August 12, 2016
< 1 minute read
A short video montage of Day 1…
Blogger’s Note: This is the first installment in a series of posts describing my experiences at the Academy of Management’s 2016 Annual meeting in Anaheim, CA (August 5-9).
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August 5, 2016
3 minute read
What happens when you mix over 10,000 academicians and other “experts” on managing with one insubordinate?
I’m not sure, but I’m about to find out.
That’s right. Today is the first day of the 76th Annual Meeting of the Academy of Management (AOM), which this year is being held at the Anaheim Convention Center, in Anaheim, CA, August 4-9. It is expected that 10,685 management professionals, scholars, and other experts on managing from 88 countries will be in attendance.
Including yours truly.
For those of you unfamiliar with the AOM, according to its website it is the “preeminent professional association for management and organization scholars,” and boasts over 20,000 members, as well as 34 divisions, interest groups, and committees. Its stated goal is “to inspire and enable a better world through our scholarship and teaching about management and organizations.”
So I figure someone around here should have something interesting to say about managing.
This year, the main program theme is “Making Organizations Meaningful,” and is to include a total of 3576 papers, 742 symposia, and 384 “professional development workshops.” I’ve selected a few titles at random, just to give you a sense of the range of topics that will be discussed:
- “Pluralism at the Front-End of Capital-Intensive Projects: Governance and Performance Implications”
- “Problematising Agency of the Subalterns in the Politics of Representation”
- “Analyzing Round-robin Dyadic Data: The Social Relations Model in the Organizational Sciences”
(Yeah – I’m not sure what any of that means either.)
Questions that need answering
So just what exactly do I plan on doing here in Anaheim, you might ask?
You see, I’d still like to hear some answers to some of those questions I posed way back in January, in my inaugural post: “Why your boss probably sucks.” For instance:
- If the roles of advisor and evaluator are incompatible, why are managers routinely saddled with both responsibilities, despite the obvious conflict of interest? (For more on this, please see my post “My door is always open”)
- If managers are in fact responsible for assessing their subordinates’ performance, doesn’t this create a “catch-22”? After all, one of the things that most influences employee performance seems to be how well he or she is being managed.
- It’s been argued that organizational efficiency can be increased by both “flattening” an organization (that is, reducing the number of layers in its hierarchy), and by limiting a manager’s “span of control” (which keeps supervisors from spreading themselves too thin). But in order to flatten a hierarchy one must necessarily increase the number of people who report to any given manager… (For more on this, please see my video post: “Flatten that span?”)
- “Teamwork” involves cooperating and working together – which is great. But it also appears to require subordinating one’s own interest to those of the group on occasion – or “taking one for the team,” so to speak. Except that sounds like something a communist would say, not a capitalist, right? (For more on this, please see my video post: “Teamwork? What ‘teamwork’..?”)
- If we can agree that the person closest to a problem is typically best equipped to solve it, why are frontline employees routinely denied the authority to address those issues that prevent them from doing their best work?
- Why is it still who you know, and not what you know, that’s important at so many companies? In other words: Why all the office politics?
And then finally, I’d actually like to add one more to this list:
- Where does a manager’s authority come from? Or, to put it another way: Why is your boss your boss?
That’s it – so if you’re at the meeting this week, and have something to say about any this—or about anything else that’s on your mind—please feel free to stop by. I’ll be in Booth 108, on the south side of Exhibit Hall C (on your left as you enter the main exhibitor’s hall). And if you’re not in attendance, but would like to weigh in anyway, shoot me an email at firstname.lastname@example.org.
As for the rest of you, stay tuned. I’ll be blogging about my experiences in upcoming posts…
 Academy of Management 2016 Annual Meeting Program, p. 57. http://digitaleditions.sheridan.com/publication/?i=318879. Retrieved July, 28, 2016.
 To be honest, I won’t be a total outsider in Anaheim. In addition to being a dues-paying member of the AOM (I belong to the Critical Management Studies (CMS) Division, perhaps not surprisingly), I attended the 2014 annual meeting, which was held in Philadelphia.
 AOM Meeting program, op. cit., p. 57.
 Hill, Linda. 2003. Becoming a Manager. Boston, MA: Harvard Business School Press, p. 209.
 Wagner, Rodd, and James K. Harter. 2006. 12: The Elements of Great Managing. New York: Gallup Press; Shaer, Steven J. 2013. Fix Them or Fire Them. Challenger Books.
 Simon, Herbert. “The Proverbs of Administration.” As reprinted in Jay M. Shafritz & J. Steven Ott. 2001. Classics of Organization Theory (5th edition). Orlando, FL: Harcourt, Inc., pp. 112-124.
 Peters, Tom, and Robert Waterman. 1982. In Search of Excellence. New York: HarperCollins Publishers Inc.
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July 29, 2016
11 minute read
In a previous series of posts (“Why you can throw out that management advice book – Parts 1,2&3”), I dismissed out-of-hand the advice of the mainstream management-advice literature. These texts are just too full of contradictions, inconsistencies, and paradoxes to offer any real insight into good management, or its practice – as I hope I was able to show.
Next, I argued that much of what passes for conventional management wisdom these days is similarly useless, and for precisely the same reason. For every seemingly incontrovertible management principle, concept, or idea that you might come across, an equally valid “pearl of wisdom” exists that argues for engaging in precisely the opposite behavior (for more, please see “Is nothing sacred?”)
This week the news isn’t much better.
As I hinted at in my last post in this series, the nation’s top business schools may not have all that much to offer either. While the typical MBA program likely provides ample instruction in such subjects as marketing, finance, and accounting, when it comes to the essence of managing—the critical task of managing people—those who teach the managers and executives of tomorrow may not know as much as they’d like you to believe.
So that MBA you’re devoting so much time (and money) to obtain?
Well, it may not be such a good investment after all.
MBAs everywhere, but at what price?
Without question, the Master’s of Business Administration—the MBA degree—has grown in popularity, especially in the US. A recent study estimates that over 250,000 students are currently enrolled in the nation’s business schools, with over 100,000 graduating annually. This is compared to 40,000 graduates in 1976, and only about 6500 in 1964.
This degree does not come without significant cost, however.
According to Bloomberg BusinessWeek, the average MBA will set you back nearly $111,000 (before financial aid), while a degree from a top ranked school—which is becoming increasingly necessary in today’s competitive market—will often run twice that. For example, tuition for the two-year executive MBA program at Wharton (pictured above) is currently about $192,900.
The true price, however, may be even greater.
According to one study, there is “little evidence” that getting an MBA, or the grades one receives in earning it, will result in higher salaries or the attainment of higher level positions. In fact, some firms found that within their own organizations, non-MBAs “did no worse and, in some cases, better than their business school counterparts.” In other words, while getting an MBA may get you an interview, or even a job, the years spent obtaining the degree may put you permanently behind your non-MBA-obtaining peers in terms of both salary and career progression.
There are also the possible costs to society.
Some point to MBAs as being responsible for the corporate scandals that rocked Tyco and AIG, as well as the remarkable collapse of Enron. Business schools and their graduates have also been blamed for everything from the decline of the US automobile industry and the recent financial crisis, to the current maldistribution of wealth in this country, and increasing income disparity between the rich and poor. As one critic succinctly put it, MBA programs seem to encourage managers to “pursue their own advantage rather than the good of the company, much less the community’s welfare…” And a study revealing that 56% of MBA students admit to cheating regularly does little to dispel such accusations.
Interestingly, some of those charged with educating tomorrow’s MBAs are just as critical of the program.
For instance, Jeffrey Pfeffer (Professor of Organizational Behavior at Stanford’s Graduate School of Business) argues that “students learn to talk about business, but it is not clear they learn business.” The late Sumantra Ghoshal (Professor of Strategic and International Management at the London Business School) could be counted amongst those who believe MBA programs have contributed to corporate malfeasance. “[By] propagating ideologically inspired amoral theories,” he once wrote, “business schools have actively freed their students from any sense of moral responsibility.” Then there is Henry Mintzberg (Cleghorn Professor of Management Studies at McGill University) who simply concludes that “conventional MBA programs train the wrong people in the wrong ways with the wrong consequences.”
The problem, as some see it, is that business schools have strayed too far from their original mission. Warren Bennis argued that “business practitioners are discovering that B-school professors know more about academic publishing than about the problems of the workplace.” Others see a disconnect between what business schools teach, and what managers need to know to do their jobs well. For instance, Diedroff and Rubin found that the skills and capablities deemed most critical by practicing managers “are the very competencies least represented by the MBA curricula.” Then there is the matter of qualified teachers. As Pfeffer and Fong note:
“Unlike other professions such as medicine, law, [and] architecture…many full-time faculty have not practiced the profession or craft of management.”
There are those, of course, who vocally defend the MBA degree – arguing that the costs in time and money are ultimately worth it. However, their reasons for believing as much are often hardly testaments to the degree’s utility. For instance, many admit that the MBA’s primary benefit may simply be the networking opportunities the business school environment provides, as opposed to anything one might actually learn there. And businesses, who have no small stake in the matter considering they’re the ones hiring all these MBAs, will on occasion confess that it is not so much the degree itself they value. Instead, it is viewed as a means of prescreening applicants, or providing prospective job candidates with the appropriate pedigree.
Finally, graduates of MBA programs are often anything but positive about the experience themselves. While most don’t regret their decision (or at least are unwilling to admit as much), according to one study almost two-thirds of those surveyed said they used their MBA skills “marginally or not at all” in their first management assignment – arguably when their education should prove most helpful.
Not on firm ground?
Perhaps the most scathing criticism of the MBA program and the institutions that grant them, however, is that voiced by J.C. Spender, Research Professor at Kozminski University (Poland).
In a paper titled “The Business School Model: A Flawed Organization Design,” Spender makes the following remarkable claim: “…we [the management academia] lack a theory of the firm to ground our notion of managing.” This is an observation he then takes to its logical, and equally extraordinary conclusion:
“Without a notion of the firm we surely cannot even claim to be teaching management.”
Now think about this for a moment.
According to Spender, the problem isn’t that the MBA curricula is overly theoretical, and thus too far removed from reality. Nor is he suggesting that business schools encourage their graduates to emphasize profits, growth, and increasing shareholder value at the expense of all else.
Nor does he simply accuse MBA students of being a bunch of cheaters.
Instead, he seems to be saying that, when it comes to managing and how best to run a company, the professors and academicians who teach at the nation’s elite business schools really don’t know what the **** they’re talking about.
I mean, seriously – Spender really seems to be going all in here.
In this same paper, Spender goes on to review some of the existing “theories of the firm” – for instance, that its function is to “make profits,” or that it serves as an “apparatus for converting capital into economic return.” After pointing out that many of these theories rest on the assumption that human beings are “rational,” which he seems to think is problematic (or at least an oversimplification), Spender then advocates for adopting something called a “Knightian view” of a “judging man” as the basis for any new theory. Unfortunately, this too is problematic in his mind because…well, you get the idea.
It gets kind of complicated.
None of this, however, would seem to diminish from Spender’s initial claim: That the management academia have yet to agree on what makes something a “business.” And if this is indeed true, it would then seem to follow that they might not have a clue as to what it means to manage a business.
Now as I’ve pointed out on several occasions, I do not have an MBA. Nor have I ever attended business school.
A good friend of mine has, though (he graduated from Wharton, no less), and last I checked, he didn’t seem to regret the experience. I’ll add too that I’ve always been of the opinion that the best money you’ll ever spend is on education – regardless of what you choose to study. And I have to believe that the instruction that MBAs receive in such topics as marketing, finance, and accounting (which are typically part of the program’s core curriculum) is of some benefit to anyone who aspires to be an effective manager, especially at the executive level.
Nevertheless, I can’t help but sympathize with Spender’s criticism. And that’s because not so long ago I came to a similar conclusion myself…albeit by an entirely different path.
Back in 2011, while I was preparing to present a paper at the International Critical Management Studies Conference in Naples, IT, one of my proofreaders remarked that my arguments seemed to support a “contingency theory” approach to management. To which I immediately responded:
“Really? What’s that?”
If you haven’t heard of contingency theory before either, I wouldn’t be surprised. So far it seems to be mostly confined to academic circles – and perhaps for good reason.
Its origins lie in the work of organizational sociologist Joan Woodward, who in the 1950s attempted to identify commonalities in the organizational “structure” of a variety of businesses. Through her studies, she was able to demonstrate empirically the existence of “a link between technology and social structure” – something no one had ever done before. In layman’s terms, this means Woodward found that many organizational parameters (such as span of control, centralization of authority, etc.) are “contingent” upon factors specific to the organization in question. Or, to put it even more simply, Woodward found that there is no “one best way” of organizing/managing a business.
Each enterprise is unique unto itself.
Fast forward 60 years, and this perspective is still held in high regard today—particularly amongst the management academia. As recently as 2007, for instance, organizational theorist Gareth Morgan proclaimed that contingency theory “has established itself as a dominant perspective in modern organizational analysis.” His own summation of this management philosophy is very similar to Woodward’s, but is nevertheless worth noting:
“There are no right or wrong theories in management in an absolute sense, for every theory illuminates and hides.”
“There is no one best way of organizing. The appropriate form depends on the kind of task or environment with which one is dealing.”
In other words, when it comes to how to best manage any particular business, according to a contingency theorist: “It depends.”
…but it depends on what?
The weakness of such a “theory,” however, is perhaps immediately obvious.
Suppose, for instance, that “contingency theory” ruled the day in a discipline such as medicine, or engineering. In other words, imagine if a surgeon, when asked whether a patient’s infected leg should be amputated or can in fact be saved, simply said: “It depends.” Or an engineer muttered something similar when asked whether an aging bridge was still structurally sound—and therefore safe to cross—or needed replacing. In either instance such an answer would be considered at the very least unacceptable, if not downright ludicrous.
Of course “it depends.” But it depends on what?
Despite this obvious weakness/flaw, business schools and the management academia appear to have embraced contingency theory wholeheartedly. As evidence, Dr. Morgan (now one of the theory’s standard bearers) was afforded the honor of giving a plenary/keynote lecture at the Academy of Management’s annual national meeting in 2014 – a lecture I happened to attend. And unfortunately, what he had to say then did little to dispel my own skepticism concerning the current state of modern management theory. At one point in his presentation I recall him insisting that “all management theory is metaphor,” before shortly thereafter arguing that “all metaphor is false.”
Now I am not a classically trained organizational theorist, nor a management scientist, so I’ll certainly allow for the possibility that there are subtleties to contingency theory that are perhaps currently beyond my capacity to fully appreciate (although not because of any lack of effort on my part, I’d argue). At the time, however, I couldn’t help but think:
This guy doesn’t know what the **** he’s talking about.
The one best way
Nevertheless, contingency theorists like Dr. Morgan would have us believe that there is no “one best way” to manage. Each firm is unique, and every theory “illuminates and hides,” as he so eloquently put it.
If only I could take him at his word.
You see, despite any insistence to the contrary, contingency theorist do believe there is one best way to manage. In fact, I’d go so far as to say they believe there is only one way to manage – as I’ll explain in the next post in this series.
They just seem to be blissfully unaware of this fact.
That’s right, this one best way of managing is so deeply ingrained in our collective organizational psyche, that it is perhaps no wonder that to this day it remains essentially unquestioned, and unchallenged. Virtually everyone—CEOs, managers, frontline employees, academicians, you (and even me, for at time)—all embrace this age-old, “one best way” to manage, either without realizing it, or because it’s so hard to imagine another option.
The only problem, of course, is that this “one best way” is wrong.
Next in the series: The “one best way”
 “MBA share in the US graduate management education market” by Marina Murray, Business Education & Administration, 3.1 (2012): 29-40.
 Mintzberg, Henry. 2005. Managers Not MBAs. San Francisco: Berrett-Koehler, p. 29.
 “Debt is Piling Up Faster for Most Graduate Students – but Not MBAs” by Patrick Clark, Bloomberg Business (online edition), posted March 25, 2014. http://www.bloomberg.com/bw/articles/2014-03-25/student-loan-debt-piles-up-for-graduate-students-but-not-mbas. Retrieved July 1, 2016.
 This includes books, program-related housing, and meals. From Wharton’s official website (locked address): https://executivemba.wharton.upenn.edu/financing-your-mba/tuition-fees/. Retrieved July 1, 2016.
 “The End of Business Schools? Less Success Than Meets the Eye” by Jeffrey Pfeffer and Christina T. Fong, 2002, The Academy of Management Learning and Education, Vol 1: No. 1, pp. 78-95.
 Ibid., p. 81.
 Khurana, Rakesh. 2007. From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession. Princeton, NJ: University Press; and “Bad Management Theories are Destroying Good Management Practices” by Sumantra Ghoshal, 2005, Academy of Management Learning & Education, Vol. 4, No. 1, pp. 75-91.
 Spender, J.C., and Robert Locke. 2011. Confronting Managerialism: How the business elite and their schools threw our lives out of balance. New York: Zed Books.
 “Is It Time to Retrain B‐Schools?” By Kelley Holland, N.Y. TIMES, Mar. 15, 2009, p. BU1.
 “Survey Finds Widespread Cheating in MBA Programs” by Katharine Mangan, Chronicle of Higher Education, September 19, 2006.
 Pfeffer, J., op. cit., p. 85.
 Ghoshal, S., op. cit., p. 76.
 Mintzberg, H., op. cit., p. 6.
 How Business Schools Lost Their Way” by Warren G. Bennis and James O’Toole, Harvard Business Review (online version), May 2005, p. 7. https://hbr.org/2005/05/how-business-schools-lost-their-way. Retrieved July 7, 2016.
 “How Relevant is the MBA? Assessing the Alignment of Required Curricula and Required Managerial Competencies” by Rubin R.S. and E.C. Dierdorff, 2009, Academy of Management Learning & Education, 8:2, p. 208-224.
 Pfeffer, J., op. cit., p. 91.
 “The End of the MBA as We Know It?” by Michael Connolly, 2003, Academy of Management Learning & Education 2:4, p. 365-367.
 “The Most Important Thing About Your MBA is the Alumni Network,” by Vivian Giang, Business Insider, Nov. 28, 2012. http://www.businessinsider.com/most-important-thing-about-your-mba-the-network-2012-11. Retrieved March 12, 2012.
 “A matter of degree? Not for consultants,” by D. Leonhardt, New York Times, October 1, 2000. http://www.nytimes.com/2000/10/01/business/a-matter-of-degree-not-for-consultants.html?pagewanted=all. Retrieved Oct. 22, 2015.
 “The MBA Degree: Is it really worth it?” by John A. Byrne on Poets and Quants, March 17, 2014. http://poetsandquants.com/2014/03/17/the-mba-degree-is-it-really-worth-it/. Retrieved July 6, 2016.
 Hill, Linda. 2003. On Becoming a Manager. Harvard Business School Publishing: Boston, MA, p. 258. Original reference cited: Porter, L.W., and L.E. McKibbin. 1988. Management Education and Development: Drift or Thrust into the 21st Century? New York: McGraw-Hill.
 Also a Visiting Professor at ESADE (Spain) and Lund University (Sweden).
 Spender, J.C. “The Business School Model: A Flawed Organizational Design.” Journal of Management Development. 2014, Vol. 33: No. 5, p. 432.
 Spender, J.C. “The Business School Model: A Flawed Organizational Design.” Journal of Management Development. 2014, Vol. 33: No. 5, p. 434.
 Ibid., p. 433.
 So far as I can tell, Spender’s argument is this: Replacing “rational man” with Knight’s “judging man” would “humanize” any analysis of the firm, which would then make our understanding of it more accurate, or at least more reality-based. However, he observes that doing so would also require developing a “theory of judgment” in order to arrive at a theory of the managed firm, which, he suggests, is probably as complicated as it sounds. Nevertheless, Spender sees value in thinking this way. “This paper works towards a novel theory of the managed firm (TMF) in which management’s uncertainty-resolving judgments will be key,” he writes (p. 429). [Personally, I couldn’t agree more. As I’ve repeatedly insisted, judging—that is, knowing when to do something—isn’t just important to managing well. It’s what managing well is all about. (For more on this, please see my post: “It’s not what you do. It’s when you do it.”).] In the end, however, Spender seems content to fall back on some familiar themes – that managing is an “art,” not a science, for instance (For more on the error of this line of thinking, please see: “Managing: An art? Or a science..?”).
 For example, Wharton (locked address): https://executivemba.wharton.upenn.edu/academics/core-curriculum/. Retrieved July 1, 2016.
 At that conference, I presented what amounts to the material covered in my posts “Why you can throw out that management advice book – Parts 1,2&3” and “It’s not what you do. It’s when you do it.”
 Woodward, Joan. Industrial Organization: Theory and Practice (2nd Ed.), Oxford University Press, 1980 (1st Ed.: 1965), p. 50.
 Woodward, Joan, Management and Technology, Problems of Progress in Industry No. 5, (Her Majesty’s Stationary Office, Ministry of Technology, London), 1958 (Reprinted 1970), p. 10.
 Morgan, Gareth. 1986. Images of Organization. San Francisco: Berrett-Kohler Publishers, Inc. and SAGE Publications, Inc., p. 44. (Page numbers refer to the Executive Edition, published in 1998. Most recent edition published in 2007.)
 Ibid., p. 13.
 Ibid., p. 44.
 “It Depends: A Contingency Theory of Accommodation in Public Relations” by Amanda E. Cancel, Glen T. Cameron, Lynne M. Sallot, and Michael A. Mitrook, Journal of Public Relations Research, 1997, 9(1), p. 31-63.
 Personal notes from Gareth Morgan’s keynote/plenary lecture at the 74th Annual Meeting of the Academy of Management (Organizational Development and Change Division), Philadelphia, PA, Monday, August 4, 2014, 3:00 pm, Pennsylvania Convention Center: Room 114 (Auditorium Lecture Hall).
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July 22, 2016
2 minute read
This July, it’s been hot, hot, hot here in Philadelphia.
According to the book’s jacket, Berkun is a former Microsoft manager and “old-school management guru” who “leaves the books and lectures behind” to spend a year working for Automattic, the web development company responsible for WordPress, the open-source blogging software. The result is supposedly “an amazing and entertaining book about the future of work.”
Possibly. But it’s certainly not without its share of contradiction and paradox either, as the following examples illustrate:
- On page 45 of his text, Berkun argues that when it comes to managing/leading, “Trust is everything.” However, he then later admits to deliberately misleading his own team (p. 216): “The one mandatory topic [at team meetings] was deciding what project to work on. This decision was something of a ruse since I always knew well before we arrived what the project would be. I used the suspense to draw people out…”
- On page p. 54, Berkun writes “What good is something that scales well if it sucks? Why is size the ultimate goal or even a goal at all?” And yet Berkun later points to growth as evidence of his own managerial aptitude, bragging on page 211 that under his command “Our team…doubled in size.” And on page 235, he lauds the growth of Automattic as well: “The company continues to grow as does WordPress itself.”
- And finally, on the very first page of The Year Without Pants, Berkun sets up the premise of his text by wondering “If I were a manager again, would I follow my own advice? I wanted to know.” But on page 74, he can be found questioning the utility of any advice: “No one can ever follow it all. This is the advice paradox [Berkun’s emphasis]: no matter how much advice you have, you must still decide intuitively what to use and what to avoid. Even if you seek meta-advice, advice on which advice to take, the paradox still applies as you make the same choice about that advice too.”
So why bother writing a management advice book in the first place?
See you next week.
Blogger’s Note: In the interest of full disclosure, I should mention that I use the WordPress open-source blogging software for this blog.
[*] An instance in which a business or management “expert”/author/advice-giver/guru offers contradictory, or otherwise paradoxical advice, typically without any apparent awareness of having done so. For more examples of this phenomena, click here. For more on why this happens, please see my post “Why you can throw out that management advice book (Parts 1, 2, & 3).”
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July 15, 2016
11 minute read
This week I’m going to do something different. I’m going to review a management advice book a bit more thoroughly, and analyze it’s content in a bit more detail than I normally do.
That’s right. Instead of just picking out a paradoxical comment or two, as has been my habit (for examples, please see my “Paradox of the week” series of posts), I’ll take a closer look at what the author has to say (or not say) about good management and its practice.
And the book I’ve chosen is Good Profit (2015) by Charles Koch.
Profit that is good
The Koch name is one you probably recognize.
As CEO of Koch Industries, Inc., Charles Koch oversees what is currently the second largest privately held company in the US. This multinational corporation—which Koch inherited from his father—employs approximately 100,000 people worldwide, and boasts an annual revenue of around $115 billion. It is involved in a variety of industries, including petroleum production, chemical manufacture, pipelines, cattle ranching, and finance.
But Koch’s notoriety does not stem from his business acumen, or organizational prowess, oddly enough. Instead, he is perhaps best known for his political activism. Koch is an outspoken conservative, and the Super PAC he oversees with his brother, David—the Freedom Partners Action Fund—has spent heavily in previous election cycles, and is expected to exert similar influence this year.
Political leanings aside, however, it stands to reason that because of his success Charles Koch might—or at least should—have something meaningful to say about running a business.
For those of you who follow my blog, you are by now probably well aware of my primary complaint when it comes to management-advice books. They’re just too full of contradictory statements and paradoxical assertions to be in any way helpful to the practicing or aspiring manager.
(For more on why this happens, please see my series of posts “Why you can throw out that management advice book – Parts 1,2&3.”)
In this regard, Koch’s own text does not disappoint. For instance:
- On page 7 of Good Profit, Koch insists that his company “opposes government subsidies, such as special tax breaks, import tariffs…including those that would seem on the surface to be beneficial to us.” And yet on the very next page, he admits that when push comes to shove, “like virtually everyone, we take advantage of lawful tax breaks.”
- On page 101, Koch argues that “…every company, no matter what size or type, should strive to develop and clearly communicate a unique vision of its own.” But later, on p. 116, and after offering one of multiple permutations of his own company’s vision, he adds: “Surely this is a vision that everyone can embrace [my emphasis in both cases].”
- And on page 123, Koch muses “Imagine how productive business would be if everyone acted with complete integrity, with their word as their bond, never doing anything they wouldn’t want exposed to the whole world.” Well, never mind for a moment that Koch has played host to what’s been described as a “secret billionaire summit,” when it comes to his own company’s performance ranking system—the purpose of which is “not to elevate or stigmatize anyone”— Koch admits, “we discourage disclosure of these ratings” (p. 138).
So, contradictions: check.
Koch also does something that I’ve encountered so frequently it’s become a pet peeve of mine. One way CEOs tend to demonstrate their credibility as an “expert” on managing is to point out how much an early investment in their company, made when they took over, would be worth today (or at the end of their tenure). Koch does this as well, noting that:
“…an investment of $1000 in our company in 1960 [when Koch became CEO] would have a book value of 5$ million today…a return 27 times higher than what a similar investment in the S&P 500 would have achieved.” (p. 4)
Point taken; not only are you a successful CEO, you’re pretty wealthy too. And not only am I a lousy manager (otherwise I wouldn’t be reading your book, I suppose), apparently I’m not a very savvy investor either, or I would have put some money in your company somewhere along the line.
In this instance, however, this argument strikes me as a bit disingenuous. After all, the Koch family business is, and always has been, a privately held company – something that seems to have momentarily slipped Mr. Koch’s mind. The only way for you, or I, or anyone else to invest in Koch Industries, Inc would be on the personal invitation of Charles Koch himself, or possibly its board of directors.
The heart of the matter
With that out of the way, let’s take a closer look just what exactly Mr. Koch wants to get off his chest about owning and operating a successful, for-profit business, starting with the book’s title: Good Profit.
On page 4, Koch defines “good profit” as follows:
“What I consider to be good profit comes from…creating superior value for our customers while consuming fewer resources and always acting lawfully and with integrity.”
The act of “creating superior value” in this way he furthermore refers to as Principled Entrepreneurship™ (a phrase Koch has trademarked) – and on the next page, Koch takes pains to differentiate “good profit” from “bad profit”:
“We don’t lobby the government to mandate or subsidize what we’re selling. That creates bad profit. Instead we earn profit by creating value—for consumers, society, our partners, and every employee who contributes. That is good profit.”
It perhaps goes without saying that Koch believes his company’s profits are solely of the “good” variety. Whether this is true or not, I’ll leave to others to decide; I personally am in no position to make this sort of judgment one way of the other. Besides, my own interest lies solely in Koch’s book, his own take on managing, and what he thinks is responsible for his company’s success.
The vision thing…
According to Koch, his company’s success can be credited to something he calls Market-Based Management® (also a registered trademark).
Market-Based Management® (or MBM), he insists, is a “unique business management framework,” and not “just another buzzword management system that accomplishes nothing” (p. 10). Furthermore, this framework has five key “dimensions,” each of which Koch devotes an entire chapter to. They are (1) vision, (2) virtue and talents, (3) knowledge processes, (4) decision rights, and (5) incentives.
In the chapter devoted to “vision”—a “guide to an unknown future,” as Koch puts it (p. 95)—he points out that this is “foundational for the other four dimensions” (p. 98). Koch furthermore reveals that his own company’s vision is dependent on something he refers to as creative destruction, which he defines by quoting 20th Century economist Joseph Schumpeter:
“The…process of industrial mutation…incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating the new one. This process of creative destruction is the essential fact of capitalism” (p. 56).
So Koch’s a capitalist. Got it. And part of his company’s vision seems to be acknowledging the competitive nature of markets; that the products and services that we buy today may be obsolete—and therefore unwanted—tomorrow. Or as Koch writes, understanding that “consumer needs and desires are constantly evolving” (same page).
Another distinction Koch makes between his company’s vision and that of many others is it’s emphasis on compounding which, according to Koch, is “sometimes called ‘the most powerful force in the universe’” (p. 96).
Sounds important – yet strangely enough, Koch only mentions it once more in his entire book (I had to consult the index), and the concept is not defined there, either. So I googled it. According to Investopedia, “compounding” is:
“…the ability of earnings to generate earnings, which are then reinvested in order to generate their own earnings. [Or]…generating earnings from previous earnings.”
Okay – it’s sort of like compound interest. By putting some of your profits back into your business, you can grow your company. Not sure why all the obfuscation was necessary – nor am I convinced that this is something unique to Koch Industries. In fact, I suspect a lot of other, unsuccessful companies probably try (or tried) something similar – provided they were able generate a profit in the first place, of course. So maybe Koch is talking about how to sustain profitability here, not how to become profitable? Let’s read on…
On page p. 102, Koch tells us that “several steps are necessary when developing a vision,” the first of which is “creating a view of how the organization can create superior value for its customers and society…” Excellent – this is beginning to sound “actionable,” or like advice that I or anyone else who owns and operates a business might be able to put into practice, or imitate.
According to Koch, the key is coming up with a “capabilities-focused” vision. For his company, these capabilities include the following: commercial excellence, operations excellence, talent, innovation, a trading mentality, and public sector effectiveness (p. 102).
Well, at least things were sounding promising.
But really, calling “commercial excellence” a “capability”? To be honest, this strikes me as a bit jargon-y – especially considering MBM® isn’t supposed to be “another buzzword management system.” Also, I can’t help but believe that commercial excellence is probably something else that plenty of other companies strive for – and again, whether they are ultimately successful or not. I mean, I can’t think of a company off the top of my head that strives for “commercial mediocrity,” can you? So Koch seems content here to simply describe things about running a business that most people probably already know, or could easily figure out for themselves. How hard is it to recognize, for instance, that the right “talent” might be important to the success of your business? What about any of this is “unique” to Koch Industries, if that is indeed Koch’s point?
But hold on – let’s get back to the vision-thing for the moment, and those “capabilities.” According to Koch, the “overarching capability…vital to achieving Koch’s vision” [my emphases] is…Market-Based Management®.” (p. 102)
So…wait a second. Let me see if I have this straight so far:
- According to Koch, to generate “good profit” using Market-Based Management®, “vision,” the first of MBM’s five dimensions, requires that I base that vision on something called my company’s “capabilities.”
- Identifying those capabilities are but the first step in in figuring out how to create value for my customer via Principled Entrepreneurship.™
- And in the case of Koch Industries at least, one of the capabilities “critical” to realizing that vision is…Market-Based Management®?
So the successful implementation of MBM® hinges on the successful implementation MBM®?
No, wait – I take that back. Koch also writes:
“Other businesses have different capabilities, and understanding what those are and how they can create superior value are key to developing an effective vision”(p. 102).
So according to MBM®, MBM® may not be a critical “capability”…even though dismissing MBM® as “capability” is entirely consistent with MBM® as well.
You spin me round
So I hope you see what I’m getting at here.
Koch’s advice seems to fold in on itself. Putting MBM® into practice seems to require practicing MBM®, which to me would appear to be a circular argument of the highest order.
And bear in mind that we’re only on the first step of the first “dimension” of MBM®; there are four more dimensions to cover.
But that’s not all. There’s also MBM®’s “Guiding Principles” to discuss, of which there are ten. Then there’s a “three-step rule” that is helpful in applying MBM® to your organization. But wait, you’ll need the “MBM® Toolkit” to “holistically apply MBM [my emphasis].” There’s also a “Decision-Making Framework” which includes eight elements (not all of which seem to be necessary in each and every circumstance), and no less than ten “decision traps” to know and avoid. Oh yeah – there’s the “CPV Triangle” (Cost-Price-Value) to be aware of…and a “Talent Management Process” to master which, according to Koch, is “critically important,” and involves assessing a person’s intelligence based on eight talent types. Let’s not overlook the “Talent Planning Process” either (really an A-B-C performance rating system), and finally there’s a “Code of Conduct” to keep in mind. Koch describes this code as “critical for good profit in the long-term” – and yet not so critical as to actually include it in the text itself.
But no matter. The 72 page book can be viewed online.
…and 3 insights
First, I think I need to apologize.
I led you to believe I was going to review Koch’s entire book in this post, but I just couldn’t do it. There’s just too much to unravel. Too much jargon, too much contradiction, too much paradox, and too many circular arguments.
And to be completely honest, my heart was never really in it to begin with. You see, Koch lost me way back on page 11, when I read the following:
“… [MBM®] requires being able to conduct business activities without even having to think about the mechanics of MBM.”
In other words, if you have to think about MBM®, then you’re already not doing it right.
Sure – and the emperor’s new clothes are beautiful.
So no – I can’t recommend Koch’s book to you. It’s garbage™®©, in my opinion. He may know something about how to run a successful multinational corporation, but he hasn’t a clue as to how to communicate those skills to anyone else.
Actually, let me repeat this, if I may – because it’s an important point:
It’s not that I believe that Koch—or any of the CEOs who write these books—don’t know anything about managing. Quite the contrary, in fact. But what they certainly don’t know is how to explain what they know about managing in any sort of meaningful way.
And it’s a shame really, because Koch comes tantalizingly close to offering some genuine insight on a couple of occasions. For example:
- “In any complex business, deciding the order in which to do things can be just as important as deciding what things to do” (p. 113). (Sound familiar? It should if you read my post: “It’s not what you do. It’s when you do it.”)
- “Leaving the particulars to those doing the work encourages discovery and enhances their ability to adapt to changing conditions.” (p. 120)
- And critically, “Customers come first…because without them there is no business.” (p. 124)
Had he been able to put these three things together, Koch might have gotten somewhere. Instead though, he comes up short – in all likelihood because the one thing he thinks he knows about managing is wrong.
A manager’s job isn’t to tell employees what to do, like Koch and everyone else seems to assume. It’s really the other way around.
The job of a manager is to listen to your employees…
And then do what they tell you to do.
See you next week.
 “America’s Largest Private Companies 2015” by Andrea Murphy. Forbes (online) Oct. 28, 2015. http://www.forbes.com/sites/andreamurphy/2015/10/28/americas-largest-private-companies-2015/#668368a23095. Retrieved by July 13, 2015.
 “Koch Industries passes 100,000 employee milestone” by Daniel McCoy. Wichita Business Journal, Jan. 31, 2014. http://www.bizjournals.com/wichita/news/2014/01/31/koch-industries-passes.html. Retrieved by July 13, 2015.
 According Sourcewatch, Koch’s Super PAC raised and spent $256 million in the 2012 election season. For this years figures, please see: https://www.opensecrets.org/outsidespending/summ.php?chrt=V&type=S.
 Despite Koch’s insistence that businesses should “clearly communicate” their vision, at various points in his book he offers all of the following as part of his company’s “vision”:
- “…to become the leading crude oil purchaser by being the most aggressive, providing the best service, and developing the best relationships with crude oil producers.” (p. 41)
- “…to innovate, grow, and reinvest in order to maximize long-term value by applying our core capabilities.” (p. 96)
- “…to maintain a growth rate of roughly 12 percent or higher.” (p. 96)
- “…buying and upgrading distressed properties…” (p. 97)
- “Consumption drives Koch’s vision.” (p. 98)
- “…focused on value creation and people.” (p. 100)
- “By educating and mobilizing key constituencies to advocate market-based policies that improve human well-being, together we can help people improve their lives through new and better jobs, new business opportunities, and safer communities in which people are mutually supportive.” (p. 116)
- And finally, although Koch argues that a company’s vision “is absolutely critical to get right at the outset” (p. 92), Koch Industries was “updated” in 2013 to reads as follows:
The role of business in society is to help provide improve their lives by providing products and services they value more highly than their alternatives, and do so while consuming fewer resources. To the extent a business does this by the economic means, its profits are a measure of the value it creates in society. Creative destruction is inherent in a market system, so a business must not only continually improve the value it creates for customers and society, but to so significantly faster than its competitors.
Thus, to continue to succeed, our Vision is to improve the value we create for our customers more efficiently and faster than out competitors, This should enable us to generate the return on capital and investment opportunities needed to achieve a long-term growth rate that double earnings, on average, every six years. This necessitates significantly accelerating the application of MBM®, becoming much more forward-looking in talent acquisition and development, remaining private and continuing to reinvest 90 percent of earnings, while conducting all affairs lawfully and with integrity.”
 “Exclusive: Inside the Koch Brothers Secret Billionaire Summit” by Lauren Windsor. The Nation (online), June 17, 2014. http://www.thenation.com/article/exclusive-behind-koch-brothers-secret-billionaire-summit/. Retrieved May 20, 2016.
 In an interview with The Economist magazine, Koch said that his company would go public “over my dead body.” “Dissecting the Kochtopus.” The Economist, June 7, 2014. http://www.economist.com/news/business/21603437-fascinating-peek-inside-successful-and-idiosyncratic-private-company-dissecting. Retrieved July 13, 2016.
 “Good profit” or not, what we do know is that from 1999 to 2003, Koch Industries was assessed “more than $400 million in fines, penalties, and judgments” according to Bloomberg. In 2000, Koch paid what was at the time the largest civil fine ever imposed on a company under any environmental law for the illegal discharge of petroleum products and crude oil. [From the Koch Industries Wikipedia entry.] Furthermore, in Koch’s own telling, his company has on occasion struggled with internal fraud (p. 180), compliance issues with its asphalt production (p. 204), and mill safety (p. 237).
 I use “actionable” here based on a definition offered by organizational theorist Chris Argyris in Flawed Advice and the Management Trap (2000):
For advice to be helpful, it must specify the intended outcomes or objectives to be produced, the sequence of actions required to produce them, the actions required to test for any errors or mismatches, and the actions required to correct such errors and mismatches.
Actionable advice, in other words, is something that one might do, or a behavior one might actually engage in or imitate. For example, that a manager should be willing and able to “make decisions” qualifies as actionable because relative to “not making decisions” it requires initiative or action to be taken on the part of that manager. On the other hand, making good decisions does not qualify because it is virtually indistinguishable—in terms of the action itself—from making decisions, or making bad decisions. (For more on this, and why it’s important, please see my post “Throw out that management book (Part 2).”
 MBM®’s “Guiding Principles” are: (1) integrity, (2) compliance, (3) value creation, (4) Principled Entrepreneurship™, (5) customer focus, (6) knowledge, (7) change, (8) humility, (9) respect, and (10) fulfillment.
 On page 178 of Good Profit, Koch alludes to the underlying hierarchical nature of his organization, arguing that “decisions should not be made by those in closest proximity, but rather by those with the comparative advantage to make sound decisions, including the best knowledge.”
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July 8, 2016
3 minute read
When it comes to Seth Godin, I must admit to harboring a bit of “blogger envy.”
Let me explain: For those of you who haven’t heard of him, Seth Godin is a business writer/blogger like myself who (cough) is just a bit more successful than I am at the moment.
To date, Godin has written 18 bestsellers that have been translated into 35 languages. According to his website, they cover such topics as the post-industrial revolution, the way ideas spread, marketing, leadership and “most of all, changing everything.” One of those texts, Purple Cow (2009), has had 23 print runs and sold over 150,000 copies.
(I should point out that I’m still working on my first book.)
Mr. Godin also maintains his own daily blog which is admittedly more popular than the one you’re reading now. According to Typepad, Seth’s Blog has 4459 active followers, and in May 2009, it was ranked by AdAge as the #1 marketing blog (out of 976 tracked).
Seth also boasts over 549,000 followers on Twitter.
So it is with this in mind that I focus on Mr. Godin, for this, the latest installment in my “Paradox of the week”* series of posts.
- On page 18 of his international bestseller, Purple Cow, Godin offers the following anecdote about the creation and success of Cap’n Crunch cereal – an achievement in marketing he seems to feel one might be inspired by, or possibly emulate:
“In 1962, a smart ad agency hired Jay Ward, creator of Bullwinkle, and asked him to make a commercial. He invented Cap’n Crunch and came back with an animated commercial. Then, only after that was done, did the cereal company go about actually making a cereal.”
However, back on page 5 Godin can be found urging companies to “stop advertising and start innovating.”
- And then on page 30, he makes the following paradoxical assertion:
“My goal in Purple Cow is to make it clear that it’s safer to be risky…”
There is also this from his blog:
- In an entry titled “Stretching Without Support” (posted June 18, 2016), Mr. Godin chides readers who believe that they need more organizational “support” to succeed in their careers/lives. Although he concedes that with “more education…each of us is likely to contribute even more,” this isn’t absolutely necessary in his opinion:
“It turns out that every day, some people shatter our expectations. They build more than they have any right to… Every day, some people stretch further.”
And “stretching,” he insists, is “under your control, not someone else’s…”
I would agree…however, it would then seem an odd editorial choice to remind readers of the following in that same post: “Sunday is the last day to sign up for the summer session of the altMBA [Godin’s leadership workshop]” which boasts a “safe place to stretch.” (Perhaps “more education” shouldn’t be dismissed quite so quickly after all?)
As for how you might “stretch” your budget to afford the $3,000 in tuition for the 4-week online course? The workshop’s application gently suggests the following:
“(your company may offer reimbursement, ask your HR person)”
So much for “stretching” being under your control necessarily, and not someone else’s, I guess.
See you next week.
Blogger’s notes: In the interests of full disclosure, I should point out that I stopped short of reading Purple Cow in its entirety for two reasons: (1) The book’s focus seems to be more on marketing, as opposed to managing, and (2) it only took me about 30 pages to find what I was looking for.
Biographical information on Mr. Godin was taken from both his website and the Seth Godin Wikipedia entry.
*An instance in which a business or management “expert”/author/advice-giver/guru offers contradictory, or otherwise paradoxical advice, typically without any apparent awareness of having done so. For more on why this happens—or more specifically, why it is all but impossible to avoid—please see my post “Why you can throw out that management advice book (Parts 1, 2, & 3).”
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