 is already available)

Let's start with the structure we have all come to know and love...the hierarchy.

I've talked about several workplace practices and approaches that are quite out-dated and the hierarchy is one of them. According to Wikipedia, "possibly the first use of the English word "hierarchy" cited by the Oxford English Dictionary was in 1880, when it was used in reference to the three orders of three angels as depicted by Pseudo-Dionysius the Areopagite (5th-6th centuries)." This model was quickly adopted by the military as a way to show a chain of command and of course we have all seen and experienced this within our organizations (and most still do).

This type of a model makes sense for linear work where no brain power is required and where the people who work there are treated like expendable cogs. However, as the war for talent continues to become more fierce, organizations around the world are quickly trying to figure out alternatives to the hierarchy. In fact, every single organization I speak with, work with, and research, is looking to flatten out their structure. Nobody ever tells me they want more bureaucracy and more layers.

There are many challenges with this model but to name a few. Communication typically flows from the top to the bottom which means innovation stagnates, engagement suffers, and collaboration is virtually non-existent. This type of environment is riddled with bureaucracy and is extremely sluggish. This is why the hierarchy is perhaps the biggest vulnerability for any organization still employing it. It opens up the doors for competitors and new incumbents to quickly take over. There is also no focus on the employee experience in this type of a structure and as organizations around the world are exploring alternative organizational models, those still stuck with the hierarchy are going to have one heck of a time trying to attract and retain top talent.

The hierarchy has permeated virtually every company around the world regardless of size, industry, or location. The greatest strength of the hierarchy used to be that it was so reliable at maintain the status quo, which was exactly what companies wanted decades ago. However what was once it's strength is now it's greatest weakness. The hierarchy is a very resilient management structure that has been so embedded in how we work that most organizations around the world are having a tedious time getting rid of it.

Today one thing is certain, the hierarchy belongs in a management museum locked up for people to see, but not touch.

In part 2 of this post I'll explore what is perhaps the most practical and scalable organizational model, the "flatter" organization.
Jacob Morgan is a keynote speaker, author (most recently of The Future of Work), and futurist. To have Jacob speak at your event, to get access to his videos, podcasts and articles, or to subscribe to his newsletter you can visit TheFutureOrganization.

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The 5 Types Of Organizational Structures: Part 1, The Hierarchy

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This is going to be a five part post that explores various types of organizational structures that either already exist in today's business landscape or are starting to emerge as viable options for the future of work. Each post will explore one of these structures and then I'll provide a final [...]

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Organizational structure is particularly important for decision making.

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The Importance of Organizational Structure

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Small companies usually use one of two types of organizational structure: Functional and product. Functional areas such as marketing and engineering report to the president or CEO in a functional ...

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If you don't stay organized your world can come crashing down.

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Staying organized can keep the mind at peace.

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In order to be a successful small business owner you have to understand the importance of creating plans to achieve goals.

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Successful small business owners understand the importance of creating plans to achieve goals. Before implementing business plans, make decisions regarding how the plan or project will develop. ...

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Work hard now and success will fall in place.

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This article allowed me to make decisions more accurately within business.

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The Idea in Brief

Most executives view traditional strategic planning as worthless. Why? The process contains serious flaws. First, it's conducted annually, so it doesn't help executives respond swiftly to threats and opportunities (a new competitor, a possible acquisition) that crop up throughout the year.

Second, it unfolds unit by unit-with executive committee members visiting one unit at a time to review their strategic plans. Executives lack sufficient information to provide worthwhile guidance during these "business tours." And the visits take them away from urgent companywide issues, such as whether to enter a new market, outsource a function, or restructure the organization.

Frustrated by these constraints, executives routinely sidestep their company's formal strategic planning process-making ad hoc decisions based on scanty analysis and meager debate. Result? Decisions made incorrectly, too slowly, or not at all.

How to improve the quality and quantity of your strategic decisions? Use continuous issues-focused strategic planning. Throughout the year, identify the issues you must resolve to enhance your company's performance-particularly those spanning multiple business units. Debate one issue at a time until you've reached a decision. And add issues to your agenda as business realities change.

Your reward? More rigorous debate and more significant strategic decisions each year-made precisely when they're needed.

The Idea in Practice

To create an effective strategic-planning process:

Link Decision Making and Planning

Create a mechanism that helps you identify the decisions you must make to create more shareholder value. Once you've made those decisions, use your traditional planning process to develop an implementation road map.

At Boeing Commercial Airplanes, executives meet regularly to uncover the company's most pressing, long-term strategic issues (such as evolving product strategy, or fueling growth in services). Upon selecting a course of action, they update their long-range business plan with an implementation strategy for that decision. (By separating-but linking-planning and execution, Boeing makes faster and better decisions.)

Focus on Companywide Issues

During strategy discussions, focus on issues spanning multiple business units.

Facing a shortage of investment ideas, Microsoft's leaders began defining issues-such as PC market growth and security-that are critical throughout the company. Dialogues between unit leaders and the executive committee now focus on what Microsoft as a whole can do to address each issue-not which strategies individual units should formulate. Countless new growth opportunities have surfaced.

Develop Strategy Continuously

Spread strategy reviews throughout the year rather than squeezing them into a 2-3-month window. You'll be able to focus on-and resolve-one issue at a time. And you'll have the flexibility to add issues as soon as business conditions change.

Executives at multi-industry giant Textron review two to three units' strategy per quarter rather than compressing all unit reviews into one quarter annually. They also hold continuous reviews designed to address each strategic issue on the company's agenda. Once an also-ran among its peers, Textron was a top-quartile performer during 2004-2005.

Structure Strategy Reviews to Produce Results

Design and conduct strategy sessions so that participants agree on facts related to each issue before proposing solutions.

At Textron, each strategic issue is resolved through a disciplined process: In one session, the management committee debates the issue at hand and reaches agreement on the relevant facts (e.g., customers' purchase behaviors, a key market's profitability figures). The group then generates several viable strategy alternatives. In a second session, the committee evaluates the alternatives from a strategic and financial perspective and selects a course of action. By moving from facts to alternatives to choices, the group reaches many more decisions than before.

Is strategic planning completely useless? That was the question the CEO of a global manufacturer recently asked himself. Two years earlier, he had launched an ambitious overhaul of the company's planning process. The old approach, which required business-unit heads to make regular presentations to the firm's executive committee, had broken down entirely. The ExCom members-the CEO, COO, CFO, CTO, and head of HR-had grown tired of sitting through endless PowerPoint presentations that provided them few opportunities to challenge the business units' assumptions or influence their strategies. And the unit heads had complained that the ExCom reviews were long on exhortation but short on executable advice. Worse, the reviews led to very few worthwhile decisions.

The revamped process incorporated state-of-the-art thinking about strategic planning. To avoid information overload, it limited each business to 15 "high-impact" exhibits describing the unit's strategy. To ensure thoughtful discussions, it required that all presentations and supporting materials be distributed to the ExCom at least a week in advance. The review sessions themselves were restructured to allow ample time for give-and-take between the corporate team and the business-unit executives. And rather than force the unit heads to traipse off to headquarters for meetings, the ExCom agreed to spend an unprecedented six weeks each spring visiting all 22 units for daylong sessions. The intent was to make the strategy reviews longer, more focused, and more consequential.

It didn't work. After using the new process for two planning cycles, the CEO gathered feedback from the participants through an anonymous survey. To his dismay, the report contained a litany of complaints: "It takes too much time." "It's at too high a level." "It's disconnected from the way we run the business." And so on. Most damning of all, however, was the respondents' near-universal view that the new approach produced very few real decisions. The CEO was dumbfounded. How could the company's cutting-edge planning process still be so badly broken? More important, what should he do to make strategic planning drive more, better, and faster decisions?

Like this CEO, many executives have grown skeptical of strategic planning. Is it any wonder? Despite all the time and energy most companies put into strategic planning, the process is most often a barrier to good decision making, our research indicates. As a result, strategic planning doesn't really influence most companies' strategy.

In the following pages, we will demonstrate that the failure of most strategic planning is due to two factors: It is typically an annual process, and it is most often focused on individual business units. As such, the process is completely at odds with the way executives actually make important strategy decisions, which are neither constrained by the calendar nor defined by unit boundaries. Not surprisingly, then, senior executives routinely sidestep the planning process. They make the decisions that really shape their company's strategy and determine its future-decisions about mergers and acquisitions, product launches, corporate restructurings, and the like-outside the planning process, typically in an ad hoc fashion, without rigorous analysis or productive debate. Critical decisions are made incorrectly or not at all. More than anything else, this disconnect-between the way planning works and the way decision making happens-explains the frustration, if not outright antipathy, most executives feel toward strategic planning.

Companies see a dramatic increase in the quality of their decision making once they abandon the traditional planning model, which is calendar driven and focused on the business units. In our survey, the companies that broke most completely with the past made more than twice as many strategic decisions each year as companies wedded to tradition. What's more, the new structure of the planning process ensures that the decisions are probably the best that could have been made, given the information available to managers at the time.

Here are the average numbers of major strategic decisions reached per year in companies that take the following approaches to strategic planning:

Annual review focused on business units

2.5 decisions per year

Annual review focused on issues

3.5 decisions per year

Continuous review focused on business units

4.1 decisions per year

Continuous review focused on issues

6.1 decisions per year

But companies can fix the process if they attack its root problems. A small number of forward-looking companies have thrown out their calendar-driven, business-unit-focused planning processes and replaced them with continuous, issues-focused decision making. By changing the timing and focus of strategic planning, they've also changed the nature of top management's discussions about strategy-from "review and approve" to "debate and decide," meaning that senior executives seriously think through every major decision and its implications for the company's performance and value. Indeed, these companies use the strategy development process to drive decision making. As a consequence, they make more than twice as many important strategic decisions each year as companies that follow the traditional planning model. (See the exhibit "Who Makes More Decisions?") These companies have stopped making plans and started making decisions.

Where Planning Goes Wrong

In the fall of 2005, Marakon Associates, in collaboration with the Economist Intelligence Unit, surveyed senior executives from 156 large companies worldwide, all with sales of $1 billion or more (40% of them had revenues over $10 billion). We asked these executives how their companies developed long-range plans and how effectively they thought their planning processes drove strategic decisions.

The results of the survey confirmed what we have observed over many years of consulting: The timing and structure of strategic planning are obstacles to good decision making. Specifically, we found that companies with standard planning processes and practices make only 2.5 major strategic decisions each year, on average (by "major," we mean they have the potential to increase company profits by 10% or more over the long term). It's hard to imagine that with so few strategic decisions driving growth, these companies can keep moving forward and deliver the financial performance that investors expect.

Even worse, we suspect that the few decisions companies do reach are made in spite of the strategic planning process, not because of it. Indeed, the traditional planning model is so cumbersome and out of sync with the way executives want and need to make decisions that top managers all too often sidestep the process when making their biggest strategic choices.

Companies that follow the traditional strategic planning model develop a strategy plan for each business unit at some point during the year. A cross-functional team dedicates less than nine weeks to developing the unit's plan. The executive committee reviews each plan-typically in daylong, on-site meetings-and rubber-stamps the results. The plans are consolidated to produce a companywide strategic plan for review by the board of directors.

Once the strategic-planning cycle is complete, the units dedicate another eight to nine weeks to budgeting and capital planning (in most companies, these processes are not explicitly linked to strategic planning).

The executive committee then holds another round of meetings with each of the business units to negotiate performance targets, resource commitments, and (in many cases) compensation for managers.
The results: an approved but potentially unrealistic strategic plan for each business unit and a separate budget for each unit that is decoupled from the unit's strategic plan.
With the big decisions being made outside the planning process, strategic planning becomes merely a codification of judgments top management has already made, rather than a vehicle for identifying and debating the critical decisions that the company needs to make to produce superior performance. Over time, managers begin to question the value of strategic planning, withdraw from it, and come to rely on other processes for setting company strategy.

The calendar effect.

At 66% of the companies in our survey, planning is a periodic event, often conducted as a precursor to the yearly budgeting and capital-approval processes. In fact, linking strategic planning to these other management processes is often cited as a best practice. But forcing strategic planning into an annual cycle risks making it irrelevant to executives, who must make many important decisions throughout the year.

There are two major drawbacks to such a rigid schedule. The first might be called the time problem. A once-a-year planning schedule simply does not give executives sufficient time to address the issues that most affect performance. According to our survey, companies that follow an annual planning calendar devote less than nine weeks per year to strategy development. That's barely two months to collect relevant facts, set strategic priorities, weigh competing alternatives, and make important strategic choices. Many issues-particularly those spanning multiple businesses, crossing geographic boundaries, or involving entire value chains-cannot be resolved effectively in such a short time. It took Boeing, for example, almost two years to decide to outsource major activities such as wing manufacturing.

Constrained by the planning calendar, corporate executives face two choices: They can either not address these complex issues-in effect, throwing them in the "too-hard" bucket-or they can address them through some process other than strategic planning. In both cases, strategic planning is marginalized and separated from strategic decision making.

Then there's the timing problem. Even when executives allot sufficient time in strategy development to address tough issues, the timing of the process can create problems. At most companies, strategic planning is a batch process in which managers analyze market and competitor information, identify threats and opportunities, and then define a multiyear plan. But in the real world, managers make strategic decisions continuously, often motivated by an immediate need for action (or reaction). When a new competitor enters a market, for instance, or a rival introduces a new technology, executives must act quickly and decisively to safeguard the company's performance. But very few companies (less than 10%, according to our survey) have any sort of rigorous or disciplined process for responding to changes in the external environment. Instead, managers rely on ad hoc processes to correct course or make opportunistic moves. Once again, strategic planning is sidelined, and executives risk making poor decisions that have not been carefully thought through.

M&A decisions provide a particularly egregious example of the timing problem. Acquisition opportunities tend to emerge spontaneously, the result of changes in management at a target company, the actions of a competitor, or some other unpredictable event. Faced with a promising opportunity and limited time in which to act, executives can't wait until the opportunity is evaluated as part of the next annual planning cycle, so they assess the deal and make a quick decision. But because there's often no proper review process, the softer customer- and people-related issues so critical to effective integration of an acquired company can get shortchanged. It is no coincidence that failure to plan for integration is often cited as the primary cause of deal failure.

The business-unit effect.

The organizational focus of the typical planning process compounds its calendar effects-or, perhaps more aptly, defects. Two-thirds of the executives we surveyed indicated that strategic planning at their companies is conducted business by business-that is, it is focused on units or groups of units. But 70% of the senior executives who responded to our survey stated they make decisions issue by issue. For example, should we enter China? Should we outsource manufacturing? Should we acquire our distributor? Given this mismatch between the way planning is organized and the way big decisions are made, it's hardly surprising that, once again, corporate leaders look elsewhere for guidance and inspiration. In fact, only 11% of the executives we surveyed believed strongly that planning was worth the effort.

The organizational focus of traditional strategic planning also creates distance, even antagonism, between corporate executives and business-unit managers. Consider, for example, the way most companies conduct strategy reviews-as formal meetings between senior managers and the heads of each business unit. While these reviews are intended to produce a fact-based dialogue, they often amount to little more than business tourism. The executive committee flies in for a day, sees the sights, meets the natives, and flies out. The business unit, for its part, puts in a lot of work preparing for this royal visit and is keen to make it smooth and trouble free. The unit hopes to escape with few unanswered questions and an approved plan. Accordingly, local managers control the flow of information upward, and senior managers are presented only with information that shows each unit in the best possible light. Opportunities are highlighted; threats are downplayed or omitted.

Even if there's no subterfuge, senior corporate managers still have trouble engaging in constructive dialogue and debate because of what might be called information asymmetry. They just don't have the information they need to be helpful in guiding business units. So when they're presented with a strategic plan that's too good to be believed, they have only two real options: either reject it-a move that's all but unheard-of at most large companies-or play along and impose stretch targets to secure at least the promise that the unit will improve performance. In both cases, the review does little to drive decisions on issues. It's hardly surprising that only 13% of the executives we surveyed felt that top managers were effectively engaged in all aspects of strategy development at their companies-from target setting to debating alternatives to approving strategies and allocating resources.

Decision-Focused Strategic Planning

Strategic planning can't have impact if it doesn't drive decision making. And it can't drive decision making as long as it remains focused on individual business units and limited by the calendar. Over the past several years, we have observed that many of the best-performing companies have abandoned the traditional approach and are focusing explicitly on reaching decisions through the continuous identification and systematic resolution of strategic issues. (The sidebar "Continuous, Decision-Oriented Planning" presents a detailed example of the issues-oriented approach.) Although these companies have found different specific solutions, all have made essentially the same fundamental changes to their planning and strategy development processes in order to produce more, better, and faster decisions.

Once the company as a whole has identified its most important strategic priorities (typically in an annual strategy update), executive committee dialogues, spread throughout the year, are set up to reach decisions on as many issues as possible. Since issues frequently span multiple business units, task forces are established to prepare the strategic and financial information that's needed to uncover and evaluate strategy alternatives for each issue. Preparation time may exceed nine weeks. The executive committee engages in two dialogues for each issue at three to four hours each. The first dialogue focuses on reaching agreement on the facts surrounding the issue and on a set of viable alternatives. The second focuses on the evaluation of those alternatives and the selection of the best course of action. Once an issue is resolved, a new one is added to the agenda. Critical issues can be inserted into the planning process at any time as market and competitive conditions change.

Once a decision has been reached, the budgets and capital plans for the affected business units are updated to reflect the selected option. Consequently, the strategic-planning process and the capital and budgeting processes are integrated. This significantly reduces the need for lengthy negotiations between the executive committee and unit management over the budget and capital plan.

The results: a concrete plan for addressing each key issue; for each business unit, a continuously updated budget and capital plan that is linked directly to the resolution of critical strategic issues; and more, faster, better decisions per year.
They separate-but integrate-decision making and plan making.

First and most important, a company must take decisions out of the traditional planning process and create a different, parallel process for developing strategy that helps executives identify the decisions they need to make to create more shareholder value over time. The output of this new process isn't a plan at all-it's a set of concrete decisions that management can codify into future business plans through the existing planning process, which remains in place. Identifying and making decisions is distinct from creating, monitoring, and updating a strategic plan, and the two sets of tasks require very different, but integrated, processes.

How Executives Plan

66% periodically

Percentage of surveyed executives saying their companies conduct strategic planning only at prescribed times

67% unit by unit

Percentage saying planning is done unit by unit

How Executives Decide

100% continuously

Percentage of executives saying strategic decisions are made without regard to the calendar

70% issue by issue

Percentage saying decisions are made issue by issue

No wonder only 11% of executives are highly satisfied that strategic planning is worth the effort.

Boeing Commercial Airplanes (BCA) is a case in point. This business unit, Boeing's largest, has had a long-range business plan (LRBP) process for many years. The protracted cycles of commercial aircraft production require the unit's CEO, Alan Mulally, and his leadership team to take a long-term view of the business. Accordingly, the unit's LRBP contains a ten-year financial forecast, including projected revenues, backlogs, operating margins, and capital investments. BCA's leadership team reviews the business plan weekly to track the division's performance relative to the plan and to keep the organization focused on execution.

The weekly reviews were invaluable as a performance-monitoring tool at BCA, but they were not particularly effective at bringing new issues to the surface or driving strategic decision making. So in 2001, the unit's leadership team introduced a Strategy Integration Process focused on uncovering and addressing the business's most important strategic issues (such as determining the best go-to-market strategy for the business, driving the evolution of BCA's product strategy, or fueling growth in services). The team assigned to this process holds strategy integration meetings every Monday to track BCA's progress in resolving these long-term issues. Once a specific course of action is agreed upon and approved by BCA's leadership team, the long-range business plan is updated at the next weekly review to reflect the projected change in financial performance.

The time invested in the new decision-making process is more than compensated for by the time saved in the LRBP process, which is now solely focused on strategy execution. The company gets the best of both worlds-disciplined decision making and superior execution. BCA has maintained the value of the LRBP as an execution tool even as it has increased the quality and quantity of important decisions. Managers believe that the new process is at least partially responsible for the sharp turnaround in Boeing's performance since 2001.

They focus on a few key themes.

High-performing companies typically focus their strategy discussions on a limited number of important issues or themes, many of which span multiple businesses. Moving away from a business-by-business planning model in this way has proved particularly helpful for large, complex organizations, where strategy discussions can quickly get bogged down as each division manager attempts to cover every aspect of the unit's strategy. Business-unit managers should remain involved in corporate-level strategy planning that affects their units. But a focus on issues rather than business units better aligns strategy development with decision making and investment.

Consider Microsoft. The world's leading software maker is a highly matrixed organization. No strategy can be effectively executed at the company without careful coordination across multiple functions and across two or more of Microsoft's seven business units, or, as executives refer to them, "P&Ls"-Client; Server and Tools; Information Worker; MSN; Microsoft Business Solutions; Mobile and Embedded Devices; and Home and Entertainment. In late 2004, faced with a perceived shortage of good investment ideas, CEO Steve Ballmer asked Robert Uhlaner, Microsoft's corporate vice president of strategy, planning, and analysis, to devise a new strategic planning process for the company. Uhlaner put in place a Growth and Performance Planning Process that starts with agreement by Ballmer's leadership team on a set of strategic themes-major issues like PC market growth, the entertainment market, and security-that cross business-unit boundaries. These themes not only frame the dialogue for Microsoft's annual strategy review, they also guide the units in fleshing out investment alternatives to fuel the company's growth. Dialogues between the P&L leaders and Ballmer's team focus on what the company can do to address each strategic theme, rather than on individual unit strategies. The early results of this new process are promising. "You have to be careful what you wish for," Uhlaner says. "Our new process has surfaced countless new opportunities for growth. We no longer worry about a dearth of investment ideas, but how best to fund them."

Like Microsoft, Diageo North America-a division of the international beer, wine, and spirits marketer-has recently changed the way it conducts strategic planning to allocate resources across its diverse portfolio. Diageo historically focused its planning efforts on individual brands. Brand managers were allowed to make the case for additional investment, no matter what the size of the brand or its strategic role in the portfolio. As a result, resource allocation was bedeviled by endless negotiations between the brands and corporate management. This political wrangling made it extremely difficult for Diageo's senior managers to establish a consistent approach to growth, because a lack of transparency prevented them from discerning, from the many requests for additional funding, which brands really deserved more resources and which did not.

Starting in 2001, Diageo overhauled its approach to strategy development. A crucial change was to focus planning on the factors that the company believed would most drive market growth-for example, an increase in the U.S. Hispanic population. By modeling the impact of these factors on the brand portfolio, Diageo has been better able to match its resources with the brands that have the most growth potential so that it can specify the strategies and investments each brand manager should develop, says Jim Moseley, senior vice president of consumer planning and research for Diageo North America. For example, the division now identifies certain brands for growth and earmarks specific resources for investment in these units. This focused approach has enabled the company to shorten the brand planning process and reduce the time spent on negotiations between the brands and division management. It has also given senior management greater confidence in each brand's ability to contribute to Diageo's growth.

They make strategy development continuous.

Effective strategy planners spread strategy reviews throughout the year rather than squeeze them into a two- or three-month window. This allows senior executives to focus on one issue at a time until they reach a decision or set of decisions. Moreover, managers can add issues to the agenda as market and competitive conditions change, so there's no need for ad hoc processes. Senior executives can thus rely on a single strategic planning process-or, perhaps more aptly, a single strategic decision-making model-to drive decision making across the company.

Textron, a $10 billion multi-industry company, has implemented a new, continuous strategy-development process built around a prioritized "decision agenda" comprising the company's most important issues and opportunities. Until 2004, Textron had a fairly traditional strategic planning process. Each spring, the company's operating units-businesses as diverse as Bell Helicopter, E-Z-Go golf cars, and Jacobsen turf maintenance equipment-would develop a five-year strategic plan based on standard templates. Unit managers would then review their strategic plans with Textron's management committee (the company's top five executives) during daylong sessions at each unit. Once the strategy reviews were complete, the units incorporated the results, as best they could, into their annual operating plans and capital budgets.

In June 2004, dissatisfied with the quality and pace of the decision making that resulted from the company's strategy reviews, CEO Lewis Campbell asked Stuart Grief, Textron's vice president for strategy and business development, to rethink the company's strategic planning process. After carefully reviewing the company's practices and gathering feedback from its 30 top executives, Grief and his team designed a new Textron Strategy Process.

There were two important changes. First, rather than concentrate all of the operating-unit strategy reviews in the second quarter of each year, the company now spreads strategy dialogues throughout the year-two to three units are reviewed per quarter. Second, rather than organize the management committee dialogues around business-unit plans, Textron now holds continuous reviews that are designed to address each strategic issue on the company's decision agenda. Both changes have enabled Textron's management committee to be much more effectively engaged in business-unit strategy development. The changes have also ensured that there's a forum in which cross-unit issues can be raised and addressed by top management, with input from relevant business-unit managers. The process has significantly increased the number of strategic decisions the company makes each year. As a result, Textron has gone from being an also-ran among its multi-industrial peers to a top-quartile performer over the past 18 months.

John Cullivan, the director of strategy at Cardinal Health, one of the world's leading health-care products and services companies, reports similar benefits from shifting to a continuous planning model. "Continuous decision making is tough to establish because it requires the reallocation of management time at the top levels of the company," he says. "But the process has enabled us to get sharper focus on the short-term performance of our vertical businesses and make faster progress on our longer-term priorities, some of which are horizontal opportunities that cut across businesses and thus are difficult to manage."

To facilitate continuous strategic decision making, Cardinal has made a series of important changes to its traditional planning process. At the corporate level, for example, the company has put in place a rolling six-month agenda for its executive committee dialogues, a practice that allows everyone inside Cardinal to know what issues management is working on and when decisions will be reached. Similar decision agendas are used at the business-unit and functional levels, ensuring that common standards are applied to all important decisions at the company. And to support continuous decision making at Cardinal, the company has trained "black belts" in new analytical tools and processes and deployed them throughout the organization. This provides each of the company's businesses and functions with the resources needed to address strategic priorities that emerge over time.

They structure strategy reviews to produce real decisions.

The most common obstacles to decision making at large companies are disagreements among executives over past decisions, current alternatives, and even the facts presented to support strategic plans. Leading companies structure their strategy review sessions to overcome these problems.

At Textron, for example, strategic-issue reviews are organized around "facts, alternatives, and choices." Each issue is addressed in two half-day sessions with the company's management committee, allowing for eight to ten issues to be resolved throughout the year. In the first session, the management committee debates and reaches agreement on the relevant facts-information on the profitability of key markets, the actions of competitors, the purchase behavior of customers, and so on-and a limited set of viable strategy alternatives. The purpose of this first meeting is not to reach agreement on a specific course of action; rather, the meeting ensures that the group has the best possible information and a robust set of alternatives to consider. The second session is focused on evaluating these alternatives from a strategic and financial perspective and selecting the best course of action. By separating the dialogue around facts and alternatives from the debate over choices, Textron's management committee avoids many of the bottlenecks that plague strategic decision making at most companies and reaches many more decisions than it otherwise would.

Like Textron, Cadbury Schweppes has changed the structure of its strategy dialogues to focus top managers more explicitly on decision making. In 2002, after acquiring and integrating gum-maker Adams-a move that significantly expanded Cadbury's product and geographic reach-the company realized it needed to rethink how it was conducting dialogues about strategy between the corporate center and the businesses. The company made two important changes. First, strategy dialogues were redesigned to incorporate a standard set of facts and metrics about consumers, customers, and competitors. This information helped get critical commercial choices in front of top managers, so that the choices were no longer buried in the business units. Second, senior executives' time was reallocated so they could pay more attention to markets that were crucial to realizing Cadbury's ten-year vision and to making important decisions.

Cadbury's top team now spends one full week per year in each of the countries that are most critical to driving the company's performance, so that important decisions can be informed by direct observation as well as through indirect analysis. Strategy dialogues are now based on a much deeper understanding of the markets. Cadbury's strategic reviews no longer merely consist of reviews of and approval of a strategic plan, and they produce many more important decisions.* * *

Done right, strategic planning can have an enormous impact on a company's performance and long-term value. By creating a planning process that enables managers to discover great numbers of hidden strategic issues and make more decisions, companies will open the door to many more opportunities for long-term growth and profitability. By embracing decision-focused planning, companies will almost certainly find that the quantity and quality of their decisions will improve. And-no coincidence-they will discover an improvement in the quality of the dialogue between senior corporate managers and unit managers. Corporate executives will gain a better understanding of the challenges their companies face, and unit managers will benefit fully from the experience and insights of the company's leaders. As Mark Reckitt, a director of group strategy at Cadbury Schweppes, puts it: "Continuous, decision-focused strategic planning has helped our top management team to streamline its agenda and work with business units and functional management to make far better business-strategy and commercial decisions."

A version of this article appeared in the January 2006 issue of Harvard Business Review.

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Stop Making Plans; Start Making Decisions

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The Idea in Brief Most executives view traditional strategic planning as worthless. Why? The process contains serious flaws. First, it's conducted annually, so it doesn't help executives respond swiftly to threats and opportunities (a new competitor, a possible acquisition) that crop up throughout the year.

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This article helped me understand planning is the primary function of management.

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This article provides you an extensive and detailed guide of business planning and decision making that exists today. Below given information includes everything you need to know about making the best business plans and taking the right decisions at right time for your organization.

Planning means deciding today for tomorrow. Thus, whatever we plan for tomorrow has to be done through decision making. Hindustan Unilever (HUL) has recently planned to increase sales to Rs. 50,000 crore by 2015. HUL could have opted for different goals, different plans and different time frame. But HUL decided for a particular mix of goals and plans for growth rate and time frame reflected choices from a variety of alternatives.

The decision making works as a driver of the planning process. It underlies every aspect of setting up goals and formulating plans among variety of options.

Planning is an intellectual process of deciding in advance today for tomorrow) what is to be done (ends, i.e. objectives), who is to do it (responsibility), how it is to be done (means), and when it is to be done (time frame).

The planning process is as such made up of the following elements:

1. Identification of objectives

2. Formulation of steps to achieve objectives

3. Forecasting

4. Decision making

Characteristics of Planning:
1. Planning is goal-oriented:
Planning is an action-oriented activity and goals are its cornerstones. Goals provide guidance (to know where the organisation wants to go) and unified direction to people (all activities going in for the same destination); goal setting activity affects all other aspects of planning; work as a source of motivation of employees work hard (especially if goal attainment is related with the rewards); and provides mechanism for evaluation and control (by providing the standards).
2. Planning is the primary function of management: 3. Planning is pervasive: 4. Planning is dynamic by nature: 5. Planning is continuous: 6. Planning is futuristic: 7. Planning involves choice 8. Planning is an intellectual exercise:
Planning is the first and primary activity of management as all other management functions start only after the planning function and they are performed within the framework laid down by planning.
1. Situational Analysis:
Every manager has to plan, irrespective of level. Off Course, planning will be related to the task assigned to him. Higher the level more time is devoted to distant future planning and lower the level more time is devoted to near future planning.

Planning involves forecasting. Forecasting involves environmental scanning. Since environment is never static, plans may have to be changed midway. Since, the target is always moving, revision has to be made to be compatible to the environment. Thus, planning is by nature dynamic and it leads planning to be flexible.
2. Setting Gals or Objectives:
Planning is time-bound. A plan has a specific time frame after which a new plan has to be prepared. Thus planning is not one-time activity.
3. Establishing Planning Premises: 4. Search, Evaluation and Selection of Right Choice: 5. Formulation of Derivative Plans: 6. Communicating the Plan:
Planning is not a historical exercise but relates to future. This calls for looking ahead and plan goals and activities for the future.
8. Monitoring:
If there is no other way out, then there is no need for planning. But if there are so many ways to reach the destination, Planning has to make a choice, depending on cost, time, and goals.

Planning is not based on guess work, but it is an intellectual exercise of data collection, analysis, and interpretation of past events, current happening and forecasting future. It is on this tedious intellectual exercise that planning is done, for which managers must have the abilities of analysis, imagination and judgement.

Different organisations may follow different steps to planning-depending upon the nature and their own standing in the industry. However, some of the general steps followed are as under.
1. Top-down Planning:
We may call it with other names also, like environmental scanning, or strategic analysis. The internal and external environments are scanned for locating strengths and weaknesses; and opportunities and threats.

Also the industry environment is also scanned to know of where our organisation stands in competition. The situational analysis helps to identify and diagnose planning assumptions or premises, issues and concerns.

The next step is to set the objectives or goals. In the characteristics, we have explained what purposes goals serve. Goals may be many and at times the organisation may find them conflicting.

Manufacturing goal may be to keep the cost at the lowest and marketing goal may to provide the stylish product. The incongruence has to be sorted out by the concerned organisation only.
4. Taskforce Planning:
Premises mean assumptions about future. While making a demand forecast for processed food, we must know of the population, our targeted segment, per capita consumption, etc. These are premises on which plan stands.

Of the various choices available, the planner has to search for different alternatives, evaluate them one by one, and finally select the best one.

Derivative plans exist in the form of policies, procedures, rules, schedules, budgets, etc. These plans are necessary to implement the basic plans. If a company makes a basic plan for launching a new product, the derivative plans would be plans regarding the product design, purchase of inventories, advertising of the product, channel arrangement, etc

A plan has no meaning unless it is communicated to the person who is to implement it. The implementer must also be asked to send his feedback for future improvement. 7. Implementation of the Plan. Plans are useless exercises unless they are put to proper use to achieve desired results. Proper implementation requires cooperation of all concerned and provision of necessary resources.

It is the last step in the planning process. The actual attainment has to be compared with planned and tells manager whether plans need any review. Though it is last step but ultimately, it reaches to first step. Thus planning is a cyclical activity.
(i) Corporate Plan:
Approaches to Planning:

How the planning work is done is a matter of approach to it - autocratic, democratic, composite or assigned to a task force.

In this approach the top management prepare vision and mission statements and determine strategies and other plans. And then these are passed on to middle and lower managements for implementation.
(ii) Strategic Business Unit Plan:
This is a case where vision is shared and little scope for shared vision. It is akin to authoritative management style, where others have to merely follow the dictates of top management.

In this approach plan proposals originate at lower level and travel through middle management level to top management levels. Ultimately the top management while finalising the plans gives due consideration to them. This approach is indicative of participative management and highly responsible and dedicated bunch of managers. This approach motivates the implementers.

This is an amalgam of both of the above approaches. The top management encourages middle and lower managers to formulate the plans. However, the finalisation is the prerogative of top management. But in composite approach the finalisation is done in consultation with the managers at appropriate levels.

In some of the companies, the task of planning is assigned to professional staff which may lower the workload of individual managers, coordinate the individual manager's planning, and have a broader perspective than the individual managers.

Types of Plans:

While planning is a process, the document(s) or statement(s) coming out of this exercise is known as Plan(s). In an organisation, one will find a plethora of plans. The numerous plans are due to different reasons and different purposes. The plans can be classified on the basis of the following:
(i) Long-Range Plans:
1. On the Basis of Management Levels.

Managers at different levels prepare different plans:
(ii) Intermediate Plans:
The top management comprises the Board of Directors, CEO, and the Executive Committee. The Vision, mission, and strategy formulation is the exclusive prerogative of the Board in consultation with other top managers.
(iii) Short-range Plans:
Corporate plan is concerned with Growth, Stability or Retrenchment. Corporate plan is for the whole organisation, and allocation of resources comes under its arena.

In the case of ITC Limited, the Board ensures that the company has clear goals and seeks accountability for their fulfilment. Then there is a corporate Management Committee, under the strategic supervision and control of the Board, responsible for corporate planning.

The Plans for different subsidiary companies having different kinds of business are to be made well within the directives of corporate plan. However, the plan for how to compete is made for each strategic business unit. The Plans cover the generic strategies as suggested by Michael Porter - cost leadership, differentiation, and focus strategies.

In the case of ITC, the task is assigned to Divisional Committee/SBU Management Committee to realise tactical and strategic objectives in accordance with Board approved plan.

Functional planning in an SBU of a conglomerate is done by the departmental heads, whose status is that of middle management. It deals with different functional areas, like marketing, Finance, Human Resources, and operations. The Functional Plans must be within the framework of corporate and SBU Plans. The functional plans help in the attainment of corporate and SBU objectives.

The plans for different cells or work stations have also to be made. This task is left to the first-line managers. In case of manufacturing operations, the plans have to be prepared with respect to work time-table, work duties, and facilities for work performance. Effective operational plans make functional planning successful.
(iii) Contingency Plan:
2. On the Basis of Time Frame for Plan:

On the basis of time frame plans may be having long-term, intermediate-term, or short-range focus.

It covers a very long time period. The time span for long-range plan differs from organisation to organisation. Long-term planning is the prerogative of top management level only. The Vision, mission and values' statements are prepared for 10-20 years.

Normally it covers a period of five years. But in turbulent times the time frame for long-range planning may have to be brought down. In technology for mobile phones, the long-term may be 3-6 months only.
(i) Single-Use Plans:
An intermediate plan covers from one to five years. These plans are especially important for middle and first-line management levels. Shifting domestic production to low cost destinations abroad or winding up in-house work facilities to outsource require intermediate plans.

Such a plan covers a span of one year or less. Some of the short- range plans may be for a period as short as one day, one week, or one month. A short- range plan may be an action plan (to do something as per the plan) and reaction plan (a plan to do something as a reaction to some unforeseen circumstance -due to fire in the plant the production has to be stopped so as to replace the machinery).
(ii) Standing Plans:
3. On the Basis of Response to Environmental Challenges:

Planning cannot be separated from business environment and environment cannot remain static. Basically it is reactive and proactive.

Reactive plan is a response in reaction to some development in the environment. In Japan, due to recent earthquake and tsunami many Japanese companies had to shut their operations. Many importers from Europe had to search other countries for the goods, earlier imported from Japan.

A proactive plan comes into effect to when an organisation scans its environment and undertakes initiatives in anticipation of likely changes in future and formulates proper initiative to deal with the likely situation.

Tatas saw an opportunity in two-wheeler-riders suffering in treacherous weather, and came out with an idea to offer small car at budget prices. There are many products, like mosquito repellents, bottled water, where the first movers saw an opportunity and planned proactively.

What, if an intended plan of action becomes redundant or rendered inappropriate. This often happens in one-day and T-20 cricket matches. Every team comes with a plan of action, but the opponent team may spoil the plan. In such a case the teams do come up with different action plans.

These additional plans are part of contingency planning. In the business world, contingency planning was seen due to "Y2K bug". Air India used contingency plan when its pilots went on strike recently in May, 2011.

4. On the Basis of Frequency of Use:

Operational plans or derivative plans, aimed at achieving operational goals, are normally focussed narrowly and their horizon also remains relatively short. These plans may be called Single use plans and Standing Plans.

Single-use plans are situation specific (one time situation, one time use). After the objectives have been achieved they become outdated and are no longer used. When Mahindra and Mahindra acquired Ssang Yong Motors of South Korea, the strategy to expand through acquisition of Korean firm was a single-use plan of action.

The single-use plans include strategy (a plan of action giving direction - Stability strategy during recessionary period), programme (a scheme of action involving large set of activities to solve a problem to achieve certain objective(s) - Introduction of metro rail in Delhi to solve public transport problem), project (a part of the programme with small scope and complexity - Division of introduction of metro rails in Delhi and NCR into phases, First phase starting from Shahdara to Rithala, and University to Central Secretariat was the initial project), and budget (the numerical plans of action over a period of time - Sales Budget showing territory- wise monthly allocation of sales targets of individual sales mangers for the full year)

Standing Plans are meant for recurring use in similar situations (recurring situations, recurring use) for a longer time frame, i.e., ongoing, extending to many years. The ethics policy of Tatas not to bribe is a standing plan and has been in currency since long. Standing plans make decision making a routine exercise. Standing plans include - Policies (for guide to action - all automobile manufacturers do not give agencies to those who are also having agency for another manufacturer as a policy; in Delhi University the quota for reservation is fixed; and policies also prescribe how exceptions are to be handled - if the reserved seats remain vacant, how these are to be filled in); Procedures (more specific than policies spell steps to be followed in a sequence - admission procedure of Delhi University is that the colleges will declare cut-off percentage and keep the list open for three days, students within this percentage will fill the forms, admission clerk will check the marks received, send it to the admission committee which will see the marks are in cut-off percentage, send it to cashier who will give a bank slip for depositing fee in the bank, after receiving information from the bank the cashier will notify his admission to concerned clerk for making Identity Card and the library to issue Book Borrowing cards - dates may change but procedure remains the same); Methods (details of action for performing particular operation.
(iii) Operational Plans:
While checking marks by an admission clerk he will follow the method- taking marks only of one of the languages, checking the marks with the respective board Gazettes) and Rules and Regulations (directives that must be followed - in Delhi College admission the science students marks are to be deducted by 5% is a rule; No smoking in College compound is a rule, ragging is prohibited and violation of these rules is punishable).

Table 7.1: Difference between Single-use and Standing Plans:

5. On the Basis of Scope of Activities:

On the basis of scope and nature of activities the plan can be segregated into Strategic Plan, Tactical Plan and Operational Plan.

A plan which determines overall objectives to give long-term direction to the organisation with regard to deployment of resources is known as a strategic plan. Its scope is the total organisation.

These plans are prepared by top management of the firm and serve as the base for tactical plans and operational plans. Peter F. Drucker has identified eight key areas of strategic goals - market standing, innovation, human resources, financial resources, productivity, social responsibility, and profit requirements.
1. Planning provides a sense of direction to the organisation:
These plans, sometimes referred as operational plans, provide the details of how the overall objectives are to be achieved. It is the middle management to formulate the tactical plans. While strategy focuses basically on resources, environment, and mission, tactical focus is on people and action.
2. Planning facilitates coordination: 3. Reduces the impact of change: 4. Planning minimises wastage and reduces redundancy: 5. Planning provides standards to assist control: 6. Planning makes employees feel meaningful and important: 7. Planning promotes creativity:
To be effective, tactical plans, used to implement specific parts of a strategic plan, must have an organic relationship with the strategic plan. Secondly, while strategies are specified in general terms, tactics must specify resources and time horizon.

The Strategy of Tata is being globally present. Tactical plans call for which sectors, which markets, and Greenfield investment (establishing own facility) Vs brown field (acquisition of an existing facility) specifications.
1. Planning may bring in Rigidity in thinking and operations:
Thirdly, managers dealing with tactical plan spend a large amount of time working with other people to receive process and pass on information to other people.
2. Planning is time consuming and expensive: 3. Planning is probabilistic: 4. Planning is not feasible in a dynamic environment: 5. Formal plans can't replace intuition and creativity: 6. Planning creates focus among managers on today's competition, not on tomorrow's survival: 7. Success breeds Failure:
Strategic plans differ from tactical plans in three ways - time horizon (tactical plans cover shorter period but strategic plans cover five or more years), scope (Strategic plan covers a border area and deals less with specifics but tactical plans have smaller area but make greater specifics), and objectives (strategic plan has to begin with the objectives, but tactical plans already have them and are concerned only with how these objectives are to be achieved.

As tactical plans are related with strategic plan, operational plans are related with tactical plans and are aimed at achieving operational objectives. The single-use and standing plans are part and parcel of operational plans.

6. On the Basis of Formalism:

Formal planning by managers mean there is a structured process of planning and there is proper authorisation to undertake planning. Large companies prepare their formal plans through formal planning. Some of the Companies have a separate planning department.

Informal planning is associated with unstructured process of planning. Most of the small companies use informal planning for their plans. It is the owner's subjective evaluation which matters.

Why Study Planning (Importance):

Planning is neither a fashion nor a fad. It is a necessity. Failing to plan means planning to fail. It is important for the students, mangers and entrepreneurs to study planning and develop planning abilities. Planning offers following benefits:

Preparation of vision, mission, objectives and goals provide clear direction to the organisation as to where it has to go and how. Such a clear direction helps to coordinate different plans and activities and develop cooperation and teamwork. Lack of planning means different people may work against one another.

By deciding in advance what to do and how to do planning formulates planned programmes of activity in the organisation. These planned programmes serve as the basis for orderly integration of efforts of different departments, divisions and people.

Planning develops a mindset of looking ahead, anticipate change, evaluate change and develop proper responses. It, therefore, reduces uncertainty.

Because of clear direction leading to coordinated effort, planning reduces wasteful activities. The activities that have no role in the organisation are retrenched because such activities can remain no more hidden.

Planning sets up objectives / goals / standards, which help in control? It is against them, the actual performance is compared and gaps are located and corrective action is taken.

Employees feel themselves as valuable to the organisation. Because they know where the organisation is to go and what role they have to play and how their role is related with the organisation's goals.

Since planning is an intellectual exercise of proactively looking in future provides ample opportunities to make use of creativity in determining objectives and choosing the best course of action to achieve the desired results.

Barriers to Planning:

Planning is in the nature of a person. But planning has its own limitations, drawbacks, criticisms. These are as under:

A plan involves several activities and programmes and there is a tendency to execute them without any changes or deviations. Managers get more concerned with the rules and procedures than achieving goals. This attitude brings inflexibility in their thinking and operations.

Planning involves large number of people making efforts to collect facts and data, analyse, and interpret them. This requires huge expenditure apart from the time. This is why during a crisis or emergency use of planning becomes difficult.
1. Decision making involves selecting a course of action:
Plans are based on forecasts. If these forecasts fail, planning is bound to fail. This barrier to planning arises on account of difficulties associated with planning premises. If the forecasting of rainfall is calculated wrongly the premises of agricultural products will also go wrong and hence, any sales plan will also go haywires.

Today the business environment is undergoing turbulence. If the planners start from the premise that the environment will not change, it is faulty. Today's environment can be rightly called as random and unpredictable.
2. Decision making is an intellectual activity:
A successful organisation may be the result of someone's vision. But with the pace of time the vision gets formalised. This may cause doom for the organisation.
3. Decision making is a problem-solving activity:
Planners have a tendency to capitalise on the existing opportunities, rather than creating new opportunities. The firm has to spend a lot when other firm takes the lead. Even otherwise, because of the quarterly results, firms do not think of getting into unchartered waters.
4. Decision making involves funds and commitment:
Success is the biggest reason of failure. Successful plans are hard to change. Success may generate a false sense of security, generating more confidence than deserved.. Managers fail to take timely decisions in case situation changes suddenly.
5. Decision making is a social process:
Planning involves changes in the organisation, but people resist change. People want the neighbour to change but not self. Thus people resist plans.
6. Decision making is all Pervasive.
How to make Planning Effective:

Planning is not a luxury, but a necessity. To make planning effective and useful, following principles need to be followed:

1. Make objectives crystal clear
1. Most decisions are Unstructured:
2. Make forecasts as accurate as possible
2. Most decisions suffer from Satisfying: 3. Most decisions are constrained by Bounded Rationality:
3. Get the consent of implementers
5. Conflicting in Nature:
4. The plan should be sound

5. The job of planning be assigned to the right people

6. Do not be over-optimistic
1. Recognising and Defining the Problem:
7. Keep the plan flexible

8. Long-range plans be reviewed on short-range basis
2. Identifying Alternatives: 3. Evaluating Alternatives: 4. Selecting an Alternative. 5. Communicating and Gaining Support for Decisions
Decision Making:
6. Implementing the selected Alternative: 7. Following-up and evaluating the Results:
Concept of Decision and Decision making Process:
1. On the Basis of Concern for whom:
Decision making is normally supposed to be making a choice out of different alternatives. The choice is the decision. But the process of decision making begins much before. "Decision making is the process through which managers identify organisational problems and attempt to resolve them."

For our purposes, the process of decision making is an intellectual activity involving defining the problem, and using judgment and evaluation in finding various alternatives and selection of the best among them.
2. On the Basis of frequency of occurrence:
Decision and Problem Solving:

When a decision is put to implementation to solve the problem it is known as problem solving. In fact this is the objective of decision making.

Characteristics of Decision Making:

If there are no choices, there is no need of any decision making. But when so many choices are there, the best among them is to be selected. Suppose the problem is how to increase sales.
Table7. 2: Difference between Programmed and Non-programmed Decisions: 3. On the Basis of Decision Making Situations or Conditions:
There are different alternatives like introduce new products, increase the frequency of use, find new markets, or modify existing products. The management will have to decide the right course of action.

Selection of right choice requires conceptualisation, analysis, and verification. Selection of right choice needs a deep cost- benefit analysis - an intellectual activity.

Decisions are taken to resolve conflict of goals, means, and needs. A decision is of no use if it cannot solve the problem, it will merely be waste of time, money, and efforts.
4. On the Basis of Who Makes the Decisions?
Decisions like introduction of new products, or replacement of old technology with the latest one involves huge funds and top management's commitment. Because ones the decisions are taken, the organisation cannot go back.

Decisions are taken by human beings for the human beings and are implemented by human beings. Thus it has a social dimension. The decisions must have a humane face to avoid appearing anti-humane.

"Whatever a manager does he does through decision making", said Peter Drucker. Decision making is an indispensable component of management activity. It embraces all the functions of management. In fact, a person is a manager because he takes decisions.

Features of Managerial Decisions:

The characteristics of managerial decisions show that decisions taken do not conform to rational model of decision making.
1. Time Pressures:
Since the problems are so new, novel, and complex, the decisions about them also appear so, because there is no structure in relations to those problems.

Most managerial decisions are the outcome of conducting search until some possible alternative is found. Exhaustive search is not undertaken because of subjective and personal considerations.
3. Organisational Policy: 4. Manager's Propensity to Risk:
Most managers are 'limited by their values, unconscious reflexes, skills and habits' that an optimum decision is not taken. It may also be due to incomplete information and knowledge.

Most of the managerial decisions suffer from the lack of clarity about the goals and hence to find a rightful option becomes difficult.

While selecting the best course of action, the final choice is not free from limitations. Often all the courses have their own merits and demerits. The spectrum pressures are always there. So to take a decision liked by all is difficult to choose.

In purchase of inventory the production engineer has the functional utility in mind, the finance manager has economy perspective, and the marketing manager has customer satisfaction perspective, finally a decision is taken after lot of politicking and the second best decision is taken.

Process of Decision Making:

The process of management is a comprehensive process. Figure 7.2 depicts the process of decision making.

First of all there must be some stimulus to initiate some decision making. For this purpose the problem has to be recognised. Inherent in the problem recognition is to define the problem. And a problem properly defined means half the problem solved. It would be a mistake to consider the features to be problem areas.

Features are merely indicators of some malaise. Air India's pilots strike is not a problem of raising the remuneration, but it is indicative of growing distrust between the management and the pilots.

After recognising the need and defining the problem, the next step is to develop alternative courses of action. While identifying alternatives, both the standard and the creative alternatives should be developed. And while doing so due attention be paid to legal restrictions, moral and ethical norms, economic and social considerations.

All alternatives must be evaluated in terms of feasibility, satisfactions and their consequences. For the proper analysis of alternatives Peter Drucker has suggested four criteria - the risk, economy of effort, timing, and limitations of resources.

After the stress test of various alternatives, now is the time to select the best of all, which will optimise the goal for which the decision making is being done.

After taking a decision and before putting it to implementation it would be in the interest of the organisation to inform other members of the organisation and garner their support in favour of the decision to be implemented.

To communicate the decision and gain acceptance many techniques are used - endorsement of top management, using a committee of key managers from all the departments, participative management during decision making, et al.

Once a choice of an alternative is finalised, the next step is to put it to implementation, so that it may lead to problem solution. In case of acquisition of sang Yong, it was a difficult job to culturally integrate with Mahindra and Mahindra. It took time, but it succeeded. While implementing resistance to change due to insecurity, inconvenience and fear of the unknown as identified in the case must be given due consideration.

At last it is time to ensure that the selected alternative has corrected the problem or served the purpose. If not, the organisation may decide to give more time to chosen alternative to work, adopt second or third alternative, or start the problem identification process again. Failure to monitor the effectiveness (removal of gap between actual and the desired condition) of the decision may prove to be very costly.

Managers take different kinds of decisions, and for each type of decision, decision making variables and management decision situations change. A classification of those decisions is given under.

Chester I Bernard has described the decisions on this basis as Personal and Organisational decisions. Personal decisions are taken by a person in his individual capacity, separate from the organisation.

A manager leaving an organisation is his personal decision. Organisational decisions are taken by a manager in his official capacity, and may delegate the decision making authority to his subordinate.

Some of the problems recur again and again. Such problems situations are routine, repetitive and for them the structure to take decisions is in place. Such decisions are known as programmed decisions.

Purchase of raw material is a programmed decision, because the structure is in place, the procedure is known, and not much risk is involved. On the other hand, non-programmed decisions are taken in relations to situations which are unique, not properly defined, unstructured and have large impact on the organisation.

Managers take custom-made decisions for unique problems on the basis of their experience, knowledge and creativity. Non- programmed decisions are quite risky as they are taken under uncertainty.

Some examples of such decisions include which firm to acquire, which global market to enter, whether to divest some unprofitable division. Lower level managers devote more time for programmed decisions, and as we go up we find the top management is more concerned with non-programmed decisions.

Decision making is very complex activity. On the basis of decision making conditions decisions may be classified as Decisions under Certainty, under Risk, and under Uncertainty.

Under certainty, the decision making becomes easy. The decision maker has simply to choose the best alternative. Very short-range decisions are taken, as they do not represent any uncertainty.

When a manager takes a decision on the basis of incomplete but most reliable and factual information, and when every alternative has number of outcomes. Hiring of a new sales manager, the marketing manager has some idea as to how much increase in sales can be brought in by him. But he can never be sure of the exact increase in the sales.

Decisions under uncertainty are those decisions which are taken without much of information about environmental situations. Such situations arise when there is no past data. Decisions are made on the basis of intuition and the outcomes are a matter of chance.

Decisions for the organisation are made by managers. Some of the decisions are made by individual executives, but some of the decisions are taken by a group of managers. Thus, decisions may be Individual Decisions and Group decisions.

The degree of importance determines whether an individual manager is to take a decision or the group or a team is to make a decision. The advantages and disadvantages of Group decision making have been given in Table 7.3.

Table 7.3: Advantages and Disadvantages of Group Decision Making:

More information and Knowledge availability

Takes longer time to decision making, hence costly too

Different viewpoints and perspectives lead to more alternatives

Compromised decisions, hence sub-optimal decisions

Greater acceptance by large audience

Larger the group more indecisiveness

Greater communication of decisions

Dominance by one person

Better decisions

Group decisions lead to buck-passing

Factors Affecting Decision Making:

There are many factors or pressures influencing decision making. Every pressure leaves its influence on the process of decision making. Some of the factors are:

Most managers are over-worked and time is the rarest thing with them. If the time given is less or the time at disposal is less and the decision has to be made at the eleventh hour, the quality of decision will suffer as the manager will not be able to collect, analyse and interpret the information for decision making.

Values reflect one's attitude and norms of life. The values themselves come from so many sources. A person of strong values may not like to consider society's needs and ignore other perspectives of a decision. Many businessmen do consider inclusion of all members of society, but those having their own value judgments may ignore inclusive growth.

Decisions have to be taken within the parameters of the policies of the organisation. However some progressive managers compel the organisation to accept decisions outside this framework. Birla Group has not expanded to liquor or tobacco or hotel industry as part of the policy of the Birla Group.

No two managers may be same in relation to propensity to take risk. Those who can their decisions will definitely be different - more the risk, more benefits and less the risk, less the benefits.

The business environment has a great influence on the decision making. ITC's diversification decision is more because of Government of India's policy to tax tobacco products more year-after-year. The decision to enter into foods business is because of growing personal income of Indians. The decision to enter into Hotel business was due to increasing international tourism in India.

The attitude of top management, allocation of funds, reaction of subordinates and the interaction with other departments are the other major factors that affect decision making.

Decision Making and Bounded Rationality:

It was Herbert Simon who introduced the concept of Bounded Rationality. It is correct to say that managers are rational beings in that they try to understand things and make sensible choices. However, the world is large and complex and we are not Buddha or God, we will never have a complete understanding of a situation before having to make a decision. In real life we don't have the capacity to understand everything and decide rationally. Herbert Simon indicated that there were thus two major causes of bounded rationality:

(a) Limitations of the human mind

(b) The structure within which the mind operates.

The decision makers (irrespective of their level of intelligence) have to work under three unavoidable limitations: (1) only limited, often unreliable, information is available regarding possible alternatives and their consequences, (2) human mind has only limited capacity to evaluate and process the information that is available, and (3) only a limited amount of time is available to make a decision.

Therefore even individuals who intend to make rational choices are bound to make satisfying (rather than optimizing or maximizing) choices in complex situations.

These limits (bounds) on rationality also make it nearly impossible to draw up contracts that cover every contingency, necessitating reliance on rules of thumb. Harder problems require more thinking, which increases the cognitive load. One can only be rational within the limits of time and cognitive capability. I choose a new hi-fi system based on reading a few magazines and listening to several friends. Even when the sales person offers me a better bargain, I turn it down.

How to make Decision making Effective?

To make the process of decision making effective, following points are useful:

1. Prioritise the decisions - which one first and which can be deferred.

2. Right decisions can never come out of wrong or inadequate information.

3. Creative decision making is always better than the run-of-the-mill decisions.

4. Different managerial decisions should not run counter to each other.

5. To gain better acceptance, cooperation and commitment, the implementers' views be kept into consideration.

6. In this age of information explosion, the managers must be trained in utilising only requisite information and ignoring the unwanted information.

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An Entrepreneur's Guide to Business Planning and Decision Making

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An Entrepreneur's Guide to Business Planning and Decision Making ! This article provides you an extensive and detailed guide of business planning and decision making that exists today. Below given information includes everything you need to know about making the best business plans and taking the right decisions at right time for your organization.

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This article helped me understand what it means to be a global manager.

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It is hard today to use the word "globalization" without a certain sense of irony, rueful or otherwise. Riven by ideology, religion, and mistrust, the world seems more fragmented, more at odds, than at any time since, arguably, World War II. But however deep the political divisions, business operations continue to span the globe, and executives still have to figure out how to run them efficiently and well. The question that Christopher Bartlett and Sumantra Ghoshal pose-"What is a global manager?"-seems therefore even more pressing than it did when their article originally appeared in these pages 11 years ago. Their answer, too, feels particularly timely. "There is no such thing," they write, "as a universal global manager." Multinational companies instead require three kinds of specialists-business managers, country managers, and functional managers-and a set of senior executives to nurture the specialists and coordinate their efforts. Bartlett and Ghoshal provide comprehensively researched examples of all four types of managers, exploring the different skills and perspectives they require to succeed. Their article lays out a model for a management structure that balances the local, regional, and global demands placed on companies operating across the world's many borders.

In the early stages of its drive overseas, Corning Glass hired an American ex-ambassador to head up its international division. He had excellent contacts in the governments of many nations and could converse in several languages, but he was less familiar with Corning and its businesses. In contrast, ITT decided to set up a massive educational program to "globalize" all managers responsible for its worldwide telecom business-in essence, to replace the company's national specialists with global generalists.

Corning and ITT eventually realized they had taken wrong turns. Like many other companies organizing for worldwide operations in recent years, they found that an elite of jet-setters was often difficult to integrate into the corporate mainstream; nor did they need an international team of big-picture overseers to the exclusion of focused experts.

Success in today's international climate-a far cry from only a decade ago-demands highly specialized yet closely linked groups of global business managers, country or regional managers, and worldwide functional managers. This kind of organization characterizes a transnational rather than an old-line multinational, international, or global company. Transnationals integrate assets, resources, and diverse people in operating units around the world. Through a flexible management process, in which business, country, and functional managers form a triad of different perspectives that balance one another, transnational companies can build three strategic capabilities: global-scale efficiency and competitiveness; national-level responsiveness and flexibility; and cross-market capacity to leverage learning on a worldwide basis.

While traditional organizations, structured along product or geographic lines, can hone one or another of these capabilities, they cannot cope with the challenge of all three at once. But an emerging group of transnational companies has begun to transform the classic hierarchy of headquarters-subsidiary relationships into an integrated network of specialized yet interdependent units. For many, the greatest constraint in creating such an organization is a severe shortage of executives with the skills, knowledge, and sophistication to operate in a more tightly linked and less classically hierarchical network.

In fact, in the volatile world of transnational corporations, there is no such thing as a universal global manager. Rather, there are three groups of specialists: business managers, country managers, and functional managers. And there are the top executives at corporate headquarters, the leaders who manage the complex interactions between the three-and can identify and develop the talented executives a successful transnational requires.

To build such talent, top management must understand the strategic importance of each specialist. The careers of Leif Johansson of Electrolux, Howard Gottlieb of NEC, and Wahib Zaki of Procter & Gamble vividly exemplify the specialized yet interdependent roles the three types of global managers play.

The Business Manager
Strategist + Architect + Coordinator
Global business or product-division managers have one overriding responsibility: to further the company's global-scale efficiency and competitiveness. This task requires not only the perspective to recognize opportunities and risks across national and functional boundaries but also the skill to coordinate activities and link capabilities across those barriers. The global business manager's overall goal is to capture the full benefit of integrated worldwide operations.

To be effective, the three roles at the core of a business manager's job are to serve as the strategist for his or her organization, the architect of its worldwide asset and resource configuration, and the coordinator of transactions across national borders. Leif Johansson, now president of Electrolux, the Sweden-based company, played all three roles successfully in his earlier position as head of the company's household appliance division.

In 1983, when 32-year-old Johansson assumed responsibility for the division, he took over a business that had been built up through more than 100 acquisitions over the previous eight years. By the late 1980s, Electrolux's portfolio included more than 20 brands sold in some 40 countries, with acquisitions continuing throughout the decade. Zanussi, for example, the big Italian manufacturer acquired by Electrolux in 1984, had built a strong market presence based on its reputation for innovation in household and commercial appliances. In addition, Arthur Martin in France and Zoppas in Norway had strong local brand positions but limited innovative capability.

As a result of these acquisitions, Electrolux had accumulated a patchwork quilt of companies, each with a different product portfolio, market position, and competitive situation. Johansson soon recognized the need for an overall strategy to coordinate and integrate his dispersed operations.

Talks with national marketing managers quickly convinced him that dropping local brands and standardizing around a few high-volume regional and global products would be unwise. He agreed with the local managers that their national brands were vital to maintaining consumer loyalty, distribution leverage, and competitive flexibility in markets that they saw fragmenting into more and more segments. But Johansson also understood the views of his division staff members, who pointed to the many similarities in product characteristics and consumer needs in the various markets. The division staff was certain Electrolux could use this advantage to cut across markets and increase competitiveness.

Johansson led a strategy review with a task force of product-division staff and national marketing managers. While the task force confirmed the marketing managers' notion of growing segmentation, its broader perspective enabled Johansson to see a convergence of segments across national markets. Their closer analysis also refined management's understanding of local market needs, concluding that consumers perceived "localness" mainly in terms of how a product was sold (distribution through local channels, promotion in local media, use of local brand names) instead of how it was designed or what features it offered.

From this analysis, Johansson fashioned a product-market strategy that identified two full-line regional brands to be promoted and supported in all European markets. He positioned the Electrolux brand to respond to the cross-market segment for high prestige (customers characterized as conservatives), while the Zanussi brand would fill the segment where innovative products were key (for trendsetters).

The local brands were clustered in the other two market segments pinpointed in the analysis: yuppies ("young and aggressive" urban professionals) and environmentalists ("warm and friendly" people interested in basic-value products). The new strategy provided Electrolux with localized brands that responded to the needs of these consumer groups. At the same time, the company captured the efficiencies possible by standardizing the basic chassis and components of these local-brand products, turning them out in high volume in specialized regional plants.

So, by tracking product and market trends across borders, Leif Johansson captured valuable global-scale efficiencies while reaping the benefits of a flexible response to national market fragmentation. What's more, though he took on the leadership role as a strategist, Johansson never assumed he alone had the understanding or the ability to form a global appliance strategy; he relied heavily on both corporate and local managers. Indeed, Johansson continued to solicit guidance on strategy through a council of country managers called the 1992 Group and through product councils made up of functional managers.

In fact, the global business manager's responsibility for the distribution of crucial assets and resources is closely tied to shaping an integrated strategy. While he or she often relies on the input of regional and functional heads, the business manager is still the architect who usually initiates and leads the debate on where major plants, technical centers, and sales offices should be located-and which facilities should be closed.

The obvious political delicacy of these debates is not the only factor that makes simple economic analysis inadequate. Within every operating unit there exists a pool of skills and capabilities that may have taken a lot of time and investment to build up. The global business manager has to achieve the most efficient distribution of assets and resources while protecting and leveraging the competence at hand. Electrolux's household appliance division had more than 200 plants and a bewildering array of technical centers and development groups in many countries. It was clear to Johansson that he had to rationalize this infrastructure.

He began by setting a policy for the household appliance division that would avoid concentration of facilities in one country or region, even in its Scandinavian home base. At the same time, Johansson wanted to specialize the division's development and manufacturing infrastructure on a "one product, one facility" basis. He was determined to allocate important development and manufacturing tasks to each of the company's major markets. In trying to optimize robustness and flexibility in the long term rather than minimize short-term costs, Johansson recognized that a specialized yet dispersed system would be less vulnerable to exchange-rate fluctuations and political uncertainties. This setup also tapped local managerial and technical resources, thereby reducing dependence on the small pool of skilled labor and management in Sweden.

Instead of closing old plants, Johansson insisted on upgrading and tailoring existing facilities whenever possible. In addition to averting political fallout and organizational trauma, Electrolux would then retain valuable know-how and bypass the start-up problems of building from scratch. An outstanding example of this approach is Zanussi's Porcia plant in Italy, which Electrolux turned into the world's largest washing machine plant. After a massive $150 million investment, the Porcia plant now produces 1.5 million units a year.

Although acquisition-fueled growth often leads to redundancy and overcapacity, it can also bring new resources and strengths. Instead of wiping out the division's diversity through homogenization or centralization, Johansson decided to leverage it by matching each unit's responsibilities with its particular competence. Because of the Scandinavian flair for modular design, he assigned the integrated kitchen-system business to Electrolux's Swedish and Finnish units. He acknowledged Porcia's experience in component production by consolidating design and production of compressors there. Johansson's reshaping of assets and resources not only enhanced scale economies and operational flexibility but also boosted morale by giving operating units the opportunity to leverage their distinctive competences beyond their local markets.

Newly developed business strategies obviously need coordination. In practice, the specialization of assets and resources swells the flow of products and components among national units, requiring a firm hand to synchronize and control that flow. For organizations whose operations have become more dispersed and specialized at the same time that their strategies have become more connected and integrated, coordination across borders is a tough challenge. Business managers must fashion, a repertoire of approaches and tools, from centralized control to management of exceptions identified through formal policies to indirect management via informal communication.

Leif Johansson coordinated product flow-across his 35 national sales units and 29 regional sourcing facilities-by establishing broad sourcing policies and transfer-pricing ranges that set limits but left negotiations to internal suppliers and customers. For instance, each sales unit could negotiate a transfer price with its internal source for a certain product in a set range that was usually valid for a year. If the negotiations moved outside that range, the companies had to check with headquarters. As a coordinator, Johansson led the deliberations that defined the logic and philosophy of the parameters; but he stepped back and let individual unit managers run their own organizations, except when a matter went beyond policy limits.

In contrast, coordination of business strategy in Johansson's division was managed through teams that cut across the formal hierarchy. Instead of centralizing, he relied on managers to share the responsibility for monitoring implementation and resolving problems through teams. To protect the image and positioning of his regional brands-Electrolux and Zanussi-he set up a brand-coordination group for each. Group members came from the sales companies in key countries, and the chairperson was a corporate marketing executive. Both groups were responsible for developing a coherent, pan-European strategy for the brand they represented.

To rationalize the various product strategies across Europe, Johansson created product-line boards to oversee these strategies and to exploit any synergies. Each product line had its own board made up of the corporate product-line manager, who was chair, and his or her product managers. The Quattro 500 refrigerator-freezer, which was designed in Italy, built in Finland, and marketed in Sweden, was one example of how these boards could successfully integrate product strategy.

In addition, the 1992 Group periodically reviewed the division's overall results, kept an eye on its manufacturing and marketing infrastructure, and supervised major development programs and investment projects. Capturing the symbolic value of 1992 in its name, the group was chaired by Johansson himself and included business managers from Italy, the United Kingdom, Spain, the United States, France, Switzerland, and Sweden.

Indeed, coordination probably takes up more of the global business manager's time than any other aspect of the job. This role requires that a manager have great administrative and interpersonal skills to ensure that coordination and integration don't deteriorate into heavy-handed control.

Many traditional multinational companies have made the mistake of automatically anointing their home country product-division managers with the title of global business manager. Sophisticated transnational companies, however, have long since separated the notions of coordination and centralization, looking for business leadership from their best units, wherever they may be. For example, Asea Brown Boveri (ABB), the Swiss-headquartered electrical engineering corporation, has tried to leverage the strengths of its operating companies and exploit their location in critical markets by putting its business managers wherever strategic and organizational dimensions coincide. In ABB's power-transmission business, the manager for switch gear is located in Sweden, the manager for power transformers is in Germany, the manager for distribution transformers is in Norway, and the manager for electric metering is in the United States.

Even well-established multinationals with a tradition of tight central control are changing their tack. The head of IBM's telecommunications business recently moved her division headquarters to London, not only to situate the command center closer to the booming European market for computer networking but also "to give us a different perspective on all our markets."

The Country Manager
Sensor + Builder + Contributor
The building blocks for most worldwide companies are their national subsidiaries. If the global business manager's primary objective is to achieve global-scale efficiency and competitiveness, the national subsidiary manager's is to be sensitive and responsive to the local market. Country managers play the pivotal role not only in meeting local customer needs but also in satisfying the host government's requirements and defending their company's market positions against local and external competitors.

The need for local flexibility often puts the country manager in conflict with the global business manager. But in a successful transnational like Electrolux, negotiation can resolve these differences. In this era of intense competition around the world, companies cannot afford to permit a subsidiary manager to defend parochial interests as "king of the country."

Nor should headquarters allow national subsidiaries to become the battleground for corporate holy wars fought in the name of globalization. In many companies, the national subsidiaries are hothouses of entrepreneurship and innovation-homes for valuable resources and capabilities that must be nurtured, not constrained or cut off. The subsidiaries of Philips, for one, have consistently led product development: In television, the company's first color TV was developed in Canada, the first stereo model in Australia, and the first teletext in the United Kingdom.

Unilever's national subsidiaries have also been innovative in product-marketing strategy: Germany created the campaign for Snuggle (a fabric softener); Finland developed Timotei (an herbal shampoo); and South Africa launched Impulse (a body perfume).

In fact, effective country managers play three vital roles: the sensor and interpreter of local opportunities and threats, the builder of local resources and capabilities, and the contributor to and active participant in global strategy. Howard Gottlieb's experience as general manager of NEC's switching-systems subsidiary in the United States illustrates the importance of all three of these tasks.

As a sensor, the country manager must be good at gathering and sifting information, interpreting the implications, and predicting a range of feasible outcomes. More important, this manager has the difficult task of conveying the importance of such intelligence to people higher up, especially those whose perceptions may be dimmed by distance or even ethnocentric bias. Today, when information gathered locally increasingly applies to other regions or even globally, communicating effectively is crucial. Consumer trends in one country often spread to another; technologies developed in a leading-edge environment can have global significance; a competitor's local market testing may signal a wider strategy; and national legislative initiatives in areas like deregulation and environmental protection tend to spill across borders.

Gottlieb's contribution to NEC's understanding of changes in the telecommunications market demonstrates how a good sensor can connect local intelligence with global strategy. In the late 1980s, Gottlieb was assigned to build the U.S. market for NEAX 61, a widely acclaimed digital telecom switch that was designed by the parent company in Japan. Although it was technologically sophisticated, early sales didn't meet expectations.

His local-market background and contacts led Gottlieb to a quick diagnosis of the problem. NEC had designed the switch to meet the needs of NTT, the Japanese telephone monopoly, and it lacked many features that customers in the United States wanted. For one thing, its software didn't incorporate the protocol conversions necessary for distributing revenues among the many U.S. companies that might handle a single long-distance phone call. Nor could the switch handle revenue-enhancing features like call waiting and call forwarding, which were vital high-margin items in the competitive, deregulated American market.

In translating the needs of his U.S. division to the parent company, Gottlieb had a formidable task. To convince his superiors in Japan that redesigning NEAX 61 was necessary, he had to bridge two cultures and penetrate the subtleties of the parent company's Japanese-dominated management processes. He had to instill a sense of urgency in several corporate management groups, varying his pitches to appeal to the interests of each. For instance, Gottlieb convinced the engineering department that the NEAX 61 switch had been underdesigned for the U.S. market and the marketing department that time was short because the Bell operating companies were calling for quotes.

A transnational's greater access to the scarcest of all corporate resources, human capability, is a definite advantage when compared with strictly local companies-or old-line multinationals, for that matter. Scores of companies like IBM, Merck, and Procter & Gamble have recognized the value of harvesting advanced (and often less expensive) scientific expertise by upgrading local development labs into global centers of technical excellence.

Other companies have built up and leveraged their overseas human resources in different ways. Cummins Engine, for example, has set up its highly skilled but surprisingly low-cost Indian engineering group as a worldwide drafting resource; American Airlines's Barbados operation handles much of the corporate clerical work; and Becton Dickinson, a large hospital supply company, has given its Belgian subsidiary pan-European responsibility for managing distribution and logistics.

Indeed, the burden of identifying, developing, and leveraging such national resources and capabilities falls on country managers. Howard Gottlieb, after convincing Tokyo that the United States would be an important market for NEC's global digital-switch design, persuaded headquarters to permit his new engineering group to take part early on in the product development of the next-generation switch-the NEAX 61E. He sent teams of engineers to Japan to work with the original designers; and, to verify his engineers' judgments, Gottlieb invited the designers to visit his customers in the United States. These exchanges not only raised the sensitivity of NEC's Japan-based engineers to U.S. market needs but also significantly increased their respect for their American colleagues. Equally important, the U.S. unit's morale rose.

As a builder, Gottlieb used this mutual confidence as the foundation for creating a software-development capability that would become a big corporate asset. Skilled software engineers, very scarce in Japan, were widely available in the United States. Gottlieb's first move was to put together a small software team to support local projects. Though its resources were limited, the group turned out a number of innovations, including a remote software-patching capability that later became part of the 61E switch design. The credibility he won at headquarters allowed Gottlieb to expand his design engineering group from ten to more than 50 people within two years, supporting developments not only in North America but also eventually in Asia.

In many transnationals, access to strategically important information-and control over strategically important assets-has catapulted country managers into a much more central role. As links to local markets, they are no longer mere implementers of programs and policies shaped at headquarters; many have gained some influence over the way their organizations make important strategic and operational decisions. In most of today's truly transnational companies, country managers and their chief local subordinates often participate in product-development committees, product-marketing task forces, and global-strategy conferences. Even at the once impenetrable annual top management meetings, national subsidiary managers may present their views and defend their interests before senior corporate and domestic executives-a scenario that would have been unthinkable even a decade ago.

Of course, the historic position of most national units of worldwide companies has been that of the implementer of strategy from headquarters. Because the parent company's accepted objectives are the outcome of discussions and negotiations involving numerous units, divisions, and national subsidiaries, sometimes a country manager must carry out a strategy that directly conflicts with what he or she has lobbied for in vain.

But a diverse and dispersed worldwide organization, with subsidiaries that control many of the vital development, production, and marketing resources, can no longer allow the time-honored "king of the country" to decide how, when, and even whether his or her national unit will implement a particular strategic initiative. The decision made by the North American subsidiary of Philips to outsource its VCRs from a Japanese competitor rather than the parent company is one of the most notorious instances of how a local "king" can undermine global strategy.

At NEC, Howard Gottlieb spent about 60% of his time on customer relations and probing the market and about 30% managing the Tokyo interface. Gottlieb's ability to understand and interpret the global strategic implications of U.S. market needs-and the software-development group he built from scratch-let him take part in NEC's ongoing strategy debate. As a result, he changed his division's role from implementer of corporate strategy to active contributor in designing that strategy.

The Functional Manager

Scanner + Cross-Pollinator + Champion

While global business managers and country managers have come into their own, functional specialists have yet to gain the recognition due them in many traditional multinational companies. Relegated to support-staff roles, excluded from important meetings, and even dismissed as unnecessary overhead, functional managers are often given little chance to participate in, let alone contribute to, the corporate mainstream's global activity. In some cases, top management has allowed staff functions to become a warehouse for corporate misfits or a graveyard for managerial has-beens. Yet at a time when information, knowledge, and expertise have become more specialized, an organization can gain huge benefits by linking its technical, manufacturing, marketing, human resources, and financial experts worldwide.

Given that today's transnationals face the strategic challenge of resolving the conflicts implicit in achieving global competitiveness, national responsiveness, and worldwide learning, business and country managers must take primary responsibility for the first two capabilities. But the third is the functional manager's province.

Building an organization that can use learning to create and spread innovations requires the skill to transfer specialized knowledge while also connecting scarce resources and capabilities across national borders.

To achieve this important objective, functional managers must scan for specialized information worldwide, "cross-pollinate" leading-edge knowledge and best practice, and champion innovations that may offer transnational opportunities and applications.

Most innovation starts, of course, when managers perceive a particular opportunity or market threat, such as an emerging consumer trend, a revolutionary technological development, a bold competitive move, or a pending government regulation. When any of these flags pops up around the world, it may seem unimportant to corporate headquarters if viewed in isolation. But when a functional manager serves as a scanner, with the perspective and expertise to detect trends and move knowledge across boundaries, he or she can transform piecemeal information into strategic intelligence.

In sophisticated transnationals, senior functional executives serve as linchpins, connecting their areas of specialization throughout the organization. Using informal networks, they create channels for communicating specialized information and repositories for proprietary knowledge. Through such links, Electrolux marketing managers first identified the emergence of cross-market segments and NEC's technical managers were alerted to the shift from analog to digital switching technology.

In the same manner, Wahib Zaki of Procter & Gamble's European operations disapproved of P&G's high-walled organizational structures, which isolated and insulated the technical development carried out in each subsidiary's lab. When Zaki became head of R&D in Europe, he decided to break down some walls. In his new job, he was ideally placed to become a scanner and cross-pollinator. He formed European technical teams and ran a series of conferences in which like-minded experts from various countries could exchange information and build informal communication networks.

Still, Zaki needed more ammunition to combat the isolation, defensiveness, and "not invented here" attitude in each research center. He distributed staff among the European technical center in Brussels and the development groups of P&G's subsidiaries. He used his staff teams to help clarify the particular role of each national technical manager and to specialize activities that had been duplicated on a country-by-country basis with little transfer of accumulated knowledge.

In response to competitive threats from rivals Unilever, Henkel, and Colgate-Palmolive-and to a perceived consumer trend-P&G's European headquarters asked the Brussels-based research center to develop a new liquid laundry detergent. By that time, Zaki had on hand a technical team that had built up relationships among its members so that it formed a close-knit network of intelligence and product expertise.

The team drew the product profile necessary for healthy sales in multiple markets with diverse needs. In several European markets, powdered detergents contained enzymes to break down protein-based stains, and the new liquid detergent would have to accomplish the same thing. In some markets, a bleach substitute was important; in others, hard water presented the toughest challenge; while in several countries, environmental concerns limited the use of phosphates. Moreover, the new detergent had to be effective in large-capacity, top-loading machines, as well as in the small front-loading machines common in Europe.

Zaki's team developed a method that made enzymes stable in liquid form (a new technique that was later patented), a bleach substitute effective at low temperatures, a fatty acid that yielded good water-softening performance without phosphates, and a suds suppressant that worked in front-loading machines (so bubbles wouldn't ooze out the door). By integrating resources and expertise, Zaki cross-pollinated best practice for a new product.

The R&D group was so successful that the European headquarters adopted the use of teams for its management of the new brand launch. P&G's first European brand team pooled the knowledge and expertise of brand managers from seven subsidiaries to draft a launch program and marketing strategy for the new liquid detergent Vizir, which ensured its triumphant rollout in seven countries in six months. P&G's homework enabled it to come up with a product that responded to European needs, while Colgate-Palmolive was forced to withdraw its liquid detergent brand, Axion-which had been designed in the United States and wasn't tailored for Europe-after an 18-month market test.

As a reward for his performance in Europe, Wahib Zaki was transferred to Procter & Gamble's Cincinnati corporate headquarters as a senior vice president of R&D. He found that researchers there were working on improved builders (the ingredients that break down dirt) for a new liquid laundry detergent to be launched in the United States. In addition, the international technology-coordination group was working with P&G's Japanese subsidiary to formulate a liquid detergent surfactant (the ingredient that removes greasy stains) that would be effective in the cold-water washes common in Japanese households, where laundry is often done in used bathwater. Neither group had shared its findings or new ideas with the other, and neither had incorporated the numerous breakthroughs represented by Vizir-despite the evidence that consumer needs, market trends, competitive challenges, and regulatory requirements were all spreading across national borders.

Playing the role of champion, Zaki decided to use this development process to demonstrate the benefits of coordinating P&G's sensitivity and responsiveness to diverse consumer needs around the world. He formed a team drawn from three technical groups (one in Brussels and two in the United States) to turn out a world liquid laundry detergent. The team analyzed the trends, generated product specifications, and brought together dispersed technical knowledge and expertise, which culminated in one of Procter & Gamble's most successful product launches ever. Sold as Liquid Tide in the United States, Liquid Cheer in Japan, and Liquid Ariel in Europe, the product was P&G's first rollout on such a global scale.

As Zaki continued to strengthen cross-border technology links through other projects, Procter & Gamble gradually converted its far-flung sensing and response resources into an integrated learning organization. By scanning for new developments, cross-pollinating best practice, and championing innovations with transnational applications, Wahib Zaki, a superlative functional manager, helped create an organization that could both develop demonstrably better new products and roll them out at a rapid pace around the world.

The Corporate Manager

Leader + Talent Scout + Developer

Clearly, there is no single model for the global manager. Neither the old-line international specialist nor the more recent global generalist can cope with the complexities of cross-border strategies. Indeed, the dynamism of today's marketplace calls for managers with diverse skills. Responsibility for worldwide operations belongs to senior business, country, and functional executives who focus on the intense interchanges and subtle negotiations required. In contrast, those in middle management and frontline jobs need well-defined responsibilities, a clear understanding of their organization's transnational mission, and a sense of accountability-but few of the distractions senior negotiators must shoulder.

Meanwhile, corporate managers integrate these many levels of responsibility, playing perhaps the most vital role in transnational management. The corporate manager not only leads in the broadest sense; he or she also identifies and develops talented business, country, and functional managers-and balances the negotiations among the three. It's up to corporate managers to promote strong managerial specialists like Johansson, Gottlieb, and Zaki, those individuals who can translate company strategy into effective operations around the world.

Successful corporate managers like Floris Maljers, cochairman of Unilever, have made the recruitment, training, and development of promising executives a top priority. By the 1980s, with Maljers as chairman, Unilever had a clear policy of rotating its managers through various jobs and moving them around the world, especially early in their careers. Unilever was one of the first transnationals to have a strong pool of specialized yet interdependent senior managers, drawn from throughout its diverse organization.

But while most companies require only a few truly transnational managers to implement cross-border strategies, the particular qualities necessary for such positions remain in short supply. According to Maljers, it is this limitation in human resources-not unreliable or inadequate sources of capital-that has become the biggest constraint in most globalization efforts.

Locating such individuals is difficult under any circumstances, but corporate managers greatly improve the odds when their search broadens from a focus on home country managers to incorporate the worldwide pool of executives in their organization. Because transnationals operate in many countries, they have access to a wide range of managerial talent. Yet such access-like information on local market trends or consumer needs that should cross organizational boundaries-is often an underexploited asset.

As a first step, senior executives can identify those in the organization with the potential for developing the skills and perspectives demanded of global managers. Such individuals must have a broad, nonparochial view of the company and its operations yet a deep understanding of their own business, country, or functional tasks. Obviously, even many otherwise talented managers in an organization aren't capable of such a combination of flexibility and commitment to specific interests, especially when it comes to cross-border coordination and integration. Top management may have to track the careers of promising executives over several years before deciding whether to give them senior responsibilities. At Unilever, for example, the company maintains four development lists that indicate both the level of each manager and his or her potential. The progress of managers on the "A1" list is tracked by Unilever's Special Committee, which includes the two chairmen.

Once corporate managers identify the talent, they have the duty to develop it. They must provide opportunities for achievement that allow business, country, and functional managers to handle negotiations in a worldwide context. A company's ability to identify individuals with potential, legitimize their diversity, and integrate them into the organization's corporate decisions is the single clearest indicator that the corporate leader is a true global manager-and that the company is a true transnational.

A version of this article appeared in the August 2003 issue of Harvard Business Review.

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It is hard today to use the word "globalization" without a certain sense of irony, rueful or otherwise. Riven by ideology, religion, and mistrust, the world seems more fragmented, more at odds, than at any time since, arguably, World War II.

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To be successful you need to change as the times change.

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This article helped me understand performance management for the Global organization.

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It's a Small (but diverse) World: Performance Management for the Global Organization

I'm not going to lie to you: rebooting your performance management to effectively drive organizational performance, develop people, and reward equitably requires a good deal of serious thought. Managing performance at a global level, however, warrants serious thought on steroids. You must have a solid understanding of the legislative and regulatory issues and demographic trends and labor laws from every jurisdiction in which you've got people. Hard enough. But the most critical global consideration for rebooting your performance management is to understand the cultural differences in your workforce.

If we were to take a peek at what organizations have historically done to recognize these differences, we'd see that the tactics range dramatically from barely a nod (bad) to localized approaches custom-designed for each unique culture (excellent). Sadly, 'barely a nod' tends to prevail. And so many global organizations continue to struggle to optimize their talent management processes in the ever-expanding global market.

What is the right approach for implementing a performance management program for a global workforce? Well, I've said it before and I'll say it again: there is no one-size-fits-all solution. But if you agree with me that culture is the most important factor, then you'll be sure to put a respectable amount of effort into understanding those cultural differences and how they will weigh into your solution design. And you'll make sure your leadership is aligned on how you plan to manage various global employee groups differently from one another.

If you want to gain an appreciation for what will and won't work here, I recommend turning to the extensive research conducted by Geert Hofsted on cultures in the workforce . In his research, Hofsted found five fundamental value dimensions that can be used to explain cultural diversity in the world. The "5 Dimensional Model" ¹ is one of the only models out there that's based on rigorous cultural research, rather than opinion (which is why I like it). The five dimensions are:

1. Power Distance (PDI): The degree to which people accept that power is distributed unevenly within a group or society.

2. Individualism (IDV): The degree to which taking responsibility for oneself is more valued than belonging to a group that will look after its people in exchange for loyalty.

3. Masculinity (MAS): The degree to which people value performance and the status that derives from it, rather than quality of life and caring for others.

4. Uncertainty Avoidance (UAI): The degree to which people develop mechanisms to avoid uncertainty.

5. Long-Term Orientation (LTO): The degree to which people value long-term goals and have a pragmatic approach, rather than being normative and short-term oriented.

What does this all mean for designing performance management systems? Well, let's take a look at the traditional review process. The annual review is a widely accepted practice in countries like the US and the UK. In the US (and other countries with similar cultures) we score low on power distance (the degree to which people accept that power is distributed unevenly within a group or society) and high in individualism (the degree to which taking responsibility for yourself is valued more highly than belonging to a group that will look after its people in exchange for loyalty). With those defining cultural factors, we find it easy to accept the idea that very direct feedback is "the right way" to improve performance. This notion falls flat in high power distance countries, such as Japan. In fact, very direct feedback in these cultures is likely to be seen as dishonorable and disrespectful. This means that we have to take a different approach that fits these cultural norms and expectations.

Another interesting dimension to consider is how your planning horizon may vary from culture to culture. When I was at Hitachi Consulting I learned to appreciate the very real impact of working within an organization heavily influenced by Japanese leadership. One of the most notable differences was the manner in which the Japanese leaders thought about the short and the long view. In the US we had a much shorter planning horizon in contrast to our Japanese peers. This difference in focus radically influenced how each group defined what 'good' looked like in both the short and long terms. At times this created conflict and stress when setting targets and measuring success.

When putting together your team to build your new global performance management solution, remember to include individuals who can help you understand cultural differences.

Rewarding equitably can be another tricky area as you navigate from culture to culture. The cash-is-king individual performance bonuses that we default to in countries like the US and UK are not a good fit in cultures that focus on greater responsibility, larger spans of control, and wider territories, as preferred rewards. Again, this showed up in my experience at Hitachi; the Japanese executives were quite surprised by our vice president's bonus model, while the US leaders were struck by their Japanese counterparts' lavish spending allowances. As they say, different strokes for different folks (or in this case, different cultures, different expectations). In some cultures cash rewards may even be perceived as petty. The headline? Tread carefully in this arena. If you're planning a bonus program, be sure to consider which cultures value and expect bonuses, how you should measure them if you use them, and whether team or individual incentives would work best.

Beginning to feel a bit overwhelmed? Let me reinforce a few ideas that may help keep you grounded. First, when putting together your team to build your new solution, remember to include individuals who can help you understand these cultural differences. They can be a voice for what will work and what is likely to fall flat. Get comfortable with allowing for differences across cultures. Your goal will be to find the best balance between meeting your desire for consistency and creating great experiences for your global team. Also, before you roll out your solution, test it in different geographies and cultures - not just the solution itself, but also the supporting content, since some degree of localization is likely to be needed on that as well.

In the end, keep humanity at the forefront of your design, and never forget that this is about your people, not the process!
These are concepts from my book, How Performance Management is Killing Performance - and What To Do About It. Check out the book (you can order it from Barnes and Noble or Amazon) for the "full meal deal" - MTC P.S. Don't miss a post - sign up here for my email list to keep up to date on PM Reboot ideas. P.P.S. Please help spread the PM Reboot revolution by sharing this post with your networks! 1 Geert Hofstede, Culture's Consequences: Comparing Values, Behaviors, Institutions, and Organizations Across Nations (London, UK: Sage Publications, 2003).

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Performance Management for the Global Organization

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I'm not going to lie to you: rebooting your performance management to effectively drive organizational performance, develop people, and reward equitably requires a good deal of serious thought. Managing performance at a global level, however, warrants serious thought on steroids.

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This article helped me understand the difficulty and also the benefits to MNC's

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As the economic spotlight shifts to developing markets, global companies need new ways to manage their strategies, people, costs, and risks.

Managing global organizations has been a business challenge for centuries. But the nature of the task is changing with the accelerating shift of economic activity from Europe and North America to markets in Africa, Asia, and Latin America. McKinsey Global Institute research suggests that 400 midsize emerging-market cities, many unfamiliar in the West, will generate nearly 40 percent of global growth over the next 15 years. The International Monetary Fund confirms that the ten fastest-growing economies during the years ahead will all be in emerging markets. Against this backdrop, continuing advances in information and communications technology have made possible new forms of international coordination within global companies and potential new ways for them to flourish in these fast-growing markets.

There are individual success stories. IBM expects to earn 30 percent of its revenues in emerging markets by 2015, up from 17 percent in 2009. At Unilever, emerging markets make up 56 percent of the business already. And Aditya Birla Group, a multinational conglomerate based in India, now has operations in 40 countries and earns more than half its revenue outside India.

But, overall, global organizations are struggling to adapt. A year ago, we uncovered a "globalization penalty": high-performing global companies consistently scored lower than more locally focused ones on several dimensions of organizational health. For example, the former were less effective at establishing a shared vision, encouraging innovation, executing "on the ground," and building relationships with governments and business partners. Equally arresting was evidence from colleagues in McKinsey's strategy practice showing that global companies headquartered in emerging markets have been growing faster than counterparts headquartered in developed ones, even when both are operating on "neutral turf": emerging markets where neither is based (see " Parsing the growth advantage of emerging-market companies ").

Over the past year, we've tried to understand more clearly the challenges facing global organizations, as well as approaches that are helping some to thrive. Our work has included surveys and structured interviews with more than 300 executives at 17 of the world's leading global organizations spanning a diverse range of sectors and geographies, a broader survey of more than 4,600 executives, and time spent working directly with the leaders of dozens of global organizations trying to address these issues.

Clearly, no single organizational model is best for all companies handling the realities of rapid growth in emerging markets and round-the-clock global communications. That's partly because the opportunities and challenges facing companies vary, depending on their business models. R&D-intensive companies, for example, are working to staff new research centers in the emerging world and to integrate them with existing operations. Firms focused on extracting natural resources are adapting to regulatory regimes that are evolving rapidly and sometimes becoming more interventionist. Consumer-oriented firms are facing sometimes-conflicting imperatives to tailor their businesses to local needs while maintaining consistent global processes.

Another reason no single model fits all global companies is that their individual histories are so different. Those that have grown organically often operate relatively consistently across countries but find it hard to adjust their products and services to local needs, given their fairly standardized business models. Companies that have mainly grown through M&A, in contrast, may find it easier to tailor operations to local markets but harder to integrate their various parts so they can achieve the potential of scale and scope and align a dispersed workforce behind a single set of strategies and values.

Although individual companies are necessarily responding differently to the new opportunities abroad, our work suggests that most face a common set of four tensions in managing strategy, people, costs, and risk on a global scale. The importance of each of these four tensions will vary from company to company, depending on its particular operating model, history, and global footprint. (For more on the implications of these uneven globalization efforts, see " Developing global leaders.") Taking stock of the status of all four tensions can be a useful starting point for a senior-management team aiming to boost an organization's global performance.

Strategic confidence and stretch

Being global brings clear strategic benefits: the ability to access new customer markets, new suppliers, and new partners. These immediate benefits can also create secondary ones. Building a customer base in a new market, for example, provides familiarity and relationships that may enable additional investments-say, in a research center.

But being global also brings strategic challenges. Many companies find it increasingly difficult to be locally flexible and adaptable as they broaden their global footprint. In particular, processes for developing strategy and allocating resources can struggle to cope with the increasing diversity of markets, customers, and channels. These issues were clear in our research: fewer than 40 percent of the 300 senior executives at global companies we interviewed and surveyed believed that their employers were better than local competitors at understanding the operating environment and customers' needs. And barely half of the respondents to our broader survey thought that their companies communicated strategy clearly to the workforce in all markets where they operate.

People as an asset and a challenge

Many of the executives we interviewed believed strongly that the vast reserves of skills, knowledge, and experience within the global workforce of their companies represented an invaluable asset. But making the most of that asset is difficult: for example, few surveyed executives felt that their companies were good at transferring lessons learned in one emerging market to another.

At the same time, many companies find deploying and developing talent in emerging markets to be a major challenge. Barely half the executives at the 17 global companies we studied in depth thought they were effective at tailoring recruiting, retention, training, and development processes for different geographies. An emerging-market leader in one global company told us that "our current process favors candidates who have been to a US school, understand the US culture, and can conduct themselves effectively on a call with head office in the middle of the night. The process is not designed to select for people who understand our market."

One of our recent surveys showed how hard it is to develop talent for emerging markets at a pace that matches their expected growth. Executives reported that just 2 percent of their top 200 employees were located in Asian emerging markets that would, in the years ahead, account for more than one-third of total sales. Complicating matters is the fact that local highfliers in some key markets increasingly prefer to work for local employers (see " How multinationals can attract the talent they need "). Global companies are conscious of this change. "Local competitors' brands are now stronger, and they can offer more senior roles in the home market," noted one multinational executive we interviewed.

Scale and scope benefits, complexity costs

Large global companies still enjoy economic leverage from being able to invest in shared infrastructure ranging from R&D centers to procurement functions. Economies of scale in shared services also are significant, though no longer uniquely available to global companies, as even very local ones can outsource business services and manufacturing and avail themselves of cloud-based computing.

But as global companies grow bigger and more diverse, complexity costs inevitably rise. Efforts to standardize the common elements of essential functions, such as sales or legal services, can clash with local needs. And emerging markets complicate matters, as operations located there sometimes chafe at the costs they must bear as part of a group centered in the developed world: their share of the expense of distant (and perhaps not visibly helpful) corporate and regional centers, the cost of complying with global standards and of coordinating managers across far-flung geographies, and the loss of market agility imposed by adhering to rigid global processes.

Risk diversification and the loss of familiarity

A global company benefits from a geographically diverse business portfolio that provides a natural hedge against the volatility of local growth, country risk, and currency risk. But pursuing so many emerging-market opportunities is taking global companies deep into areas with unfamiliar risks that many find difficult to evaluate. Less than half of the respondents to our 2011 survey thought these organizations had the right risk-management infrastructure and skills to support the global scale and diversity of their operations.

Furthermore, globally standard, exhaustive risk-management processes may not be the best way to deal with risk in markets where global organizations must move fast to lock in early opportunities. One executive in an emerging-market outpost of a global company told us "a mind-set that 'this is the way that we do things around here' is very strongly embedded in our risk process. When combined with the fact that the organization does not fully understand emerging markets, it means that our risk process might reject opportunities that [the global] CEO would approve."

Understanding these tensions is just a starting point. Capturing the benefits and mitigating the challenges associated with each will require global companies to explore new ways of organizing and operating.

About the author(s)

Martin Dewhurst is a director in McKinsey's London office, where Suzanne Heywood is a principal; Jon Harris is a director in the New York office.

The authors would like to acknowledge the contributions of Kate Aquila and Roni Katz to the development of this article.

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As the economic spotlight shifts to developing markets, global companies need new ways to manage their strategies, people, costs, and risks. Managing global organizations has been a business challenge for centuries. But the nature of the task is changing with the accelerating shift of economic activity from Europe and North America to markets in Africa, Asia, and Latin America.

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This article allowed me to open my eyes to the new world of corporate governance.

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Idea in Brief

The Problem

Good corporate governance has been hindered by a patchwork of regulation and policy making and the lack of an accepted metric for determining success. The result is a system with unintended outcomes that occasionally subvert both common sense and public policy.

Why It Happens

The debate about corporate governance is characterized by shrill voices, a seemingly unbridgeable divide between shareholder activists and managers, rampant conflicts of interest, and rigidly held positions.

The Solution

Corporate Governance 2.0 is a back-to-basics reconceptualization of sound corporate governance. It's based on three core principles:

Boards should have the right to manage the company for the long term

Boards should install mechanisms to ensure the best possible people in the boardroom

Shareholders should have an "orderly" voice

Although corporate governance is a hot topic in boardrooms today, it is a relatively new field of study. Its roots can be traced back to the seminal work of Adolf Berle and Gardiner Means in the 1930s, but the field as we now know it emerged only in the 1970s. Achieving best practices has been hindered by a patchwork system of regulation, a mix of public and private policy makers, and the lack of an accepted metric for determining what constitutes successful corporate governance. The nature of the debate does not help either: shrill voices, a seemingly unbridgeable divide between shareholder activists and managers, rampant conflicts of interest, and previously staked-out positions that crowd out thoughtful discussion. The result is a system that no one would have designed from scratch, with unintended consequences that occasionally subvert both common sense and public policy.

Consider the following:

In 2010 the hedge fund titans Steve Roth and Bill Ackman bought 27% of J.C. Penney before having to disclose their position; Penney's CEO, Mike Ullman, discovered the raid only when Roth telephoned him about it.

The proxy advisory firm Glass Lewis has announced that it will recommend a vote against the chairperson of the nominating and governance committee at any company that imposes procedural limits on litigation against the company, notwithstanding the consensus view among academics and practitioners that shareholder litigation has gotten out of control in the United States.

In 2012 JPMorgan Chase had no directors with risk expertise on the board's risk committee-a deficiency that was corrected only after Bruno Iksil, the "London Whale," caused $6 billion in trading losses through what JPM's CEO, Jamie Dimon, called a "Risk 101 mistake."

Allergan, a health care company, recently sought to impose onerous information requirements on efforts to call a special meeting of shareholders, and then promptly waived those requirements just before they would have been invalidated by the Delaware Chancery Court.

The corporate governance watchdog Institutional Shareholder Services (ISS) issued a report claiming that shareholders do better, on average, by voting for the insurgent slate in proxy contests; within hours, the law firm Wachtell, Lipton, Rosen & Katz issued a memorandum to clients claiming that the study was flawed.

The same ISS issues a "QuickScore" for every major U.S. public company, yet it won't tell you how it calculates your company's score or how you can improve it-unless you pay for this "advice."

We can do better. And with trillions of dollars of wealth governed by these rules of the game, we must do better. In this article I propose Corporate Governance 2.0: not quite a clean-sheet redesign of the current system, but a back-to-basics reconceptualization of what sound corporate governance means. It is based on three core principles-principles that reasonable people on all sides of the debate should be able to agree on once they have untethered from vested interests and staked-out positions. I apply these principles to develop a package solution to some of the current hot-button issues in corporate governance.

The overall approach draws from basic negotiation theory: Rather than fighting issue by issue, as boards and shareholder activist groups currently do, they should take a bundled approach that allows for give-and-take across issues, thereby increasing the likelihood of meaningful progress. The result would be a step change in the quality of corporate governance, rather than incremental meandering toward what may (or may not) be a better corporate governance regime for U.S. public companies.

Principle #1: Boards Should Have the Right to Manage the Company for the Long Term

Perhaps the biggest failure of corporate governance today is its emphasis on short-term performance. Managers are consumed by unrelenting pressure to meet quarterly earnings, knowing that even a penny miss on earnings per share could mean a sharp hit to the stock price. If the downturn is severe enough, activist hedge funds will start to become interested in taking a position and then clamoring for change. And, of course, there are the lawyers, ever ready to file litigation after a big drop in the company's stock.

It is ironic that companies today have to go private in order to focus on the long term. Michael Dell, for example, took Dell private in 2013 because, he claimed, the fundamental changes the company needed could not be achieved in the glare of the public markets. A year later he wrote in the Wall Street Journal, "Privatization has unleashed the passion of our team members who have the freedom to focus first on innovating for customers in a way that was not always possible when striving to meet the quarterly demands of Wall Street." The idea that "innovating for customers" can be done more effectively in a private company is deeply troubling; public companies, after all, are still the largest driver of wealth creation in our economy.

To allow managers at public companies to focus on the long term, Corporate Governance 2.0 includes the following tenets:

Further Reading

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End earnings guidance.

With holding periods in today's stock markets averaging less than six months, short-termism cannot be avoided completely. Nevertheless, dispensing with earnings guidance-the practice of giving analysts a preview of what financial results the company expects-would mitigate the obsession with short-term profitability. Earnings guidance has been in decline over the past 10 years, but many companies are nervous about eliminating it for analysts who have come to rely on it. Research shows that the dispersion in analysts' forecasts increases after companies stop giving guidance-presumably because analysts are no longer being fed the answers to the questions. With less consensus among them, the stock market reacts less negatively when earnings are lower than the average view, thereby mitigating the pressure for quarterly results. Instead of providing earnings guidance, companies should provide analysts with long-term goals, such as market share targets, number of new products, or percent of revenue from new markets.

Bring back a variation on the staggered board.

When a board is staggered, one-third of the directors are elected each year to three-year terms. This structure promotes continuity and stability in the boardroom, but shareholder activists dislike it, because a hostile bidder must win two director elections, which may be as far apart as 14 months, in order to gain the two-thirds board control necessary to facilitate a takeover. In my research with Lucian Bebchuk and John Coates, of Harvard Law School, I find that no hostile bidder has ever accomplished this.

As shareholder activists gained more power in the 2000s, the number of staggered boards in the S&P 500 fell from 60% in 2002 to 18% in 2012. The trend is continuing: In 2014, 31 S&P 500 companies received de-staggering proposals for their annual meetings, and seven of those companies preemptively agreed to de-stagger their boards before the issue came to a vote. The result of this trend is that most corporate directors today are elected every year to one-year terms (creating so-called unitary boards).

It is virtually tautological that directors elected to one-year terms will have a shorter-term perspective than those elected to three-year terms. This is particularly true because ISS and other proxy advisory firms have not been shy about using withhold-vote campaigns to punish directors who make decisions they don't like. One director attending a program at HBS told me that his board had decided against hiring a talented external candidate for CEO who would have required an above-market compensation package. Even though he was the best candidate, and even though this director thought that he'd be worth the money, the board did not move forward in part because of concern that ISS would recommend against the compensation committee at the next annual meeting. With a staggered board, ISS would have recourse against only one-third of the compensation committee each year, because only one-third of the committee members would be up for reelection.

Of course, shareholder activists make a strong case that a staggered board may discourage an unsolicited offer that a majority of shareholders would like to accept. But this drawback would be avoided if the stagger could be "dismantled," either by removing all the directors or by adding new ones. A staggered board that could be dismantled in this way would combine the longer-term perspective of three-year terms with the responsiveness to the takeover marketplace that shareholders want. It would give ISS recourse against individual directors, but only every three years rather than every year. A triannual check would allow longer-term investments (such as the superstar CEO mentioned above) to play out, and would be better aligned with long-term wealth creation than an annual check on all directors.

Install exclusive forum provisions.

In our litigation-prone system of corporate governance, plaintiffs' attorneys (representing shareholders who typically hold only a few shares) look for any hiccup in stock price or earnings to file litigation against the company and its board. Plaintiffs' attorneys are especially attracted to major transactions, such as mergers and acquisitions, because of corporate law that is friendly to litigation in this arena. Any public-company board announcing a major transaction is highly likely to be sued-sometimes within hours-regardless of how much care and effort its members put into their decision. It is anyone's guess how many value-creating deals are deterred by this "tax" that the plaintiffs' bar imposes on the system. In fact, a board that goes forward with a transaction will often deliberately keep something in its pocket-such as a disclosure item or even a bump in the offer price-to be given up as part of a quick settlement so that the plaintiffs' attorneys can collect their fees and the deal can proceed.

It is not only the frequency of claims that causes concern, but also where they are brought. A U.S. corporation is subject to jurisdiction wherever it has contacts-its headquarters state, its state of incorporation, and states where it does business. Plaintiffs' attorneys take advantage of this fact to bring suit in multiple states-particularly those that permit a jury trial for corporate law cases. The prospect of inexperienced jurors deciding a complex corporate case leads many companies to settle in a hurry. This kind of blackmail is bad for corporate governance and society overall. Exclusive forum provisions permit litigation against a company only in its state of incorporation. For companies incorporated in Delaware, which are the majority of large U.S. public companies, this means the case would be heard before an experienced and sophisticated judge on the Delaware Chancery Court rather than an inexperienced jury.

Yet despite these clear benefits, shareholder activists have expressed knee-jerk opposition to exclusive forum provisions. Glass Lewis has threatened a withhold vote against the chair of the nominating and governance committee of any board that installs one without shareholder approval. The argument is that the prospect of multistate litigation will make directors pay more attention. But most directors do not need the sharp prod of a jury trial for them to want to do a good job. Exclusive forum provisions give plaintiffs' attorneys a fair fight in a state where the rules of the game are well established. In exchange for such a provision, boards might consider renouncing more-draconian measures, such as a fee-shifting bylaw that forces plaintiffs to pay the company's expenses if their litigation is unsuccessful.

Corporate Governance 2.0 asks the functional question: What goals are the activists, governance rating agencies, boards, and everyday shareholders all trying to achieve? The answer is clear: insulation from frivolous litigation, but meaningful exposure to liability in the event of a dereliction of duty in the boardroom. In the old days, activists and their allies agreed on this shared goal. In the late 1980s, when most U.S. states enabled boards to waive liability for certain breaches of fiduciary duty, ISS encouraged directors to take up the invitation, on the understanding that they should be focused on shaping strategy and monitoring performance rather than worrying about shareholder litigation. Corporate Governance 2.0 would return to this old wisdom through exclusive forum provisions. Directors would be accountable for their actions, but only as judged by a corporate law expert. The result would be greater willingness among directors to make longer-term decisions, without fear of a jury's 20/20 hindsight.

Principle #2: Boards Should Install Mechanisms to Ensure the Best Possible People in the Boardroom

In exchange for the right to run the company for the long term, boards have an obligation to ensure the proper mix of skills and perspectives in the boardroom. Shareholder activists have proposed several measures in recent years to push toward this goal-principally age limits and term limits, but also gender and other diversity requirements. According to the most recent NACD Public Company Governance Survey, approximately 50% of U.S. public companies have age limits, and approximately 8% have term limits. ISS is urging more companies to adopt such limits, and if history is any guide, boards will give the idea serious consideration.

Activists and corporate governance rating agencies are motivated by a sense that boards don't take a hard look at their composition and whether the skill set on the board reflects the needs of the company. Too often directors are allowed to continue because it's difficult to ask them to step down. But age and term limits are a blunt instrument for achieving optimal board composition. Anyone who has served on a corporate board knows that an individual director's contribution has little to do with either age or tenure. If anything, the correlation is likely to be positive. As for age limits, directors who have retired from full-time employment can devote themselves to their work on the board. And as for term limits, directors will often need a decade to shape strategy and evaluate the success of its execution; moreover, directors who have been in office longer than the current CEO are more likely to be able to challenge him or her when necessary. Yet these are precisely the directors who would be forced out by age limits or term limits.

Corporate Governance 2.0 would approach the issue of board composition in a tailored manner, focusing more on making sure that boards really engage in meaningful selection and evaluation processes rather than ticking boxes. In particular it would:

Require meaningful director evaluations.

Many boards today have internal evaluations conducted by the chairman or lead director. Although these evaluations are well-intentioned, directors may be unwilling to disclose perceived weaknesses to the person most responsible for the effective functioning of the board. A Corporate Governance 2.0 approach would engage an independent third party to design a process and then conduct the reviews. The process would include grading directors on various company-specific attributes so that they and their contributions were evaluated in a relevant way.

In Corporate Governance 2.0, director evaluations wouldn't just get filed away. They would be shared with the individual director, with comments reported verbatim when necessary to make clear any opportunities for improvement. They would also go to the chairman or lead director, to provide objective evidence with which to have difficult conversations with underperforming directors.

Meaningful board evaluations would also have more-subtle effects on board composition and boardroom dynamics. Foreseeing a rigorous review process, underperforming directors would voluntarily not stand for reelection. Even more important, directors would work hard to make sure they weren't perceived as underperforming in the first place.

Consider shareholder proxy access.

Under such a rule, shareholders with a significant ownership stake in the company would have the right to put director candidates on the company's ballot. For the first time in corporate governance, a company proxy statement could have, say, 10 candidates for eight seats on the board. Hewlett-Packard and Western Union, among other companies, have implemented shareholder proxy access over the past two years.

The Securities and Exchange Commission tried to impose proxy access on all companies in 2010, but the D.C. Circuit Court of Appeals invalidated the move. The SEC has since allowed companies to implement it on a voluntary basis. My research with Bo Becker, then at HBS, and Daniel Bergstresser, of Brandeis, shows that a comprehensive proxy access rule would have added value, on average, for U.S. public companies. The company-by-company approach is not as good as a comprehensive rule, because qualified directors may gravitate to boards that don't offer proxy access; nevertheless, it should be considered a backstop to rigorous director evaluations.

Implementing a proxy access rule would help ensure the right mix of skills in the boardroom. For example, if J.P. Morgan had a proxy access rule, it seems likely that it would not have lacked directors with risk expertise on the risk committee at the time of the London Whale incident. More than a year before that event, CtW Investment Group, an adviser to union pension funds, highlighted the point: "The current three-person risk policy committee, without a single expert in banking or financial regulation, is simply not up to the task of overseeing risk management at one of the world's largest and most complex financial institutions." With a proxy access regime, either the board would have put someone on the risk committee with risk expertise, or a significant shareholder could have nominated such a person, and the shareholders collectively would have decided whether the gap was worth filling.

This is not to say that if JPM's risk committee had included directors with risk expertise, the London Whale incident would have been prevented. As is well known, primary frontline responsibility for managing risk exposure at JPM belongs to the operating committee on risk management, whose members are high-ranking JPM employees. But the odds of identifying the problem would certainly have been higher in a proxy access regime.

Only in the aftermath of the debacle did the board add a director with risk expertise to the risk committee. Of course, it should not take a multibillion-dollar trading loss to put people with the right skill set on the JPM risk committee. A shareholder proxy access regime should be considered as a supplement to meaningful board evaluations, to ensure the right composition of directors in the boardroom.

Principle #3: Boards Should Give Shareholders an Orderly Voice

Today, when an activist investor threatens a proxy contest or a strategic buyer makes a hostile tender offer, boards tend to see their role as "defender of the corporate bastion," which often leads to a no-holds-barred, scorched-earth, throw-all-the-furniture-against-the-door campaign against the raiders. As George "Skip" Battle, then the lead director at PeopleSoft, put it to me in the context of Oracle's 2003 hostile takeover bid for his company, "This is the closest thing you get in American business to war."

Consider the more recent case of CommonWealth REIT, one of the largest real estate investment trusts in the United States. As of December 2012, CommonWealth's properties were worth $7.8 billion against $4.3 billion in debt, but its market capitalization stood at only $1.3 billion. Corvex Management, a hedge fund run by Keith Meister (a Carl Icahn protégé), and the Related Companies, a privately held real estate firm specializing in luxury buildings, saw an investment opportunity in CommonWealth's poor performance. In February 2013 they announced a 9.8% stake in CommonWealth and proposed acquiring the rest of the company for $25 a share. This offer represented a 58% premium over CommonWealth's unaffected market price.

The Corvex-Related strategy for unlocking value at CommonWealth was relatively simple. CommonWealth had no employees; it paid an external management company to manage the real estate assets. This company, Reit Management & Research, was run by Barry and Adam Portnoy, a father-and-son team who also constituted two-fifths of the CommonWealth board. Corvex and Related believed that internalizing management would eliminate conflicts of interest within the board, align shareholder interests, and unlock substantial value. Their investment thesis boiled down to three words: Fire the Portnoys.

Would the plan unlock value at CommonWealth? The board was determined not to find out. Despite having given shareholders the right to act by written consent, it imposed onerous information requirements that made it impossible, as a practical matter, for them to do so. The board also lobbied the Maryland legislature (unsuccessfully) to amend its takeover laws to protect the company. Perhaps most egregious, the board added a provision to its bylaws declaring that any dispute regarding the company would be heard by an arbitration panel, not a Maryland court. After 18 months of arbitration hearings and sharply worded press releases, Corvex and Related finally replaced the CommonWealth board with their own nominees in June 2014. Today CommonWealth (renamed Equity Commonwealth) trades at about $25 a share, compared with about $16 before the offer.

CommonWealth's board took the typical scorched-earth approach, but it shouldn't be like this. The principle of "orderly shareholder voice" involves a different conceptualization of the board's role-to guarantee a reasonable process whereby shareholders get to decide, rather than to defend the corporate bastion at all costs. Even when a board genuinely believes that the competing vision is mistaken (which is true in the vast majority of cases), its fiduciary duty-contrary to popular belief-does not require preventing shareholders from deciding. In a Corporate Governance 2.0 world, the directors would campaign hard for their point of view but leave the decision to the shareholders.

"Orderly" is a critical qualifier, because some shareholders are undeniably disorderly. With the steep decline of poison pills, which block unwanted shareholders from acquiring more than 10% to 15% of a company's shares, hedge funds and other activist investors can buy substantial stakes in a target company before they have to disclose their positions. Recall the case of J.C. Penney: Because it did not have a poison pill in 2010, Roth and Ackman could secretly buy a 27% stake. The company put them on the board, and Mike Ullman was replaced as CEO by the Apple executive Ron Johnson, who planned to give Penney a younger, hipper look. The strategy proved disastrous, and the stock price dropped from about $30 to as low as $7.50 over the next two years. Johnson was forced out in 2013-and replaced by none other than Mike Ullman.

In theory, companies are protected against such lightning-strike raids by the SEC rule that shareholders must disclose their ownership position after crossing the 5% threshold. But they have 10 days in which to do so, and nothing stops them from buying more shares in the meantime. This is exactly what happened in the Penney case. By the time Roth and Ackman had to make the disclosure, they had bought more than a quarter of the company's shares.

The relevant rule dates back to the 1960s, when 10 days was a reasonable amount of time. Today, of course, 10 days in the securities markets is an eternity, and no one designing a disclosure regime from scratch would dream of giving shareholders such a long window. (European countries have substantially shorter windows.) Nonetheless, shareholder groups have resisted change, on the rather questionable grounds that the Roths and Ackmans of the world need sufficient incentive to keep looking for underperforming targets.

Under a Corporate Governance 2.0 system, boards would get early warning of lightning-strike attacks. One way to do this would be with what I call an "advance notice" poison pill-a pill with a 5% threshold but also an exemption: Any shareholders that disclosed their positions within two days of crossing the threshold would avoid triggering the pill and could continue buying shares without being diluted. John Coffee, of Columbia Law School, and Darius Palia, of Rutgers Business School, have proposed a similar version of self-help, which they call a "window-closing" poison pill. Either kind of pill would give directors fair warning that their company was "in play" before the bidder could build up an unassailable position.

Today a change in corporate governance usually occurs when ISS threatens a withhold vote against the board unless certain reforms are implemented. Corporate Governance 2.0 takes a proactive approach that achieves the same (desirable) goals in a holistic and better way. Managers actively engage with shareholders from a functional perspective ("What are we all trying to achieve?") rather than an issue-by-issue reactionary perspective ("Should we surrender, or do we fight?").

In this article I have applied the three fundamental principles of Corporate Governance 2.0 to provide a package solution to certain hot-button issues in corporate governance today. A board that wants to adopt this solution could do so unilaterally in many jurisdictions (including, for the most part, Delaware), though in general it would be better advised to adopt Corporate Governance 2.0 through a shareholder vote.

Other hot-button issues will emerge in the future. The most recent version of ISS's QuickScore, for example, includes 92 factors, any of which could become the next pressure point against corporate boards. Rather than evaluating each of these innovations incrementally, boards should hold up future proposals to the same three principles of Corporate Governance 2.0.

This shift is vital in the United States, where the power of shareholders has increased over the past 10 years and the natural instinct of boards is to simply cave to activist demands. A Corporate Governance 2.0 perspective is critical outside the U.S. as well, particularly in emerging economies where companies are trying to achieve the right balance of authority between boards and shareholders in order to gain access to global capital markets. Over the long term, a Corporate Governance 2.0 perspective would transform corporate governance from a never-ending conflict between boards and shareholders to a source of competitive advantage in the marketplace.

A version of this article appeared in the March 2015 issue of Harvard Business Review.

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Idea in Brief The Problem Good corporate governance has been hindered by a patchwork of regulation and policy making and the lack of an accepted metric for determining success. The result is a system with unintended outcomes that occasionally subvert both common sense and public policy.

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Corporate governance

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This article allowed myself to better relate to the vast topic that is corporate ethics.

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Corporate social responsibility has been added to the growing list of demands that investors, customers and employees present to companies.

In 2015, 81 percent of Fortune 500 companies published sustainability reports, up from 20 percent in 2011, according to a report released by the Governance & Accountability Institute in June. Companies are publicizing their ethical standards and responsibility efforts, and consumers are punishing companies that appear to fall short. Even as headlines proclaim "greed is back," companies are investing time and resources into instituting more ethical practices.

Why is there such dissonance?

As is so often the case these days, businesses are taking cues from millennials. This generation (currently 18-35 years old) represents more than a quarter of the U.S. workforce - and this amount is expected to grow to over 50 percent by 2020. They will account for a third of retail sales in the same year. Businesses not thinking about how to interact with this generation are in serious trouble.

So how do millennials think about corporate social responsibility - or CSR?

A 2014 Nielsen survey showed that millennials are significantly more responsive to CSR in both consumption as well as employment decisions. Of those surveyed who would pay a premium for sustainable products, verify packaging and choose a company with a higher CSR reputation as employer, about half were millennials. These millennials are choosing to spend their resources - be it time or money - on organizations that appear to represent a set of values.

With their significant buying power, millennials are placing huge demands on companies to respond with genuine CSR strategies.

Where can companies start in building out this strategy?

As millennials look for companies that focus on a triple bottom line (people, planet, profit), companies are looking to millennials for guidance. CSR actions should align with a company's values, brand proposition and business model but, at the same time, the company must listen and respond to its constituents.

A key element for any successful CSR strategy is corporate communication. In the early days of CSR, corporations relied heavily on traditional media, delivering their message through advertising. Many did not institutionalize CSR as a separate business activity, relying on the marketing and public relations functions instead. Millennials, however, are far less responsive to press and TV ads and must be engaged differently. In scientific terms, their "BS meters" are very finely tuned. As so-called digital natives, this generation looks to social media to both consume and influence information and opinions. Peers are a trusted source; the official company flack is not.

What's more, as opposed to traditional advertising, which is unidirectional, social media is a more delicate instrument where companies receive real-time feedback from their audience. Millennials expect to have their opinions listened and responded to, meaning that companies need to engage in more two-way conversations with their constituents. Establishing a communication strategy that is both consistent and practically nuanced to respond to changes in the environment is a difficult but necessary process for companies to go through.

Overall, millennials are more demanding, more in touch and more skeptical. Brushing these off as cynicism is too simplistic. It puts the onus on organizations to show that they are not simply paying lip service to CSR, as consumers will sniff out and publicize anything that smells of hypocrisy. What's more, it has resulted in companies adapting to - or at least learning valuable lessons about - being more responsible entities.

A recent example is Perdue Farms, one of America's largest poultry companies. In response to the growing demand, particularly from millennials, for cruelty-free meat, Perdue is changing its chicken breeding operations. Working alongside the Humane Society, Perdue has made massive changes to its farming processes, including reducing the use of antibiotics, providing more natural light and changing the way animals are slaughtered. Jim Perdue, chairman of Perdue Farms, has said that increased sales should compensate for the increased costs. He is confident that by going along with what Perdue's customers want, the company will be successful. This way of conducting CSR is a direct response to what consumers saw as a problem.

A proactive approach involves building CSR into the culture of a company, something that many millennials look for as both employees and consumers. This approach can and should also add to the bottom line. Scott Moorehead, CEO of TCC, one of Verizon's largest retailers, said: "The commoditization of wireless retail stores meant we needed to do more to differentiate ourselves in order to grow a loyal customer and employee base." With millennials accounting for 85 percent of its workforce, TCC started the Culture of Good program to engage its employees. Among other things, employees are allowed 16 hours per year of paid time off to devote to volunteer efforts. In 2015, the company donated $1.2 million to employee-led charity efforts. Such a policy fits well with two of the major requests from millennials: empowerment and the ability to affect local communities. The company says the result has been higher employee retention and satisfaction, as well as an increase in customers.

TCC and Perdue were successful in different ways in responding to millennials' need for CSR efforts. Both as consumers and as employees, millennials want more from companies. On the company's side, CSR efforts should not be undertaken simply to be the good guys. In keeping faith with investors and creditors, these efforts should be genuinely beneficial to the organization. Not all efforts to implement CSR strategies have been successful in this. American Apparel learned that even the best of intentions in the realm of CSR could be derailed by simple economics.

CSR is arguably at the very core of American Apparel's business model. The company produces its products in the U.S. and offers competitive pay and benefits. Studies of millennials' preference for buying local indicate that such a "sweatshop-free" model should be attractive and successful in commanding a premium. Faced with the reality of the world after the Great Recession and stuck with its ethical sourcing strategy, though, American Apparel wasn't able to cut costs as aggressively as competitors did and has failed to make a profit since 2009. The company has also heavily relied on a "sex sells" approach to marketing, something that often overshadowed any ethical positioning the company tried to assume.

Other companies have stumbled into unfortunate CSR debacles. Starbucks began a well-intentioned but badly executed social media conversation about race, privilege and gentrification with its #RaceTogether campaign. Volkswagen is reeling from a 40 percent loss in share price and $15 billion in regulatory fines after its public commitment to sustainability was shown to be a cover for some truly bad behavior. The list of companies goes on. But we still argue that attempts at quality CSR are a vital component of a successful business strategy.

Organizations need to appreciate the degree to which the latest generation joining the workforce is making employment and consumption decisions based on CSR efforts. For a CSR strategy to be successful it needs to be authentic, in line with the brand image and attentive to what the public demands.

In the 1970s, Milton Friedman argued strongly - even convincingly - against CSR, considering it a form of taxation exercised on shareholders, consumers or employees by managers who had no legitimacy to do so. This argument relies on the premise that CSR initiatives imply negative net contributions to the bottom line. If we consider, instead, that well-executed CSR strategies lead to customer acquisition, increased sales, employee satisfaction, better teamwork, higher productivity, while lack of CSR can lead to disaster, Friedman's argument fails miserably today. The rise of the millennials as a powerful economic force increasingly exposes the fallacy of Friedman's argument.

The think pieces about the millennials have been written, dissected and rewritten. Although each generation bemoans the faults of the following ones, perhaps it's time we give millennials credit where credit is due: They are forcing business to do good while doing well. Companies need to rise to this challenge quickly or risk becoming an anachronism.
Paul A. Argenti is professor of corporate communication at the Tuck School of Business at Dartmouth. He recently published the first textbook on Corporate Responsibility for the business school market through Sage and is listed as one of the 100 most influential in Business Ethics by the Ethisphere Institute.

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Corporate Ethics In The Era Of Millennials

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Corporate social responsibility has been added to the growing list of demands that investors, customers and employees present to companies. In 2015, 81 percent of Fortune 500 companies published sustainability reports, up from 20 percent in 2011, according to a report released by the Governance & Accountability Institute in June.

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Corporate ethics is meant to be the responsibility to take action as well as the ability. I love this comedic twist.

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This quote exemplifies the whole module into a simple saying.

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This article is my personal favorite as it helps break down at the same time elaborate in lay man's term what it means to be an effective management team!

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5 min read

Opinions expressed by Entrepreneur contributors are their own.

Even if your job title doesn't include "manager," there's a good chance you'll have to handle some management duty sometime in your career. And, as an entrepreneur, you're already a manager, because almost every one of your responsibilities has some management element to it.
Related: 7 Management Lessons From a 7-Time CEO
In short, your employees are the ones making your vision a reality, and your job is to make sure they do it efficiently.

But being an effective manager is about more than just driving your employees to work harder -- or more efficiently. Forcing employees to work a certain way can breed resentment, even disloyalty, while being too soft can lead to bad habits, laziness or boredom. There's no "right" management style, as each employee and company is going to have an individual perspective.

But there are some universally "wrong" ways to manage. Avoid them by following these 10 "golden" rules of effective management:

1. Be consistent.

This is the first rule because it applies to most of the others. Before your management approach can be effective, it must be consistent. You must reward the same behaviors every time they appear, discourage the same behaviors when they appear and treat every member of your team with an equal, level-headed view.

2. Focus on clarity, accuracy and thoroughness in communication.

How you communicate to your team can dictate your eventual success. When relaying instructions, recapping meetings or just doling out company updates, strive for the clarity, accuracy and thoroughness of your communication. This goes for any other medium, whether that means in-person communication, email or a phone call. Clarity, accuracy and thoroughness are the best way to avoid miscommunication and keep your team on the same page.

3. Set the goal of working as a team.

If you want your team members to work together, have them work for something together. Setting goals just for the department or one individual breeds a limited mentality and forces team members to remain isolated. Instead, give staffers a unified focus and purpose, to inspire them together.

4. Publicly reward and recognize hard work.

When a member of your team does something exceptional, reward him/her -- with a bonus, a small trophy or even just a vocal recognition. Do this in front of the group; it will make the intended recipient feel good and show the rest of the team that hard work is rewarded. The only caveat goes back to rule one: Be consistent in your rewards so you won't be seen as playing favorites.

5. Be the example.

As the manager and leader, you should set an example in terms of your behavior. If you show up late, your team will be less punctual. If you lose your temper easily, others will be amiss in keeping their emotions in check. Strive to be your own ideal of the perfect worker, especially in front of the team.
Related: 5 Signs It's Time to Fire a Company Manager
6. Never go with 'one-size-fits-all.'

Your team is comprised of individuals with unique preferences, strengths, weaknesses and ideas. Never use the exact same approach to motivate, encourage or mold all of them. Focus on individuals, and customize your approach to fit each one.

7. Remain as transparent as possible.

Transparency shows your integrity as a leader, and builds trust with the individual members of your team. If you lie about something, or withhold information, you could jeopardize your relationships and the respect you command as a leader.

8. Encourage all opinions and ideas.

The more people you have actively participating in discussions and attempting to make improvements to the organization, the better. Never chastise a team member for voicing an opinion respectfully -- even if it goes against your original vision or isn't well thought out. Cutting someone down for voicing an opinion builds resentment, and discourages people from sharing their own new thoughts.

9. Help people enjoy work.

You don't need a pool table or dress code abolition to make work fun. You can make the workday more enjoyable with such new elements as surprise lunch outings, a dedicated break room or even just casual conversations with your workers. Help your people enjoy coming to work, and they'll do their best work for you.

10. Listen and ask questions.

If someone doesn't agree with your management style or doesn't like the direction of the company, don't silence that person. Listen. And ask questions of your entire team: What do you think of this? How do you feel about that? This open dialogue makes it easier to proactively identify problems and work together to create a mutually beneficial environment. It will also make your employees feel appreciated and acknowledged.

As you'll notice, these rules leave plenty of wiggle room to apply your own personal "brand" of leadership and management. They stand as fundamental truths, considerations and principles that govern an effective management role rather than a strict instruction manual to success. Stay true to these principles in addition to your own, and you'll unify your team in a rewarding and enriching environment.
Related: 5 Rules for Promoting Managers at a Fast-Growing Startup

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The 10 Golden Rules of Effective Management

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5 min read Opinions expressed by Entrepreneur contributors are their own. Even if your job title doesn't include "manager," there's a good chance you'll have to handle some management duty sometime in your career. And, as an entrepreneur, you're already a manager, because almost every one of your responsibilities has some management element to it.

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Management at it's finest !

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I loved this cartoon based on management as it allows one to realize that sometimes our managers might just not be as organized as this course and the content we have learned allows us to believe!