Sir Graham Day, Chairman, Cadbury Schweppes PLC
SOME GLOBAL MANAGEMENT INFLUENCES, TRENDS AND OBSERVATIONS
Chairman: Robert L. Brooks
President, The Empire Club of Canada
As one of the world's largest confectionery and soft drink companies, Cadbury Schweppes is virtually a household name in Canada. But it would probably surprise many of us to learn that its chairman, Sir Graham Day, is a Canadian.
Sir Graham was born in Halifax. He received his law degree from Dalhousie University, and later taught at the business school there. In fact, I understand he plans to return to Nova Scotia within the next couple of years and to make it his home once again.
But Sir Graham really made his reputation in the U.K. In 1971, the British Government invited him to become chief executive of Cammell Laird, a struggling shipbuilder on the verge of insolvency. He took the situation firmly in hand, and when the union protested the inevitable layoffs, he responded by saying simply: "I never lie, and I never bluff." And with that, he made Cammell profitable.
An expert strategist, he is well known for taking on troubled companies and turning them around. When he returned to Britain in 1983, after two years with Dome Petroleum, he successfully returned what was left of British Shipbuilders to the private sector, cutting the workforce to one-tenth of its former size.
Then, in 1986, Margaret Thatcher appointed him Chairman and CEO of British Leyland Group. After a decade of losses, he made it profitable in just one year. He renamed it the Rover Group, privatized it, and engineered its sale to British Aerospace.
Mrs. Thatcher was apparently so proud of his accomplishments she "liked to display him like a trophy," in the words of one senior British executive.
Sir Graham temporarily took over the chairmanship at British Aerospace in September, 1991, where his strategy was to refocus the company towards its core businesses and to shed or joint venture the rest.
Meanwhile, Sir Graham has contributed a great deal to the positive reception of Canadian business people and professionals worldwide and continues to do so in his capacity as chairman or director of several international companies. The only thing that worries me in all this is that he's on the board of the Bank of Nova Scotia. Sir Graham, given your history of rationalizing business, does this mean I should be looking for a job?
It has been said that "for every problem, there is a solution which is simple, neat, and wrong" (H. L. Mencken). The need for sound strategic management cannot be overemphasized in facing the complex problems of competition in today's global market place.
As a man of decisive leadership, Sir Graham has offered his expertise to a wide range of corporate, community and academic bodies. Today, he is here to offer us his insights. If we're lucky, he may even divulge the secret to one of our greatest corporate mysteries: how do they get the caramel into the Caramilk bar?
Please join me in welcoming our distinguished guest.
Sir Graham Day
When I spoke to The Empire Club a few years back, I reviewed aspects of the role of the British Government in commerce and industry, particularly privatization. In Britain the Bell Curve of privatization activity is now apparent, as but a few state enterprises remain to be sold, albeit some of the more difficult ones. However, I will not use today as the occasion for an update.
Instead, in our increasingly global business world, I hope it may be interesting for you if I consider a few of the management influences and trends which I perceive currently, and then leave with you some related observations.
The interest for me, and I hope for you, is that these management trends are apparent around the world. The Elizabethan cleric and mystical poet, John Donne, wrote that "No man is an island." Indeed, it may be said truthfully today that no business is an island--locally, nationally, regionally or internationally. How well we manage may differentiate us individually or corporately, but the techniques we and our international competitors use will be broadly similar. No nation, company or manager possesses a unique managerial advantage.
Before identifying and talking about some global management trends, I want to outline some of the influences which affect developments in management.
There is the "international" dimension. This includes world trade structural considerations, such as the General Agreement on Tariffs and Trade (GATT). As you well know, the current Uruguay Round continues interminably with, variously, the United States, the European Community and the Cairns Group each accusing the other of intransigence and protectionism. There is the reality of bilateral trade agreements, either subordinate to GATT or apart from it.
Now, importantly, there is the emergence of trading blocs. First, in modern times, is the European Community, 12 nations comprising approximately one-quarter of world trade and, if some member states have their way, set to expand as we approach the 21st Century. Most recently there is NAFTA, the North American Free Trade Association, growing out of the earlier Canada-U.S. agreement, in population and trade terms set fair to be the major world trading power.
On a much smaller scale is the Trans-Tasman Association between Australia and New Zealand. I may be stating the obvious, but I expect the emergence of trading blocs is likely to replace the GATT system as the major factor in world trade relationships.
Three other international aspects which influence management trends are self-descriptive. Currency relationships, finance mobility and political stability.
A second set of influencing factors I would describe as "corporate." These include increasing globalization, investor pressures, the environment and business ethics.
Markets throughout the world are developing, to various degrees, some similar characteristics. In these markets, product and service standards progressively are levelling up. As companies increasingly view markets on a multinational basis, rather than nationally, restructuring and investment reallocation decisions follow. For example, factories may gravitate to adjacent areas to secure greater labour stability, higher productivity and lower costs.
With the increasing globalization of markets, customer relationships take on a different perspective. If, for example, a purchaser-supplier relationship exists in one part of the world and the purchaser establishes an operation in another, there is a tendency to continue the relationship with a satisfactory supplier, who may migrate also. This aspect increases competition, but also frequently contributes to the levelling up of product and service standards.
Investors are becoming more explicit about their interests. These interests include company earnings and dividend payouts, management pay and performance, corporate strategy and the presence and effectiveness of "outside" board members.
Obviously, institutions invest, as do you and I, in order to secure a return. The pressure for adequate corporate earnings and progressive dividends is clear. Sadly, not always related to company performance, is management pay. Thus, more frequently, and quite properly, investors are requiring in the shareholders' interests, that top managers' pay be related clearly to company performance.
In this time of recession, we are seeing that some companies who performed apparently well in more buoyant economic times, in fact were operating tactically. For such companies the absence of clear corporate strategies has become apparent.
Part of the mechanism which should address these concerns is the presence on the board of directors of "outside" or "non-executive" members, that is directors who are not part of the management. It is a whole other debate, but for these outside directors to be effective they not only must have basic corporate competence, but the system of their appointment, re-appointment and retirement should be such as will encourage independence.
The environment now ranks quite high on most corporate agendas. In too many instances there are what I describe as "past sins." These are actions taken by predecessor managers and sometimes extend back decades. Now, cleanups must take place and the financial consequences of these previous acts must be met.
We live, too, in a world of possible double standards. Wherever our corporate homes may be, generally we are compliant, not only with national law and regulation, but also with generally accepted standards of behaviour. The question arises whether, if the business is international, we adopt different standards in different places, particularly where law and regulation may be less demanding or even absent?
While environmental issues, relatively, are new, economics, like the poor, are with us always. For example, recycling generally has been deemed to be "good." Now, however, that generality and the lack of focus are being called into question. At last the questions of real economic and environmental benefits are being asked, and answered, on an individual product or container basis.
Business ethics, like the environment, is now an element in the management of the "politically correct" business. That is not to disparage the very real ethical issues we face in day-today business management.
As corporate pay is being called into question, similarly is corporate lifestyle. Does the manager properly distinguish the company's money from his or her own? There is the time-honoured question of bribery.
We may not bribe our customer in the same city or country, but what about "over there"? We may argue that in Rome we should do as the Romans do. Theft and fraud are not new. What appears to be new is the monetary size and geographical spread of a number of thefts and frauds, notably the BICC affair and the activities of the late Robert Maxwell.
In Cicero's oration against Cataline he spoke of the "Age and the Customs." These considerations continue to impact on the way in which we conduct our businesses. Frequently, compliance with perceived social mores may be more important to us than regulation.
Another of my influencing factors is competitiveness. Here we have the obvious matters of costs and the need to retain customers plus the accepted, modern requirement for information and, less obviously, learning speed.
There is little I would wish to elaborate here other than to remind you that customer retention is always cheaper than finding new customers and also to say to you that "fast learning" may be a company's only competitive advantage. If your business, as a matter of strategy, has determined to be a "fast follower" rather than a leader, then learning speed is essential to the delivery of the strategic thrust.
A basic influencing factor is economics; the generation of cash, (and I would remind you that cash is the only four letter word which will forgive all business sins if you have enough of it), profitability, growth rate and the returns earned on assets and equity. These realities are familiar to you and require no further comment from me.
Finally, there is the critical influencing factor, the marketplace.
Here I perceive increasing segmentation, rising standards of service and quality, the continual battle for market share and the somewhat newer confrontation of brands versus generics and pseudo-branded products.
Grandly, I might say to you that in market-share terms, begging the size of your particular market, ideally you should be No. 1 or No. 2. You might survive as No. 3. If you are in an inferior market share position I would hope that you are a "niche" player.
Brands have real value, except, perhaps, to accounting standards committees. But brands battle for consumer expenditure with generic products and pseudo or house brands which are created by retailers in their own quite proper interests.
What, then, are some management trends I perceive in the environment which I have described to you?
The first of four management techniques is Pancaking. Pancaking is the buzz word for de-layering, that is the progressive elimination of intermediate layers of management.
Pancaking, obviously, reduces cost. It increases effectiveness in as much as non-contributory filters are removed and individual responsibilities are clarified. Pancaking enforces delegation, because as the layers are compressed the span of management necessitates increasing reliance on subordinates.
Subordinates, including to the lowest level, are thus empowered, again a buzzword. Simply expressed, empowering means that employees at all levels are given much greater authority and responsibility for their own performances.
It follows naturally that pancaking increases transparency within an organization. There are very many fewer places to hide.
Particularly during the current recession, the attractions of "shrink to produce more" are very seductive. The proposition can be simply stated. Retain one-half of the people, pay them twice as much, and endeavour to secure three times the output. Obviously, there is no particular magic in these specific ratios. The magic, if magic there is, lies in the concept. I'm satisfied, directionally, that it is workable in all businesses, and for some it is essential to survival.
I always advocate competitor analysis. The primary focus of any business has to be the customer. Closely aligned to that focus, naturally, is the competition. Benchmarking is the label for the technique which transforms mere observation into a competitive tool. In essence, you analyze the competition and compare it to your own operations. On the 80-20 principle, one should focus sequentially on the most important inputs and outputs. In most cases 20 per cent of these account for 80 per cent of the benefits to be gained. It is important to recognize that benchmarking is not a project, it is an ongoing activity.
The JIT, or just-in-time inventory control method, is the subject of too many superficial business magazine articles. JIT, together with Total Quality Management has helped to comprise a growth industry for consultants. Labelling aside, I am speaking about nothing more than inventory minimization. For such an obvious moneysaver, I continue to be surprised how few companies have really gripped their inventories.
To do so, the volumes involved and the timings of utilization must be related. You have to involve all of your employees and you have to ensure that your physical goods channels and receipt processes mesh with your required volumes and the rates and timings of usage. I believe the easiest money which any business having an inventory can save lies with the minimization of that inventory.
I have said that all of one's employees have to be involved, and this is true. Also, it is obvious that inventory minimization cannot be achieved on an ongoing basis without the close involvement of suppliers. I have advanced AT or inventory minimization as a global management trend, and it is. The sadness is that so basic and so fundamental a tool should always have been at the top of our lists.
Now I should like to comment on some observations which I perceive as linked to, or flowing from, the management trends and the factors which influence those trends to which I have referred.
My view is that there is a return to the Generalist Manager. That is in no way to decry specific skills but, rather, to note that now the demand for management breadth is reoccurring. Quantitative skills remain essential, but only as a prerequisite. Important are good interpersonal and communication skills, as are good qualitative analysis skills. Ultimately it comes down to whether, particularly at or near the apex of the corporate pyramid, there are managers who possess excellent judgment and decision taking attributes.
I said earlier that "fast learning" may be a company's only competitive advantage. I believe this to be true. But learning is a continuing process, both on an individual and on a corporate basis. Corporately it is both a key to survival and to growth. Importantly, it is not an option. Individual learning, in the corporate world, must now be, and be seen to be, lifelong.
Life-long learning must permeate all levels of the corporate organization and, to the extent necessary, should be backed with corporate money. We are all familiar and comfortable with cases for investment in hard assets. We must now become familiar with evaluating investment in people. For the most part, this activity requires external professional support.
In referring to inventory minimization, I mentioned Total Quality Management. Most of you will have read, been lectured to or, hopefully, practise TQM. Let me only say here that the process must involve all employees and must become corporate-culture based. That is, beyond the techniques are the hearts and minds of employees. If these fail to be captured, then Total Quality Management initiatives will fail.
Again, like inventory minimization, Total Quality Management may be introduced on a project basis, but in order to be effective, must become embedded in the way in which a company does all its business, internally and externally.
Leadership is something, historically, that we were content to ascribe to the military and, occasionally, politicians. Now, however, it has become acceptable to recognize that leadership attributes in management are essential to corporate success. Carl Jung, the psychologist-philosopher, said that some are "predisposed to be more effective." For those of us who may not be so predisposed, I suggest that we possess potential to adjust our behaviour so as to enhance our leadership attributes. In brief, the objective of leadership is to change compelled performers into contributing participants. In other words, the idea is to lever human strengths in order to create a corporate climate for overall achievement.
Two of the more interesting aspects which I observe are the increasing presence of women in management and the changes in youth attitudes.
Women comprise something more than one-half the population. Their academic records tend to demonstrate that overall they perform better than men and my own experience is that they perform very well as managers. Very importantly, women are different, and that difference and the perspectives it brings make them desirable managers within any organization.
At last women are finding their way into the nooks and crannies of business life, not so much on the basis of equal opportunity initiatives, but on the basis of corporate need and a realization of what women can contribute.
Perhaps it is my age, but today I am infinitely more satisfied with the young we recruit than I was some 10 or 20 years ago. I have compared my subjective conclusions with those of colleagues in a number of companies and geographical locations. Educational standards aside, they agree that youth attitudes are more acceptable. There is a greater willingness to accept responsibility. Young managers are steadier and the likelihood is that many of them may jump a managerial generation, thereby displacing some of those who are their organizational superiors today.
Accounting standards, seemingly, are beloved in the Anglo-Saxon world. Now I perceive the emergence of a long sought, not always articulated, objective: namely, the progressive acceptance of such accounting standards on an international basis. The reasons are simple--in our global markets these accounting standards facilitate international business. The standards assist response to investor interests and, most critically, they facilitate finance.
As national business has become international and international business has become global, the emergence of multinational management is one of the results. Naturally, this reflects the geographic scope of the global corporate undertaking. Multinational management is appropriately more culture sensitive to the range of markets within which the employing corporation does business and, essentially, secures languages capability. Albeit belatedly, there is a growing appreciation that managerial excellence transcends race, religion, colour and creed.
I can't conclude without saying a few words concerning graduate business schools. Too many senior managers say to me that business schools are not meeting corporate management requirements. By this I infer that the graduates of business schools are proving to be less satisfactory management employees than many employers anticipated. Obviously, I am sensitive to a charge of generalization. Nevertheless, it is perhaps necessary for business schools to be put into an appropriate perspective.
That perspective might include a recognition that, primarily, these schools simply provide basic business management tools.
My view is that for the most part, they do not inculcate values, nor do they successfully develop judgment. It has been suggested to me that too many schools are engaged in the production of "technicians." In short, there is much employer disenchantment with business schools and their products.
More encouragingly, some business schools are now rethinking what they should be doing, how they should be doing it and what requirements, including work experience, should be mandatory before a student is admitted to a graduate business program.
If I were to draw any conclusions it would be these four. Firstly, that in business today there is no place to hide; no place to hide from one's customers, one's employees, one's investors or, indeed, one's bankers. Increasing transparency is required both by operational efficiency demands, through growing sophistication and, ultimately, by legislation and regulation.
Secondly, I hope and believe that ethical values and business fundamentals now are being rediscovered. I have spoken about various techniques, but I have also suggested to you that these, for the most part, are basic and things which we should have been doing anyway.
Thirdly, managers, particularly senior managers, now require a breadth which I perceive as being a significant corporate re-think. The managers of tomorrow must be more holistic.
Finally, four, people have always been important and most corporate leaders render lip service to this reality. Now, as we change our structures, as we rely increasingly on others to contribute, we must recognize that "employee power" may be the most important new corporate reality.
The appreciation of the meeting was expressed by Catherine R. Charlton, President, The Charlton Group and a Past President, The Empire Club of Canada.