Management: Straight path to a superior business

Luke Johnson:

Just as you meet few truly great individuals in the journey through life, so there are a tiny handful of companies that have outstanding management. And the reason so few organisations are really well run is not that it is a complicated matter; it is that managing well takes discipline and effort.

The principles followed by superior businesses are straightforward - but executing them consistently and over extended periods is very hard.

All the best companies have bottom-up management. That means those staff who actually meet customers, or run operations, tell the boss what works, rather than vice versa. It means delegating responsibility in order to empower staff. Imperious, dictatorial leaders who are out of touch with the shop floor do not achieve sustained success.

nother characteristic of winners is that they manage for the long term. Sudden strategic moves to suit quarterly targets or shorter-term bonus measures are damaging. Family stewardship often beats publicly traded or private equity as a form of ownership for this reason. Germany's Mittelstand companies are the backbone of their economy: they are principally family-owned, often world-class operations that adopt prudent financing, and invest in capital expenditure and research and development. Incentives at all levels tend to be long term.

The best leaders possess domain knowledge. This means they understand their industry and are experts in their field. It allows them to command the respect of their colleagues, and means they have genuine insight into the vital economics of their profession or niche.

When I interview managers, I ask them about their customers and competitors. The high achievers will know them intimately, and can talk for hours about the strengths and weaknesses of their rivals. Generic managers, who claim they can turn their skills to any sector and deliver impressive results, are mostly a clever illusion. That is why I tend to respect actual experience in a line of work, or a specific trade qualification, over an MBA.