BackBusiness at Oxford | The new-age global manager
Business at Oxford | The new-age global manager
PremiumThomas C. Powell is professor of strategy at the Saïd Business School, University of Oxford.
Most of today’s MBA students seek careers in investment banking, strategy consulting or entrepreneurship. A few of them are still interested in managing companies, but these students are becoming scarcer with each passing year. Finance, strategy, entrepreneurship—this is the mantra of the modern MBA.
I used to think this was a bad thing. The world needs managers for its large enterprises, and the failure to invest in fundamental management skills such as operations management, human resources and customer support nearly always lurks beneath the lagging productivity in developed economies of Europe and North America.
I was recently discussing the Tata Group’s corporate portfolio with a colleague. Under any theory of finance or strategy, it is difficult to explain Tata’s conglomeration of steel, cars, chemicals, cable, hotels, IT consulting and tea. It may be that the group structure enables Tata to focus its operations, or that unrelated portfolios have economic justification in emerging markets, where incomplete legal, financial and physical infrastructure creates higher transaction costs. But someone still has to manage all of this, and it is nearly impossible to imagine synergies across some of these businesses. And as Tata internationalizes, the original justifications for conglomeration begin to evaporate.
Enter the new MBA student. The aspiring investment banker wants to focus on capital structure, portfolio risk, and merger and acquisition; the aspiring strategy consultant wants to analyse competitive advantage and corporate synergies; the aspiring entrepreneur wants to talk about innovation, customer segmentation and venture capital financing. Nobody wants to talk about managing the enterprise.
But in the modern global economy, maybe they are talking about managing the enterprise.
For example, MBA students learn that Tata Group is not the only successful conglomerate out there, and that some of the most successful conglomerates— Wesfarmers (Australia), CJ (South Korea), Virgin (UK), Swire Pacific (Hong Kong), Textron (US), Berkshire-Hathaway (US), GE (US)—are headquartered in advanced economies, with none of Tata’s legitimate reasons for conglomerating.
If the Tata Group falls afoul of the theory of strategy synergies, then it is in very good company indeed.
It has not been theoretically fashionable for years, but I think the facts are telling us that conglomeration is, in fact, a viable and sustainable form of governance. The successes of GE and Berkshire-Hathaway are too significant and sustained to be treated as anomalies. On the other hand, conglomeration is not for the faint of heart, and unrelated portfolios often come under shareholder attack, or collapse under their own weight. Conglomeration works, but it cannot succeed without deep talent in finance, strategy, and entrepreneurship.
The factors common to successful conglomerates are four-fold:
(1) A world-class internal capability for analysing, negotiating and implementing large capital investments, especially mergers and acquisitions (read: corporate finance); (2) Compelling strategic objectives for the corporation, communicated clearly and consistently by the top executive (read: strategy); (3) A set of corporate-wide programmes, initiatives and systems that drive strategy execution across every business (read: strategy implementation); and (4) A distinctive corporate culture that percolates energy and ideas, and overcomes the bureaucratic tendencies of the large corporation (read: entrepreneurship).
Australia’s Wesfarmers, which competes in financial services, retail hardware, agriculture and transportation, is a classic example of this. Expanding in an era when corporate staff were regarded as overheads, Wesfarmers had the largest internal business development group in Australia. Corporate executives articulated objectives driven by returns on invested capital, while promoting systems and processes for measurement, best practice, customer focus and innovation across all businesses. By cascading a well-integrated set of objectives, programmes and cultural values from the corporate centre, while building core capabilities in merger and acquisition, Wesfarmers exemplified the conduct of the successful conglomerate.
Jack Welch’s GE fit the same pattern, with internalized financial capabilities, clear corporate objectives (refocus on global services, number one or two in every market), corporate-wide programmes (work-out, Six Sigma), and a bureaucracy-defying culture (speed, simplicity, self-confidence).
The Tata Group also seems to be following this pattern by setting corporate financial targets, inveighing culturally against complacency and using Tata Quality Management Services to drive quality and customer focus across all businesses.
What is certain is that the skills required to manage the successful conglomerate, or the large private equity group, or (I would argue) all of today’s largest and most complex enterprises, are essentially financial, strategic and entrepreneurial. Which means that modern MBA students have not strayed so far from management fundamentals after all.
Students may say they aspire to work for Salomon Brothers or McKinsey, and maybe they really mean it—certainly, they queue up to interview with these firms. But I am less despairing about this than I used to be. Whether they know it or not, students are preparing themselves to manage the complex demands of the global enterprise of the future.
(Send your comments to businessatoxford@livemint.com)
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