Вы находитесь на странице: 1из 95

ГОСУДАРСТВЕННЫЙ УНИВЕРСИТЕТ

ВЫСШАЯ ШКОЛА ЭКОНОМИКИ


Пермский филиал

Business Letters and Essays


Учебное пособие для студентов 3 курса

Пермь 2006
Данное пособие состоит из двух разделов. В первом разделе систематизируются
основные принципы и правила написания различных видов деловых писем: делового
письма как основного жанра деловой корреспонденции, резюме, письма о приеме на
работу, служебной записки и отчета. В этом разделе приводятся также примеры написания
указанных видов деловой корреспонденции. Во втором разделе предлагаются аутентичные
материалы и темы для написания эссе. Пособие предназначено для студентов 3 курса
дневного отделения факультетов «Экономика» и «Менеджмент».
Цель пособия – обучение студентов основным принципам ведения деловой
корреспонденции, а также обеспечение их материалами для написания эссе на 3-м курсе.

Составители:
Георгиева Н.Ю., к.ф.н. Глушакова С.О., Пахомова О.С., Ухова Т.В., Халезова Е.Н.

Рецензент:
доктор пед. наук Гейхман Л.К.

2
ПРЕДИСЛОВИЕ
Письмо является основным средством организации информации и способом общения,
в частности в сфере деловой коммуникации. В связи с этим обучение написанию
различных видов деловых писем является одним из важнейших элементов в общей
концепции преподавания иностранных языков. Пособие “Business Letters and Essays”
дополняет материалы базовых учебников для студентов 3 курса: “Financial English” для
студентов специальности «Финансы и кредит» и “Keys to Management” для студентов
специальности «Менеджмент» – в аспекте “Writing”, а именно в части обучения навыкам
написания деловых писем разных жанров.
Пособие систематизирует основные принципы и правила оформления деловых писем,
содержащиеся в различных пособиях, охватывающих аспект Writing. Пособие решает
задачу обучить студентов написанию деловых писем разнообразных жанров - собственно
делового письма, резюме, служебной записки и т.д.
Учебное пособие состоит из двух разделов. Первый раздел содержит основные
принципы написания 5 видов деловых писем: собственно деловое письмо, резюме и
сопроводительное письмо, служебная записка и отчет, а также перечень слов и
выражений, способствующих выработке эффективного стиля и ясной формы изложения. В
этом разделе представлены также примеры написания деловых писем – sample letters.
Во втором разделе пособия содержатся материалы для написания эссе. Поскольку
основные принципы и правила написания эссе приводятся в пособии для 2 курса
“Essay Writing for Learners of Business English”, в предлагаемом пособии для
студентов 3 курса представлена лишь краткая информация о типах эссе, а также
аутентичные материалы, содержащие «информацию для размышления», то есть
информацию, необходимую для написания сочинения-размышления на заданную тему.
К набору материалов предлагаются темы для написания эссе.
Структура учебного пособия, характер предложенных в нем материалов
обусловливают эффективность его использования как для аудиторных занятий, так и для
самостоятельного изучения.

3
UNIT 1. BUSINESS LETTERS
1. BUSINESS LETTER
Formal business correspondence is usually done by letter as this leaves a written record which can be kept
for reference. Business letters can be of different types with different purposes: to apply for a job, to inform
people of developments, to request action, to propose a service, to complain, etc. To write a successful
business letter you need to use the right tone and to communicate your message to the reader using
straightforward language. The way a letter is written reveals a lot about the person who is writing it and it
also sends a message about the organisation that he or she is working for. It is, therefore, very important to
make sure that the information, layout, style and spelling are all correct before you send it
Layout
When writing a business letter, you should follow the standard format. The letter opposite shows
where the following different components should appear on the page.
a letterhead / address (but not name) of writer
b name and address of recipient
c references
d date
e opening
f subject heading
g body of the letter
h closing
i signature
j name and job title
k enclosures
Language styles
Business letters are usually quite formal in style. A conversational style is therefore not appropriate
and you should avoid contractions, for example. Try to use verbs in the active and not in the passive
form as this will make your letter more dynamic. You should also avoid writing sentences that are too
long and that include complicated or unnecessary language. A straightforward letter will get your
message across more effectively than a long wordy one. There are certain conventions concerning the
correct way to address people and to close your letter.
Opening Letters always start with Dear... followed by the correct form of address. If the letter is going to
someone whose name you do not know, it starts with Dear Sir, or Dear Madam, or Dear Sir or Madam,...
But if you do know the name, then you can begin with Dear Mr/Ms Taylor, or Dear Greg Taylor,... .
Closing Letters are usually closed in standard ways. At the end of your letter you should include a
short sentence like I look forward to hearing from you or Please do not hesitate to contact me if you
need further information. Below that, you should put a closing phrase:
Yours sincerely, (formal, for letters beginning Dear + name)
Yours faithfully, (formal, for letters beginning Dear Sir /Madam)
Yours truly, / Best regards, / Best wishes, (less formal)

Useful phrases and notations


With reference to your letter of the 15th of this month,...
It was very kind of you to agree ...
As I mentioned in my last letter to you ...
Thank you for taking the time to...
Regarding the question of...
I will arrange for my secretary to forward the minutes to you for your approval.
I am enclosing a copy of our latest proposal.
cc (copy sent to another person)
PS (for additional sentence(s) included after the signature)
4
SAMPLE LETTER
TechStart
Karetstraat137 1051
Amsterdam Netherlands
00 31 20 98 746 335

Carl Mays, Robert Ingram, Maria Ibanez


Graduate Research Centre
Stanfield Business School
Rochester
RC5 7JY
United Kingdom
Our ref: TSBA/DK/136
September 15th 200_

Dear Carl, Robert and Maria,


Confirmation of award

I am very pleased to announce that the project that your team presented to the annual
TechStart business award committee has been selected as this year's winner.
Congratulations to you all for your excellent Rainbow Systems project, which we hope will
now have the opportunity to develop into a viable business venture.
It is a great pleasure for me to be able to confirm this award and to know that your team will
now be able to benefit from the financial and material assistance that TechStart will put at
your disposal. We will be arranging a meeting in late October with you and all of those who
will be involved in the Startup programme.
In the meantime I am enclosing three invitations for the press conference and award
ceremony, which will be held at TechStart's head office on the 7th October. Both the local
and national media have been invited to attend.
Once again, congratulations to you all for your hard work and for the innovative approach
that you took throughout this project.
I look forward to seeing you on the 7th October and to having the pleasure of presenting
you with the award in person.

Yours sincerely,

Dave Kloren

Dave Kloren

Chief Executive
Enc.

5
2. RESUME
Resumes are the core of the job search. Interviewers use the resume to decide whether to interview you
or forget you forever (or at least until you apply for another job with the company). Resumes are
expected by many employers, and are a quick way to make an impression, either good or bad. Your
first impression is made by your resume—it is the resume that makes an employer decide whether you
should be called in for a job interview. It is the contents of the resume that makes an employer decide
not to choose you. If an employer has 500 resumes to read, you must be careful to not give him/her an
excuse to throw your resume in the garbage. Employers often do not have a lot of time to devote to
each resume. That's why it's important to make your resume "knock the socks" off an employer
reading it for the first time.
Your resume should represent your strengths. Your resume is your life on paper. Think in terms of the
accomplishments of which you are the most proud.
A resume is a one or two page summary of your education, skills, accomplishments, and experience.
The purpose of your resume is to get your foot in the door. A resume does its job successfully if it does
not exclude you from consideration. A resume, as a personal, individual summary of your background,
experience, training and skills, is an opportunity to present your best qualities to an employer the way
you want to be seen. A resume might be a prospect for you to generate interviews outside your
geographic area. It is a way for employers to compare your specific qualifications to those of other
candidates.
To prepare a successful resume, you need to know how to review, summarize, and present your
experiences and achievements on one page. Unless you have considerable experience, you don't need
two pages. Outline your achievements briefly and concisely.
Your resume is your ticket to an interview where you can sell yourself!

Why is a resume so important?


• Resumes are expected for almost all types of jobs from clerk to chief executive officer. There are
three main types of resumes:
• Chronological: lists your experience in reverse order. The focus is on work experience. Although
most familiar to employers, it causes gaps in work history to stand out. It does not allow you to
highlight skills. Good for those searching for work in a same/similar field and those with strong work
history.
• Functional: highlights your best skills and downplays work experience. A functional resume is good
for persons who have limited work experience. It highlights strengths and hides weaknesses
• Combination: combines the best of chronological and functional. Although it takes longer to write, it
allows for greater versatility. Choosing words carefully and laying out the resume effectively are the
greatest priorities in this style.
Resumes serve as a focus for, and will help you improve, your interview. Once they are organized on
paper, you will find it easier to discuss your assets.
Resumes allow you to have all the facts at your fingertips. This will eliminate fumbling for dates and
significant facts.

How to Prepare an Effective Resume


1. Resume Essentials
Before you write, take time to do a self-assessment on paper. Outline your skills and abilities as well as
your work experience and extracurricular activities. This will make it easier to prepare a thorough
resume. Your strongest skills should be listed in the beginning. If education is a strong asset, list it
first; otherwise wait.
The resume should be written with the employer in mind.
2. The Content of Your Resume
When writing resume there are several parts that must be organized and adequately represented on
your resume. Here they are, listed in order:
Name, address, telephone, e-mail address, web site address

6
All your contact information should go at the top of your resume.
• Avoid nicknames.
• Use a permanent address. Use your parents' address, a friend's address, or the address you plan to use
after graduation.
• Use a permanent telephone number and include the area code. If you have an answering machine,
record a neutral greeting.
• Add your e-mail address. Many employers will find it useful. (Note: Choose an email address that
sounds professional.)
• Include your web site address only if the web page reflects your professional ambitions.

Objective or Summary
An objective tells potential employers the sort of work you're hoping to do. List the type of position
that you are seeking.
• Include skills that you can offer to the company. If possible, match your qualifications to those listed
in the ad or job description.
• Be specific about the job you want. For example: To obtain an entry-level position within a financial
institution requiring strong analytical and organizational skills.
• Tailor your objective to each employer you target/every job you seek.
• Current trends in resume writing state that you don't have to create a career objective, especially if
your objective is bland or nonspecific. It is your decision.

Education
New graduates without a lot of work experience should list their educational information first. Alumni
can list it after the work experience section.
• Your most recent educational information is listed first.
• Include your degree, and the institutions attended.
• List other educational information in reverse chronological order. (List high school information only
if it is relevant to the career objective.) Include graduation dates, and the city and state in which each
school is located.
• List any courses you have taken that are relevant to your career goals and objective. (This is
optional.)
• Mention academic honors.

Work Experience
Briefly give the employer an overview of work that has taught you skills. Use action words to describe
your job duties. The position titles and companies should be easy to pick out.
Include your work experience in reverse chronological order (List your present position first.) Include:
• Title of position,
• Name of organization
• Location of work (town, state)
• Dates of employment
• Describe your work responsibilities with emphasis on specific skills and achievements.

Include summer and part-time jobs, as they show stability. If your employment history includes many
short-term, miscellaneous jobs, use the following rules: (1) list those relevant to the position for which
you are applying, and (2) list those you held for the longest period of time. Briefly explain the job
duties for or your accomplishments in each position. Use active language in describing your
accomplishments. For example, “I supervised five persons in the emergency room, and worked so well
under pressure that I was promoted twice.”

Other information (optional):


You may want to list your key or special skills or competencies, awards, hobbies, sports, activities,
leadership experience in volunteer work. It may be the personal part of your resume that separates you
7
from everyone else. If the interviewer is reading 400 resumes and most of them cite similar work and
educational experience, it stands to reason that he/she would respond positively to see something
different in your resume that makes it stand out from the other 399.
Don’t mention controversial hobbies (hunting, hang-gliding, etc.). If the person evaluating your
resume has a problem with one of your hobbies, you may not even get an interview, much less the job.
For example, employers don't want to hire motorcycle riders, because they feel that such persons could
be too easily injured and miss too many days of work. You may not agree with this, but before you list
personal items, think about the potential response of the persons reading your resume!
Do not take up more than two or three lines when writing this section.
Equal employment regulations have made it illegal for employers to discriminate based upon age, sex,
marital status, or religion. Do not include confidential information such as your birthdate, marital
status, social security number, spouse's name, health status, political affiliation, race, religious
affiliation, children's name or ages, etc.

References
Ask people if they are willing to serve as references before you give their names to a potential
employer. Do not include your reference information on your resume. You may note at the bottom of
your resume: “References furnished on request.” or “References are available upon request.”

3. Resume Checkup
You've written your resume. It's time to have it reviewed and critiqued by a career counselor. You can
also take the following steps to ensure quality:
Content:
• Run a spell check on your computer before anyone sees your resume.
• Get a friend (an English major would do nicely) to do a grammar review.
• Ask another friend to proofread. The more people who see your resume, the more likely that
misspelled words and awkward phrases will be seen (and corrected).
Design:
These tips will make your resume easier to read and/or scan into an employer's data base.
• Use white or off-white paper. Colors might be beige or grey, but no bright or fluorescent colors.
Try to be a little more conservative in your presentation.
• Use 8-1/2- x 11-inch paper.
• Print on one side of the paper.
• Use a font size of 10 to 14 points.
• Use nondecorative typefaces.
• Choose one typeface and stick to it.
• Avoid italics, script, and underlined words.
• Do not use horizontal or vertical lines, graphics, or shading.
• Have a one-inch margin on all sides.
• Do not fold or staple your resume.
• If you must mail your resume, put it in a large envelope.

How to Make a Great First Impression…

A Few Resume Do's and Don'ts


DOs DON’Ts
- Make it simple, but unique. You want it to stand - Avoid using long paragraphs.
apart from all of the other resumes being received. - Don't list hobbies, unless related to work.
Your resume should have eye appeal. - Don't list salary requirements or past salaries.
- Tailor your resume to the kind of job(s) you are - Don't give reasons for leaving.
looking for. - Don't list personal information such as age, sex,
- Use action verbs. weight, height, marital status, or number of children.

8
- Make it one page and never more than two - Don't attach a photo.
pages. - Do not list your references on or attach any
- Select proper format for you. reference letters to the resume.
- Use direct, simple English. - Do not include controversial activities (e.g.,
- Do it yourself! Get input from others, but you hunting, hang-gliding, etc.).
know yourself best. - Do not forget to include your phone number.
- Make it neat—no mistakes! (This is the most common mistake among resume
- Be honest. Do not lie. writers.)
- Be specific, yet understandable. - Do not write resume or vitae at the top. Only
- Be positive. your name, address, and phone number should be
- Highlight your skills, competencies, and there (preferably centered).
strengths.
- Keep your personal section (which is usually
placed at the bottom of the resume) short.

Resume Reminders:
Remember to write your sentences in a brief format. Use action words in the descriptions of your work
and educational experience. Remember that action words are a great way to describe yourself in a
reflective manner to the interviewer.
Writing a resume is not an easy task; in fact, it's very hard work. A good resume is rewritten and
rewritten and rewritten. The first resume you write is probably not good enough, so try again. Resume
writing is a constant process of rewriting.

9
Action Words for Resumes
achieved enforced performed
acquired established planned
adapted evaluated persuaded
addressed examined prepared
administered executed presented
advised expanded preserved
analyzed explained prevented
anticipated facilitated produced
assembled focused procured
assisted founded programmed
audited generated promoted
balanced guarded proposed
budgeted handled provided
built helped publicized
calculated expanded published
captured explained recommended
centralized forecasted recorded
chaired formed recruited
choreographed founded reduced
changed generated reduced
clarified guided reorganized
collaborated hired reported
compiled identified researched
communicated implemented resolved
completed improved restructured
composed increased reviewed
condensed influenced revised
conducted informed saved
constructed initiated selected
contracted inspired separated
controlled insured served
converted interpreted set up
coordinated interviewed scheduled
copied invented simplified
corrected investigated sold
created launched solved
cultivated led staffed
defined lobbied strengthened
delegated maintained stimulated
demonstrated managed supervised
designed marketed surveyed
developed maximized taught
devised minimised tested
directed modified trained
discovered monitored translated
distributed motivated updated
doubled negotiated used
drafted obtained utilized
edited operated verified
educated organized wrote
eliminated originated
enabled oversaw
10
SAMPLE RESUMES
Functional
Terence C. Burke
118 West Avenue
South Plainfield, New Jersey 07080
(908)432-1961
EDUCATION

DeVry Institute of Technology, June, 1992


Lombard, Illinois Grade Average 3.8/4.0
Bachelor of Science, Telecommunications

COURSES

Principles of Telecommunications
Voice Communications/ Lab*
Voice/Data Transmissions/Lab* Data
Communications Systems/Lab*
Tariffs/Regulations*

Business writing
Accounting I, II, III
Project Management
Purchasing

Network Systems Admin.*


Psychology
Public Speaking
Economics
Managing Change

*Total Combined Lab Time 600 hours

SKILLS

Knowledge of: Traffic Analysis X. 25 Protocols


Key Systems Network Topologies
OSI Models PBX Lan's
Experience with: Request for proposals
Modems
Oscilloscopes
Digital Multimeters
Test Leads
RS-232c

WORK EXPERIENCE
Muhlenberg Regional Hospital Plainfield, March, 1991- October, 1991
New Jersey Dietary Host

11
American Fire & Safety Corporation April, 1989-February, 1991
North Brunswick, Training Supervisor/Safety
New Jersey Counselor

Brickforce Accounting Agency Edison, October, 1988 - March, 1989


New Jersey Data Entry Clerk

SENIOR PROJECT
Reconfigured a network for a Tell Lab company which involved pulling down cables,
configuring existing LAN, converting token ring to Ethernet, developing systems
documentation and technical drawings, and making recommendations.

References available upon request

Chronological
John M. Dodds
2222 Cardinal Dr.
Rolling Meadows, Illinois 60008
(708) 528-6730
Message: (708) 358-0012

Objective:
To design and develop microprocessor based systems for real time control applications.

Work Experience:
September 1991 - Present
Landis & Gyr Powers, Buffalo Grove, Illinois
Firmware Test and Developer (Development Support Group)
• Work with both hardware and software technologies.
• Write and execute diagnostic procedures for System Controller Units.
• Develop automation test plans and procedures for the firmware, to improve efficiency.
• Assist in the development of product enhancements.
• Research developing products and test their capabilities.
• Integrate a variety of systems to access their reactions.
• Knowledge of software tools; current with the industry.

October 1989 – September 1991


Daily Herald, Rolling Meadows, Illinois
Customer Service Representative (Customer Service)
• Accepted calls from subscribers regarding service, billing inquiries and complaints in a
prompt and courteous manner.

September 1987 – July 1989


Egghead Discount Software, Schaumburg, Illinois
Customer Service Representative (Divisional Corporate Sales)
• Responsible for all State of Illinois accounts.
• Handled all service and billing inquiries. Received all orders and entered into the
mainframe.
• Found information on products at the customers' request.
• Set up and installed the computer network for all the workstations. Also hooked up the
network to the mainframe via phone system by a data-communications commlink
interface.

12
June 1985 – October 1986
Maxi-Guard Alarms, Elk Grove, Illinois
Warranty and Installer (Installations)
• Check systems for bad parts and repaired them.
• Installed alarms in variety of cars and vehicles.

May 1984 – June 1985


Larry Paul Oldsmobile, Schaumburg, Illinois
Data Processing (Service Center)
• Set up the records for the Managers, so as to evaluate the Service Center.

Education:
DeVry Institute of Technology, Lombard, Illinois
Bachelor of Science, Electronics Engineering Technology, October 1992
Career-related courses include:

• Controls systems • C and Pascal Programming


• Microprocessors • Circuit Analysis
• Transform Analysis • Circuit Devices

Personal:
Willing to travel/relocate.

Combination of Functional and Chronological


Robert J. Wagner
1921 Oakwood Drive, #3M
Lisle, Illinois 60532
Home Phone (7087) 865-3218
Work Phone: (708) 913-5326

HIGHLIGHTS OF QUALIFICATIONS:
Strong working knowledge of Lotus 1 -2-3, WordPerfect 5.1, Professional Write, and Q&A.
• Developed new improvement systems, including Quality Circle, ACS Query System,
and Employee Benevolent Fund.
• Worked 30 – 50 hours per week while attending school full time.
• Proficient in making quick decisive management decisions under strict time and
pressure constraints.

EXPERIENCE:
Sears Teleconsumer Resource Center
Downers Grove, Illinois

Supervisor of Special projects


06/91-Present
• Develop and implement the ACS Query Interviewing System.
• Directly assist clients with issues pertaining the ACS Query System, such as initial
setup, modifications, and finalizing report formats.
• Present system capabilities and benefits to prospective clients.
• Provide technical support for uvhous systems, including Kronos Payroll System;
Manpower Planning Systems; Q&A; and Dovetail Interviewing System.
• Sole responsibility for the accounting and allocation functions of the Employee
Benevolent Fund.

13
Departmental Team Advisor
11/90-06/91
Supervised Home Healthcare; Sears Business Center Catalog; and SLS Surveys.
Supervised approximately 60 employees in three departments.
Provided technical support for in-hous systems, including Kronos Payroll Systems;
Manpower Planning Systems; Q&A; and Dovetail Interviewing System. Executed the
activities of the Quality Circle and the Benevolent Fund. One of the 20 team advisors
responsible for the supervision of 500 employees and all related decision making.

Personnel Specialist
04/90-11/90
• Input employee data into Q&A database.
• Administrated the Kronos Payroll System, including adjusting timeclock information and
generating absent/tardy reports for management.
• Implemented and executed Manpower Planning System.
• Assisted in the development and execution of the center's Quality Circle and Employee
Benevolent Fund.

Merchandise Consultant
03/90-11/90
• Accepted orders for merchandise

United Parcel Service


Westmont, Illinois
Truck loader
11/89-01/90
WAGNER KENNELS
Luxemburg, Iowa
Owner/Operator
06/84 -10/89
• Sole owner and operator of AKC dog breeding kennel.

EDUCATION:
DeVry Institute of Technology, Lombard, Illinois GPA: 3.71/4.00
Bachelor of Science in Operations Management Graduation: June 1992

National Dean's List and President's List Selected as Student Graduation Speaker

Coursework
Capacity Requirements Planning Production Activity Control
Cost Accounting Quality Control
Inventory Management Statistics
Master Planning Strategic Management
Material Requirement Planning

Senior Project
Assisting in the profit and growth of a new venture company by creating and recommending a
manufacturing process which will allow global demand to be met.

MISCELLANEOUS:
Grew up on a family farm.
Leo High School Student Council President.
School District's Representative for Mock United Nations Assembly
Enjoy fitness, sports, and other group activities.

14
REFERENCES:
Available upon request

Sample Resumes – Recent High School Graduate


STEPHEN SEUFERT
1855 Woodside Road, Apt. 206 Binghamton,
NY 13901 607-555-6773

CURRENT JOB OBJECTIVE:


Entry level position with a computer manufacturer

Longer-term goal: Position in advertising, sales, and marketing of computer products

SUMMARY:
• Energetic, hard working, willing to learn and accept constructive criticism.
• Strong motivation for advancing in a career.
• Enjoy contributing to a team effort and creating a good working environment
• Basic understanding of the Macintosh computer.

RELEVANT SKILLS AND EXPERIENCE:

Maintenance Skills
• As carpenter's helper:
painted interior walls
measured and cut lumber
helped with framing
operated power tools (saws, drills, sanders).
• Did basic home maintenance:
rewired lamps
repaired plumbing and appliances built shelves
• Completed classes in:
electronics (built a TV scrambler from a circuit board) architectural drafting basic carpentry

Office Support Skills


• Assisted in inventory control and priced merchandise, as stock clerk at Robert's Market
• Cashiered at Robert's, computing and handling large sums of money.
• Answered phones as needed.
• Completed class in Marketing:
invented unique products developed simulated marketing strategies Computer

Familiarity
• Basic understanding of Macintosh programs, MacWrite and MacPaint.

WORK HISTORY:
June, 1992-present Stock Clerk/Cashier ROBERTS MARKET, Binghamton, NY
Summer 1991* Valet Parking Asst MELO COUNTRY CLUB, Woodside, NY
(*While in school — Plus short-term jobs as Carpenter's Helper, Waiter, Busboy, Stockwork)

EDUCATION:
Woodside High School, Woodside, NY 1992
Binghamton Junior College, Binghamton, NY

15
3. LETTER OF APPLICATION
The preliminary application for a professional position generally consists of two documents: a letter of
application (or cover letter) and a resume.
While the resume is a somewhat generic advertisement for yourself, the letter of application allows
you to tailor your application to each specific job. Although the thrust of your various letters may
remain the same, there is really no reason to have a single, generic letter of application.

Overview
Effective letters of application are constructed with close attention to
• Purpose
• Audience
• Content
• Format

Purpose
Your letter of application and resume usually provide all the information which a prospective employer
will use to decide whether or not you will reach the next phase in the application process: the interview.
While your goal is an interview and, ultimately, a job offer, the more immediate purpose of your letter
of application in some cases may simply be to gain an attentive audience for your resume.

Audience
A letter of application provides, in a very real sense, an opportunity to let your prospective employer
hear your voice. It reflects your personality, your attention to detail, your communication skills, your
enthusiasm, your intellect, and your specific interest in the company to which you are sending the letter.
Therefore, letters of application should be tailored to each specific company you are applying to. You
should conduct enough research to know the interests, needs, values, and goals of each company, and
your letters should reflect that knowledge.

Content
A letter of application should be addressed to the specific company and the specific individual who will
process your application. You can usually find this through research or simply by calling the company
to find out who you should address your letter to.
The letter should name the position for which you are applying and also make specific references to the
company. Indicate your knowledge of and interest in the work the company is currently doing, and
your qualification for the position. You want the reader to know:
• why you want to work at that specific company
• why you fit that company
• how you qualify for the position to which you are applying to.
In addition to tailoring your application to a specific job with a specific company, the letter of
application should also
• highlight the most important and relevant accomplishments, skills, and experience listed in your
resume
• point to the resume in some way
• request specific follow up, such as an interview

Format
A letter of application should be in paragraph form (save bulleted lists for your resume) with a
conversational, though formal, tone.
The first paragraph should be brief, perhaps two or three sentences, stating
• what job you are applying for and how you learned about it
• any personal contacts you have in or with the company
• your general qualifications for the job

16
The body of your letter should consist of one to three longer paragraphs in which you expand upon
your qualifications for the position. Pick out the most relevant qualifications listed in your resume and
discuss them in detail, demonstrating how your background and experience qualify you for the job. Be
as specific as possible, and refer the reader to your resume for additional details.
The concluding paragraph of your letter should request an interview (or some other response, as
appropriate). State where and when you can be reached, and express your willingness to come to an
interview or supply further information. Close by thanking your reader for his or her time and consideration.
When writing a letter of application we usually use:
present simple to describe skills / personal qualities
e.g. I am a patient and reliable person.
past simple to talk about past experiences
e.g. I left school in 1996. I worked for General Motors for four years.
present perfect to talk about recent work / studies
e.g. I have been working for IBM for two years.
I have recently finished secondary school.
Name of addressee not known:
Dear Sir / Madam, …
Yours faithfully, (John Black)
Greetings and endings
Name of addressee known:
Dear (Mr White), …
Yours sincerely, (John Black)
I am writing to apply for the position of … , which was advertised
in …
With reference to your advertisement, I am writing to… / I am
Introductions
interested in …
I am writing in connection with your advertisement in (The
Times) …
I would like the opportunity to …
I would say that I am …
I would be interested in …
Useful phrases As you can see from CV, I …
I have a great deal of experience in …
Although I do not have a lot of experience in this field, I feel that I
can …
I enclose my CV and the names of two referees / a reference from
my present employer.
I can / may be contacted at the above address or by telephone on …
I am available for interview …
Please do not hesitate to contact me if you require further
Concluding information.
I would be grateful if you …
I hope to hear from you soon.
I look forward to your reply.
I look forward to hearing from you soon / receiving a reply in due
course.

Ten Tips for Great Letters of Application


The letter of application is a key step in the successful job search. It is the first thing the employer will
see and read. Your resume is not addressed to anyone in particular; however the letter of application
always gives you the opportunity to address one specific person. Make the letter versatile so you can
change it for each employer. Never write a form letter to be duplicated and sent out!
Your letter must be brief and interesting. And insure that your resume will be read. The first 20
words are most important; they should attract the reader's attention.
17
There are two types of letters you may write. One is an answer to a specific advertisement, and the
other is a letter of inquiry to an employer who has not advertised. Remember to keep copies of all
correspondence you send and receive during your job search.
A letter of application is a sales tool. It should always accompany your resume or application. Here are
a few tips for great letters:
1. Always include important information. Your name, address, and phone number (with area code)
should be clearly visible on every cover letter you sent.
2. Make it personal – address a specific person within the company. If necessary, call for a contact
name. “Dear Sir/ Madam” letters are less likely to get attention than those addressed to an individual.
3. Make the opening sentence catchy. Employers scan letters of application for content. Who is it for?
What’s the opener? Attention-grabbing first sentences (those that address the interests of the employer)
will encourage the recipient to read on.
4. Write each letter for a specific job. There is no such thing as a generic cover letter. Each job you
apply for is different. Show how you meet the needs of a given job. Refer to the specific job in the first
paragraph.
5. Describe your skills as they relate to the job. Here is a chance to highlight several additional skills. Tie
your experience to your job skills and relate your skills to the job description.
6. Type and proof-read your letter of application. First impressions are important. Appear professional
by not making mistakes.
7. Be brief – use descriptive action words. Employers receive hundreds of letters of application and
resumes daily, so get right to the point with as few words as possible.
8. Be confident, creative and upbeat! Next to your resume, your letter of application is your best
selling tool. Let your personality come through.
9. Avoid negatives. If there has been a health or some other problem (ex-offender, etc), the letter of
application is not the place to mention it. Discuss employment gaps in interviews.
10. Always end with an action you will take. One of the biggest mistakes people make is to end the
letter asking the employer to respond. You have to be assertive. Call the employer to make sure your
letter of application and resume arrived and to set up an interview.
Remember, references are important. Think carefully about your reference choices. Make sure
that they are people who like you and could help a potential employer make a positive decision in
hiring you.
Every resume must be accompanied by a letter of application. It is a way to highlight your
qualifications and elaborate on your resume. Think of your letter of application as a tool in
obtaining an interview. The following sections address some basic guidelines to remember.

How Letters of Application Differ From Resumes


When applying for a job, enclose a copy of your resume with your letter of application. Although the
two documents have similarities, they are different in several ways:
• A resume is adapted to a position, while the letter is adapted to the needs of a particular
company.
• The resume summarizes all of your qualifications, while the letter shows how your
qualifications can help the organization meet its needs, how you differ from other applicants,
and that you have some knowledge of the company.
• Business resumes can be two to three pages for experienced applicants, but a letter of
application should be only one page.
• Resumes use short, parallel phrases and sentence fragments, whereas letters use complete
sentences in well-written paragraphs.
Since a resume doesn’t have to be adapted to a specific company, most job applicants find it easier to write
their resume first and then write a specific letter of application after they've done some more research.
To obtain the name of the person who should receive the letter, check the ad, call the company, and
ask for a person in the department where you want to work. An advantage of calling is that you can
find out what title a person prefers and get current information on who is in. (A company directory
that went to press months ago will not include recent promotions, who has moved on, or who is new.).
18
SAMPLE LETTER OF APPLICATION 1

Ms. Gail Roberts 34 Second Street


Recruiting Coordinator Troy, New York 12180
Department DRR 1201 October 4, 2006
Database Corporation
Princeton. New Jersey 05876

Dear Ms. Roberts,

Your advertisement for software engineers in the January issue of the IEEE Spectrum
caught my attention. I was drawn to the ad by my strong interest in both software design and
Database.
I have worked with a CALMA system in developing VLSI circuits, and I also have
substantial experience in the design of interactive CAD software. Because of this experience,
I can make a direct and immediate contribution to your department. I have enclosed a copy of
my resume, which details my qualifications and suggests how I might be of service to
Database.
I would like very much to meet with you to discuss your open positions for software
engineers. If you wish to arrange an interview, please contact me at the above address or by
telephone at (518) 271-9999.

Thank you for your time and consideration.


Sincerely yours,

Joseph Smith

19
SAMPLE LETTER OF APPLICATION 2

Mr. John M. Curtis 1234 15th Street


Recruiting Coordinator Troy
HAL Corporation New York 12180
55 Washington Avenue January 30th, 2006
New York 10081

Dear Mr. Curtis,

As an experienced computer programmer who is presently pursuing a master’s degree


in electrical engineering at Rensselaer Polytechnic Institute. I am writing to request
information about possible summer employment opportunities with HAL. I am interested in a
position that will allow me to combine the talents I have developed in both computer
programming and electrical engineering. However, as you can see from the attached resume,
I have extensive experience in many related fields, and I always enjoy new challenges.
I feel that it is important for me to maintain a practical, real-world perspective while
developing my academic abilities. I am proud of the fact that I have financed my entire
education through scholarships and summer jobs related to my field of study. This work
experience has enhanced my appreciation for the education I am pursuing. I find that I learn
as much from my summer jobs as I do from my academic studies. For example, during the
summer of 1986, while working for IBM in Boca Raton. Florida. I gained a great deal of
practical experience in the field of electronic circuit logic and driver design. When I returned
to school in the fall and took Computer Hardware Design. I found that my experience with
IBM had thoroughly prepared me for the subject.
Having said all this, I realize that your first consideration in hiring an applicant must not
be the potential educational experience HAL can provide, but the skills and services the
applicant has to offer. I hope the experience and education described in my resume suggest
how I might be of service to HAL.
I welcome the opportunity to discuss with you how I might best assist HAL in fulfilling its
present corporate needs. I will be available for employment from May 14 through August 31.
2002. Please let me know what summer employment opportunities are available at HAL for
someone with my education, experience, and interests. You can reach me at the above
address or by phone at (518) 271-0000.
Thank you for your consideration.
Sincerely yours,
Joan Doe

20
SAMPLE LETTER OF APPLICATION 3

Ms. Tony Gonzalez 101 Forest Hill Dr., Apt. 102


Management Recruiting Administrator Peoria,IL 60192
Northern Accounting Company January 20, 2006
P.O. Box 190
Aurora, IL 60507

Dear Ms. Gonzalez,


In October of 2005 I had the pleasure of meeting you at a job fair. The information I
received was very helpful. Since that time I have done some research, and found that
Northern Accounting Company is a very stable and well respected company. I would like to
be considered for a position to utilize my skills and to prove that I would be a desirable asset
for Northern Accounting Company.
In May 2006, I will graduate from college with a Bachelors of Science degree in
Accounting. My hands on education has included general accounting practice, completion of
Federal and Corporate tax returns, creation of templates utilizing Lotus 1-2-3, and
preparation of consolidated financial statements for business combinations. I have
accumulated over 400 hours of laboratory work in a team environment and I would like to
become a part of your team. I feel my work experience with past employers has allowed for
the development of confidence, leadership, and the ability to verbally communicate with
people.
I am confident in my ability to make a positive contribution to Northern Accounting
Company. I would welcome the opportunity to discuss that possibility and my qualifications
at your convenience. I can be reached at the above address or at (808) 858-1878.1 look
forward to your reply. Thank you for your time and for providing useful information.

Sincerely,
Jerry L. Page Jr.

Enclosure: Resume

21
SAMPLE LETTER OF APPLICATION 4

Mr. Gerard Berger 930 Highland Ave.


Manager of Human Resources State College, PA 16801
Allen Investments Inc. Nov. 15, 2005
1023 Collins Ave.
Philadelphia, PA 19122

Dear Mr. Berger,


I am applying for the position of Client Account Coordinator, which was advertised Aug,
4 with the Career Service Center at The Pennsylvania State University. The position seems to
fit very well with my education, experience career interests.
According to the advertisement, your position requires excellent communication skills,
computer literacy, and degree in business, economics, or finance. I will be graduating from
Penn State University this month with a Bachelors degree in finance. My studies have included
courses in computer science, management information systems, speech communications, and
business writing. I understand the position also requires a candidate who is team and detail-
oriented, works well under pressure, and is able to deal with people in departments
throughout the firm are skills I developed both in my course work and in my recent internship
at Hunter & Katchur Finance Inc. in Boalsburg, Pa.
My background and goals seem to match your requirements well. I am confident that I
can perform the job effectively, and I am excited about the idea of working for a dynamic,
nationally recognized investment managing firm.
If you would like to schedule an interview or otherwise discuss my interest in this
position, please call me at 814/555-2468. I will be available at your convenience.
Thank you for your consideration.

Sincerely,
Amy Sherwood

Amy Sherwood

22
SAMPLE LETTER OF APPLICATION 5

Mr. Howard Peterson


Jackson Industries
62-15 W. 58th Avenue
Astoria, N.Y. 11160

Dear Mr. Peterson,


I am responding to your advertisement in today’s New York Times for an Office Manager. As
I read the requirements, I am struck with how similar they are to my background and skills.
Your Requirement My Qualification
Bachelors in Business Bachelors in Business
From C. W. Post, 1990

10 years experience managing diverse 7 years as Office Manager,


office; manufacturing setting Gaetano International –
Widget Division, Brooklyn, N.Y.
6 years Assistant Office Manager,
ABC Manufacturing Hempstead, L.I.

Bi-lingual I speak Spanish, French and Portuguese

I am motivated self-starter with excellent inter-personal skills. I enjoy working in a


manufacturing setting and feel I have the knowledge and background to be a rude asset to
you.
I have enclosed a copy of my resume for your review. I look forward to sharing with you
how I feel I might fit into your organization. I will be in touch with you early next week to
discuss the possibility of arranging for an interview.
If you have any questions, please feel free to contact me at 516-555-1212. Thank you
for your consideration. I look forward to meeting with you.

Sincerely,
Laura Hernandez

23
Tips for Filling Out Application Forms
Be careful If you are careful about following instructions on your
application, an employer will probably think that you may be as
careful as an employee.
Be neat Print or write clearly so that your application can be read easily.
Use a reliable black or blue ink pen.
Be certain Before you begin to fill in the blanks, read everything on the
application carefully. After you complete the form, read it again
to ensure no information is missing.
Be prepared Fill out a sample application form to bring with you. You can
obtain one from your Department of Labor Employment Service
Office. By having all the information about yourself ready ahead
of time, you will be complete and accurate.
Be alert If you are not sure about the meaning of abbreviations, etc., ask
the person who gave you the form to explain.
Be complete Answer every question. If a question does not apply to you
write “Does not apply.” If you wish to discuss in interview write
"Will discuss in interview." Remember, however, you do not
have to answer illegal questions on applications or interviews.
Be correct Watch your spelling, grammar and punctuation
Be thorough Describe all your skills and abilities. Also, list the kinds of
computers, machinery, equipment, and tools you are able to use.
Indicate any licenses you may have.
Be accurate Make certain all information is correct. Check employment
dates, telephone numbers, and addresses for accuracy.
Be prudent When listing references, be sure to contact them ahead of time.
Have enough references so that you can alternate them every
other application. Otherwise, they will be receiving constant
phone calls about you.

24
4. MEMO
Introduction
A common form of inter- or intradepartmental communication in business and academia is the
memorandum (pl. memorandums or memoranda), usually called a memo. Memos are written by
everyone from junior executives and engineers to CEOs. Hence, it is essential to master this basic
communication form.
The word memorandum, or memo for short, originally meant a reminder or confirmation. Now it has
become a very common form of business communication used for a wide variety of messages
exchanged between people working in the same organisation. A memo usually focuses on only one
specific topic, as in the following examples:
Conveying information. Reporting back the minutes of meetings or summaries of brainstorming sessions
Requesting information. Asking employees to send in requests for the use of office parking spaces
Giving instructions. Telling employees to display identity badges when entering the building
Recommending options. Informing people in the company of decisions reached on the best way to
solve a company dilemma and recommending that these options be implemented

Memo format
When writing memos, you should follow the standard format.
Although memos are ordinarily formal, there has recently been a trend toward a more personal style.
Careful writers are able to achieve this style without sacrificing clarity, grace, or precision. Unlike
letters, which include inside addresses, salutations, and complimentary closings, memos have just
two sections: the heading and the body. To simplify the communication process, many firms and
organizations use memo pads with predesigned formats. If you need to construct a memo without
such a memo pad, use the vertical format shown below:
Date: June 6, 2006
To: David Dunlop
From: Shawn Jackson
Subject: Language Requirement

Some people also use what is known as horizontal format, where the "To" and "From" fields are flush
with the left margin, while the "Date" and "Subject" fields are aligned with the right margin.
Date: Write the full name of the month or use its standard abbreviation (i.e., don't use numerals).
To: If company policy and your relationship with the addressee allow, you may omit courtesy (Mrs.,
Ms., Mr.) or professional (Dr., Dean, etc.) titles. Generally, however, address people of higher rank
by title. For most format situations, use the addressee's full name; for informal situations, first
names or even nicknames may be appropriate. If the addressee's name alone is not sufficient to
ensure that the memo will reach its destination, put an identifying tag, such as a job or department
title, directly after the addressee's name (for example, To: John Hutchins, Payroll Office). If the
memo is directed to several people, list their names alphabetically or in descending order of their
position in the institutional hierarchy. If numerous names are required, you may use "To: See
Below" and then place the addressees' names at the end of the message. If the group is too large to
list all of its members individually, follow "To:" with an identifying classification, such as "Faculty
and Staff' or "Process Engineers."
From: Place your own name on this line and don’t use a courtesy title. If you believe that the reader
may not know you, then use a job title or department name to identify yourself. If you choose to
sign the memo to personalize it or to indicate authorization, write your initials above, below, or to
the right of your typewritten name. Practices vary considerably in this respect, so it's best to follow
local preferences. A memo is always official even if it isn't signed.

25
Subject: “Re:“ (Latin for thing, affair, or concern) is occasionally used in place of "Subject:", but
many of today's businesspeople regard "Re" as obsolete. The statement of subject should be
concise yet accurate, since it often determines where or how the memo will be filed.

MEMO CONTENT
Two words characterize a well-written memo: informative and concise. Make your memo
informative by observing the same principles that govern any writing process, the most important
of which are preparation and organization.
Preparation: Determine the exact objective: you should be able to state this objective in a single
sentence. Know your reader(s), and determine whether or not you need to cover fundamental issues
or define technical terms.
Organization: Keep things under control. Present your material coherently, and decide on the pattern
of organization that best suits your purpose. The two most common patterns of organization for
business and technical memos are deduction (decreasing order of importance) and induction
(increasing order of importance).
Deduction: Deduction, presenting ideas in decreasing order of importance, generally assumes that the
reader is well acquainted with the topic under discussion. In writing a deductive memo, present
your most salient point first (but don't simply repeat the "Subject" statement). This strategy spares
readers needless loss of time wading through data they may already know. Place supporting facts in
subsequent sentences for readers who may be unfamiliar with the subject. Place the background
data last. Those who want or need to read this information to understand the message will take the
time to do so: others may scan it or bypass it entirely. Most business memos use this pattern of
organization.
Induction: Induction, presenting ideas in increasing order of importance, draws upon a different set
of assumptions than does deduction. The reasons to use induction vary, but they may include the
following: you have to announce bad news or your reader(s) may not understand the main idea
without significant prior preparation. In such cases, organize your thoughts by leading up to the most
forceful idea, and present that idea at the end of the memo. Keep in mind that such memos often
take longer to write.

MEMO STYLE
Language
Although styles vary across cultures and organizations, there are basic rules to memo writing.
The opening is more direct and less formal than in a letter or email, with no greeting such as Dear...
and memos usually start with the introduction to the main points. The closing is generally just the
initials of the sender.
Memos are less formal than business letters so the tone is neutral and the language simple. Sentences
are usually short and clear, but not brisk and bossy. Memos often conclude with a request action.

USEFUL LANGUAGE
Giving information
I am/We are delighted to inform you…
I/ We wish to inform you…
You will be happy to hear…
Requesting information
I would like to have…
Could you give me…
Would you send me…
Giving instructions
Please…
26
We/I kindly request…
I/We want…
Recommending options
I/We recommend that…
I/We feel it is best to…
Having considered all the alternatives, I/ we suggest…
Requesting actions
Do…
Write…
Phone…

If writing a memo turns out to be more difficult than you anticipated, you may find that a quick
outline will help you organize your thoughts. In composing such an outline, focus your attention on
the main ideas rather than on introductions or transitions. Strive to be plain, direct, and concise
while using a comfortable, natural style. Because memos are generally brief, the outline need only
provide structure and proportion; nevertheless, it should not leave gaps in logic or omit important
details. The outline can take the form of brief phrases listed sequentially, thereby giving order to the
body and establishing relationships between the ideas. If necessary, you can develop your outline
into a rough draft by expanding your notes into paragraphs. Write quickly, and pretend you are
speaking to someone across the table.
In its final form, the memorandum should be clear and informative. Generally your tone will be
neutral or positive, but you may occasionally have to issue complaints or reprimands in memo form.
Use caution in negative situations, and be aware of the effect of your correspondence. If you are
spiteful, blunt, condescending, or too coldly formal, you'll wind up alienating people. Ostentatious
language, excessively technical jargon, or complicated syntax will make you sound pompous.
Hence, try to be cordial, straightforward, and lucid, avoiding chit-chat, but striving toward a relaxed
and conversational style. If you project an image of consideration, you stand a much greater chance
of being viewed as knowledgeable and competent in carrying out your professional responsibilities.

27
SAMPLE MEMOS

Memo 1

Qualcom Industries

Date: 9th June


To: All Marketing Staff
From: Alan Stewart, Marketing manager
Subject: New product launch

I am delighted to inform you that the Finance Committee has approved the new product
plans. We need to get moving ASAP on the marketing campaign.

− Could you send me all the present market research data on the identified target.
− I recommend we set up focus groups for more up-to-date data.
− I would like to see the selection of purposed brand names by the end of this week.
− The creative team must have a proposal for a print media and TV campaign by the
end of this month.
− We need to finalize and make decisions at the next meeting early next month.

We make this project an urgent priority. The team must meet the above deadlines.

A. S.

Memo 2

SLEMBROUCK
BVBA

Date: 11 Feb Subject: Order No. 256


From: Manager To: Sales Supervisor

Please write and tell the Court Hotel that we are sorry that we made a mistake with their
order. (Instead of 1,000 bottles of orange juice we sent 1,000 bottles of shampoo!)
Their address is Chilcompton, Bath, BA3 4SA, UK.
Our delivery vans will be in their area at the beginning of next month. We will deliver the juice
then and collect the shampoo.

Memo 3

Date: 11 Feb Subject: Court Hotel


From: Manager To: Purchasing & Sales Supervisor

I have recently heard from Mr Wilson at Western Trading Co. that the Court Hotel needs a
large quantity of orange juice at once.
We have a large supply of juice that we don’t need. Our price is £25.00 per 100 bottles.
Please write to the Court Hotel and tell them that we would be happy to supply them if they
can tell us how many bottles they need. Their address is Chilcompton, Bath, BA 34SA.
28
5. SHORT REPORTS
Short reports are used to summarize information that has to be communicated to people inside or
outside an organization. They are designed to provide an overview which can be read and assimilated
quickly. Many different subjects can be presented in a short report and some of the most common types
of short reports are project / progress reports, business proposals and summaries of research or results.
Although the length of a short report will vary depending on the amount of information and
commentary that it contains, most short reports will be between one and six pages long. They should be
clearly structured so that the reader can find the relevant information quickly. Short reports may also
include graphic material and are often used as the basis for an oral presentation.

LAYOUT
Title page – indicates the subject that is being dealt with, in large font, with the name and position of
the author of the report clearly indicated at the bottom of the page, together with the date of its
publication.
Summary – gives a concise presentation of the report, the reasons for writing it, the most important
information it contains and a general idea of its main findings. For a short report this can be simply
one or two sentences.
Introduction – presents the overview, showing why the report was written and how it has been
constructed. Development section – includes the main body of information which may be divided into
several subsections. Conclusion – presents the results of the report. This might take the form of a
recommendation for future action or draw the reader's attention to problems that need to be addressed.
LANGUAGE STYLE
Short reports are documents that use a formal writing style. They should not contain contracted verb
forms like it’ll or don't but use the full forms of verbs.
The language of the report should be as clear a possible. It is not necessary to use long and
complicated sentences or obscure vocabulary. Using simple language in short sentences will make it
easier for the reader to assimilate your message. Try to avoid using the personal pronoun I too much.
Although it is true that 'you' wrote the report, it will only put your readers off if you refer too often to
your own role. Use neutral phrasing instead.

29
SAMPLE REPORT
Preliminary report on cost cutting at MultiBranas
Summary
The Strategic Cost Sheering Group was asked to conduct a review of the company’s current
operating costs and to outline suggestions following the Management Advisory Board’s
decision to examine the feasibility of obtaining a 15% reduction in total spending in the coming
fiscal year. The following short report presents our findings and outlines several policy
recommendations.
Introduction
The four areas that the group was asked to examine were the following:
− Product development
− Brand consolidation
− Quality control and pricing
− Personnel retention and hiring

Product development
After consultation with managers from the Marketing, Sales and R&D departments, it became
clear that freezing product development is not a viable option…
The only changes that we propose to make in this area would be a reduction in the lead time
through the introduction of a new software system and the merging of the two design centres
into the operational unit.
Brand consolidation
A detailed audit of the company’s brand portfolio was carried out…
We propose to eliminate both of these brands, now in the declining phase of their product life
cycles, an to reorientate the marketing resources that were devoted to them.
Senior control and pricing
The information from production units and the after-sales services shows that there was a
slight deterioration in overall quality standards during the previous year.
Since much of our production…
The senior managers who provided input for our study all agreed that greater emphasis should
be placed on adding value to our products and on differentiating them from their cheaper,
lower-quality rivals. There are therefore no significant savings to be made in this area.
Personnel retention and hiring
The Human Resources department provided a detailed breakdown of all our personnel costs
and supplied projections to show the effects of…
Further savings from the adoption of a more equitable performance-related compensation
scheme would provide an additional £4.8m.
Conclusion
It seems clear that the most significant savings that can be made are in the areas oh HR,
product development and brand consolidation. These savings alone would amount… We
would therefore suggest that an additional report be prepared to cover savings in these two
areas.

Benoit Nguyen
Strategic Cost Steering Group
MultiBrands (UK)
21 April 2005

30
UNIT 2. ESSAYS

1. “FOR AND AGAINST” ESSAY


A “For and against” essay should consist of:
A) an introduction in which you present topic, making a general remark about it without giving your
opinion;
B) a main body in which you present the points for and the points against, in separate paragraphs,
supporting your arguments with justifications / examples;
C) a conclusion which includes your opinion (In my opinion, I believe / think, etc) or a balanced
summary of the topic.
*You must not include opinion words (I believe, I think, etc) in the introduction or the main body.
Opinion words can only be used in the final paragraph, where you may state your opinion on the topic.
*”For and against” essays are normally written in a formal style; therefore you should avoid using
strong language (I know, I am sure, etc), colloquial expressions or idioms.
*To attract the reader’s attention and to make the beginning or ending of your essay more effective,
you can use some of the following writing techniques:
address the reader directly, include a quotation (when we use a quotation, it is necessary to mention the
name of the person who said / wrote it), include a rhetorical question.
Useful expressions and linking words / phrases
In the first place In addition (to this)
To start/begin with Furthermore
To list and
Secondly Moreover
add points
Thirdly Besides
Finally
The main / first / most important advantage of One/Another/An additional advantage of
To introduce One point of view in favour of
or list It is often suggested / believed / argued that…
advantages Some / many people suggest / feel / argue that
Some / Many people are in favour of / are convinced that…
The main/most important disadvantage/drawback of One / Another / An additional
To introduce
disadvantage of
or list
One point / argument against
disadvantages
Some / Many people are against
To introduce For example In particular,
examples / For instance Therefore, for this reason,
reasons / Such as, Because, as, since,
results Like, As a result
On the other hand Nonetheless, Nevertheless
To show However Although, Even though
contrast Still Despite / in spite of (the fact that)
But
In conclusion
To introduce To conclude/sum up
a conclusion All in all, Finally, Lastly, All things considered, Taking everything into account /
consideration

31
2. OPINION ESSAY
Opinion essays are discursive essays in which you present your personal opinion on a particular topic.
Your opinion must be stated clearly and supported by justifications. You should also present the
opposing viewpoints in a separate paragraph. An opinion essay should consist of:
A) an introduction, in which you introduce the subject and state your opinion clearly
B) a main body, consisting of two or more paragraphs (each presenting a separate viewpoint
supported by reasons / examples), including a paragraph giving the opposing viewpoint supported
by reasons / examples
C) a conclusion, in which you restate your opinion using different words.
You normally use present tenses in this type of writing, and phrases such as I believe, In my opinion,
I think, It seems to me that, I strongly disagree with, etc to express your opinion. You should list your
viewpoints with Firstly, Furthermore, Moreover, Also, etc, and introduce the opposing viewpoint
using However, On the other hand, etc. Opinion essays are normally written in a formal style.
Useful expressions for giving opinions
I believe / think / feel (that) … My opinion is that
I strongly believe … As far as I am concerned
In my opinion / view … I (completely) agree that / with
The way I see it … I (strongly) disagree that / with
It seems / appears to me (that) … I am totally against
I (do not) agree that / with … To my mind
To list points Firstly, to begin with, for one thing, lastly, secondly
Also, moreover, apart from this, in addition, furthermore,
To add more points
what is more
To introduce opposing viewpoints Although, on the other hand, however, nonetheless, while
For example, such as, therefore, in other words, in
To introduce example / reasons
particular, for instance, because, since
To sum up, all things considered, taking everything into
To conclude
account

32
FREE DEGREES TO FLY
THERE used to be three near-certainties about higher education. It was supplied on a national basis,
mostly to local students. It was government-regulated. And competition and profit were almost unknown
concepts. As most education was publicly funded, the state had a big say in what was taught, to how many
and for how long. Insofar as it existed at all, competition was a gentlemanly business; few educators
thought much about customers, fewer about profit.
How that has changed. Higher education is now international in a way it has not been since the
heyday of Europe's great medieval universities-and on a vastly greater scale. Numbers studying abroad
were statistically negligible only two decades ago, says Andreas Schleicher, of the Organisation for Economic
Co-operation and Development (OECD), a Paris-based think-tank. Now growth is soaring: 2m university
students – approaching 2% of the world's total of loom, according to the International Finance Corporation-
were studying outside their home country in 2003. Since the late 19905 the higher-education market has
been growing by 7% a year. Annual fee income alone is now an estimated $30 billion. Private, profit-seeking
institutions are still a minority, but almost all universities are beginning to compete for talent and money. That
is breeding independence of government, both financially and psychologically; inexorably, the state's role is
shrinking.
The two big trends, of internationalisation and competition, feed each other. The more that universities
tailor their offers to foreign students, the more attractive they become. And the more that students hop
between countries, the more their choices count rather than the wishes of a particular government. German
politicians may be willing to tolerate overcrowded universities for political reasons, but they cannot stop
German students unhappy with this policy from going to Britain, where undergraduate teaching is much
better. Britain's government may be willing to constrain the best universities by capping fees and fiddling
with admissions rules to help poorer students gain places – but it cannot stop more of the richest and
brightest students turning to America instead. American politicians, worried about terrorism, tightened visa
rules-but their universities lost out as the best brains went elsewhere. Just as globalisation has let capital and
labour search the world for the best deal, the same is happening with students, academics and donations.
The idea of the student as consumer is a new and subversive concept in much of the world. In Europe
and many developing countries, the customer in education for most of the past century has been the
government: it wanted the nation's brains educated in the most useful disciplines and in a cost-effective
way. Universities may have seen themselves as temples of learning, but the taxpayer was often paying for
incense as well as priests and disciples. In short, the system resembled a Soviet-style planned economy. Now
that system is facing a transition to what, in effect, is a market. The change will be messy and painful.
Most students, like customers everywhere, are looking for the best deal: how much time and money
gains them what benefit? That does not necessarily mean they will favour dull, utilitarian courses. After
all, food shoppers seek taste as well as nutrition. A university that teaches mind-stretching subjects of no
direct relevance to earning power can still flourish. But to attract the best students it will still have to market
its strong points-its excellent teaching and awesomely beautiful buildings, for example.
In much of Europe, though, money does not yet play a role in students' calculations. Where fees are
fixed or non-existent, the only real choices are about where and what to study. And even that may not vary
much: most undergraduate tuition, in particular in most continental European countries, is similarly skimpy.
So the choosiest students-meaning the brightest, most ambitious and richest-of-ten go abroad. Some
112,000 students from elsewhere in the European Union study in Britain already. But the fastest growth in
students is coming from China.

Brains without borders


Foreign students are usually charged higher fees, but they are not just cash-cows. Universities
like their motivation, and the cosmopolitan flavour they bring to campuses. The better your students,
the better your reputation, and hence your chances of attracting more good students. Even Oxford,
Britain's oldest university, is planning to market itself aggressively overseas. In the past, says John
33
Hood, its new vice-chancellor, "we waited for foreign students to approach us." But what the
customers want may not be what the universities are used to providing. British universities are
scrambling to adapt everything from teaching practices to student social life to meet the needs of
students from different cultures and backgrounds.
In the past, the same people taught and examined their students. For the most part, if you wanted
a Cambridge degree you studied at Cambridge. But from a business point of view, that represents a
wasted opportunity. A university can examine far more students than it actually teaches, and with a
strong brand it can trade on its reputation for quality by licensing other people to teach its courses.
Chicago's Kellogg business school, for example, teaches around half of its students through local
partners in places such as Israel and Hong Kong. It controls the curriculum, inspects standards and
issues qualifications. But the actual teaching is outsourced and offshored. The purest example of this
comes from the world of professional vocational training-where governments' influence is at its
weakest, and consumer demand is most focused. The Chartered Financial Analyst (CFA) qualification
is roughly equivalent to a specialised postgraduate finance degree, including a mixture of economics,
ethics, law and accountancy. It is much liked by employers in financial services. Whereas there are
tens of thousands of finance degrees available around the world, ranging from the excellent to the
worthless, there is only one CFA, managed and examined by an American association of financial
professionals, the CFA Institute. It used to be just an American qualification. But explosive growth has
made it, in effect, a global currency.
To take the CFA, candidates need only to register, pay fees of $1,455 and turn up to the one of
274 test centres around the world. Most of them study with private providers, who use the freely
accessible curriculum and reading list. But some 40 universities are now teaching it as part of their
postgraduate courses.
So, just like their counterparts in manufacturing industry 20 years ago, rich-world universities
are concentrating on businesses that make money, dumping lines that do not and shifting production to
cheaper markets abroad. Last month Oxford unveiled plans to cut the number of loss-making
undergraduate places for home students (where the government sets the price), and increase the
number of graduate and foreign students (where the fees are deregulated). Other British universities
will follow soon.

In bed with business


Such universities are not only operating more like businesses. They are also operating more closely
with them. There are two big dangers here. One concerns quality. At the bottom end of the education
market, qualifications reflect only payment-at worst, through bribes. Corruption in Russia has degraded
the value of degrees from its once-famous universities. Foreign universities that have set up there are
sometimes little better.
That is not a new problem. But globalisation and competition make it much harder to control. For
some degrees, such as MBA, there are credible international rankings. But sorting out the relative rigour of
every course from every university is impossible. Such confusion creates temptation, particularly when it is
combined with the need to keep customers happy. A university that gives failing grades to a large number
of fee-paying students puts its future revenues at risk.
In theory, universities have a long-term interest in protecting their brand. But quality control is one of
the great unsolved problems in education, even at Harvard, which, thanks to its reputation and a $20-
billion endowment, could hardly be better buffered from the pressures of the market. Certainly government
regulation does not seem to have helped much: British universities are subject to a detailed and intrusive form
of inspection from a body called the Quality Assurance Agency, lovingly known as the KGB of higher
education. But it is hard to find anyone who says that the steady rise in first-class degrees reflects only
increased student brilliance.

34
State of play
The second big problem is government interference. In many countries, the idea that the state should
control higher education is barely challenged. In much of continental Europe, even charging tuition fees or
allowing universities to compete are seen as dangerously radical notions. After years of agonising, Germany
agreed only last month to let its universities charge fees.
Education is on the agenda of the next round of international trade talks, but changes are unlikely. As
with other forms of protectionism, national governments claim that they are acting in the interests of
consumers. Yet the more the market grows, the less tenable that position becomes.
Although governments' attitudes vary only a totalitarian state could maintain complete control of
higher education. The fastest change will be at the margins, driven by students seeking alternative
offerings. Wrong-headed governments risk not only losing international market share, but also their
country's best students.
So the direction is clear: competition can raise standards for home and foreign students alike, and the
speed with which it emerges depends to a large extent on universities' freedom from government. How fast
that comes will depend on university management, which is often strikingly slow and bureaucratic. The
wet breath of government on administrators' necks is partly what makes decision-making soggy-but state
control is not the only culprit. Even rich, independent American universities can be badly run.
If governments want to change that, allowing failure to bring its natural consequences would be an
excellent place to start. Currently, weak universities do not fail in the way that their poor performance
warrants. An ailing state-financed university may be shrunk, or have its management changed, but it will
not go bust or be bought in the way that, say, a for-profit outfit would. It is difficult for a successful university
to take over an ailing one, or for two complementary campuses to merge.

The challenge of change


Running universities in a way that suits a competitive environment may mean some uncomfortable
changes. But it does not mean necessarily adopting a corporate model, with a board of directors and a chief
executive. A non-profit university exists, ultimately, so that its members can teach, think and learn. Making
them into "staff-mere shopfloor workers on an academic production line-risks losing the ethos which has
given universities their character and value.
There is no single answer to this. But the pressures of the market are creating an increasingly segmented
system. The clearest opportunity for profit is in teaching, either in co-operation with existing universities or in
competition with them. That will be strongest where student choice is strongest-ie, courses whose prices are
deregulated, for which there is no state-subsidised alternative and whose connection to future earning power
is strongest. Business schools and professional training are already examples.
The danger for old-style universities, particularly in Britain and continental Europe, is that
government subsidy and control continues at a debilitating level, but is not quite bad enough to be
intolerable. That will not just harm universities in the state system. It will also distort the market.
Competition and internationalization in education have already benefited a wealthy, brainy minority.
Plenty more students should gain similarly in future, if only universities are free to fly.

Topics for essays:


Should higher education fit in a competitive environment or be regulated by the government?

35
ARE THERE FUNDS THAT PUT YOU FIRST?
Scandal
Bad behavior is only part of the problem. But you can demand, and get, better funds.
Ninety-five million investors can't be wrong, can they? That's how many people have money-
nearly S7 trillion-in mutual funds. But now, we're told, the fund industry, which is credited with
founding the shareholder nation, has been cheating its citizens. Have we all been robbed?
Funds, we readily acknowledge, aren't perfect. Today's sins are emblematic of the industry's ills-
real and perceived-including excessive fees and questionable marketing practices. And yet we stand
squarely with the 95 million who have chosen funds as their investment of choice to save for retirement,
college and all the other goals we want our money to achieve. Sure, there's plenty that needs fixing.

Angels they are not


The scandal engulfing the fund industry passed the "few bad apples" stage long ago. The
ongoing probe, initiated last fall by New York Attorney General Eliot Spitzer, focuses on traders who
illegally buy and sell funds after the market is closed, and on those who jump in and out of funds to
game temporary pricing anomalies – and skim the profits of long-term investors in the process.
More than a dozen fund companies have been linked to the probe. So far, however, only four
have been formally charged – Invesco, Pilgrim Baxter & Associates, Putnam and Mutuals.com (a
Dallas brokerage firm and fund manager).
Although shocking in its magnitude, the scandal is hardly unprecedented. Today's legislation
governing mutual funds grew out of the excesses of the 1920s. The go-go years of the late 1960s were
followed by charges that some fund managers had played fast and loose with the pricing of tiny,
illiquid stocks, and that funds overall were charging the public too much in fees.
To combat some of the abuses, the SEC has proposed a set of new rules. Fund companies would
have to receive trades by 4 p.m. eastern time-which means the trades would have to be processed by
brokers and other middlemen earlier.
Funds would have to designate a compliance officer accountable only to the board of directors
(and not to the management company). The compliance officer would, among other responsibilities,
make certain that the fund priced foreign and other securities correctly and thus eliminate many of the
anomalies that led to the rapid-trading scandal. The SEC will soon consider mandatory redemption
fees on shares sold within a few days of purchase.
The solution. Integrity matters. Although you can never be completely sure, we maintain that it's
possible to identify firms that treat shareholders fairly and that are less likely to engage in shady
behavior.

High fees
Most funds charge too much. All told, the industry collected a princely $35 billion in fees on
stock and bond funds in the 12-month period that ended last July, according to FundFinancials.com, a
Web site that focuses on fund costs. The expense ratio of the average diversified U.S. stock fund is
1.5% annually. That means that you pay the typical fund $ 15 per year for each $ 1,000 invested for
picking securities, marketing, accounting, postage and other costs. Remember, even dollar paid to your
fund for expenses means a dollar less to share among the shareholders. The bulk of the fees generally
pays for fund management, an extremely profitable business. "There's no gun against any investor's
head to get into a fund," says Aster, manager of the Meridian Funds, "There's a lot of competition.
Funds should be able to charge what they want, and let investors decide what's best."
What galls many investors, however, is that fees, as a percentage of assets, don't drop at many
funds as the funds grow larger. "Fund companies have few capital costs besides manpower," says Max
Rottersman, founder of FundFi-nancials.com. Anyone who bothers to read a fund's prospectus and

36
shareholder reports can easily learn about management and most other fees. But some costs aren't as
transparent. In addition to the fees included in a fund's expense ratio, brokerage commissions for
trading securities can siphon off between 0.15% and 0.5% a year.
The solution. Funds get away with egregiously high expenses because you let them. Well, stop.
You – not the government – are the best regulator of the cost of mutual funds. There are plenty of
good, low-cost funds from which to choose. Vanguard is known for rock-bottom fees. Many Fidelity,
Dodge & Cox and T. Rowe Price funds charge well below 1% per year. The best defense against the
soft-dollar "tax" is to invest with companies, whose principals are also big investors in the funds. They
have a vested interest in keeping costs down.

Do-nothing directors
The fund industry's Fact Book described independent directors as "watchdogs" who have helped
the industry avoid systemic problems and safeguarded the public. The sad fact is that, instead of being
watchdogs, most fund directors behave more like lap dogs, too often wielding rubber stamps in
exchange for nice paychecks.
It's up to your fund's directors to keep fees down and performance in line with benchmarks, and
to make sure that your fund doesn't get too big to manage effectively. And it's up to them to keep the
rapid traders out of your fund, if the prospectus says they don't belong there.
The solution. Ask the fund's phone rep for a fund's "statement of additional information." In it
you'll find whether directors are independent or affiliated with the management company, the number
of funds each director oversees in the fund complex, how much they're paid and how much they have
invested in that company s funds. We'd look askance at directors charged with oversight of more than
25 funds, or those paid much more than $100,000 for board-sitting.

Asset Grubbers
It's bad enough that funds charge too much. To make matters worse, many companies are on an
endless quest to boost assets. A buildup in assets is good for fund companies because it increases
management fees, but it can be harmful to you, the investor.
The asset-gathering prowess of fund companies is on display in a variety of ways. They rush to
open new funds when a sector is hot, often launching funds at the worst time. Counting multiple share
classes, 136 technology and telecommunications funds were started in 2000-just as those sectors
topped off.
When a fund performs well, it attracts loads of customers-no surprise at all. But funds, especially
those that invest in smaller companies, can grow too large, and the bigger they are, the harder it is to
deliver standout returns. Many companies are unwilling to turn off the cash spigot. Fidelity, for
instance, is tempting the performance gods by letting its fine Low-Priced Stock fund, which specializes
in small and midsize companies, swell to $25 billion.
To boost assets, many companies that sell no-load funds join no-transaction-fee programs run by
big discount brokerages. The fund companies pay the brokers a fee (usually 0.35% to 0.4% of assets
annually) to participate in their NTF programs. The funds then attempt to boost expenses for all
investors-not just those buying through discount brokers – and usually succeed.
The solution. Stick close to fund families that avoid fads and that are willing to close funds to
new (or better yet all) investors sooner rather than later. Be skeptical if a company runs a slew of hands
that practice a similar style and invest in the same kinds of stock. Give extra credit to fund families that
don't participate in discount-brokerage NTF programs.

Topics for essays:


1. Should anyone be honest when doing business?
2. What are the criteria of business integrity?
37
HOW TO GIVE MARCHING ORDERS
Sacking people is hard. Managers make it harder by being ill-prepared, says Alison
Maitland.
It may be the most unpleasant task of a manager's career. Having to tell employees that they no
longer have a job can induce nervousness, guilt and an understandable desire to procrastinate.
Ill-prepared managers can fluff the interview, failing to give the individual relevant information,
appearing off-hand or insensitive or making promises that cannot be kept. Some abrogate
responsibility altogether.
"You'd be flabbergasted at how poorly this is managed," says Maury Hanigan, chief executive of
Hanigan Consulting in New York, which advises Fortune 500 companies on human resources issues.
"We've heard reports of employees learning in e-mails that they're being laid off."
As the US slowdown continues to put thousands out of work, Ms Hanigan is about to publish
Breaking the News, a CD-Rom guide to redundancy interviews. The step-by-step guide, due out next
month, covers everything from the details managers need to know about severance packages, benefits
and outplacement deals to handling employees' reactions.
Mishandling the task can cause more than temporary distress for the employee, says Ms
Hanigan, who has more than 15 years' experience in human resources consultancy. Research following
the mass redundancies of the early 1990s found that damage to the morale of remaining employees
lasted longer if they felt their departing colleagues had been treated rudely or unfairly.
Legal action is another danger. "If managers start offering different people different packages,
you end up with inequities that can become the basis for suits."
Employees should be treated with dignity, even when they are escorted straight out of the
building, a policy still common in the US, says Ms Hanigan. Some US technology companies have
recently sent employees to off-site locations to tell them their jobs are axed and they can not return to
their offices. The guide makes no value judgments on such policies. This would simply load more guilt
on to individual managers, she says. "The best thing is to tell employees that's the deal and they're not
being singled out."
Friday mornings are apparently the best time to deliver the bad news, giving people the weekend
to prepare for the reality of a working day without any work to go to. The venue for the meeting
should be private and the conversation uninterrupted.
Managers are advised to rehearse their remarks but never to read from a script, to start with the
reason for the cuts, to make clear this does not reflect on the employee's work and to express empathy
for the difficulties it will cause.
The employee's reaction may be the most difficult part, says Ms Hanigan, whose clients include
Lucent Technologies, Morgan Stanley, PwC and Xerox, all of which have recently announced job cuts.
The most common responses are: accepting, argumentative, angry, confused, upset and overwhelmed.
Managers can click on each for advice on how to cope.
For example, one angry employee says: "Oh yeah, like they're going to save money on my
salary. Why not lay off one of the fat cats who make 10 times what I do?" Another, overwhelmed by
the news, asks: "How am I going to find another job? There is nobody else who hires people in my
position."
For an employee in the middle of a personal crisis, this can be the crushing blow, says Ms
Hanigan. "The ones managers worry about most are the people who become overwhelmed or
distraught. You know that some employees will be hot heads and argue and some will blow up and
blame everybody around them. But there's always the wild card."
At the end of the guide is a quiz to check whether key messages have sunk in. Should you be
flexible and make exceptions whenever you can? No. "There may be cases where an exception can be
made, but we're trying to coach managers to check first rather than making a promise they can't keep."
says Ms Hanigan.
38
Should you tell the employee: I know how you feel? No, because you don't. Should you be
subtle with the news to spare their feelings? No. Unless you make yourself very clear they may not
understand that they are losing their job.
Much of the advice seems like common sense. So why are managers often ill-prepared for the
task? For one thing, it may happen only once in their career, says Mike Emmott, employee relations
adviser at the UK's Chartered Institute of Personnel and Development.
“I think it's because the need is not anticipated when managers are recruited and receiving
training. It may seem negative and defensive to suggest that an early task should be learning best
practice in giving people their cards”.
Mass job cuts also put the whole organisation under strain, leaving senior managers unable to
devote time to the emotional needs of those who are departing.
The worst thing is to be unnecessarily terse and cut off employees' questions or reactions, he
says. “It's about being open and honest, listening, recognising that the messages are going to be
unwelcome and being empathetic without taking all the trauma on yourself”. As the guide puts it:
“There may be no good way to deliver this news, but there are certainly bad ways to do it”.

Topics for essays:


1. Should managers be skilled in sacking people?
2. Is it possible to be trained to sack people?
3. Why are managers ill-prepared for sacking employees?

39
“I’VE ALWAYS BEEN A HUMAN MODEM”
It's up to Motorola's Janiece Webb, one of the company's highest-impact change agents, to make
Motorola a leader in the wireless Internet – the next great global market. To pull it off, she – and
Motorola – must make networking personal.
Her job testing semiconductors on the graveyard shift at the company's Phoenix plant was mind-
numbing work. But Webb's questioning nature and her willingness to speak up meant that something
out of the ordinary was bound to happen. «I would just ask, “Why are we doing this?”» she
remembers. «”Why do we sit around for 8, 10, sometimes 12 hours when the machines on the line
break down and wait for the mechanics to fix them? There must be a better way”».
The shift supervisor figured that he knew how to handle his curious employee: «He'd say,
“You're being paid to straighten leads. Shut up and color”». But even as a young production-line
worker, Webb showed a knack for getting people to buy into her ideas. She would appeal to their self-
interest and would suggest changes in a way that didn't come across as threatening. “I asked my
supervisor if he could give me 10 minutes any time of the day or night when I wasn't on shift, so I
could talk to him about doubling production”, she says. “That got his attention”.
With her supervisor's blessing, Webb put together a troubleshooting manual with tips on how to
operate machinery to avoid jams and how to make simple repairs. Then she rallied her team to see how
far they could push their new efficiency. «I said, “Let's set a goal”». Her blue eyes flash like the big
diamond earrings she's wearing. «”We can kick first and second shifts' butts”».
It says a lot about Janiece Webb, now 47, that she can still get worked up about a challenge that
she conquered 28 years ago. Today, as senior vice president in charge of the company's wireless-
Internet business, she holds a key job at Motorola. But the relentless spirit of that spunky assembly-
line worker is never far from the surface of a now-polished corporate executive. Webb has traveled
this far because she knows how to build bridges: between her past and her present, between high-
flying strategic vision and in-the-trenches business reality, between the old-school Motorola and the
tumultuous opportunities of a wireless Web. “I've always been a human modem”, she says. “I've
created peace between the marketers and the engineers, between the hard-core techies and the
salespeople”.
Her relationships inside Motorola start with her own team. The 900 people in the personal-
networks group are in some ways a microcosm of the entrenched interests and turf consciousness that
pervaded Motorola in the past. With Webb's help, the company is trying to shed those destructive
habits. Some members of the group are there because they are known and trusted by other parts of
Motorola, whose cooperation is essential if Webb's wireless-Internet crusade is to succeed. Other
members are young, energetic, irreverent, bright – the next generation of Janiece Webbs. A few others
came to Motorola from the computer industry, and Webb is using them to infect the rest of the team
with a bias toward building relationships with software developers – something new for Motorola.
“This job is testing me like no other”, she says. «It's like trying to train speed swimmers to do
synchronized swimming. The resources at Motorola are powerful, and people here are saying, “I'm an
expert, I know my game, don't mess with it”. But I'm saying the rules have changed. It's not enough
anymore to be the fastest guy in the pool. We're being judged on how much we're in sync».
For all of Webb's savvy and drive, though, there's no question that she's in for one heck of a test.
Motorola, an icon of innovation, quality, and growth in the 1980s, crashed to earth in the 1990s, unable
to adjust its deeply ingrained culture to a world transformed by the Internet. With $33.1 billion in
revenue last year, Motorola is still a giant. But it is not nearly as nimble as it needs to be. Despite being
the world's second-largest cell-phone maker (after Nokia) in a hot market for wireless communications,
Motorola is still a laggard when it comes to growth and profitability – not to mention style and design.
Under CEO Christopher B. Galvin, Motorola has been working mightily to regain its former
glory. The company has cut costs and has learned from its stumbles. But if Motorola is going to
become a high-growth company again, then it has to claim a leadership position in the wireless-
40
Internet business. That puts responsibility squarely on the cashmere-covered shoulders of Janiece
Webb. And it won't be enough to sell piece parts like Web-enabled cell-phones, which will quickly
become commodities. To make a difference, Webb and her team have to design, build, and sell
complete wireless-Internet systems that go end to end – from transmission equipment to software to
handsets – and that can be woven into the next generation of wireless systems already being put in
place by such companies as Deutsche Telekom AG, NTT DoCoMo, and Vodafone Group PLC.
“Janice is the kind of leader that Motorola needs times 10”, says Noel Tichy, 54, a business
professor at the University of Michigan and an adviser to change-minded CEOs such as Ford's Jacques
Nasser and GE's Jack Welch. “She's got the guts to be a change agent in an organization that
traditionally has not rewarded change”.

Overcoming Barriers, Breaking Down Boundaries


Looking back, Janiece Webb's life has the symmetry of a fairy tale: A poor white girl from a
Latino neighborhood on the outskirts of Tucson leaves home, takes a job on the factory floor at
Motorola, and climbs through the ranks. She's a natural leader, and Motorola steers her through a
series of tough assignments. In spite of the male culture that surrounds her, she thrives. She travels the
world, accumulates a wealth of business sophistication, and makes more money than she ever dreamed
she would.
But like all fairy tales, this one has its dark moments too. Webb's father died in a car accident
when she was 2 years old, and her mother remarried a copper miner. Both of her parents were
alcoholic, and money was scarce. One of Webb's earliest memories is the feeling of hot dust between
her toes as she stood in the barren lot in front of her house, barefoot as usual. When she decided to join
the Girl Scouts, her parents told her that she was on her own in that pursuit. So she found an old
uniform at a secondhand-clothing store and earned the money to buy it herself. Week after week, she
endured the stigma that set her apart at troop meetings. “My uniform was old and ugly, and all the
other girls had fresh little uniforms. My parents did not teach me how to participate in life”, she says.
“I think they were intimidated by it”.
She left home at 16, and, two years later, she followed a boyfriend to Phoenix, 200 miles to the
north. She got a job testing semiconductors on the assembly line at Motorola. Her boyfriend's father
encouraged her to consider college, and, with Motorola's help, she started attending classes at the
University of Arizona during the day and working the graveyard shift at the plant.
At Motorola, it didn't take long for Webb to get noticed. She rose quickly through a series of jobs
in Motorola's semiconductor group, moving first to Florida, then bouncing back and forth between
Chicago and Arizona. She married another Motorola employee. The career shuttle wreaked havoc on
her studies. It took her 12 years to complete a bachelor's degree in business administration. Somewhere
along the way, Webb's paycheck and responsibilities surpassed those of her husband. She was 20 when
they were married – “too young”, she now says – and her advancement put extra strain on the
relationship. In 1985, after 12 years, Webb and her husband divorced.
At Motorola, meanwhile, Webb was growing accustomed to breaking through the glass ceilings
that had limited the advancement of other women managers. At 27, she penetrated a bastion of
maleness, taking over responsibility for the missile-target-detection device that Motorola made for the
U.S. Navy. When she got up to make her first presentation, the admiral in charge of weapons programs
thought that she was a clerk checking the microphones. “Okay, honey, I think we've got it fixed”, he
said. “Let's bring up the next speaker”. He was seated in the front row of an auditorium that held 300
men – mostly naval officers, along with a contingent of senior executives from the major defense
contractors. Webb was the only woman. “Excuse me, admiral”, she said. “My name is Janiece Jordan
from Motorola, and I'm here to report on the status of the MK 45 target-detection-device engineering
program”.

41
The admiral was thunderstruck. He swiveled around in his chair to face the audience. “Good
God!” he shouted. “What the hell is the world coming to that Motorola would send a broad to work on
my ordnance?” The room exploded in laughter. When the noise died down, Webb was ready. “Sir, if
you find that I'm not competent, I will resign”, she said. “But I'd like you to turn around and give me a
chance”. Webb held that job for eight years.
In her next assignment, Webb had to prove herself all over again. Robert L. Growney, 57, now
Motorola's president and chief operating officer, has a reputation for being the toughest boss in a
company that's filled with them. Growney's direct reports had never included women before Webb was
assigned to his staff in 1989 as director of Motorola's international-paging business. «The first year we
were together, he was saying, “What has Motorola done to me?”». Webb recalls with a laugh. Even
today, Growney and Webb are an odd couple. In August, at a Motorola analysts' meeting, they stood
together: Growney, with his silver hair, iron jaw, and glen-plaid double-breasted suit, talking with a
conspiratorial smile to Webb, who, with her bright-blond hair, her stylish black-knit outfit, and
glittering diamonds in her ears and at her wrists, would stand out anywhere – and who stands out even
more at conservative Motorola.
But the partnership has worked. Webb managed a global portfolio of pager companies, using
Motorola's clout as a leading investor to tighten their operations and to generate more than $1 billion in
revenue for Motorola over eight years. Growney became Webb's mentor, tapping her for key jobs,
including one running Motorola's cell-phone business in the United States – a demanding and highly
visible post. The stakes are even higher for Webb now, with Motorola's future hinging on her success.
“The wireless Internet looks as if it could be a boundary-less kind of business”, says Growney.
“Janiece is able to work in an unbounded setting like that. Not everyone can. She's able to find an
interesting balance between being a visionary and reducing an idea to ways that it can make money for
the corporation”.

Writing the Rules of Engagement


When Webb took over the personal-networks group in 1999, a key Motorola partnership with
IBM was breaking down. The two companies had been looking for ways to collaborate on powerful
new systems that would feed Web content over wireless networks, drawing on Motorola's
understanding of telecommunications and on IBM's expertise in computers. But the partnership was
going nowhere, largely because each company's engineers believed that they had better technology.
Mark F. Bregman, 43, former general manager of pervasive computing at IBM, was ready to scuttle
the partnership. “We're wasting our time flying back and forth every few months to hold these
meetings”, he told Webb.
One reason Webb is so good at building relationships is that she's willing to look at the world
from the point of view of counterparts like Bregman. Over her career, in dozens of alliances and in
hundreds of initiatives within Motorola, Webb has refined her ability to locate the key results that a
partner needs in order to succeed, and then to tie those results to her own needs. “It's not a coy
negotiation”, she says. “You can't afford to be coy anymore. People are looking you in the eye and
asking themselves, Is she real?”
Bregman's call meant that it was time “to restate the rules of engagement”, Webb says. “That
means starting with what you must have in order to make the partnership a success”. For Bregman, it
was essential that the system incorporate WebSphere, IBM's platform for global e-business. Without
that, Bregman couldn't justify the effort or the expense of joining forces with Motorola to break into
the market for wireless-Internet systems. “Fine”, Webb said. “That's your core, and we'll make sure we
don't enter your space”.
She explained that Motorola needed control of the communications elements – the gateways that
people would use to connect to the wireless Web. “When it comes to the telecom piece, that is part of
who we are. We won't give that up”.

42
It took about 10 minutes for Webb and Bregman to arrive at a basic understanding of how they
could work together. But there were still issues. The deadlock that had IBM and Motorola stalled was
a debate over which operating system to use as the foundation for the software they would build to run
over the wireless Internet. Webb's team at Motorola favored Microsoft NT; Bregman's team at IBM
was committed to Unix. Webb saw a way to make the relationship even stronger. “I've come to the
conclusion that we may need to build on Unix”, she told Bregman. “If that's the case, I'll make my
team adopt it – or I'll get a new team”.
Commitment that deep is rare, and it turned Bregman into a powerful ally. “Janiece is not just
looking for what it takes to make her business and Motorola successful”, he says. “Hers is a more
mature view of partnerships than what you typically find at a lot of American companies or even
European companies”.
Those same skills enabled Webb to navigate a delicate pass with Philippe Kahn, one of the most
colorful personalities (and one of the healthiest egos) in Silicon Valley. In 1998, Motorola acquired
Starfish Software Inc., the maker of electronic address books and calendars that Kahn founded and ran
as CEO; in the process, Kahn became one of the largest individual shareholders in Motorola. Kahn was
intrigued by the potential of wireless technology and turned his entrepreneurial talents to developing
some far-out applications for wireless networks. When Webb took over the personal-networks group,
she became Kahn's liaison at Motorola.
One day, Kahn went into Webb's office with a prototype that he had built for a wireless digital
camera that snapped onto a cell-phone and that transmitted pictures the instant they were taken. Webb
was captivated. The wireless digital camera that Kahn was proffering was just the kind of killer app
that Webb needed in order to establish Motorola as a player in the wireless-Web market. “It's
unbelievably cool”, she told Kahn. “But we have stuff at Motorola Labs that can sort of do that”. Kahn
argued against moving the project inside Motorola, where he was afraid it would stagnate. “The people
you need to work on a visionary venture like this are probably not the kind of guys who work inside a
large company like Motorola”, he told Webb. “You need a complete end-to-end solution that's
commercial, not just a science project”.
They went back and forth for a couple of weeks. “The discussions were painful and rough”,
Kahn says. «Initially, she didn't accept anything. I could tell Janiece was looking, talking to a lot of
people in the company and asking them, “What do you know about this stuff?”». But the technology
inside Motorola wasn't as far along as Kahn's, and Webb desperately wanted a wireless digital camera
that she could push into the market rapidly.
Kahn got what he wanted: the freedom to pursue his project with his own team of engineers,
backed by an investment of $20 million from Motorola. But Webb's initial resistance was more than
just an exercise. The sparring sessions gave Kahn deeper respect for Webb's judgment, and they
provided Webb with the due diligence that she needed to throw all of her energy into championing a
risky new product. Now she's racing to introduce the wireless digital camera by early next year. “Once
Janiece got it, she turned into an enthusiastic, feisty bulldog”, Kahn says. “It became her vision, her
mission, and the next step in wireless technology: instant visual communication”.
The true test of Webb's skill in building strong, resilient relationships will occur within Motorola
itself. Competition and infighting among business units has gotten so bad in the past that some analysts
blamed Motorola's financial woes on its lack of cohesiveness. The new corporate slogan, “One
Motorola”, gets a lot of lip service. But it's up to Webb to prove whether the company can really pull
together and deliver an integrated wireless-Web system or whether that slogan is just rhetoric. “I'm
trying to make the personal-networks group ebb and flow into other parts of Motorola like an amoeba,
so that I don't know where their people end and mine start”, she says. “It's not instinctual in a high-
testosterone culture. But I've never valued my worth in terms of how big my kingdom is. I've valued it
based on the impact that I'm having”.

43
The Future Is Now
The conference room of the Westin O'Hare is filling up fast with Wall Street analysts and
institutional investors. More than 300 financial types file in and take their seats, along with Motorola's
board of directors and 100 or so senior managers. They're here to listen to the company's top
executives provide an annual briefing on Motorola's results and prospects.
Janiece Webb is the only woman to make a presentation, in a group of executives that includes
Galvin, Growney, Webb's immediate boss Merle Gilmore, and a half-dozen others. By now, she's used
to being the only woman in such rarefied settings. Still, it's a big deal – for the company and for her.
The day before, she received an urgent call from Gilmore, who told her that she would be briefing the
analysts on Motorola's wireless-Web strategy. She worked until 9 PM on the presentation, which had
to be carefully scripted since the analysts scrutinize every statement made by executives.
If she's nervous now, it hardly shows. She's measured and calm when she takes the stage, and her
presentation goes without a hitch. Compared with facing down that admiral, standing in front of
analysts isn't all that intimidating. When the presentations are over, and the executives take questions
from the floor, one of the investors, a woman, stands up. “I'd like to congratulate you that Janiece
should not only be seen this year but heard”, she says. Lo and behold, Motorola's changing. And
Janiece Webb is right where you would expect to find her – in the middle of it.
Sidebar: What's Fast
In a remarkable 28-year career at Motorola Inc. – a journey from an assembly-line post to a top
executive position at the core of the company's Internet strategy – Janiece Webb has made her mark by
making change. Here are some of the lessons that she's learned along the way.
Nobody wins unless everybody wins. Change requires partners, both inside and outside the
company. But it's unrealistic to expect partners to work on your behalf unless you've demonstrated
how your work benefits them. “The person you're dealing with has to know that you have integrity”,
Webb says, “and that you care a lot about them and their issues”.
Results start with relationships. Webb is a master at relationships: brokering them, managing
them, surviving them, and striking them in such a way that the benefits of such relationships are
evident to all sides. “I got stood in the corner my first day of school, when I was six years old, for
trying to sit between two kids who didn't like each other”, she jokes. “It messed up the teacher's
seating arrangement”.
Nice guys (and gals) finish first. Changing how a company competes, and how its people work,
generates lots of stress and anxiety. The way to help people face those necessary pressures, Webb
believes, is to avoid adding to them. Webb is “not afraid to break glass”, says leadership guru Noel
Tichy. “But she's got a nice style, so she doesn't do it in a personally challenging way”.

Topics for essays:


1. What do you think of the role of women leaders?
2. Are women leaders born or made?

44
SHOULD ONE PAY TAX?
A new study claims that the monarchy has avoided taxes and has grown rich on
public subsidies. In fact the queen's coffers have been shrinking for years.
The royal family is under fire again, and not just for the antics of its junior members. As the
latest tut-tutting of the tabloid press dies down – this time over the Duchess of York, who was
apparently indiscreet enough to take a holiday in the company of a photogenic Texan – ITV's “This
Week” programme has criticised Buckingham Palace for the fact that only 1% of its staff come from
ethnic minorities. Now another, more serious issue has been raised in a new book published on January
23rd. Its author, Phillip Hall, takes the monarchy to task for tax avoidance. His claim may fuel a
renewed campaign to ask the queen to pay income tax – not quite what the palace had in mind to mark
her 40th anniversary next month.
Mr. Hall notes that when income tax was introduced in 1842, Queen Victoria volunteered to pay
her share. Her successors were less public-spirited. Edward VII tried to wriggle out of it; George V
persuaded the 1910 chancellor, Lloyd George, to end tax on the monarch's principal income from the
state, the Civil List, in return for a promise that the monarchy would pay for visiting heads of state (a
promise that was quietly dropped after 1971). In 1933 one of the king's other main sources of income,
the Duchy of Lancaster, was also exempted from tax.
Taxation on the sovereign's personal investment income was ended sometime between 1937 and
1952. No one knows when, and the details are wrapped in secrecy – not least because the relevant file at
the Public Record Office appears to have been destroyed in 1977. (Mr. Hall notes that of the eight
significant changes to the taxation of the monarch this century, only two were made public at the time).
The outcome, anyway, is that the queen has had to pay no income tax at all since her accession,
though she does pay indirect taxes and will pay council tax, too. The queen has not evaded tax. She has
always said she would pay income tax if Parliament so wished; and since 1952 it has not so wished. Is
it time to change the rules?

Three-way split
A chart oh the next page divides the queen's fortune into her income and her assets. Both
categories comprise public and private resources, though pop analyses of the bottomless-billions
variety generally confuse the two. The Treasury could tax one or more of three income streams; in the
case of two of them, though, the case for doing so is thin.
Take the Civil List first. It is mainly used to pay the palace staff; if tax were levied, the size of
the List would have to be increased or staff numbers would shrink. No part of the Civil List provides a
salary for the queen. The List used to contain £60,000 a year for the queen's “privy purse” (for her
private duties as the sovereign), but even this ended in 1972. Since her accession, the value of the Civil
List has increased by only 12 times – roughly in line with retail prices. By contrast, government
spending has risen by 35 times.
The second source of income that it would be odd to tax is that from the Duchy of Lancaster. Its
revenues come mainly from estates in northern England and are used for the queen's privy purse. Out
of this must come a range of semi-public items: from annuities for minor royals and pensions for some
of her staff, to gifts for charity and the cost of stocking the queen's wardrobe. Clearly some of this is
personal spending; if the tax-exempt status of the duchy depended on “public” use of its money, there

45
would be a theoretical case for taxing the personal portion. But could the queen be asked to divide her
wardrobe into private and public dresses?
What of the third source, the queen's private income? By definition personal rather than public, it
would be practical to tax it. Admittedly, part of the queen's private income is spent on semi-public
purposes: she has been particularly generous to the queen mother, whose energetic public programme
has cost far more than she gets from the government. But every other member of the royal family,
including Prince Charles, pays tax on income from private funds.
Defenders of the queen's tax exemption argue that since all taxes are raised in the name of the
Crown, it would be contradictory to tax the Crown itself. This is confused semantics: “the Crown”
today refers to the government rather than the person of the monarch.
Another line of argument is that the tax exemption is an implicit part of a deal between monarch
and state. By tradition, at the start of every reign since1760 the new monarch has agreed to surrender
all income from the Crown Estate in return for a Civil List – and now, it is argued, for freedom from
income tax. To tax the queen could be seen as an abrogation of the 1952 settlement.
It is true that the total annual running cost of the monarchy – about £57m ($105m) in 1990-91 –
is close to the Crown Estates' annual income of £61m. But this is a coincidence. Setting the Crown
Estates' income off against the Civil List has long since become a formality. For most purposes, the
Crown Estates are today state-owned, though the government might face a constitutional row if it tried
to sell them.
A bigger objection to making the queen pay income tax is that it could be the thin end of an
awkward wedge. Those in favour of the status quo say her financial advisers could be left in an
impossible dilemma: ordinary prudence would dictate some degree of tax planning, but how could the
most elementary piece of tax avoidance be reconciled with the dignity of the monarchy? The
imposition of income tax, they say, could actually aggravate political sensitivities over the royal
finances.
In the real world, though, any judgment on these arguments must hinge on how big the queen's
private income, and the assets behind it, actually are. Sunday newspaper stories estimating her
“wealth” at “around £7 billion” conjure up the picture of a fabulously rich monarch, with an annual
income to match. The picture is misleading.

My fortune and I
The first flaw in most guesses is that they ignore the line between public and private assets:
much of the queen's apparent riches do not belong to her. Palaces like Windsor Castle and
Buckingham Palace, for example, are legally inalienable – i.e., they belong to the monarchy, not the
queen. So too are the Crown Jewels (most of which the queen has not worn since her coronation).
Other goods, like jewels and paintings given to the queen by foreign heads of state, are treated as
inalienable by custom; she will leave them to her successor. The queen's true private wealth consists
mainly of her private financial investments, her racing stables, and her two country houses at Balmoral
and Sandringham. These two palatial retreats are well-established as the monarch's personal property:
when Edward VIII abdicated in 1936, his successor George VI had to buy both houses from him.
The most controversial element is the queen's investment portfolio. In 1971 the then Lord
Chamberlain said reports that it was worth “£50m-100m or more” were “wildly exaggerated”.
Attempts have been made to reach an estimate of the current position, on the basis of this rebuke 20
years ago. A television programme, Granada TVs “World in Action”, last year asked a City
46
£30m in 1971 and to project its value in 1991 if “sensibly invested in UK shares”. He came up
with an estimate of £496m.
But this projection assumed that the queen would have spent none of the capital and would have
reinvested all the dividends. In fact she has spent the dividends and dug deep into the capital, mainly to
help other members of her immediate family. The result: in real terms, the value of her private
portfolio seems actually to have shrunk. The best estimate, from those in a position to know, is that her
private investments are now worth “under £50m”. This is not to imply pauper status for the queen; her
country homes could still be worth as much as £100m or so. But it does mean she is a long way from
being the richest person in Britain. Her private income is perhaps between 1m and 5m a year. If she
paid income tax, the yield to the Treasury would be about £2m at most.
In short, the argument about the monarch's tax exemption is small beer. There are many ways in
which the cost of the monarchy could be reduced, if Parliament felt that Britain no longer needed a
Rolls-Royce royal family. Does the nation, for example, get a good return on the £9m a year spent on
the royal yacht? And the 1990 Civil List award was lavish: it assumed inflation in the 1990s would be
as high as in the 1980s, and demanded “efficiency savings” at the palace of less than 1% a year over
the decade.
Some may still argue for a change in the rules at the start of the reign of Charles in. But the
rationale would have to be rather more political than financial – especially if the future king sought an
increase in the Civil List for his fellow royals, in return for paying tax. And how many politicians
would see a scrap with the royal family as a vote-winner?

Topics for essays:


1. Should everyone pay tax and to what extent?

47
PERSONAL TIME MANAGEMENT FOR BUSY MANAGERS
by Gerard M Blair
Time passes, quickly. This article looks at the basics of Personal Time Management
and describes how the Manager can assume control of this basic resource.

The “Eff” words


The three “Eff” words are [concise OED]:
Effective – having a definite or desired effect.
Efficient – productive with minimum waste or effort.
Effortless – seemingly without effort; natural, easy.
Personal Time Management is about winning the “Eff” words: making them apply to you and
your daily routines.

What is Personal Time Management?


Personal Time Management is about controlling the use of your most valuable (and undervalued)
resource. Consider these two questions: what would happen if you spent company money with as few
safeguards as you spend company time, when was the last time you scheduled a review of your time
allocation?
The absence of Personal Time Management is characterized by last minute rushes to meet dead-
lines, meetings which are either double booked or achieve nothing, days which seem somehow to slip
unproductively by, crises which loom unexpected from nowhere. This sort of environment leads to
inordinate stress and degradation of performance: it must be stopped.
Poor time management is often a symptom of over confidence: techniques which used to work
with small projects and workloads are simply reused with large ones. But inefficiencies which were
insignificant in the small role are ludicrous in the large. You can not drive a motor bike like a bicycle,
nor can you manage a supermarket-chain like a market stall. The demands, the problems and the
payoffs for increased efficiency are all larger as your responsibility grows; you must learn to apply
proper techniques or be bettered by those who do. Possibly, the reason Time Management is poorly
practised is that it so seldom forms a measured part of appraisal and performance review; what many
fail to foresee, however, is how intimately it is connected to aspects which do.
Personal Time Management has many facets. Most managers recognize a few, but few recognize
them all. There is the simple concept of keeping a well ordered diary and the related idea of planned
activity. But beyond these, it is a tool for the systematic ordering of your influence on events, it
underpins many other managerial skills such as Effective Delegation and Project Planning.
Personal Time Management is a set of tools which allow you to:
™ eliminate wastage
™ be prepared for meetings
™ refuse excessive workloads
™ monitor project progress
™ allocate resource (time) appropriate to a task's importance
™ ensure that long term projects are not neglected
™ plan each day efficiently
™ plan each week effectively
and to do so simply with a little self-discipline.
Since Personal Time Management is a management process just like any other, it must be
planned, monitored and regularly reviewed. In the following sections, we will examine the basic
methods and functions of Personal Time Management. Since true understanding depends upon
experience, you will be asked to take part by looking at aspects of your own work. If you do not have
time to this right now – ask yourself: why not?
48
Current Practice
What this article is advocating is the adoption of certain practices which will give you greater
control over the use and allocation of your primary resource: time. Before we start on the future, it is
worth considering the present. This involves the simplistic task of keeping a note of how you spend your
time for a suitably long period of time (say a week). I say simplistic since all you have to do is create a
simple table, photocopy half-a-dozen copies and carry it around with you filling in a row every time you
change activity. After one week, allocate time (start as you mean to go on) to reviewing this log.

Waste Disposal
We are not looking here to create new categories of work to enhance efficiency (that comes
later) but simply to eliminate wastage in your current practice. The average IEE Chartered Engineer
earns about 27,000 pounds per annum: about 12.50 pounds per hour, say 1 pound every 5 minutes; for
how many 5 minute sections of your activity would you have paid a pound? The first step is a critical
appraisal of how you spend your time and to question some of your habits. In your time log, identify
periods of time which might have been better used.
There are various sources of waste. The most common are social: telephone calls, friends
dropping by, conversations around the coffee machine. It would be foolish to eliminate all non-work
related activity (we all need a break) but if it's a choice between chatting to Harry in the afternoon and
meeting the next pay-related deadline… Your time log will show you if this is a problem and you
might like to do something about it before your boss does.
In your time log, look at each work activity and decide objectively how much time each was
worth to you, and compare that with the time you actually spent on it. An afternoon spent polishing an
internal memo into a Pulitzer prize winning piece of provocative prose is waste; an hour spent debating
the leaving present of a colleague is waste; a minute spent sorting out the paper-clips is waste (unless
relaxation). This type of activity will be reduced naturally by managing your own time since you will
not allocate time to the trivial. Specifically, if you have a task to do, decide before hand how long it
should take and work to that deadline – then move on to the next task.
Another common source of waste stems from delaying work which is unpleasant by finding
distractions which are less important or unproductive. Check your log to see if any tasks are being
delayed simply because they are dull or difficult.
Time is often wasted in changing between activities. For this reason it is useful to group similar
tasks together thus avoiding the start-up delay of each. The time log will show you where these savings
can be made. You may want then to initiate a routine which deals with these on a fixed but regular basis.

Doing Subordinate's Work


Having considered what complete waste is, we now turn to what is merely inappropriate. Often it
is simpler to do the job yourself. Using the stamp machine to frank your own letters ensures they leave
by the next post; writing the missing summary in the latest progress report from your junior is more
pleasant than sending it back (and it lets you choose the emphasis). Rubbish!
Large gains can be made by assigning secretarial duties to secretaries: they regularly catch the
next post; they type a lot faster than you. Your subordinate should be told about the missing section
and told how (and why) to slant it. If you have a task which could be done by a subordinate, use the
next occasion to start training him/her to do it instead of doing it yourself – you will need to spend
some time monitoring the task thereafter, but far less that in doing it yourself.

Doing the work of others


A major impact upon your work can be the tendency to help others with their's. Now, in the spirit
of an open and harmonious work environment it is obviously desirable that you should be willing to
help out – but check your work log and decide how much time you spend on your own work and how
49
much you spend on others'. For instance, if you spend a morning checking the grammar and spelling in
the training material related to you last project, then that is waste. Publications should do the proof-
reading, that is their job, they are better at it than you; you should deal at the technical level.
The remaining problem is your manager. Consider what periods in your work log were used to
perform tasks that your manager either repeated or simply negated by ignoring it or redefining the task,
too late. Making your manager efficient is a very difficult task, but where it impinges upon your work
and performance you must take the bull by the horns (or whatever) and confront the issue.
Managing your manager may seem a long way from Time Management but no one impacts upon
your use of time more than your immediate superior. If a task is ill defined – seek clarification (is that
a one page summary or a ten page report?). If seemingly random alterations are asked in your
deliverables, ask for the reasons and next time clarify these and similar points at the beginning. If the
manager is difficult, try writing a small specification for each task before beginning it and have it
agreed. While you can not tactfully hold your manager to this contract if he/she has a change of mind,
it will at least cause him/her to consider the issues early on, before you waste your time on false
assumptions.

External Appointments
The next stage of Personal Time Management is to start taking control of your time. The first
problem is appointments. Start with a simple appointments diary. In this book you will have (or at least
should have) a complete list of all your known appointments for the forseeable future. If you have
omitted your regular ones (since you remember them anyway) add them now.
Your appointments constitute your interaction with other people; they are the agreed interface
between your activities and those of others; they are determined by external obligation. They often fill
the diary. Now, be ruthless and eliminate the unnecessary. There may be committees where you can
not productively contribute or where a subordinate might be (better) able to participate. There may be
long lunches which could be better run as short conference calls. There may be interviews which last
three times as long as necessary because they are scheduled for a whole hour. Eliminate the wastage
starting today.
The next stage is to add to your diary lists of other, personal activity which will enhance your use
of the available time. Consider: what is the most important type of activity to add to your diary? No:
stop reading for a moment and really, consider.
The single most important type of activity is those which will save you time: allocate time to
save time, a stitch in time saves days. And most importantly of all, always allocate time to time
management: at least five minutes each and every day.
For each appointment left in the diary, consider what actions you might take to ensure that no
time is wasted: plan to avoid work by being prepared. Thus, if you are going to a meeting where you
will be asked to comment on some report, allocate time to read it so avoiding delays in the meeting and
increasing your chances of making the right decision the first time. Consider what actions need to be
done before AND what actions must be done to follow-up. Even if the latter is unclear before the
event, you must still allocate time to review the outcome and to plan the resulting action. Simply mark
in your diary the block of time necessary to do this and, when the time comes, do it.

Scheduling Projects
The most daunting external appointments are deadlines: often, the handover of deliverables. Do
you leave the work too late? Is there commonly a final panic towards the end? Are the last few hectic
hours often marred by errors? If so, use Personal Time Management.
The basic idea is that your management of personal deadlines should be achieved with exactly
the same techniques you would use in a large project:
™ check the specification - are you sure that you agree on what is to be delivered
50
™ break the task down into small sections so that you can estimate the time needed for each,
and monitor progress
™ schedule reviews of your progress (e.g. after each sub-task) so that you can respond quickly
to difficulties
Like most management ideas, this is common sense. Some people, however, refute it because in
practise they find that it merely shows the lack of time for a project which must be done anyway. This
is simply daft! If simple project planning and time management show that the task can not be done,
then it will not be done – but by knowing at the start, you have a chance to do something about it.
An impossible deadline affects not only your success but also that of others. Suppose a product is
scheduled for release too soon because you agree to deliver too early. Marketing and Sales will prepare
customers to expect the product showing why they really need it – but it will not arrive. The customers
will be dissatisfied or even lost, the competition will have advanced warning, and all because you
agreed to do the impossible.
You can avoid this type of problem. By practising time management, you will always have a
clear understanding of how you spend your time and what time is unallocated. If a new task is thrust
upon you, you can estimate whether it is practical. The project planning tells you how much time is
needed and the time management tells you how much time is available.
There are four ways to deal with impossible deadlines:
™ Get the deadline extended
™ Scream for more resources
™ Get the Deliverable redefined to something practical
™ State the position clearly so that your boss (and his/her boss) have fair warning
If this simple approach seems unrealistic, consider the alternative. If you have an imposed, but
unobtainable, deadline and you accept it; then the outcome is your assured failure. Of course, there is a
fifth option: move to a company with realistic schedules.
One defence tactic is to present your superior with a current list of your obligations indicating
what impact the new task will have on these, and ask him/her to assign the priorities: “I can't do them
all, which should I slip?” Another tactic is to keep a data base of your time estimates and the actual
time taken by each task. This will quickly develop into a source of valuable data and increase the
accuracy of your planning predictions.
There is no reason why you should respond only to externally imposed deadlines. The slightly
shoddy product which you hand-over after the last minute rush (and normally have returned for
correction the following week) could easily have been polished if only an extra day had been available –
so move your personal deadline forward and allow yourself the luxury of leisured review before the
product is shipped.
Taking this a step further, the same sort of review might be applied to the product at each stage
of its development so that errors and rework time are reduced. Thus by allocating time to quality
review, you save time in rework; and this is all part of project planning supported and monitored by
your time management.
Finally, for each activity you should estimate how much time it is worth and allocate only that
amount. This critical appraisal may even suggest a different approach or method so that the time
matches the task's importance. Beware of perfection, it takes too long – allocate time for “fitness for
purpose”, then stop.

Monitoring Staff
Your Personal Time Management also effects other people, particularly your subordinates.
Planning projects means not only allocating your time but also the distribution of tasks; and this should
be done in the same planned, monitored and reviewed manner as your own scheduling.

51
Any delegated task should be specified with an (agreed) end date. As a Manager, you are
responsible for ensuring that the tasks allocated to your subordinates are completed successfully. Thus
you should ensure that each task is concluded with a deliverable (for instance, a memo to confirm
completion) – you make an entry in your diary to check that this has arrived. Thus, if you agree the
task for Tuesday, Wednesday should have an entry in your diary to check the deliverable. This simple
device allows you to monitor progress and to initiate action as necessary.

Long term Objectives


There are many long term objectives which the good Manager must achieve, particularly with
regard to the development, support and motivation of his/her work-team. Long term objectives have
the problem of being important but not urgent; they do not have deadlines, they are distant and remote.
For this reason, it is all too easy to ignore them in favour of the urgent and immediate. Clearly a
balance must be struck.
The beauty of Time Management is that the balance can be decided objectively (without
influence from immediate deadlines) and self-imposed through the use of the diary. Simply, a manager
might decide that one hour a week should be devoted to personnel issues and would then allocate a
regular block of time to that activity. Of course if the factory is on fire, or World War III is declared,
the manager may have to re-allocate this time in a particular week – but barring such crises, this time
should then become sacrosanct and always applied to the same, designated purpose.
Similarly, time may be allocated to staff development and training. So if one afternoon a month
is deemed to be a suitable allocation, then simply designate the second Thursday (say) of each month
and delegate the choice of speakers. The actual time spent in managing this sort of long term objective
is small, but without that deliberate planning it will not be achieved.
Once you have implemented Personal Time Management, it is worth using some of that control
to augment your own career. Some quiet weekend, you should sketch out your own long term
objectives and plan a route to them. As you would any long-term objective, allocate time to the
necessary sub-tasks and monitor your progress. If you do not plan where you want to go, you are
unlikely to get there.

Concluding Remarks
Personal Time Management is a systematic application of common sense strategies. It requires
little effort, yet it promotes efficient work practices by highlighting wastage and it leads to effective
use of time by focusing it on your chosen activities. Personal Time Management does not solve your
problems; it reveals them, and provides a structure to implement and monitor solutions. It enables you
to take control of your own time – how you use it is then up to you.

Topics for essays:


1. Time management – Does it solve your problems or gain control over your business and life?
2. My life is completely controlled by external events – a myth or a fact?

52
RECENT DEVELOPMENTS IN MONEY AND BANKING
C. R. McConnell, S. L. Bnie
The banking industry is undergoing a series of sweeping changes, spurred by
competition from other financial institutions, globalization of banking, and advances in
information technology.

The Relative Decline of Banks and Thrifts


Banks and thrifts are just two of several types of firms offering financial services. Although
banks and thrifts remain the main institutions offering checkable deposits, their shares of total financial
assets (value of things owned) are declining.
Pension funds, insurance companies, securities-related firms, and especially mutual funds have
all expanded their shares of financial assets. Clearly, US households and businesses are channeling
relatively more savings away from banks and thrifts and toward other financial institutions, mainly
because these ones generally offer higher rates of return than do banks and thrifts. They are able to do
so largely because they can participate more fully than banks and thrifts in national and international
stock and bond markets. Banks and thrifts have responded to the relative decline in traditional banking
in several ways.
Expansion of Services. In recent years, banks and thrifts has
begun offering a variety of new services. For example, banks have
increased their lending for commercial real estate projects such as
housing developments, apartments, and office buildings. Banks and
thrifts have developed new loan “products” such as home equity
loans (loans based on the value of one's house) and low – or zero-
down-payment mortgages. They also now offer a variety of interest-
bearing accounts such as money market deposit accounts.
Banks and thrifts have made banking more convenient by
opening up full-service branch banks in suburbs and “minibanks” in
shopping malls and grocery stores. Supplementing these branches has
been an explosion in the number of bank-owned automatic teller machines (ATMs) which allow customers
to withdraw cash, deposit checks, move money between accounts, and make other banking transactions.
They have also introduced “bank-by-telephone” and, more recently, “bank by Internet” services.
Push for Regulatory Reform. In 1994 Congress ended Federal restrictions on banks' branching
into other states, and a 1996 reform partially ended the legal separation of the banking industry and the
securities-related industry. Banks are now allowed to obtain up to one-fourth of their revenues from
security transactions. This change set up a flurry of purchases of small security firms by banks. Banks
have pressed for further latitude in engaging in security-related activities. They would like to offer
stock accounts, much as mutual fund companies and security-related companies do now.
Banks point out that less-regulated firms have invaded traditional banking, while banks have
been prohibited from offering non-banking products. For example, General Motors and AT&T now
offer credit cards, and mutual fund companies now offer money market mutual funds, which pay
relatively high interest and on which large checks ($ 500 or more) can be written. To counter such
encroachments, banks want changes in the law so that they can own and operate companies in any line
of business. With such reform, a bank could merge with, say, an insurance company or even a
manufacturer of cash registers.
Critics of these reforms are concerned that increased participation by banks in non-banking
businesses could endanger the stability of the banking system. Losses in other lines of business during
times of recession might cause the firms to fail, collapsing their banking operations along with them.
Such bank failures might undermine confidence in the entire banking system and in the Fed's ability to
maintain an adequate supply of money.
53
Globalization of Financial Markets
Another significant banking development is the increased integration of world financial markets.
Major foreign financial institutions have operations in the United States, and US financial institutions
do business abroad. For example, VISA, MasterCard, and American Express offer worldwide-credit
card services. Moreover, US mutual fund companies now offer a variety of international stock and
bond funds. Globally, financial capital increasingly flows in search of the highest risk-adjusted returns.
As a result, US banks must increasingly compete with foreign banks for both deposits and loan
customers. Recent advances in computer and communications technology mean the trend toward
international financial integration is likely to accelerate. Nevertheless, we must not overstate the extent
of this globalization. Studies indicate that the bulk of investment in the major nations is still financed
through domestic savings within each nation.

Electronic Money
Technological progress has also led to a new form of money: electronic cash and “smart cards”.
Although still in their infancies, these innovations potentially are of great significance to commercial
banks, thrifts, and central banks.
Electronic money, dubbed E-cash, is simply an entry in an electronic file stored in a computer.
The Internet and the widespread availability of personal computers have made it possible for
individuals to use E-cash instead of checks or currency in making transactions. E-cash is deposited, or
“loaded”, into the account through Internet payments such as a paycheck, retirement benefit, or stock
dividend. It is withdrawn, or “unloaded”, from the account through Internet, easing payments to others
for a wide variety of goods and services.
In the future, account holders will he able to load sums from their E-cash accounts onto so-called
stored-value cards. These smart cards are plastic cards containing computer chips which store
information, including the amount the consumer has loaded. The amount of each purchase or other
payment is then automatically deducted from the balance in the card's memory. Consumers will be
able to transfer traditional money to their smart cards through their computers or telephones or at
automatic teller machines. Thus, nearly all payments could be made with a personal computer or a
smart card.

54
PUTTING THE TEAM INTO TOP MANAGEMENT
Companies are awash with tales of chairmen not talking to their chief executives.
Donald Hambrick examines how to get top managers working well together.
Two years had passed since my last visit to Richard, the chief executive of a large financial
services firm. After our hellos, it quickly became clear that things had gone sour for him and the
company in that time: “We were riding high, doing so well. Then we hit a wall. Competitors started
offering attractive bundled products to major customers; they started serving global accounts in an
integrated way; and they beat us in developing electronic offerings. I'm embarrassed at how long it
took us to figure out what was happening, and I’m angry at myself and my team for being unable to
develop and deliver our responses”.
Worse still, attempts to tackle things had failed: “Whenever I try to get my top executives together
to wrestle with these challenges, invariably one or more of the division presidents will argue that they are
each aggressively dealing with them in their own units. But these problems call for company-wide
action, not piecemeal initiatives. Frankly, I think we are paying a big price for the autonomy we've
granted senior executives. They're each running their own fiefdoms. We can't get our act together”.
Regrettably, Richard's situation is not unique. He has no real top management team. Even though
he calls his executive group a “team”, it has few team properties. And he is paying for it. When
marketplace opportunities or threats call for coordination and unity of action, a company with a
fragmented senior group will usually suffer dearly as had Richard's.
The expression “top management team” is a misnomer for the groups that exist at the apex of
many firms. Many such groups are simply constellations of executive talent: individuals who rarely
come together (and then usually for perfunctory information exchange), who rarely collaborate, and
who focus almost entirely on their own part of the enterprise. Senior executives often sing the praises
of teamwork at lower levels, but when it comes to themselves, they often exhibit aloofness and
blinkered perspectives.
The problem of fragmentation at the top can be traced to a variety of factors. In some companies,
chief executives are resistant to teamwork at the top level, fearing either that it amounts to an
abdication of their leadership role or that it runs counter to their company culture of unit accountability
and initiative. What these executives do not understand is that an effective top management team
greatly extends the capabilities of the chief executive; it rarely dilutes them. A well-functioning top
team is an important complement to, not the antithesis of, business unit drive.

The meaning of teamwork


In an era requiring corporate coherence, companies have to orchestrate their activities at the
highest levels, not just operations. They must promptly identify and diagnose the need for periodic
company-wide changes and be able to execute those changes. Companies can do this only if their top
executive groups have team properties, particularly what I call “behavioural integration”.
Behavioural integration is urgently needed in the upper echelons. It describes the degree to
which the senior management group engages in a mutual and collective way. It has three elements: the
quantity and quality (richness, accuracy, timeliness) of information exchange among executives;
collaborative behaviour; and joint decision-making. That is, a behaviourally integrated top
management group – a real team – shares information, resources and decisions.
Having a top management group with these properties does not mean management by
parliamentary body. It does not rule out having a strong chief executive, although it does rule out
having one who serves as the broker or mediator in all senior executive interchanges or who attempts
to formulate major changes alone. Also, behavioural integration doesn't rule out entrepreneurship by
55
business units, although it does reject disjointed initiatives or those that are at cross-purposes to the
bigger picture. In fact, because many executives seem so sceptical about teamwork at the top, it is
useful to specify what behavioural integration is not.
It is not likemindedness. Top executives should have differing experiences and perspectives.
Behavioural integration capitalises on differences by providing forums of exchange and debate, not
“groupthink”. Nor is such behaviour the same as interpersonal appeal or friendship. Although outright
antipathy among executives is harmful, chumminess is rare and is not necessary for integration.
Finally, behavioural integration does not demand endless meetings. Some face-to-face contact is
necessary, but extreme amounts are not.

What can be done?


If you believe your senior executive group needs to become more of a team, what should you
do? Research suggests some promising initiatives. First, be sure the group has a clear identity. The
group should have a name, even something as straightforward as executive committee or policy group.
Membership needs to be clearly conveyed, not to establish an elite, but to allow members to identify
with the team and to understand they are a part of it.
Second, assign real work to the group. If the group only convenes to share information or to
review other people's work, there can be no sense of team commitment or energy. The senior group
needs to roll up its sleeves and take on substantive tasks. Appropriate tasks include those that deal with
company-wide marketplace challenges. Another job for the group to take on is retooling the company's
performance management system (its evaluation, measurement, and incentive processes). One of the
chief executive's key tasks is to look for suitable company-wide issues the group can tackle.
Third, be sure the group meets often enough to feel like a team. This is not as often as some
people might expect. Once a month for half a day is usually sufficient. (If team members are located
around the world, quarterly meetings plus video conferencing can suffice). The group should have at
least a couple of two-day meetings away from the office each year, at which difficult issues can be
tackled in depth. In the process, familiarity and trust will be reinforced.
Fourth, pull executives out of their parochial zones. For instance, consider giving unit heads
additional responsibilities for company-wide endeavours. These “overlay” assignments can be
temporary (such as heading up an e-commerce task force) or more continuous (overseeing a staff or
support unit).
Another initiative, increasingly being used, is to rotate executives selectively, requiring them to
take their experience and perspective to a new setting within the company. The objective, again, is to
develop a senior team of executives with a company-wide perspective. For instance, Jorma Ollila,
chief executive of Nokia, rotated several of his top executives about a year ago as a way of keeping
them fresh and focused on company-wide opportunities.
Fifth, be sure executives have an incentive to be concerned about the whole. At least a third of
incentive compensation should be tied to overall company performance. And a third of every
executive's annual incentive reward should be paid in company stock or options. These are precisely
the initiatives Louis Gerstner took at IBM to overcome the parochial behaviour of executives who had
almost all of their pay riding on how well their units – and only their units – performed. Nothing is
worse than asking executives to devote their efforts to the team but then rewarding them only for their
own unit's performance.
Finally, the chief executive must set the tone. He or she must convey and reinforce norms of
openness and constructive candour in the team. The chief executive must ensure disagreement and minority
views are not penalised, and, above all, that healthy, sometimes heated, debate never becomes personal.

56
Implementing change
An integrated senior team is crucial not only to diagnosing the company's situation and
formulating large-scale change, but also to implementing change. In fact, senior managers' attitudes
and conduct always make the difference between successful and unsuccessful corporate
transformation. Top executives particularly have an essential, and often overlooked, role as leading
advocates of change.
In any large-scale organisational change, employees have four essential questions in their minds.
Why do we have to change? Why is this the right change? Why do you think this organisation can
handle the change? What are you going to do to help me through the change?
Answering these questions is a central challenge for leadership. However, the selling effort
cannot succeed as a one-person endeavour. This is a job not just for the chief executive but for the
whole top team. Tragically, the greatest obstacles in the internal effort to sell change are often the chief
executive's own direct lieutenants – precisely the people who are supposed to lead the change. If even
just one of these executives gives mixed signals to his or her department, the change effort may be
doomed. Corporate transitions can succeed only if all the top executives commit themselves to
convincing others of the wisdom and feasibility of the company's new direction.
Jack Welch's early days as head of General Electric provide an illustration. Once he had
assembled a group of senior executives who agreed with important new themes (such as “We will only
be number one or two, or else we will sell it, fix it, or close it” and “We believe in openness and
candour”), the entire senior management group was sent to visit operations around the world and
spread the message. Each of these executives spent several months doing this. It was critically
important, of course, that the themes were reinforced by substantive actions, such as resource
allocation, rewards, and staffing. But the role of the entire senior management team in mounting a
unified campaign in support of the new direction was key to the transition GE experienced.

Summary
Like all resources, an effective senior team requires investment and time to develop. A team
cannot be produced on command, particularly in a crisis. Therefore, the business head who wants more
teamwork at the top must start today. Then, when a major market shift occurs, the top team will be
able to comprehend and interpret the shift, formulate a strategic response and implement it.

Topics for essays:


1. “For” and “against” teamwork at the top level of a company?

57
MANAGERS FACE UP TO THE NEW ERA
Thinking of companies as well-oiled machines makes robots out of workers. Leonard
Greenhalgh sees the future in managing relationships instead.
Coming to the end of this series, it is clear that the new century represents a new era for business.
Today, successful management involves rethinking methods laid down in the 20th century and
developing approaches that are better suited to the new opportunities and constraints. The past two
decades have created challenges for which existing knowledge is inadequate.
These changes call for corresponding changes in the role of the manager. Gone is the notion of
the corporate leader as the person who supplied the vision, decided on the appropriate strategy and
tactics to achieve that vision, then assigned tasks of implementation to a hierarchy of subordinates.
Also gone is the notion of worker-as-robot, someone who didn’t think but merely performed as
instructed. Such notions have been replaced by decentralised rather than top-down decision-making,
empowered rather than mindless subordinates, teamwork rather than individualistic performance, and
customers or clients – rather than top management –as the drivers of decisions.
Successful management involves adapting to the new order. Companies in California’s Silicon
Valley were first to discover that the new generation of knowledge workers don’t think of themselves
as ”subordinates”: they consider themselves independent professionals who can be given a general
goal and be left to accomplish it without “micromanagement”. They look to managers to facilitate their
achievement rather than to direct and control their work.
Top managers no longer judge middle managers simply by the efficiency of the unit they
manage. Criteria now include the ability to work with managers of other units at the same level and the
ability to maintain groupings of work associates striving to increase value for the client or customer.
This has been true of consulting companies such as Accenture for some time and other organisations
are catching on quickly. The ability of a company to control operations is no longer adequate:
managing relationships has become just as important.
To complicate matters, managers' jobs have become less secure. Companies have delayered, re-
engineered, restructured and right-sized. In becoming lean, organisations – General Electric being a
prime example – have eliminated middle management positions that didn’t add value.
This approach has removed much of the status, power and upward mobility of the managerial role.
So managers in the new era need to view career progression as something different from “climbing the
corporate ladder”. Promotion, in the new sense, means being entrusted with more responsibility rather
than the traditional move to a bigger office, a better title or a special parking place.
There has been resistance to change among middle managers: Jack Welch was quoted as
referring to GE’s “cement layer”. Although perhaps regrettable, resistance is understandable. Many
people achieved their positions because they did a good job under the old system. But there’s no
turning back the clock. Corporations can’t survive using the old ways. So the message for managers is
that they need to adapt or stand aside.

Misguided models of management


Some of the resistance comes from a reliance on “conventional wisdom”, which is outdated. One
problem is that managerial thinking has been overly influenced by misapplied economic theory.
Economics is useful in understanding how markets should operate, but is limited when applied to a
particular organisation and the behaviour of employees.
An organisation, at its core, consists of people managing people: economics was never intended
to address such things as relationships and individual behaviour. Unfortunately, the misapplication of
economic theory has distorted past generations’ views of management and organisations, mainly
because it skews thinking about relationships. As a result, conventional management wisdom
58
embodies misunderstandings about how to achieve organisational effectiveness, as well as bad advice
about managing people.
Economic theory isn’t the only thing that has been misused. Much of the problem with
management thinking can be traced to the inappropriate use of imagery from the physical sciences.
When an organisation is productive and co-coordinated, westerners tend to describe it as “a well-oiled
machine”. But machine imagery has serious drawbacks.
Parts of a machine carry out unvarying tasks and are regulated by control systems to optimise
their efficiency. The inputs are raw materials and energy. The outputs are whatever gets delivered.
The throughput is a set of mechanical processes (routines, flows and procedures) predetermined by
the designer. The machine is impersonal, is highly adapted to its current role, and has only one way
of doing things.
When this metaphor is applied to organisations, workers are seen as cogs in a machine, each
carrying out a prescribed task. It doesn’t matter who carries out a task, but the task must be done
exactly as prescribed. Thus, each role is designed to optimise efficiency and workers are
interchangeable as long as they are proficient at the task. This creates the role of “worker-as-robot”
and causes relationship problems that sap competitive advantage.
Managers’ roles are almost as constrained by this guiding metaphor. Their mission is machine
monitoring and maintenance – to ensure that everything goes to plan. Within this system, managers are
organised into a hierarchy with the most comprehensive responsibilities at the top and the most task-
specific at the bottom. At any level, the manager’s job is to ”control operations” – to ensure the
machine runs smoothly.
The problem with a machine is that, once built, it is fixed. It doesn’t adapt to change. And the
machine can never be better than its design. Yet, in reality, organisations are human systems that don’t
follow mechanistic laws.
Empowered workers, rather than hierarchical system designers, are in the best position to
achieve continuous improvement, responsiveness to customers, quality and efficiency. They make
these efforts when they feel they are members of an organisational community, not when they feel like
cogs in a machine. Effectiveness is determined by the quality of the relationships managers create.
The shortcomings of the traditional knowledge base are evident when we consider that few
conventional organisations have ever achieved greatness; those that have usually excelled in spite of
their structure rather than because of it.
For example, Jack Welch – the chief executive at the top of the Financial Times survey of
admired corporate leaders – is revered because he defied conventional wisdom in transforming the
ultimate conventional organisation, General Electric.
The shortcomings of conventional approaches to management are also evident when you ask
westerners to provide examples of high-performing systems – situations in which they were drawn into
the excitement of a group operating at the limits of achievement. They almost invariably pick
examples outside conventional business: the crew of a racing yacht, strangers striving to cope with
disaster or a surgical team.
When businesses are described as high-performing systems, the examples are almost invariably
start-up companies. In these unconventional structures, egalitarian groups work extraordinarily hard
and achieve astonishing results. People may be working harder than in the worst sweatshop, but the
work is not drudgery: it’s exhilarating.
Participants tend to have strong bonds, commitment and unstructured, flexible roles. They all
share a sense of commonwealth – the knowledge that if the enterprise prospers, it – is to everyone’s
advantage and credit. You do not see these people watching the clock; you are more likely to hear
them saying they work 80 hours a week because they can’t manage to work even longer.

59
New emphasis
If high-performing systems are a rarity, something must be wrong with our knowledge about
organising. We seem to be good at using technology, creating infrastructure, and optimising assets,
systems and processes. Where we fall short is in managing business relationships – between people,
within and between groups, and within and between organisations.
Let’s look at some examples of how inadequate attention to managing relationships has
undermined managerial effectiveness and competitive advantage.
Alarming numbers of lower-level workers hate their jobs. In the US, the anthem of the working
class is a country-and-western ballad called “Take This Job and Shove it”. The attitude of these
workers is a far cry from that of some of their Asian counterparts, who begin each day singing the
company song while doing group calisthenics.
Yet US workers’ resentment should not be surprising if we consider their managers’ relationship
to them. Rank-and-file workers are paid by the hour, whereas managers are on a salary. This makes the
rank and file rented labour rather than members of the organizational community. They are a “factor of
production” to be severed as soon as they lower profitability. They are managed by people referred to
as superiors, in a caste structure managers have set up. They are banished from managerial enclaves
and allotted their own caste-specific dining rooms, parking lots and lavatories.
They could have been treated as equals, performing a different but nevertheless essential role,
yet they are not; as a result, they toil without enthusiasm, loyalty or dedication. Blind to the
problematic relationship they have created, managers attribute workers’ lackluster attitude to
personality and character.
Relationships shaped to fit hierarchies are equally problematic. Managers create organization
charts to make accountability explicit. In conventional organizations, this involves division into
functional units. To match accountability with control, communication and co-ordination are forced to
be vertical rather than lateral.
This means subordinates receive instructions only from their superiors and provide progress
reports, suggestions and feedback only upwards. They don’t co-ordinate with other units, departments
or divisions: that’s the superior’s job. These communication firewalls, coupled with a tendency of
divisions to disparage other groups, create vertical schisms that high-level managers ruefully describe
as organizational “chimneys” or “silos”, without ever owning up to having created them.

The failure of incentives


The problem with the structures westerners create can also be seen in the dismal success rate of
mergers and acquisitions. A survey of 31 of the largest companies by Arthur Andersen revealed that
two-thirds of the combinations generated negative effects and the primary problems involved poor
integration. Badly handled acquisitions encourage employees to leave, yet companies often attribute
this to market problems rather than relationships. Offering financial incentives to stay distorts pay
structures, creates feelings of inequity and reduces profitability. Such expensive tactics deal with the
symptoms without addressing the underlying problem.
Financial incentives are never good substitutes for strong relationships and often undermine
them. For example, merit systems that reward people who outperform others are intended to stimulate
excellence and effort, but they usually make people compete who ought to be co-operating. This
happens because there are two ways of doing better: make yourself look better, or make your peers
look worse. If there’s an incentive to become the top performer, then there’s a disincentive to co-
operate: why would anyone, acting rationally, do anything to improve a competitor’s performance?
Recognising this problem, some managers use team-based rather than individual incentives; but
all this does is move the problem up one level, killing off collaboration between teams. Of course, it’s
possible to design incentives so as to minimise the risk of unintended side effects, but this is seldom
done. Managers should keep in mind that most high-performing systems have no merit system at all:
people excel because they are committed to the communal goal; their motivation arises from
relationships, not self-interest.
60
The worst relationships are often those between unions and management. Too often,
management construes the union as an enemy, and treats it as such. But just think about this. What is
the union? It’s the company’s own workers. Reciprocal distrust and hostility keep managers and
workers in a state of perpetual disharmony. It’s no different, in essence, from what happens in
politically troubled areas such as the Middle East and Northern Ireland.
In the latter cases, most people think it’s time to break the destructive cycle and try to heal the
relationship strains. Yet these same people seem to accept internecine conflict within organisations as
normal and not as evidence of managerial failure. It is worth noting that Jaguar was only able to
reverse its decline when it changed its historically adversarial relationship with the union.

External relationships
Managers also don’t pay enough attention to relationships beyond the organisation’s walls. For
example, they have been taught to value customer loyalty. There’s an economic motive for doing so: it
costs a lot more to attract a new customer than to retain an existing one. But most companies don’t
treat customers as though the relationship is important. In the western car industry, for example,
manufacturers have spent millions trying to create a positive image among customers, but then they
turn over the selling process to dealerships, which have the freedom – and an incentive – to exploit
their customers. It doesn’t work when companies talk as though relationships matter, then act as
though they don’t.
Similarly, manufacturers say they want to develop partnerships with buyers downstream in their
value chain. Yet when their product or service becomes scarce, they auction it off. This may make
economic sense, but it doesn’t make sense in relationships. The choice to auction tells your customer
that you don’t care whether they get their needs met or come up empty-handed: all you’re interested in
is profit. The way you manage the relationship belies what you said about wanting to be a partner.
Relationships are managed no better upstream in the value chain. Large western manufacturers
tend to exploit suppliers to the extent possible given the power differential. For example, the Financial
Times reported that Chrysler will be squeezing its suppliers so that it can pinch off the flow of red ink.
The suppliers consider this unfair, because it wasn’t their fault that Chrysler got in trouble. Chrysler’s
resurgence after its last crisis is widely attributed to the efforts of its suppliers, but Chrysler isn’t
looking back, by all accounts.
Exploiting dependency creates strains with suppliers that may one day prove to have been short-
sighted. In the new era, competitive advantage can derive from any point in the value chain, and this is
particularly true of the car industry, in which outsourced subassemblies can be an important source of
innovation as well as efficiency. So a value-chain partner isn’t just someone to be exploited during
hard times. Suppliers, it turns out, have long memories.

Legal cultures
Managers’ disregard for relationships between companies is also evident in the western
preoccupation with written contracts. These documents are supposed to confirm and clarify the
agreement that was made to meet each other’s needs, reflecting a relationship created for mutual gain.
In practice, however, contracts become a substitute for agreements.
The contrast between US and Japanese contracts highlights this. In Japan, contracts are very
short, because all they do is confirm the companies’ commitment to work together. US contracts are
long and detailed, specifying as many contingencies as the lawyers can foresee.
The problem with the latter approach is that business conditions now change quickly: new
competitors enter the market, technology evolves, the political and regulatory environment changes,
and currencies fluctuate. Terms agreed when the contract was drafted may not make sense when it
comes to implementation. Japanese businesses revise the terms of agreement as conditions change; US
businesses are stuck with what they signed and their relationships are strained by having to live with
an unbalanced deal.

61
The challenge of the new era
Understanding and managing relationship; isn't that difficult: managers do rather well at it
outside business contexts. But within the business domain, we simply haven’t given relationships the
attention they deserve. Economic theorists assume relationships are adversarial as people compete and
pursue their own interests. Organisation theorists have looked primarily at structural and exchange
relationships deriving a rather sterile, and often devisive, view. But the elegance of economic and
sociological models comes at the expense of managerial effectiveness and competitive advantage.
If we could draw the right lesson from why much of the best young talent is drawn to start-ups, it
wouldn’t be about becoming a dotcom millionaire. That’s a lure for some, but it doesn’t explain why
young people put in hours that would be intolerable elsewhere. Naturally-occurring communities,
rather than hierarchies, have the greatest potential to be high-performing organisations.
When organisations are communal, managers have different roles. Their main objective is to
preserve cohesion and stability. They need to make people feel included and to prevent coalitions
within the group (“in-groups”) from destructively excluding non-members (“out-groups”). More
specifically, managers should foster, coach, protect and support, rather than plan, organise, direct and
control.
More broadly, mastering management in the new era involves developing a different view of
what an organisation is. Managers need to visualise a system of relationships radiating through their
own organisation to other organisations in its value chain. These business relationships enable the
organisation to achieve consensus, to implement strategy, to tie in strategic partners and to achieve
market dominance. Effective managers in the new era don't establish and manage relationships to be
nice. They do it because strategic success depends on it.

Topics for essays:


1. Do you think managers’ jobs have become more challenging lately?
2. Do you agree that empowered employees are more efficient than hierarchical system
designers?

62
THE WAY FORWARDS FOR OPERATIONS STRATEGY
Making sense of the many innovations in operations management is difficult. David
Pyke sets out a framework for deciding priorities.
Japanese manufacturing success, particularly in cars and consumer electronics, was the topic of
business debate in the early 1980s. Just-in-time (JIT) manufacturing and total quality management
(TQM) became everyday terms. As a result, managers realised the operations process could be a
source of competitive advantage and, if ignored, could damage a company.
More recently, companies have realised that improvements in their market position from
streamlining operations are limited by supply chains. They are beginning to emphasise supply chain
management (SCM), including inventory, production, procurement, product development and
relationships with customers and suppliers. Is supply chain management another buzzword soon to
fade away? How does a manager make sense of JTF, TQM and SCM, not to mention time-based
competition and other hot topics? This article develops a framework to put these trends in context.

Three-level strategy
Operations strategy, has three levels: mission, objectives and management levers. However,
operations should be integrated with other strategy areas, including marketing, finance and human
resources. Sometimes, however, one function should take precedence over others. For example, one
company went through a painful period of not responding to customers in a long-term effort to
improve customer satisfaction. This was because the operations group needed to develop the ability to
manufacture high-quality items in large volumes. To avoid disruptions during the process, customer
desires were neglected and marketing personnel were frustrated. In the long term, however, customers
were delighted.

Mission
The operations mission defines a direction. McDonald’s, for example, uses four terms for its
operational mission: quality, cleanliness, service and value. The annual report in 1988, more than 30
years after defining those terms, still devoted a page to each. Because the mission should not change
significantly over time, the statement is often vague. Otherwise, it would have to be reworded
frequently. Employees need to know there is a consistent direction for the company.
A sleepy statement of direction, resembling that of other companies, would make it difficult to
attract employees. Therefore, a mission statement should try to convey the excitement of top managers
and proclaim the excellence of the company.

Objectives
If the mission is vague, it is difficult to know whether it has been achieved. So the next level of
strategy, operations objectives, provides measurable goals. For more than 20 years, companies have
used four objectives for this: cost, quality, delivery and flexibility.
Objectives must be defined carefully, clearly measurable and ranked. Some terms are often used
loosely: quality at McDonald’s restaurants is different from quality at a five-star restaurant, which is
very different from quality in a hospital. Objectives should be measurable so managers know whether
they are meeting their goals. It is perhaps desirable to use more than one measure for each objective
(for instance, warranty cost and parts-per-million defective for quality).
Objectives should be ranked so managers can prioritise them. The manager of a high-volume
manufacturing line stressed that cost was more important than delivery. When questioned, however, he
noted he had sometimes gone over budget by using overtime to meet a deadline. In other words, his

63
behaviour indicated delivery was more important. Discussions with senior managers helped clarify that
delivery was more important.
In the 1970s, many people in operations thought cost and quality were incompatible, as were
delivery and flexibility. More recent experience, however, suggests cost and quality are complements,
not opposites. Warranty, prevention and detection costs decrease as quality improves. Rework and
congestion on the factory floor also decrease, thereby reducing costs. In addition, rapid delivery of
customised products is now possible. This is especially true with technologies such as flexible
automation, electronic data interchange and the web. Most companies have instances, however, in
which trade-offs must be made. Therefore, although combined improvements are possible, objectives
should be ranked.
The first objective, cost, can be considered in one of three categories: low, competitive or
premium. In a low-cost environment, such as discount retailing, the goal is to have the lowest cost.
Companies aiming for competitive costs do not necessarily strive for the cheapest products, but rather
want to be competitive with most rivals. Some companies produce prototypes or have a unique product
for which they can charge a premium; hence, cost is less important. Cost measures include price per
unit, inventory turns and labour hours per unit. In the US, low cost tended to be the primary objective
of manufacturing companies from the 1950s to the mid-1970s.
The quality objective rose to the fore in the mid-1970s with the inroads made by Japanese
products. In particular, the car industry felt the effects of high-quality Japanese products. Quality can
be defined by understanding which of its multiple dimensions are important. An article by David
Garvin describes eight dimensions of quality: performance, conformance, reliability, durability,
serviceability, features, aesthetics and perceived quality. Quality measures include parts per million
defective, returns, satisfaction survey results, warranty costs and so on.
Third, delivery can be defined by speed and reliability. For instance, some companies compete on
delivering within 24 hours. Others take longer, but assure customers that goods will be delivered reliably
within a quoted time. Some companies rank delivery last. Prototype printed circuit boards, for instance,
may be completely customised and, therefore, require long delivery times. Measures for delivery include
the percentage on time, time from request to receipt, percentage out of stock and so on.
The fourth objective is flexibility, which has three dimensions: volume, new product and product
mix/customisation. Volume flexibility is the ability to adjust for seasonal variations. It is particularly
important for fashion clothing. New product flexibility is the speed and frequency with which products
are brought from concept to market. Western car makers have made great strides in new product
flexibility. A niche car allows a company to enter profitable, low-volume markets quickly. This
flexibility is impossible if development time is eight years, as was traditionally the case. Japanese
manufacturers, on the other hand, halved this time, which was then matched by Chrysler and Ford.
Once again, however, Toyota has raised the bar by introducing the Ipsum in just 15 months.
Product mix/customisation flexibility is the ability to offer a range of products. This may simply
mean the catalogue contains many items, or it may mean the company can develop customised
products. Many machine tool companies produce a single product for a given customer and never
make that product again.
Some have argued that delivery and flexibility are the most important objectives because cost-
cutting and quality programmes have levelled the playing field in these areas. Such companies then
compete with rapid introduction of new products and rapid delivery. “Time-based competition” has
been used to describe this.
Finally, note that objectives are dynamic. For instance, as a new product begins full-scale
production, the company may emphasise flexibility to design changes and delivery so market share is
not lost. As the design stabilises, the emphasis may change toward quality and cost.

64
Management levers
Although the operations objectives provide measurable goals, they do not indicate how a
company should pursue those goals. Ten management levers provide the tactical steps necessary to
achieve the goals: facilities, capacity, vertical integration, quality management, supply chain
relationships, new products, process and technology, human resources, inventory management and
production planning and scheduling.
Interestingly, in the late 1970s researchers did not include quality management, supply chain
relationships, new products and human resources as management levers. Today, these are critical and
new levers will be introduced. The categories for operations objectives, on the other hand, have not
changed.
Facilities decisions concern the location and focus of factories and distribution centres. Are
several required? Does each facility perform all functions or is one focused on a market, process, or
product? Many companies have a parent plant responsible for oddball parts and new product
introduction. When products reach high-volume manufacture, they are moved to a plant where efforts
are focused on excellence.
Decisions on capacity expansion interact with location decisions. For instance, some companies
set limits on the number of employees at any location, to encourage teamwork. As demand grows,
expansion at the site would violate the limit, so a new plant must be found. One US textile maker had
expanding sales in Europe. When capacity at its factory could no longer meet demand, managers had
to determine whether to expand near the same site, elsewhere in the US, or in Europe. The decision
was to build in eastern Germany to lower transport costs and import duties and to exploit government
tax breaks.
Make/buy decisions are at the heart of vertical integration. Some companies make components,
perform final assembly and distribute their products. Others focus on design and assembly, relying on
suppliers for components and distribution. Facilities, capacity and vertical integration decisions are
made for the long term because of the investment needed.
The tools and techniques used to achieve quality goals comprise the quality management lever.
This lever is distinct from the quality objective in that the objective provides the definition and
measurable targets, while the lever specifies the means to achieve the targets. Quality management
includes such things as statistical process control (SPC), Taguchi methods and quality circles. Note
that different definitions of quality may dictate different procedures.
The supply chain relationships lever focuses on dealings with suppliers and customers. These
take different forms. For instance, General Electric has a “trading process network” that involves
putting part specifications on the internet so suppliers can bid. These “virtual markets” are growing.
Other companies maintain strategic alliances with a few suppliers or customers. Some supply chain
initiatives, such as vendor-managed inventory (VMI), involve restructuring supply chain relationships,
often reducing the number of suppliers and encouraging digital communication.
The procedures and structures behind new product introduction are the core of the new products
lever. Most companies use multifunctional teams of design engineers, marketing personnel,
manufacturing managers and production line workers. The new products lever specifies reporting
relationships as well as procedures for setting development milestones.
The process and technology category encompasses the choice of a production process and the
level of automation. The product-process matrix, which analyses product characteristics with
production processes is useful for analysing choices.
Human resources involve the selection and motivation of people. The inventory management
lever encompasses decisions regarding purchasing, distribution and logistics and specifically addresses
when and how much to order. Finally, production planning and scheduling focuses on controlling and
planning production.

65
Conclusion
First, researchers and practitioners keep introducing terms that describe some aspect of
management. An example is supply chain management. The supply chain relationships lever, of
course, pertains to supply chain management, but so do inventory management, production planning
and scheduling, vertical integration and new, products. Occasionally it is necessary to introduce a new
lever to focus attention on important issues.
Second, the policies in place for each of the 10 levers should be consistent, not only with the
operation's objectives, but among themselves. If there are inconsistencies, managers should make
changes. For example, many companies pursued quality without changing incentives, so workers were
rewarded for the volume of' output regardless of quality. In other words, quality objectives were
inconsistent with human resources policies. Reward systems had to be changed to support quality
goals.
Finally, in auditing manufacturing strategy, managers should understand distinctive competences
at the detailed level of management levers. These competences should inform objectives, mission and
business strategy. Thus, information flows from strategy to levers and back.

Topics for essays:


1. What do you think managers should prioritise defining objectives?
2. Why should managers’ levers be consistent?

66
IT STRATEGY IN NEW ECONOMY
Bringing technology strategy into line with business strategy was the challenge of
the past decades, but now, says Michael Eari, the aim is to integrate Internet thinking.
The proposition that information technology (IT) strategy should be aligned with business
strategy has been a core theme of the past 20 years. In many ways, this was difficult to refute:
investments should support real needs and the business should drive IT rather than the other way
round. Application development priorities could be resolved more easily by applying a test of strategic
fit. Perhaps most importantly of all, it became evident as companies began to depend on IT that a
business strategy without a matching IT strategy was no strategy at all. So general managers as much
as IT executives recognised the appeal and wisdom of “strategic alignment”.
Unfortunately, there were problems. These included a lack of coherent or agreed business
strategy in the first place, or a strategy that was forever changing, or a strategy-making process that
was more emergent than structured. Even when a business strategy was settled, it was often difficult to
interpret what it meant in terms of technology. Then, of course, there were implementation challenges.
Alignment promised more then than it delivered.

From output to input


In the new economy, we can see that alignment is an antiquated concept. Quite simply, IT affects
business strategy. It is an input to business strategy as well as an output. The internet, mobile
communications and future media present both threats and opportunities. So business strategy that
ignores how technology is changing markets, competition and processes is a process for the old
economy, not the new economy. This is what “e-everything” is about. A revised view of alignment is
that it has to answer two questions: how does IT change business strategy and what IT investments
does business strategy demand?
To be fair, these questions have been asked before, in particular when another technology arrived.
We can call them the alignment question and the opportunity question. The opportunity question was
asked infrequently and was posed haphazardly through local initiatives in companies. More crucially, it
rarely asked what opportunities there were for creating new businesses (or losing old ones).
E-business is changing this. In particular, the appointment of directors of e-commerce and the
formulation of e-commerce strategies recognise that IT is changing the ways companies do business.
Indeed, in the past year, some boards have been asking a question not asked for while: what business
are we in? Then, as opportunities are identified and threats recognised, they ask a supplementary
question: are we sure? Formulating an e-business strategy recognises that IT is an input as well as an
output. So we are shifting from “alignment”, with occasional opportunity to “integration”, where
business strategy and IT strategy are independent and overlapping.
A warning here is that some companies still don’t “get it”, even if they are working on an e-
business strategy. Earlier this year I reviewed business strategy for a well-known company. It was a
classic turnaround strategy that was full of bold recommendations – until it came to the appendix. This
was a note on the e-commerce strategy; it hardly recognised the threats and opportunities of e-
commerce. In this company, e-commerce was being treated as an opportunity rather than part of
integration.
Clearly, just like IT itself, e-business cannot be treated and managed as an appendix. E-business
is business and this is why companies who do “get it” see that IT strategy and business strategy are, in
many ways, the same. We might call it an “information business strategy”.

67
Towards a method
Companies often need a structure for developing strategy. One way to think is in terms of four
tasks or elements that make up “information business strategy-making”: futurising, assets, stimulants
and threats.
This “Fast” methodology is entirely inductive, but provides a way of addressing strategy-making
in the new economy. The first element helps to confront the future.

Futurising
Some companies, such as Swedish financial group Skandia, have created special teams to
question what the future might bring. They often suggest identifying questions or highlighting
important trends or significant uncertainties.
More perceptive chief executives realise, however, that this is not just raising an alarm about
technology changing everything. It is about asking what is changing, threatening or opportunity-rich at
the intersection of new technologies and shifts in the business environment. The PEST (political,
economic, social, technological) tool for environmental analysis applies in thinking about futures, but
more thorough scenarios are likely to be where these variables interact.
So some companies are constructing visions, stories, pictures and dramas of what businesses
might look like or what businesses could be created. This is the world of brainstorming, storyboards
and visions; the outputs can be good questions to ask, trends to watch, uncertainties to explore,
experiments to begin or “must do” ideas to develop.
The main point about “futurising”, as Skandia calls it, is to explicitly suggest that the future may
not be an extrapolation of the past, that opportunities co-exist with threats, that uncertainty is
inevitable and that ignoring the future is more risky than trying to create it.

Assets
The second leg is to think of what competencies, capabilities or assets might yield opportunities.
I prefer to call this set “assets” because:
• they are potential sources of value creation;
• it suggests they should not be underestimated or left unexploited;
• often they are hidden until you think where potential might be realised through e-commerce.
For example, if your company has world-class fulfillment processes, then moving into e-commerce
not only builds on this strength, but might also make this capability evident to the world. In other words,
existing capabilities may have even more potential for value creation in the new economy. Jack Welch at
General Electric has said that the company's achievements in its Six Sigma quality processes are now
really paying off in e-business, where cost, speed, reliability and quality matter.
As an example of underestimated assets, one conglomerate realised it had several partnership
opportunities and, importantly, information threads between its businesses that might allow it to
restructure part of the logistics industry. Likewise, many information-rich organisations have content
that is valuable to traditional and emerging businesses.
Hidden assets can become evident in many ways. For example, an engineering company realised
it had a valuable asset in its parts database when a business-to-business electronic market-maker
approached it about building a business-to-business exchange. The database had taken 40 years to
build and was now seen as an asset to protect as well as to exploit. In other words, when you re-
examine a business as an information business or rethink it as a new economy; business, you may,
discover hidden assets.

68
Stimulants
The third element of the methodology is suggested by companies that are trying to encourage
entrepreneurial behaviour. These efforts can be thought of as “stimulants”.
We see organisations sprouting internal venture capital funds, incubator units and e-business
divisions. We see “white space” events, idea schemes and venturing teams let loose deep down in
organisations. Some companies are measuring how much of their capital budget is being allocated to
new ventures and e-commerce. Some businesses are creating fast-track learning schemes to move
people through venture capital units, incubator units and back to the mainstream business; Bain&Co
and JP Morgan being examples.
The premise is that there are latent entrepreneurs and e-commerce ideas in companies; it is
essential to break out of traditional practices; strategy is not all top-down, but should reach through all
levels; and that it is time for action and risk-taking. It is the classic “let loose” cycle often employed
when strategic change is on the agenda: stimulating everybody to think and act as a new business.

Threats
The final element is to think of threats, but not only as shock treatment. After all, if you see how
a new entrant or rival can attack or destroy your business, why not attack first? This has been a
philosophy at General Electric, where executive teams have been asked to think how their business
could be destroyed by e-commerce. Threats stimulate survival instincts and can be more effective than
looking for opportunities, which can seem optional.
The combination of these four Fast elements suggests that both IT personnel and business
executives are involved, and that initiatives are prompted which involve multifunctional teams. In this
way, business strategy and IT strategy are integrated. Indeed, if we learn from the dotcom world,
multifunctional teams build and evolve the business with no demarcation between functions, skills and
strategies. This leads to redefining IT strategy and planning.
Research shows that developing IT strategy usually requires an injection of methods; the Fast
methodology is proposed as appropriate for the new economy. However, research also indicates that
the process of strategy formulation matters too and that without attention paid to implementation,
strategies can end up as just reports filed or presentations that are soon forgotten.

Discontinuity
The Fast methodology can seem to ignore process and implementation. However, Fast is more of
a framework for ensuring the right questions are asked and a mechanism for getting started. In
practice, the aim is to ensure the process issues of understanding, involvement, communication and
buy-in are addressed by engaging both IT and the business.
Traditional methods of IT strategy-making, whether framed as “alignment”, “opportunity” or
both, were periodic, formalised, long-term and driven by IT. They were discontinuous and easily lost
momentum.
My current research indicates that new mechanisms of IT strategy-making are continuous,
involve learning by doing, are short-term and just a natural activity. Often strategy – integrated IT and
business strategy – is revisited weekly; priorities are examined every Monday and a limited number of
projects is resourced and monitored by time, not cost. The strategic plan is a continuously rejigged
portfolio of projects.
The pressure to launch, the need to respond to what is learnt by doing, the uncertainty of new
markets and models, and the fact that online business evolves in real time, mean that the formal
structures of traditional IT strategy-making are inappropriate.
Furthermore, because IT strategy-making in the new economy is business development, it is a
team effort. The chief executive and technology director should be in frequent dialogue. IT people are
learning to work with marketing people and vice versa. Everyone realises that doing something
outperforms weeks of planning. So Fast may get you started as a one-off activity, but after that,
making strategy should become an evolving, continuous, ever-changing process.
69
New and old
However, in traditional companies, not everything is concerned with the new economy.
“Integration” may be the watchword for IT strategy-making in e-business. Indeed, as the new replaces
the old and “the business” and IT learn to work together better, it may apply to IT direction-setting
across all the business. But for now, IT investments are needed to support the old business and much
of the organisation will be working in old ways rather than acting as multifunctional development
teams. So, there is a binary approach to IT strategy.
Most of the IT department is working on large infrastructure and application projects, still
sorting out alignment and running business systems. Then there is often a new IT group closely related
to the e-business division or located with that division or with e-business venture teams.
This arrangement may be transitory, using a separate, differentiated unit of organisation or
temporary teams to achieve rapid change. It makes sense because the model of new IT is quite
different from that |established over the past 40 years – just like the business models are radically
different. And the pace or tempo is equally different. Speed is key in this race to learn (and unlearn)
and win (or at least survive).
One consequence of this binary approach is that IT investment comprises two subsets: the new
business (“new economy”) portfolio and the business as usual (“mainstream”) portfolio. Over time,
responsibility may be transferred from the new portfolio to the mainstream portfolio. Eventually, we may
see the return to a single IT organisation and one investment portfolio. The “new” will not be so new –
but there are always advances in the pipeline, so a binary approach may be required for some time.
Chief executives have a challenge too. If they are in new economy businesses they will be
discovering that “integration” is displacing “alignment”. In driving the shift to the new economy, they
may discover that a “binary” approach to IT management may be preferred to a unitary one.
“Integration” applies in new business units and “alignment” in the old.
If e-business is the business and if IT strategy cannot be separated from business strategy, the
chief executive and technology director need to be partners. This might make the biggest difference of
all, not only between those companies who “get it” in the new economy and those who do not, but
between those who “make it” and those who do not. For strategic leadership is required as well as new
concepts and practices of strategy formulation – and leadership is more effective if it involves more
than just the nominal leader.

Topics for essays:


1. How great is IT influence on business strategy of a company?

70
HOW TO SAY THE RIGHT THING IN THE RIGHT WAY
Every comment from major companies is likely to be picked over by journalists and
analysts. Gerry Griffin provides a step-by-step guide to communications strategy.
August Busch III, head of Anheuser Busch, the world’s largest brewer, once ended his section of
an annual report with a single exhortation: “Sell more beer”. Unfortunately, this command overrode
the company’s commitment to protecting natural habitats, aluminium recycling and other activities,
voiced elsewhere in the report. Baldly stated, Busch’s advice appeared self-interested and overly
product-focused.
It raises an important issue: how do the activities of a company and the ways in which they are
presented influence sales activity? Was Busch stating the unvarnished truth or was his message and
how it was communicated actually likely to damage sales?
How senior managers communicate corporate messages is of increasing importance. Indeed,
everything they say is a corporate message, dissected and analysed, by a range of audiences. What they
communicate has a direct effect on the bottom line. Consider how the Body Shop’s stance on animal
testing and fair trading has helped to differentiate its products from those of other cosmetic retailers.
Anita Roddick, the company’s founder, is unlikely to call for Body Shop employees to “sell more
moisturizer”. Indeed, she says: “I can’t take moisture cream too seriously – what interests me is the
revolutionary way trade can be used as an instrument for change”.
Corporate communication can look to and shape the future. It can take up indirect or long-term
topics to create or maintain sales; for example, by lobbying regulatory authorities to permit use of
genetically modified foodstuffs.
Some dismiss corporate communication as mere tactical maneuvering. Some argue that “a
company needs to be more than just the sum of its sales and marketing parts; that a company must
offer more than just employment, tax revenue and, of course, its goods or services”.
Academic Sumantra Ghoshal has argued that corporations create social value. To see them
merely as vehicles for shareholder value is blinkered: “Amid a general decline in the authority of other
institutions – political parties, churches, the community, even the family unit – corporations have
emerged as the most influential institutions of modern society; not only in creating and distributing a
large part of its wealth but also providing a social context for most of its people, thereby acting as a
source of individual satisfaction and social succour”.
Thus, if a company is to communicate effectively, it must have a clear sense of what it is as an
entity. In this sense, corporate communications should be applied common sense.

Objectives
The starting point for corporate communications is the area that needs most attention: setting out
the objectives of the business. A snapshot of most activity would contain some or all of the following:
donorship to charities or artistic foundations; corporate advertising; initiatives with non-governmental
organisations, such as Friends of the Earth; meetings with analysts; local community initiatives.
If a company is unsure how its business interests are being served by any of these activities, then
both the activity and any communications surrounding it are likely to lack rigour. In poorly
communicating companies, explanations range from the traditional (“we’re doing it because we’ve
always done it”) to patronage (“the chairman thinks it’s a good idea”) and philanthropy (“it’s a good
cause”).
It may well be a good cause. But there are many good causes and selection must be based on
rigorous criteria. Formulating a clear objective takes good leadership; to implement and assess it takes
good management.
71
Often managers both fail to communicate the business objectives and are poor examples of
communication in action. Management consultancy SKAI believes that when leaders communicate
badly it is because they:
• abdicate responsibility to the corporate communications department;
• blandly give out the “corporate” message, giving nothing of themselves in either content or delivery;
• talk at too high a level, which rarely works internally;
• sanitise their words;
• don’t have a decision-making process on making information available, therefore never get
information out in a timely manner.
At a company-wide level, corporate communications require staff to have a clear picture of what
they are trying to achieve as a business. A consistent message should be delivered through credible
channels and timed for maximum impact. The company must:
• acknowledge business objectives;
• define the type of organization (what is the corporate culture?);
• decide what it expects to gain from communicating either its corporate values or its corporate
activities.
The last point is where experience pays off. The expectations of the communicator need to be
managed alongside those of the audience: executives will never solve problems with a few well-chosen
words and there will always be divergence between what a company says and what it does.
How, then, should a corporate communications plan be created?

The beginning
Corporate communications should express the essence of an organisation. Sadly, most campaigns
start off with little knowledge of how the business objective is being served by the activity – and with
an idealised version of where the company wants to be. This can lead to bland, sanitised and ultimately
irrelevant acts of corporate communication, which we see all around us each day.
Managers should know what makes the company tick, since this will imbue corporate
communication with a credible sense of what it is trying to achieve. The words may be perfect, but if
they are undermined by contrary words spoken elsewhere or by the company’s behaviour, the
communication will be of little value.
Academics Rob Goffee and Gareth Jones have presented a way for managers to chart where their
organisations stand with regard to two main criteria: sociability and solidarity. Sociability is “a
measure of friendliness among members of a community. People do kind things for each other because
they want to – no strings attached”.
By contrast, “solidarity is based not so much on the heart as the mind. These relationships are
based on common tasks … and clearly understood shared goals that benefit all the involved parties,
whether they personally like each other or not”.
Using these principles, Goffee and Jones have divided organisations into four main types:
networked, communal, fragmented and mercenary.
So, for example, a technology company that aims to build and market an innovation might be a
mercenary organisation – it will not have much in the way of mutual support networks within the
business, but will have strong teams driven towards common business goals. The top right-hand
quadrant (communal) is where many organisations aspire to be (Hewlett-Packard is an example). The
authors warn communal organisations to beware of smugness and complacency.

72
In finding an effective starting point for corporate communications, managers should remember
that the whole organisation (salespeople, call-centre operators, reception, security, accounts, engineers
and so on) communicates values every day to a vast network of audiences.
In the old economy, there were a few points of contact regulating information between the inside
and outside of the organisation, such as media spokespeople, analyst liaison officers and personnel
managers. In fact, the neat distinction between what lies inside and outside an organisation is now
becoming more difficult to make.
The proliferation of the internet, e-mail and supplier portals makes it easier for the outside world
to interact continuously with people at all levels in the organisation.

Building a plan
Let us consider how a corporate communications plan can be managed, using the example of a
bottling plant. It is loosely based on a planning chart used by communications consultancy Burson-
Marsteller.
Step 1: Business objective. Increase capacity at facility by 50 per cent.
Step 2: Corporate culture. This is expressed as the way in which the specific facility operates.
How has it interacted with its surrounding community? What are industrial relations like? What is the
dominant culture (in terms of sociability and solidarity)?
Step 3: Review business actions. The expansion requires a host of business actions. Considerations
include:
• investment decisions;
• planning applications (the facility needs to be expanded onto a field used by local residents,
though the land is owned by the business);
• tendering processes;
• project management teams;
• construction;
• disruption of working patterns;
• increased noise and dust;
• increased employment;
• modification of timetable in which stock is collected and materials delivered (because of
greater volume).
Step 4: Identify where communications can have a significant impact. Take the last point from
step 3. In the fictional plant, collecting stock and delivering is based on an 18-hour rotation: 6am to
12pm. The facility is in the middle of a residential area. The new distribution timetable is for 24-hour
delivery and collection, with lorries filled with empty bottles rattling over speed ramps, past sleeping
residents. This needs careful handling.
Step 5: Set communication objectives. This would include: expediting planning approval and
minimising negative reaction from community groups at the stages of planning application,
construction and operation.
Step 6: Assess current communication activities. What is the business doing locally? Examples
might include sponsoring a local football team, funding conservation and so on. The fewer "wheels"
that need reinventing, the better.
Step 7: Assess the mindset and behaviour of people involved. Start with the local community,
planning officials, employees who live locally, employees generally, media, the financial community.
Be realistic – some independent research may be needed to set your bearings properly.

73
Step 8: Determine required mindset/behaviour change. Any strong negative views of the
company need to be improved or marginalised. If 24-hour distribution is not negotiable, for example,
what could be done to keep the affected audience on board? Where there are positive views, they
should be marshalled in the company’s defence, such as the value as a local employer and taxpayer.
Step 9: Develop key messages. These are the essence of your stance. They are also designed to
move an audi ence (as in step 8). In the case of the local stance on taxation (probably aimed at
planning, officials) the message might be: “Without expansion, the plant will not be competitive, so
endangering jobs [and taxes]”.
Step 10: Select the best delivery options. When you need to identify, recruit, educate and
mobilise third parties to speak on your behalf, do you contact people directly in open meetings or by
letter, or generically, through the media?
Step 11: Align messages with delivery options. Make sure the right people are set up to give for
the right messages. Local managers are often best for dealing with local issues. Press officers need to
be trained. Third parties need to be given information and support materials.
Step 12: Develop a tactical plan. Timing is particularly important here – making sure you get the
right messages to the right audiences through the right channels. For example, there is little point
delivering the right message to the planning officials too late to have an effect.
Step 13: Make sure the plan is consistent with other plans, particularly timelines. You need to
get messages out as swiftly as possible – ahead of the rumour mill. You also need to be consistent in
words and deeds.

Conclusion
Corporate communications is a way in which the corporate essence is expressed and
consolidated. Used well, it can encourage transparency and build confidence that the business is doing
what it says and saying what it does.

Topics for essays:


1. Corporate communication is mere tactical maneuvering, isn’t it?

January 15 2001

74
SUCCESS FLOWS FROM BUSINESS DEVELOPMENT
Aggressive partnership and acquisition strategies are a feature of business development.
Donald Sull describes how it is changing the business environment.
Business development has become one of the hottest career options in technology-intensive
fields. Recruiters scramble to fill vacancies and online job boards such as Monster.com, Head-
hunter.net and Hotjobs.com list thousands of openings in business development, or “biz dev”, as it is
known. Twelve per cent of Harvard Business School’s graduates in 1999 described their first job as
business development – more than entered either marketing or general management functions.
The emergence of this role raises important questions. What is it? Why has this function
emerged? Is it a fad or an enduring aspect of the economy? Business development managers face a
host of more concrete questions. If your business card says business development, what should you do
all day? Which candidates are best for business development positions? How should they be evaluated
and paid?

What is it?
“Business development isn’t any one thing, but covers a multitude of sins”, says venture
capitalist John Schoch Alloy Ventures. Many people view business development as a glorified sales
position, while others associate the position with corporate planning, mergers and acquisitions,
marketing or account management. While these definitions encompass critical aspects, none alone
captures its full breadth.
To see the big picture, it is helpful to imagine business development as a process. The first step
consists of establishing the company’s business model, although this may already be fixed in
established companies. Next, managers identify potential partners who could provide the resources to
execute the business, model, including customers, suppliers, distributors, collaborators, outsourced
services, technology providers and strategic investors. After identifying these partners, the business
development team evaluates them against the business model.
Next, the team chooses the most appropriate farm of relationship and negotiates terms. Such a
relationship might consist of an exploratory strategic investment, a technology licensing agreement, an
alliance or joint venture, through to an acquisition. In the final stage, the company manages the
partnership, or in the case of an acquisition, integrates the newly purchased enterprise. In many
companies, particularly those at an early stage of development, this process may feed back into the
company’s business model, since new partnerships can create opportunities that spur the company to
revise its business plan.
Viewing the whole process helps clarity the business development function. In many companies,
the business group is responsible for only part of the process. If the group focuses primarily on the
early stages, it resembles the strategic or corporate planning function. By contrast, business
development managers who spend most of their time screening and negotiating deals with customers
look a lot like a sales force, and those focusing on equity investments resemble in-house venture
capitalists. Finally, to the extent that business development staff manage ongoing partnerships or
integrate acquired companies, their role resembles account management, although partners might be
suppliers or distributors, as well as customers.

Why now?
In established technology companies, such as Hewlett-Packard or Intel, the activities
concentrated in business development have always been performed somewhere, but they were
scattered throughout the organisation. Why, then, have companies chosen to consolidate these
activities into a single function? And why now?

75
While business development undoubtedly owes some of its cachet to management fashion, its
rise reflects a profound shift in the nature of competition. Historically, many managers viewed
competition as a Hobbesian state in which atomistic companies fought it out in a war of all against all.
Corporate managers steeped in this view tried to do everything in-house and saw alliances as an
admission of inadequacy. Traditionally, entrepreneurs validated a business model, fine-tuned the
technology and landed major customers before turning to partnerships.
In the past decade, however, managers and entrepreneurs have come to recognise that attempting
to do everything in-house costs too much, takes too long and entails too much risk.
The nature of competition has shifted from the war of all against all to competition between fluid
networks of complementary companies. While conspicuous in high-tech sectors (consider the
Microsoft-Intel-Compaq constellation), networks also dominate competition in other industries such as
cars and airlines. Thus, in networked competition, partnerships provide critical ties between
companies. The business development function, in turn, centralises expertise in identifying, evaluating,
negotiating and managing those relationships.

Exemplars
The business development function is still in its infancy and most companies are struggling to
discover the best ways to organise and execute their activities. Nonetheless, a few companies, such as
Cisco, eBay, Yahoo! and CNET, have emerged as leaders in business development, and other
managers can learn from them.

Clarify the mission


The most effective business development groups have a clear mission that every member can
articulate. Cisco’s 40-person business development team, for example, is guided by a clear, three-fold
mission: acquire technology to fuel growth, invest in strategic technology partners and understand
market trends. Unfortunately, Cisco’s crisp mission is an exception. Business development in many
companies consists of individuals pursuing exciting deals without a clear sense of how these contribute
to the company.
Managers can gauge the clarity of focus in a business development group by carrying out a
simple exercise. Ask each person in the business development group to write down the business
development mission (without consulting colleagues). Then compare the results. If you find a great
deal of variety, you probably need to articulate a mission for the group.
In articulating a mission, it is useful to begin by identifying the stage your company has reached
and the associated strategic challenges. In the earliest stage of a venture, the founding team struggles to
define a business model. Business development’s primary mission at this stage is to explore and
evaluate the various ways in which the business model could be implemented and identify possible
obstacles.
Once the model has stabilised, the mission of the development group shifts to validating the
model by identifying and landing customers, and refining key aspects, such as pricing. While in this
phase, the business development group at Iphrase, a US start-up offering dynamic website navigation,
evaluated 20 vertical markets such as cars, financial services and consumer electronics to identify
potential customers. It finally validated its business model with a high-profile deal with Charles
Schwab.
After validating the business model, the role of business development shifts to identifying and
seizing opportunities consistent with the model and screening out deals that would distract from this
focus. For example, consider CNET, a company that aggregates information to help people purchase

76
consumer electronics online. Its business development group structures complex deals with various
kinds of partners: advertisers on CNET’s website; internet service providers which drive traffic to the
website; and companies that offer complementary services such as online storage. All of these
partnerships support CNET’s core business.
In established companies, the business development mission shifts again. As growth
opportunities within the core business slow at such companies as Hewlett-Packard and Intel, business
development is charged with identifying and evaluating external opportunities. At Intel, for example,
corporate-level .business development managers forge strong relationships with customers to increase
their use of Intel products and services, while business development managers at the individual
business unit level work to develop new initiatives outside the core.
Clearly articulating the business development mission allows managers to hire the right business
development people to execute the mission and to tie pay to results. A company validating its business
model, for example, might hire a vice president of business development with detailed knowledge of
the chosen market and broad contacts. Pay might be tied to the quality and prestige of early customers
and the strength of the resulting relationships.
When a company is expanding with a proven business model, the ideal candidate may resemble a
traditional sales representative with experience of selling a complex service to large organisations. Pay
might be based on fixed sales quotas. An established company trying to renew itself using business
development might favour candidates who have worked in both a start-up and a larger organisation.

Apply “triage” to opportunities


One of the greatest challenges faced by business development managers is sorting through the
array of relation – ships they could forge. The business |development group in high-profit companies
such as CNET, NBCi or eBay can receive a few hundred unsolicited proposals for partnerships each
month, in addition to discussions they initiate. Start-ups are not buried by unsolicited email, but must
sort quickly through the huge number of companies they might approach as partners. It is often critical
to lock up desirable partners before competitors do, increasing the need for speed.
To sort rapidly through the large number of potential deals, business development groups adopt a
“triage” system. The triage system originated as a speedy method of prioritising patients that poured
into battlefield hospitals. Business development professionals often rely on simple rules of thumb to
sort potential relationships and weed out unlikely partners.
At eBay, for example, business development director Gil Penchina uses five rules to screen
companies:
• Have I heard of the company?
• Is it a top website as measured by Media Metrix?
• Is it backed by sophisticated venture capitalists?
• Is it in a technology-savvy place?
• Has it been referred by someone I know?
Having done this, the business development team can conduct further analysis, which generally
consists of a visit to the company’s website to analyse the quality of its customers, management team,
partners and investors. Only if the potential partner appears credible will the company earn a first
meeting with eBay. The purpose of this meeting is to size up the potential partner’s management team
and gauge their level of enthusiasm for a partnership.
This sequence of a rule-based first cut, fast desk research and an initial meeting provides a series
of filters that help eBay's business development team quickly screen out the less promising deals and
concentrate on the most promising opportunities.

77
Learn as you go
A major benefit of centralising business development is in consolidating strategy-making, deal
evaluation, negotiation and relationship management in one group and accumulating knowledge about
deals. Creating a business development group may be necessary to consolidate knowledge and foster
learning, but it is not always enough. The best business development groups take further steps to capture
and reuse lessons learned from experience. For example, eBay’s business development group codifies
the knowledge it gains from evaluating and negotiating deals as checklists for use in future transactions.
How a “business development” group is organised also influences how much its members can learn.
Consider Cisco. In one year, it completed 25 acquisitions worth $22bn and made 69 equity investments.
Based on its experience, Cisco recently reorganised the development group to increase learning.
Historically, the group was organised by transaction type (that is, by acquisition, equity
investment and joint venture). Vice president Ammar Hanafi believed, however, that critical
knowledge about markets was being lost from deal to deal. To capture this knowledge, Hanafi
reorganised the business development group into half-a-dozen teams, each of which focuses on a
specific market.
These teams spend time with customers, researchers and industry experts to understand trends and
develop contacts while working closely with Cisco business unit managers to understand where they see
the market moving. The team members build sector expertise and networks, which allow them to better
identify, screen and work with potential partners and understand the needs of business unit managers.
The best business development groups also use their standard partnership contract as a mechanism
to capture and incorporate lessons from previous deals. eBay’s Penchina compares a contract to an
intersection: “When there’s one accident you put up a stop sign. After a few accidents you hang a traffic
light”. The company carefully monitors past deals to identify where problems or disagreements have
emerged and then flags these items (such as terms and payments, limitations of liability, indemnification
and termination) for close scrutiny and pre-emptive clauses in subsequent contracts.
Business development managers also interview heads of functional within eBay to discover what
aspects of past deals gave them grief. The accounting department, for example, identified the
importance of extending payment terms, while public relations wanted control over announcing the
deal. Clauses to cover both were added to later contracts.

Manage relationship costs


Some business development managers view partnerships as hunting trophies. The founder of a
London-based start-up, for example, proudly explained that his business development group had
signed 100 partnership deals in two years. When asked how these added value to his business, he
replied that he would figure out how to leverage the relationships later.
While the benefits of many partnerships are often ethereal, the costs are all too real. Business
development teams invest time and attention in identifying and evaluating potential partners, and
negotiating deals. Non-standard contracts, for example, are easy for development people to promise,
but costly for product teams to deliver. To the extent that relationships are substantive, as opposed to
trophy partners, they also require resources to manage the partnership.
The best business development managers use standard contracts and multiple screens to control
relationship costs. In some cases, they focus on a certain type of transaction to accumulate expertise in
that type of deal. Cisco, for example, now avoids joint ventures, which often entail governance
problems, and focuses on equity investments and acquisitions.

Partner to integrate
A common mistake made by novice business development managers is to think that the job is
done, once the ink dries on the contract. In fact, managing existing relationships often proves the most
challenging and time-consuming part of the process.

78
Managers can improve the odds of a smooth relationship by screening potential partners for
compatibility. Cisco’s business development team, for example, used the rule of thumb that potential
acquisitions should have approximately 75 employees, 75 per cent of whom are engineers. Companies
with this profile, it turned out, were relatively easy to integrate into Cisco’s sales and marketing.
When evaluating potential alliance partners, Hewlett-Packard’s managers use structured tools to
help them judge compatibility with the company’s strong culture. They identify what a potential
partner seeks from the relationship and classify those goals as shared, supportable or incompatible with
Hewlett-Packard’s objectives. They also draw a matrix with four columns: what Hewlett-Packard
would give in the partnership, what it would get, what the partner would give and what the partner
would get. Plotted in rows against these columns are resources, competencies and risks of each party.
The structure of the business development group can also improve relationship management. Early
on, Cisco identified acquisition integration as critical to corporate success and set up a 10-person team to
integrate acquired companies. The development group at eBay includes “finders” who identify, evaluate
and negotiate partnerships, and “keepers” who manage these relationships. Managers at eBay believe the
group that signs a deal should be responsible for the health of the resulting relationship. When
“responsibility” resides outside the business development group, it is critical to involve the group that
will ultimately manage the relationship early in the discussions, and keep them involved.

Conclusion
Historically, people have viewed entrepreneurship as a solo sport. For start-ups it was the lone
inventor in a garage. Large corporations, to the extent that they innovated at all, tried to do it all in-
house. The success of Silicon Valley, however, has underscored the critical role of networks and
relationships in providing the access to information, resources and guidance that is necessary to pursue
opportunities quickly and with acceptable levels of risk.
The business development function is one way to increase a company’s ability to seize
opportunities. As companies sail into the uncharted waters of networked entrepreneurship, they will
look to business development to guide their journey.

Topics for essays:


1. Do you agree that business development is one of common functions of managers?
2. The mistakes which managers should avoid if they want their business to be a non-stop
process.

79
THE FLAT-TAX REVOLUTION
Fine in theory, but it will never happen. Oh really?
The more complicated a country’s tax system becomes, the easier it is for governments to make
it more complicated still, in an accelerating process of proliferating insanity-until, perhaps, a limit of
madness is reached and a spasm of radical simplification is demanded. In 2005, many of the world’s
rich countries seem far along this curve. The United States, which last simplified its tax code in 1986,
and which spent the next two decades feverishly unsimplifying it, may soon be coming to a point of
renewed fiscal catharsis. Other rich countries, with a tolerance for tax-code sclerosis even greater than
America’s, may not be so fat behind. Revenue must be raised, of course. But is there no realistic
alternative to tax codes which, as they discharge that sad but necessary function, squander resources on
an epic scale and grind the spirit of the helpless taxpayer as well? The answer is yes: there is indeed an
alternative, and experience is proving that it is an eminently realistic one. The experiment started in a
small way in 1994, when Estonia became the first country in Europe to introduce a “flat tax” on
personal and corporate income. Income is taxed at a single uniform rate of 26%: no schedule of rates,
no deductions. The economy has flourished. Others followed: first, Latvia and Lithuania, Estonia’s
Baltic neighbours; later Russia (with a rate of 13% on personal income), then Slovakia (19% on
personal and corporate income). One of Poland’s centre-right opposition parties is campaigning for a
similar code (with a rate of 15%). So far eight countries have followed Estonia’s example (see pages
63-65). An old idea that for decades elicited the response, “Fine in theory, just not practical in the real
world”, seems to be working as well in practice as it does on the blackboard.

Pure and applied


Practical types who said that flat taxes cannot work offer a further instant objection, once they
are shown such taxes working-namely, that they are unfair. Enlightened countries, it is argued, have
“progressive” tax systems, requiring the rich to forfeit a bigger share of their incomes in tax than the
poor are called upon to pay. A flat tax seems to rule this out in principle.
Not so. A flat tax on personal incomes combines a threshold (that is, an exempt amount) with a
single rate of tax on all income above it. The progressivity of such a system can be varied within wide
limits using just these two variables. Under systems such as America’s, or those operating in most of
western Europe, the incentives for the rich to avoid tax (legally or otherwise) are enormous; and the
opportunities to do so, which arise from the very complexity of the codes, are commensurately large.
So it is unsurprising to discover, as experience suggests, that the rich usually pay about as much tax
under a flat-tax regime as they do under an orthodox code.
So much for the two main objections. What then are the advantages of being very simple-minded
when it comes to tax? Simplicity of course is a boon in its own right. The costs merely of
administering a conventionally clotted tax system are outrageous. Estimates for the United States,
whose tax regime, despite the best efforts of Congress, is by no means the world's most burdensome,
put the costs of compliance, administration and enforcement between 10 and 20% of revenue
collected. (That sum, by the way, is equivalent to between one-quarter and one-half of the
government’s budget deficit).
Though it is impossible to be precise, that direct burden is almost certainly as nothing compared
with the broader economic costs caused by the government’s interfering so pervasively in the
allocation of resources. A pathological optimist, or somebody nostalgic for Soviet central planning,
might argue that the whole point of the myriad breaks, deductions, allowances, concessions, reliefs and
assorted other tax expenditures that clog rich countries’ tax systems-requiring total revenues to be
gathered from a narrower base of taxpayers at correspondingly higher and more distorting rates-is to
80
improve economic efficiency. The whole idea, you see, is to allocate resources more intelligently. Yes,
well. Take a look at the current United States tax code, or just at one session of Congress’s worth of
tax-gifts to favourite constituencies, and try to keep a straight face while saying that.

They cannot be serious


Once tax codes have degenerated to the extent they have in most rich countries, laden with so
many breaks and exceptions that they retain nothing of their original shape, even the pretence of any
interior logic can be dispensed with. No tax break is too narrow, too squalid, too funny, to be excluded
on those grounds: everybody is at it, so why not join in? At the other extreme, the simpler the system,
the more such manoeuvres offend, and the easier it is to retain the simplicity.
In Britain, election notwithstanding, tax simplification is nowhere on the agenda: why not?
George Bush has at least appointed a commission to look into tax reform. But its terms of reference are
so narrow that it could not suggest a flat tax even if it wanted to. This is a great pity. A flat tax would
not eliminate the need for spending control; it would not deal with the impending financial distress of
Social Security and Medicare; it would not even settle the arguments about the so-called consumption
tax (since in principle a flat tax could take as its base either all income, or income net of savings, in
which case it would act as a consumption tax). There are things it cannot do and questions it does not
answer. But the gains from a radical simplification of the tax system would be very great. The
possibility should not be excluded at the outset.
It is true that the flat-tax revolutionaries of central and eastern Europe are more inclined to
radicalism than their politically maturer neighbours to the west and across the Atlantic. Mobilising
support for sensible change is far harder in those more advanced places-but not impossible. In tax
reform, as 1986 showed, the radical programme can suddenly look easier to implement than the timid
package of piecemeal changes. Now and then, the bigger the idea, and the simpler the idea, the easier it
is to roll over the opposition. The flat-tax idea is big enough and simple enough to be worth taking
seriously.

Topic for essay:


1. Could a tax system be simple and fair?

81
THE INNOVATOR’S RULE BOOK
What companies need now are mechanisms that allow them to come up with real innovations –
ones that produce major results – over and over again. SRC Holdings Corp. has devised a system that
does just that.
Innovation – when it occurs in companies at all – tends to be random and unexpected. But
at SRC, we’ve built a system of mechanisms that makes innovation happen like clockwork.
Wherever I go these days, I hear a buzz about innovation. The subject comes up in almost every
conversation I have about how companies are doing, and it fills the business press. Even my bank has
gotten into the act, sponsoring invitation-only conferences on innovation for the CEOs in its customer
base. The sessions are packed.
You’d think that – after all the hype about innovation during the Internet boom – we’d be sick of
the subject. So why is there suddenly such a sense of urgency about it now? I think the answer has to
do with the current recession. During the 1980s and 1990s, much lip service was paid to innovation,
and massive corporate expenditures on technology created the illusion that a lot of it was happening.
But with the economic downturn, it has become increasingly clear that a lot less innovation has been
going on than was commonly supposed. Rather than innovating, it turns out, a lot of companies have
been caught in what you might call the optimization trap.
By optimization, I mean the process of taking something you already do and figuring out how to do
it better, cheaper, and faster. It's about improving productivity, driving down costs, and reducing waste.
When you think about it, that’s what we generally consider “management”. In fact, optimizing
has been the focus of just about every major management fad and business trend of the past 100 years,
from Frederick Taylor’s time-study engineering in the early 20th century to Michael Hammer and
James Champy’s reengineering in the early 1990s. It’s all been geared toward helping companies
become more efficient and productive, doing the old things better rather than doing anything new. The
same can be said about the billions we’ve spent on technology.
Optimization defines our lives as managers. We spend virtually every hour of every workday
trying to make those incremental improvements that will result in slightly better performance. We do
that month after month, year after year, until we’re ready to scream. We have no choice. You can’t be
successful in business without optimizing.
In the long term, however, optimization alone is not enough. Incremental improvements will take
you only so far. If the leader in your industry earns 7% before taxes and you earn 6.5%, you no doubt
have room for improvement, but the potential gain is not nearly as great as what you could achieve by
coming up with a new product or marketing idea or an entire new business that would allow you to
earn, say, 15% pretax.
More important, too much optimizing will leave you vulnerable to the dangers of the
marketplace – new technologies, new competitors, economic downturns, and so on. If you’re focusing
only on doing the same things better from year to year, you don’t think about the big threats that lie
farther down the road, and so you don't diversify. You don’t make the investments required to come up
with the new products, services, and businesses that can address your weaknesses and protect you
when the day of reckoning finally arrives.
That’s the optimization trap, and it’s easy to fall into, especially during a period of sustained
prosperity and expanding markets. As long as you get the annual improvements you need to remain
competitive, you’ll be satisfied. But when a recession hits, sales of your old products and services will
drop, and you won’t have new ones to pick up the slack.
Even worse, you may find that relentless optimizing has actually stripped out your capacity to
innovate. To save money, you’ve gotten rid of engineering, market research, human resources, and
every other support function, and you no longer have the people or the culture you need to come up
with the breakthroughs that can save you.
82
There’s only one way I know of to avoid that trap: you have to innovate and optimize at the same
time. That takes a strong constitution. After all, you’re under pressure to optimize 24 hours a day, but
no one is pushing you to innovate. So somehow you have to develop your own mechanisms that keep
innovation on the front burner, constantly showing you what you need to do, why you need to do it,
and how far you need to go with it.
At my company, SRC Holdings Corp., we’ve managed to come up with a set of such
mechanisms during the past 14 years. But before we were able to do that, we first had to change our
whole perspective on business. For openers, we had to come to the realization that there’s a lot more
value in building companies than in building products. If you sell a pen, you can make a dollar. If you
sell a pen company, you can make $10 million. When you play the game of business at the highest
level, you understand that ultimately the company is your product, not the pen.
Once we made that leap, we began searching for opportunities to start new businesses. What did
we find? They were all around us. So we developed a system that allowed us to start businesses using
resources we already had and a minimum of capital. That system became our principal tool not only
for growing and diversifying the company but also for generating a passion for innovation.
As it turned out, our experimental new venture would teach us a set of homegrown rules we
would use to transform our company and make innovation an integral part of the way we would run
SRC from then on.
In the beginning, however, we weren’t looking for a system. I didn’t even know that one existed.
I was just trying to solve one of those annoying problems that drive CEOs nuts.
It was the summer of 1987, just four years after our founding. Our company was still called
Springfield Remanufacturing Corp. back then, and our main business involved taking worn-out diesel
engines – or cores – and remanufacturing them so that they ran almost like new. Every engine core that
we brought into our plant in Springfield, Mo., came with a component known as an oil cooler, whose
function was to keep the engine from overheating. Unfortunately, most of the coolers leaked so badly
that we had to replace them.
That was costing us a lot of money. We were paying about $50 each for the leaking coolers as
part of the overall price of an engine core. Whenever we threw a cooler away, we replaced it with a
brand-new one at about $100 a crack. All told, we were spending more than $275,000 a year on an
item that I believed should have been costing us about $60,000 – in effect squandering almost 20% of
our profits.
The situation was driving me crazy. I kept bugging our engineers about it, and they kept telling
me that they were too busy to focus on it. They didn’t have time. They had other things to do that were
more pressing.
That just got me more angry and frustrated. I bitched and moaned, but our vice-president of
manufacturing told me I was wasting my energy. He didn’t think that, given our overhead, we’d
actually save money by remanufacturing our own oil coolers. I didn’t buy it. I thought there had to be a
way. I believed we simply weren’t trying hard enough. We were looking for excuses. Finally, I said,
“Screw it. Let’s settle this thing once and for all. We’ll take the damn oil coolers out of our factory, set
up an independent company, and give it the oil-cooler business. We’ll get other people to fix the
problem for us”.
So a small group of us got together and started a business, Engines Plus, to remanufacture oil
coolers for SRC. As it turned out, our experimental new venture would teach us a set of homegrown
rules we would use to transform our company and make innovation an integral part of the way we
would run SRC from then on.
Our plan was to start Engines Plus with a small amount of equity and a large amount of debt.
There was, of course, a practical reason for limiting our up-front investment: we didn’t have much
money. But we were also curious to see if we could harness the power of leverage.

83
RULE #1: Use leverage when you can.
I’m referring here to the principle that the more debt and the less equity you use in financing a
start-up, the greater will be the initial rise in the company’s value if you’re successful. We’d already
had one dramatic demonstration of leverage with SRC, which we’d launched with $100,000 in equity
and $7 million in debt, thereby fueling a 15,500% increase in our stock price in the first four years. But
that had been an accident. At the time, we were just trying to get the company started any way we
could, and the deal we wound up with was the only one available.
With Engines Plus, we deliberately applied the leverage principle. A small group of us put up
$1,000 of our own money as an equity investment. Then we arranged a $50,000 line of credit from SRC.
Engines Plus thus began with a 50-to-1 debt-to-equity ratio – not quite as steep as SRC’s, but close.

RULE #2: Protect the mother ship.


It’s important to understand that the new business was an experiment. We didn’t know for sure
that the people we brought in would be able to develop a process for remanufacturing oil coolers or
that the coolers they produced would meet SRC’s specifications. We certainly didn’t know whether
they could run the business profitably.
So we made sure that this experiment wouldn’t have negative repercussions for SRC. We didn’t
take people out of SRC to work on it. We didn’t use SRC facilities or equipment. We’d didn’t put SRC
funds at risk. If things fell apart, SRC would be able to recover whatever capital it had advanced either
from the assets of the business or from the partners.
The point is that we’d never done anything like this before, and so we wanted it to be a separate
deal, at least until we had a better sense of the risks involved. Then we could modify our approach
accordingly.

RULE #3: Find the right leader and strike the right deal.
We figured we would recruit someone to head up the venture, give him or her a significant
equity stake, and devise a valuation formula that would encourage bootstrapping. As luck would have
it, we had a strong candidate. His name was Eric Paulsen, and he was a vice-president at one of our
competitors. We knew Paulsen was looking for a new opportunity, and he met all our qualifications.
He had a good track record in business, with experience in accounting and in sales and marketing, and
he could put together a start-up team. We also thought he'd be able to diversify the company once he
got it up and running. Among other things, he had started a parts-distribution business for our
competitor. We believed he could eventually start one for Engines Plus.

RULE #4: Find a cash-flow generator.


By that, I mean a customer who has a specific need and is willing to pay to get the need taken
care of. In this case, it was SRC, which needed to stop wasting money on new oil coolers.
There are actually four things that will help ensure positive cash flow in the beginning: long
payables (good terms from suppliers); a bimonthly payroll (good terms from employees); short
receivables (fast payment from customers); and minimum inventory. Because SRC was both supplier
and customer, it was able to help Engines Plus on three of those counts. To begin with, SRC could
provide oil-cooler cores on consignment, allowing Paulsen to obtain most of his raw materials without
actually spending any money on them. In addition, we could set up a line of credit with SRC at
minimal risk. After all, the start-up would have a guaranteed market for its products, at least its initial
ones.

84
RULE #5: Come up with an overhead absorber.
I’m talking here about a product that’s going to meet the customer’s need and that you can begin
selling immediately. After all, as soon as you start the business, you’re going to have overhead
expenses: salaries, rent, electricity, telephones, and so on. You need to be producing something you
can use to cover those expenses – or absorb them, as we say in manufacturing. In the case of Engines
Plus, the overhead absorber was the line of remanufactured oil coolers.
Once you put together a cash-flow generator and an overhead absorber, you have the most
important thing a start-up needs: positive cash flow. As a result, the business is immediately viable,
meaning that it can support itself on the cash it’s generating internally. It doesn't have to rely on
outside sources of capital to stay afloat.

RULE #6: Diversify, diversify, diversify.


Becoming viable, however, is just the beginning. You haven’t maximized the value of your
business as long as its cash flow comes from one product and one customer. Hence the next step:
diversification. You need to be constantly looking for vulnerabilities you can address and opportunities
you can capitalize on. In other words, you need to innovate, coming up with new products and services,
new markets, maybe even new businesses, as you work on optimizing the ones you already have.
That was the basic formula, and it worked better than we dared to hope. Paulsen loved the plan
and signed up immediately. We sold him 25% of the stock and agreed to a valuation formula that
rewarded him for increasing the company’s assets or reducing its liabilities, thereby giving him a
powerful incentive to watch every nickel.
And he did. Indeed, Paulsen displayed many of the bootstrapping qualities I thought we were in
danger of losing at SRC. He was resourceful. He was creative. He did all the clever little things you do
when you’re getting by on pocket change and know you’re doomed if you run out of cash.
The business couldn't get going, for example, until the shop had worktables. So Paulsen and his
buddies found some heavy crates used to ship engines. They cut out the saddle for the engine, came up
with square metal tubes to use as legs, and added a top, and they were in business.
Then there was the oven needed to dry the rebuilt coolers before checking them for leaks.
Industrial drying equipment could cost as much as $10,000. But Paulsen had worked in restaurants as a
kid. He decided to look up a company that sold used restaurant supplies. There he found a pizza oven
with just the right specifications. He bought the oven for $200.
That’s what innovation is all about. It isn’t glamorous, and it doesn’t take place in corporate
offices. It happens in cellars and garages and makeshift workrooms, and it mainly involves a lot of
hard work. But the results can change lives.
Bit by bit, the pieces came together. It happened so fast we could hardly believe it. In February
1988, its third month in existence, Engines Plus shipped 350 to 400 rebuilt oil coolers to SRC. I’d
spent two years trying to get our people at SRC to focus on developing a process for remanufacturing
oil coolers. Paulsen and his people had come up with one in a matter of months. By the time the bugs
had been worked out, moreover, they were able to remanufacture those oil coolers for a small fraction
of what we’d been paying. SRC took them all – and saved a lot of money.
We’d innovated our way out of one problem, but with one product and one customer, Engines
Plus had barely begun to tap its potential market value. So Paulsen quickly moved on to the next step
of the program, marketing automotive engines by direct mail. Within a year, however, a much bigger
opportunity presented itself.
One of our major customers, known as J.I. Case back then, had a joint venture with Cummins
Engine Co., under which the two companies manufactured and sold a couple of powerful engines used
in agricultural equipment. Looking for opportunities to sell more engines, Case’s president of parts

85
operations, Robert Nardelli (now CEO of the Home Depot Inc.), came up with the idea of
incorporating the engines into a new line of stationary power units, which farmers would use to pump
water for irrigation. He inquired whether SRC would be interested in manufacturing the power units as
a subcontractor to Case.
It was a nice offer, but it didn’t really fit in with our main businesses. So we put the Case people
in touch with Paulsen, who signed up on the spot. After looking at some power units made by other
companies, he put together a quote, which the Case people accepted. They came back with a design of
the unit they wanted. “Can you do it?” they asked.
“Sure”, he said.
There was just one problem. He knew nothing about making power units. The Case people
wanted him to exhibit a prototype based on their design at their big annual trade fair in Kansas City on
November 1, 1989. Although Paulsen and his people had never built a prototype before, they somehow
managed to pull one together in time. A couple of them stayed up the whole night before the trade fair,
drying the paint with handheld hair dryers. When Paulsen returned from Kansas City three days later,
he had orders for 200 power units, which Case would buy from him for $5,000 each – $1 million in
sales of a product that had never been tested, that he wasn’t even sure would work.
It was one of those classic entrepreneurial situations. Even if the product passed muster, Paulsen
didn’t have a factory large enough to make the power units. For that matter, he didn’t have the
necessary machine tools, workforce, or raw materials. Worst of all, he didn’t begin to have enough
cash to finance the power-unit business – either then or in the future. If Case bought as many units as
expected, Engines Plus’s sales could grow from less than $1 million to more than $11 million in three
years. Where would the cash come from to pay for that growth?
The answer, it turned out, was Case.
When we sat down to negotiate with the Case people, we proposed a deal under which Case
would pay Engines Plus for the power units in 30 days, and Engines Plus would pay Case for the
engines in 90 days. (Remember, short receivables, long payables). That way, Case would get what it
wanted: the opportunity to record the sale of the engines as soon as they were shipped. And Engines
Plus would get what it had to have: net positive cash flow for 60 days.
That was, in fact, the arrangement we agreed upon, and it allowed Engines Plus to develop the
power units. At a production level of 66 units a month, the 60-day lag time was like getting an interest-
free loan of $660,000 for the entire length of the contract. As a result, Engines Plus – which had
already paid off its note to SRC – was able to grow for the next seven years without taking on any
significant bank debt, and Case got a lower price, since there was no interest expense in the power
unit’s cost.
I guess you could call that an innovation as well.
If you sell a pen, you can make a dollar. If you sell a pen company, you can make $10 million.
When you play the game of business at the highest level, you understand that the company is your
product, not the pen.
The case deal was a turning point not only for Engines Plus but for SRC. It had always been our
intention to sell Engines Plus to SRC at a bargain price if the start-up proved successful, so that the
employees who own our company would reap the major rewards. On February 1, 1990, all the Engines
Plus shareholders except Paulsen sold our stock to SRC, which – for $24,000 – acquired a 75%
ownership stake in Engines Plus.
But the stock transfer was only the beginning – because Engines Plus had clearly changed. It was
no longer simply an experiment in innovation, nor even just a way for SRC to save money on oil
coolers. With the Case deal, Engines Plus had become a real business, capable of generating a
significant amount of cash flow from a mix of products and a mix of customers, both of which could
be expanded in the future.
86
That change had enormous implications. To begin with, it meant that Engines Plus could be sold.
We probably could have found a buyer right away if we’d had to. We would certainly be able to find
one in the future if we did a halfway decent job of developing the business. By then the company
might be worth a lot of money. It was by no means inconceivable that, in a few years, SRC could sell
its stake for several million dollars.
That could prove critical if SRC wanted to remain privately held. As an employee-owned
company, we were going to need a lot of cash in the future to cover our obligations to departing
shareholders while we continued to grow the business. Engines Plus could be a significant part of the
solution. (Last year, in fact, we received an offer from an outside investment group to acquire Engines
Plus for $13 million. The terms weren’t right, and so we didn’t do the deal. Still, that wouldn’t have
been a bad return on a $1,000 investment).
And if we’d had one successful start-up, why couldn’t we have others? Why couldn’t we keep
right on building businesses that we could use to feed the liquidity of the parent company? Businesses
that we could sell, if necessary. Businesses with higher gross margins and better cash flow than
remanufacturing had. Businesses that would grow when our traditional markets were contracting.
Businesses that would open up new opportunities when we’d reached the limits of optimization with
the old ones.
The realization hit me like a thunderbolt. That was it! We had a model we could use to build
whatever kind of company we wanted – which was yet another innovation to come out of the Engines
Plus experiment.
In fact, the success of Engines Plus changed the whole way we thought about growing the
company. You need only look at SRC today to see the effect. Back in 1987, we were one business with
two divisions. Now we are a diversified collection of enterprises and an ongoing business incubator.
Altogether there are 22 companies operating under the umbrella of SRC Holdings Corp. Some,
like Engines Plus, are direct spin-offs of our engine-remanufacturing business, meaning that we started
them to leverage expertise we already had. But we’ve also ventured outside remanufacturing to apply
our ideas to other types of businesses.
Feeling the urge to spread our wings, we started a bank with a group of local investors a few
years ago, partly because we thought it was a good investment but also because we wanted to see how
our approach to management would work in an entirely different setting. In fact, the bank has been a
phenomenal success, consistently outperforming most midwestern banks of its size in terms of return
on equity, total assets, operating efficiencies, and just about every other measure.
More recently, we raised $6 million to launch a venture-capital firm, which operates out of our
headquarters. Our goal there is simply to earn a better return on our capital. To date, we’ve invested in
seven start-ups, three of which have gone public.
Since 1987, our sales have increased 300%, from $40 million to $160 million, and we’ve been
profitable every year. In the same period, we’ve added 563 employees, bringing our total workforce to
871. And a share of SRC stock that was worth 10¢ in 1983, the year we started, and $13.02 in 1987,
when we launched Engines Plus, had an appraised value of $81.60 as of our most recent valuation.
The success of Engines Plus changed the whole way we thought about growing SRC. Instead of
one business with two divisions, we’re now a diversified collection of enterprises and a business
incubator.
And what if we had simply stuck with our original business and optimized like crazy? To tell the
truth, I’m not sure SRC would even be around today. Both of the divisions we had back in 1987 got
into trouble. One of them struggled for years until we finally sold it. The other has been hit hard by the
economic downturn, although SRC as a whole has come through the recession unscathed. The new
businesses have carried us.

87
We are also stronger in ways that don’t show up in our financial statements. Back in 1990 we
had a whole generation of managers and supervisors who had nowhere to go within SRC. They were
the bright young stars of the company, people we’d been training for years. The problem was, they
couldn’t move up because the positions above theirs were taken. Without the new businesses, we no
doubt would have lost a lot of them.
Instead, we held on to almost all of them. They became the leaders of the new businesses, where
they kept learning and growing. As a result, they were able to take on ever greater challenges as time
went along.
Then, too, when the young stars left their old jobs, they created opportunities for other people to
move up, which in turn produced job openings for new recruits. So we kept training new leaders and
never suffered from the talent shortage that plagued so many companies prior to the recession – and
that will return as soon as the economy recovers.
At the same time, we reduced our overhead in our established businesses, since the new people
didn’t earn as much as those they replaced. The subsidiaries have thus given us a way to cut costs
without downsizing, without layoffs, and without undermining our culture. So we’ve been able to keep
optimizing – and remain competitive – while retaining our capacity for innovation.
I don’t mean to suggest that all our innovations have been successful. Of the 39 businesses we’ve
started since 1990, 17 no longer exist. But there are always a lot of failures when you innovate. It goes
with the territory. The point is, we’ve been able to experiment and innovate at minimal risk. If one of
the businesses fails, the rest of the company is safe.
And yet, for all the obvious benefits of our system of innovation, I sometimes think that – if
we’re not careful – someone might come along and optimize it right out of existence. It’s a feeling I
often get when I’m showing around the visitors who come from all over the world to see what we’ve
done and how we’ve done it. Almost all of them are impressed by the number and diversity of
businesses we’ve created. People listen intently as I and my colleagues explain how important
innovation is to our long-term success and how careful we must be to make sure we foster conditions
under which it can flourish.
But afterward, without fail, two or three people will come up to me. It’s great what you’ve done,
they’ll say, but wouldn’t it be a lot more efficient to centralize a lot of functions? Couldn’t you cut out
a lot of waste by streamlining the organization? Yes, innovation is important, but how can you afford
to keep operating the way you do?
My answer is, how can we afford not to?

About the authors


Jack Stack is the president and CEO of SRC Holdings Corp., formerly Springfield
Remanufacturing Corp., based in Springfield, Mo. Bo Burlingham is the editor at large of Inc. They
are coauthors of the best-seller The Great Game of Business (Doubleday/Currency, 1992), which is
about the revolutionary system of open-book management developed at SRC. This article is adapted
from their next book, A Stake in the Outcome: Building a Culture of Ownership for the Long-Term
Success of Your Business, which will be published by Doubleday/Currency this month.

Topics for essays:


1. To optimise or to innovate – that is the question.
2. Advantages and disadvantages of optimisation and innovation.

88
WOULD YOU HIRE THE CEO?
Once again, we turn the tables – this time asking top execs to answer questions from their own
companies’ standard job interviews. Do they measure up?
Caterpillar Chief Rates Well in Job Interview. Other Executives Fail to Impress.
In an interactive feature tied in with this article, we invited readers to vote whether these leaders’
answers to their own companies’ job interview questions would get them hired – or their resume
deposited into the circular file.
The polls are now closed, and the most employable executive, according to Fast Company readers, is
Caterpillar Inc.’s chief Glen A. Barton. The chairman and CEO’s answer to the question “How do you
define good performance?” led to a 74 percent acceptance rate. Now, that’s not a bad performance.
Other job candidates didn’t fare as well. While New York Life Insurance’s Sy Sternberg rated
almost 60 percent approval, Digital River’s Joel Ronning was a distant third at 48 percent. Ronning
went from turbo to torpor.
Continental’s Gordon Bethune came close to Ronning’s ranking with a 47 percent approval
rating, but Edward Jones’ John Bachmann didn’t even get called back for a second interview: Almost
60 percent of respondents voted to recycle his resume. File under: Customer dissatisfied.

John Bachmann
Managing partner, Edward Jones
Q. Describe something you have done that shows your commitment to ensuring customer
satisfaction.
A. Earlier in my career, a client came into my office. He was a nice fellow, but he had a very
gruff exterior. He said, “I just need to sit down a minute. I can’t think”. Soon after, he went to the
doctor and discovered he had a brain tumor.
About two months later, I went out to his home. It was a snowy, icy night. When I got out there,
he could no longer speak, and he was very frustrated. Then he turned to his wife – you could see he
was struggling so hard to communicate – and he blurted out, “Do what John says”.
Then the telephone went down, and I stayed with his wife for a while, because at that point, they
had no way to get help if he collapsed or something. He died shortly thereafter. And I remember going
up to Wisconsin, where his wife had moved, to sit down and help her sort out all their affairs.
Back in 1972, we made a conscious decision to organize ourselves around serving one customer:
the individual investor. That was unusual because most companies organize themselves around selling
a product. In defining our customer, we said there are products we’re not going to sell, even though we
can sell them and even though they’d be very profitable. They’re inconsistent with what we believe
our customers need.
Most recently, we came under pressure to offer online trading. If we add value by helping the
customer solve financial problems, then creating a channel that circumvents all of that undermines our
basic philosophy. We decided not to offer online trading. Three years ago, that looked pretty dumb.
Today, it looks brilliant.

Joel Ronning
CEO, Digital River Inc.
Q. Digital River looks to employees for fresh revenue and efficiency-generating ideas. If you
were hired, how would you turbo-charge this process?
A. First off, I’d set up an entrepreneurial council. We have one here that meets every Friday.
Essentially, it’s a team of 45 to 50 of our directors and middle managers. We generate ideas; it’s very
free-flowing. But it has to be limited to one hour.

89
We started this on a really casual basis, where we would get together every once in a while and
just kind of have a bull session. But then there were these tremendously good ideas coming out, so we
decided as a group that we should do the same thing on a weekly basis.
We go into these sessions with the motto “There are no bad ideas”. We’re really strict on that.
No one can dis someone else’s idea in a session; it’s just incredibly destructive. If you let the peer
process live on its own, people just figure it out. They see how their idea or initiative compares to
others. We’ve been doing this for almost three years, and the process just manages itself.
We get a lot of ideas that are just rotten and don’t go anywhere. But that’s okay. You have to
have probably a 3 to 1 ratio of bad ideas to decent ones. And you need a 20 to 1 ratio of decent ideas to
really good ideas. And those knock-the-cover-off-the-ball ideas, we see them about once a year.

Sy Sternberg
Chairman and CEO, New York Life Insurance Co.
Q. Name one of your role models, and tell us why you chose that person.
A. My most important role model is my mom. She set an ethical standard for me, whether it was
in terms of excelling in school or in making sure that I dealt honestly with people.
There was an honesty in the way she conducted her business with others. She was a stay-at-home
mom, so she wasn’t in the business world. But you could see it in the way she dealt with me, the way
she dealt with my dad, and the way she dealt with our neighbors. Honesty and integrity were just
vitally important.
And when it came to academic excellence, she was right there watching how I did in school, how
I did on every exam. Clearly, nothing satisfied her more than doing a perfect job. That was the
standard of excellence that she set for me.
With honesty, you don’t think about the rules set down for you by a role model on a day-to-day
basis. Right now, I’m learning how to play golf, so there’s a whole bunch of rules in my head. I’m sure
5 or 10 years from today, all those rules won’t be in my head anymore, and I’ll just do them a bit more
naturally. When it comes to issues such as telling the truth, frankly, it already comes naturally. I have
to believe that it’s because that’s how I was brought up. Now it’s like riding a bike.

Gordon Bethune
Chairman and CEO, Continental Airlines
Q. What does it take to be a survivor in today’s airline industry?
A. Well, a shit lot of money would work. Okay, that’s my smart-ass answer. But you can go
through a lot of money pretty quickly in the airline industry these days. And if you don’t have it,
you’re not going to make it.
To survive in this industry, number one, you need to understand your product. You have to
understand people, your employees. And you have to be nimble. The market’s moving so fast, and you
have be able to move with it. If not, you’re going to be a dinosaur and gone like so many others.
What differentiates our company from other airlines is that our people actually like coming to
work. And let me just tell you, when I was an airplane mechanic, do you know how much faster I
could fix an airplane when I wanted to fix it than when I didn’t want to?
We had a big hurricane come through Texas several weeks ago; it passed 90 miles beyond Houston,
where we have a hub with 500 flights a day. We didn’t cancel a single flight. That’s because our people
wanted to get the job done. During the big blackout on the East Coast, all three New York-area airports
shut down. We only canceled 11 flights. That’s because we wanted to. Yes, we have professional men and
women, and that’s great. And yes, we have the right systems, and that’s great. But mostly, we have people
who want to get the job done. If you don't have that edge, you're going to be an also-ran.
The economy can’t sustain everybody in the industry. We’re focused on being a survivor. I tell
our guys, “Look in the mirror – that’s who’s going to save you”. It’s not going to be the economy
coming back. It’s not going to be the government bailing us out. We have to do it ourselves.
90
Glen A. Barton
Chairman and CEO, Caterpillar Inc.
Q. How do you define good performance?
A. I’ve learned that good performance and true job satisfaction come from exceeding what I
expect of myself, not just what others expect of me.
The key to job performance is first to realize that as an employee, I have many customers who
expect me to deliver a quality service. And just as every great company works day and night to serve
its customers, I must do the same for mine. On the most basic level, I want to satisfy our board of
directors, our customers, and shareholders. Good performance shouldn’t be judged simply in the
results you achieve. It’s also determined by how you achieve those results. You have to take what
exists and build on it.
The best performances come when we take the time to ask questions, to learn from customers
and from the past. My job as a leader is to encourage innovation and unleash the natural creativity in
myself and those around me as we drive toward solutions we never thought were possible.
Last year, the Caterpillar team faced tough new EPA standards for the diesel engines we build.
Our competition chose a known technology that could only meet the standards by sacrificing reliability
and fuel efficiency. Caterpillar, on the other hand, developed its own technology that not only meets
the EPA standards but also maintains performance and fuel efficiency. We didn’t choose the easy or
the safe route; we chose the right route.
Great performances come from asking ourselves some basic questions. Why are we doing it this
way? How can we do it better? Or faster? Or more reliably? What haven’t we thought of yet? What’s
best for our customers? Ultimately, the final judgment on performance comes down to one simple
question: Is this the best we can do?

COMMENTS:
Name: Merry Selk
Posted: Tue Sep 7 2004 12:10 EST
Location: Albany,CA
Occupation: Marketing Communications
Shouldn’t the assessment of the Caterpillar CEO include the company’s elimination of benefits
for retired employees?
Is this the model we want for our country’s employers? A company that leaves retired workers to
fend for themselves with no benefits and no retirement, in order to improve the company bottom line?
Not in my opinion!
This highly-praised Caterpillar executive has presided over the decimation of retirement benefits
for Caterpillar employees. I would not like to be in this company’s employ:
«Think Caterpillar. It’s September. The supplemental medical insurance fund is gone. There is
no agreement about medical benefits. “When we chose to retire, we did so believing we had a handle
on our bills and would get by”, says David Grochowsky, a millwright at Caterpillar for 35 years. He
predicts he can’t get by on the “last, best” offer. “It is bad enough with rising property taxes, food
costs, utilities and gasoline. …My costs then would be around 50 percent with deductibles … and
that’s not even counting the 80/20 co-pay”.
“Another retiree sent a copy of one Caterpillar letter on benefits and cites friends whose
retirement plans have abruptly changed. One will give up winters in a mobile home in Texas. Others
will sell their out-of-state home. “They will have to move back here and hope they can find jobs to
work at until they die”, he says. “All because they can’t stand the thought of living in the same poverty
they started out in before Caterpillar”.

91
“While it will be difficult on every … family, it does not stop there”, points out Julie Stevens,
[spouse of an employee]. “As an example, I pay $60 to have my hair cut and colored every four weeks.
Is this a luxury I can live without? Absolutely! What about my hairdresser? If she has five clients like
me, that means she and her two little girls will have $300 less a month in their budget. Every single
retailer, restaurateur and movie theater in the community stands to suffer lost revenue. How many will
close?”»

Name: Pat Roosevelt


Posted: Mon Nov 10 2003 13:19 EST
Location: New England
Occupation: Teacher/Professor/Writer
Men who put applicants and employees in the surgical wards are the most dangerous players.
Men who have to use bathroom rhetoric on the job are sickening, and put employees on the medical
wards. Men who love their moms are the most fun to play golf with and lunch with and share ideas
with. Men who work harder than everyone else are role models, but intimidate fellow workers. Men
who love to share ideas made America great; these were men like Henry Ford and Thomas Edison and
Walt Disney. (I’m not naming my Dad, Mom, Uncles, Aunts, and Grandparents who were great role
models and hard workers although they were tops according to most of the people who worked with
them). So I would put the two old sick guys on a pension plan and keep the three positive creative
manager/workers. They’re the kind of leaders we need in a sick economic and political period.

Name: Mark Schipper


Posted: Mon Nov 10 2003 10:35 EST
Location: Indianapolis, IN
Occupation: Marketing Manager
All would be hires except for Gordon Bethune and Joel Ronning. Bethune’s smart-ass answer
right out of the blocks was the kiss of death. Interviewers don’t like smart-asses even if they do posess
sterling credentials. His flight attendants also posess his smart-ass attitude, which is why I refuse to fly
Continental.
Joel Ronning’s committee theory is a good one, but must have input from people in the trenches,
otherwise it is just another bunch of executives and higher lever managers kicking around ivory tower
ideas and telling each other what a great job they’re diong.

Name: Deb Snyder


Email: dsnyder@lecturesonline.com
Posted: Wed Nov 5 2003 11:00 EST
Location: Michigan
Occupation: Consultant
Bachmann tells a story which in an interview situation captures attention. It had heart and made a
point. He is a person I would want to work with…

Name: William White


Email: wlw3906@mindspring.com
Posted: Mon Nov 3 2003 14:07 EST
Location: San Francisco, CA
Occupation: CFO
I would not hire Joel Ronning. A committee is a sure way to stifle anything different from the
status-quo.

92
Name: marc Goldberg
Email: marchg@charter.net
Posted: Wed Oct 29 2003 11:37 EST
Location: Lincoln City, OR
Occupation: Association Executive
Bethune? After his smart-ass start, he emphasized knowing the product and employees. He
didn’t say much about his customers. As an occasional flyer, that’s my problem with tthe airline
industry – they’ve forgotten about their guests! Bethune still thinks he’s inthe transportation business
and he’s not – he’s in the hospitality business. I’d love to see a successful hotelier take a stab on
running an airline. He could certainly learn the “airplane” part of the job, plus he would bring a very
different mindset to the customer experience. (Readers: Ever stay at a Ritz Carlton?)
Then again, maybe most passengers just want to get from Point A to Point B with a minimum of
fuss – and be treated like cattle in the process…

Name: Mark Zorro


Email: zorromark@consultant.com
Posted: Tue Oct 28 2003 23:32 EST
Location: Late Night Office
Occupation: Self-Hired
Bachmann doesn’t just get the circular file, his application would be taken personally to a local
crematorium and burned, I mean, anyone whose word association for “customer satisfaction”
accompanies a memory of death must come with some bad satanic touches that needs exorcising,
never underestimate hidden spirituality and the existence of superstition in the inner workings of a
corporation.
Ronning, his application will be redirected to the nearest public make-work project, there are
public projects which are simply exist to get people off welfare, such work does not need focus and
that’s what you get when you stick 40 to 50 executives into anything called a “council”. (For goodness
sake at least call it star teams!!)
Sternberg, the fact that his first thought was his mother would mean that we will readdress his
application and mail it to the nearest Ditech HR office, after all in the Ditech commercial the agent
loses a deal to Ditech even from his mother and in insurance industry terms, that is a sign of bad karma
and HR is a bad place for that. (Don’t tell me those HR folks don’t secretly read Chakra books because
I know they do).
Bethune, we would hire (even if he put down utter crap), because, lets face it, we live in the
stupidity decade and in a stupidity decade everything is based on reputation and who you know.
Because Bethune would have a huge reputation (even if we pretend that he hasn`t yet joined
Continental Airlines yet), even an HR person would know who is was at hiring time. Since we operate
in this god damn awful namby-bamby reputation culture – he’s hired (even if he completes his
application while having a partial lobotomy).
Barton – BARTON IS HIRED. For no other reason than a typical HR person would be flat out
impressed by what he has written. HR discards anything or anyone that sounds entreprenurial – that’s
why anyone who sounds “results focused” will beat hands down anyone who actually has solid
business sense; it’s not that reality scares the bejeepers out of HR folk, it does, but HR folk prefer the
text book example of success rather than the scary form, an action orientated, high flying business
person (who might just end up firing a few hundred non-essential personnel in the company).
Of course thankfully this is all just hypothetical, God forbid if anything I said above actually is
being played out in business organizations today :-)

93
Name: Stephanie Lutz
Posted: Tue Oct 28 2003 20:38 EST
Location: Denver
Occupation: President and CEO, SDM Sportswear
Gordon Bethune has the right idea. Management does not make a company succeed, the folks on
the front line do, especially when they have passion and purpose.

Name: James Stanuszek


Email: Bohemir@aol.com
Posted: Sun Oct 26 2003 16:25 EST
Location: Dayton, OH
Occupation: Account Administrator
I too echo Bruce’s comments. Innovation and brainstorming should not be viewed as only the
responsibility of the middle and upper management levels of a company. It disconects the lower
elements of an organization from taking any ownership of either the successe or failure of a company.
Consider looking at your organization as a big beach ball with all levels representing a color. If you
leave any colors out, you’re not getting a complete picture of things.
Your front line workers “know” what’s really going on but lack the engagement in or are not
given credit to be seen as a valuable source of inovative ideas. I you don’t realize the gold you have in
your own back yard, a competitor may mine it away from you.
I can recount a few occations where a lower level employee had the same idea that a high priced
counsultant came up with but only the consultant was listened to. Engaging front line employee’s will
not only gain you an added invaluable perspective but you will add positive support to those whom
you rely upon to execute your initiatives. An engaged company is a force to be reckoned with.

Name: Galynn Ferris


Posted: Thu Oct 23 2003 13:30 EST
Location: Texas
Occupation: Elearning developer
Gordon Bethune may be crude; but his singleminded employee focus has enabled the employees
to have a singleminded customer focus.
This is the type of executive I want to lead my company.

Name: Bruce Schneider


Posted: Thu Oct 23 2003 13:07 EST
Location: Duluth, GA
Occupation: marketing & advertising
Based on this brief profile, I would not hire Joel Ronning because he includes only directors and
middle managers in brainstorming sessions. How many great ideas are not expressed because lower-
level employees aren’t included? Mix it up, Joel – vary the groups and include people from every area
of the company.

Topic for essay:


1. Add your Own Comments: Whould you hire this CEO?

94
ОГЛАВЛЕНИЕ
Unit 1. Business Letters

1. Business Letter
2. Resume
3. Letter of Application
4. Memo
5. Short Report

Unit 2. Essays

1. Types of Essays
2. Materials and Topics for Essays

95