SEVENTH RULE OF MANAGEMENT

The first rule of management is that successful management is actually more about how you manage yourself rather than being about how you manage others (see “First rule of management” posted June 25, 2012).

The second rule of management is that the key to your own success is totally dependent on the success of your people (see “Second rule of management” posted September 24, 2012).

The third rule of management is that no man is an island, and you need to build a network in all directions (see “Third rule of management” posted October 1, 2012).

The fourth rule of management is that you do not manage people, but you manage their behaviour (see “Fourth rule of management” posted October 15, 2012).

The fifth rule of management is that if you are serious about moving up, you need to first move sideways (see “Fifth rule of management” posted November 5, 2012).

The sixth rule of management is that you should not over-manage your people (see “Sixth rule of management” posted November 19, 2012).

The seventh rule of management is that if you don’t manage the financials they will manage you.

French author Jules Renard (1864-1910) said “I finally know what distinguishes man from the other beasts: financial worries.”

What differentiates professional managers from amateurs is that good managers work hard to totally understand and worry about the financials at all times, and don’t just hand over all the financial responsibilities to their senior finance person. Ultimately the responsibility has to lie with the most senior manager, no matter how much reliance he has placed on his finance team.

This was shown in a big way last week, with the release of the latest financial results from Hewlett Packard.

Author: Roberta F.; CC BY-SA 3.0 license; via Wikimedia Commons


The results were bad enough on their own, but were not helped by the write down of $5 billion related to the acquisition of Autonomy for $11.7 billion, just over one year ago in August 2011. According to HP there had been improprieties in the way Autonomy had been valued, and HP had been misled by Autonomy’s questionable financial reporting.

Former Autonomy CEO, Mike Lynch said “It took 10 years to build Autonomy’s industry-leading technology and it is sad to see how it has been mismanaged since its acquisition by HP”,and that this was just an attempt by HP to distract the market from its poor results.

The CEO of HP, Meg Whitman, said that the HP Board had relied for the purchase of Autonomy on financials supplied by Deloitte, and that they had even hired KPMG to audit Deloitte. Apart from having “watchers watching watchers”, there was no mention of their own due diligence carried out by HP itself, which one would have expected with a trade purchase of any size. This excuse just seemed like a blatant attempt to move the responsibility for the disaster away from the management team, where it always belongs. It was too obvious and not acceptable.

Author: Steve Jurvetson; CC BY 2.0 license; via Wikipedia Commons


Managers do not have the luxury of being able to shift the blame to others for actions that occur on their watch, and in their area of responsibility.

Whilst Whitman was not the CEO at the time of the purchase, she was at that time a member of the board that ultimately approved the deal, and there is no way that the senior team in any organisation can pass the responsibility to anyone else.
To me, this seems like management incompetence on a grand scale, but serious financial management is just as critical at every level of an organisation. It is just as mandatory for the leader of a small team as it is for the CEO of a large corporation.

Business management is a people and a numbers game.

It is not enough, for example, for a sales manager to just work on the number of suspects needed to supply the requisite number of prospects to drive the number of qualified opportunities that will provide the number of successful deals closed to deliver the committed revenue numbers, and then believe that these responsibilities alone are enough to do the job. It is just as important for success to also closely manage elements like the travel expenses needed to deliver these opportunities.

I once had a country MD who was skilled at driving the top line, and rarely had problems making his revenue forecasts. The problem was that he believed that as long as he made his revenue goals the bottom line would look after itself. It didn’t in his case and it rarely does in any case. He achieved his sales goals by over incentivising his sales force with end of quarter and end of year extra commission schemes, which not only blew up his cost of sales, but also drove un-natural behaviour in his field organisation which skewed business towards the end of whatever time period was being rewarded. He also believed that it was the responsibility of his CFO to manage the numbers, but as an over-confident MD he would override his CFO’s concerns. The real issue is that, like many managers, he really did not understand how to manage the financials of a complex organisation. The end result was that the subsidiary did not meet its profit goals and the MD had to be replaced.

To be successful a manager must develop “a nose” for the financial health of his business area, in the same way that a wine connoisseur can tell everything about a particular wine s/he is tasting. S/he particularly has to be able to “smell” that something doesn’t feel right, particularly when it comes to understanding the numbers. This means that every manager has to make it their responsibility to totally understand not just how to read a Balance Sheet and Profit and Loss report, but has to be able to understand that s/he needs to have access to a dashboard that gives the metrics needed to measure the health of the business area in real time.

The problem is that few managers have the financial skills to do more than to cast a cursory glance at the financials, and it often gets worse as one travels higher up the organisational pyramid.

As so well supported by Robert Toru Kiyosaki, American investor, businessman and author “Academic qualifications are important and so is financial education. They’re both important and schools are forgetting one of them”.

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SIXTH RULE OF MANAGEMENT

The first rule of management is that successful management is actually more about how you manage yourself rather than being about how you manage others (see “First rule of management” posted June 25, 2012).

The second rule of management is that the key to your own success is totally dependent on the success of your people (see “Second rule of management” posted September 24, 2012).

The third rule of management is that no man is an island, and you need to build a network in all directions (see “Third rule of management” posted October 1, 2012).

The fourth rule of management is that you do not manage people, but you manage their behaviour (see “Fourth rule of management” posted October 15, 2012).

The fifth rule of management is that if you are serious about moving up, you need to first move sideways (see “Fifth rule of management” posted November 5, 2012).

The sixth rule of management is that you should not over-manage your people.

Eric Schmidt of Google was at one stage known to have about 60 direct reports. When he was asked how he could successfully manage so many people, he replied that that was the whole point of it, and that “When you have so many direct reports you can’t actually manage them.”

Author: Guillaume Paumier / Wikimedia Commons, CC-BY-3.0; http://www.gpaumier.org


Skilled managers understand that their primary role is to “create an environment in which people can be incredibly successful”, and are also aware that this is significantly easier to say than it is to achieve, but they do understand that their people need to be given the freedom to act and to achieve their goals.

The first priority, which may actually be the hardest for many managers, is to recruit the right people which is something that many find a struggle (see “Why are so many managers so bad at recruiting” posted December 12, 2011).

One of the problems is that most managers focus on recruiting mainly for quality of skills.

I believe that skills are a critical component of selection, but that it has become even more critically important to hire for attitude, as it is significantly easier to develop skills through training, mentoring and on the job learning than it is to change someone’s attitudes to work and life.

This means that the focus should be to recruit for attitude and be prepared to train for skills.

I do not mean to suggest that managers should not recruit skilled people for a role that requires experience and knowledge, but I am suggesting that most managers tend to spend the greater part of the recruiting process looking at experience, skills and knowledge and not enough time looking at ethics, integrity, attitudes, values and cultural fit. Most managers still seem to believe that the perfect recruit is generally someone who is already doing the job needing filling, at one of their competitors, despite the fact that the cultures may actually be in direct conflict, and the fact that one should hire for future potential rather than just for filling the current need.

You will have significantly more success if you can recruit people who are a good fit with your work environment, and particularly if they are capable of working without continuous supervision and hand-holding, or even better, filling the role with someone in the team who already fits the environment and who with development and mentoring can grow to meet the need.

The skilled manager knows that he should spend his time interacting with his people, but understands that the days of “command and control” are long gone, and that his role is not to manage his people but to manage their behaviour ( see the fourth rule above ).

The second priority for a manager is that s/he has to ensure that s/he has created the environment where s/he does not have to spend all the time on tight management of the people, and that s/he has answered some critical questions for them to be able to understand the freedoms and boundaries of what they have been asked to do.

Author: Pascale Riby; CC BY 3.0 license; via Wikimedia Commons


These are:

Why are we here ? People must have a clear understanding of the reason for the team’s existence and of the behavioural standards expected from team members. This means a clear understanding of the mission, vision and values that the team works within, and the “shared greater dream”. A manager needs to be able to paint the picture of “building a cathedral rather than just laying bricks”.

What is expected of me ? Once people buy into the dream you need to be able to show them how they can play a role in its achievement. This means clear, measurable goals and objectives that must be achievable (otherwise people give up), but with effort (so people get satisfaction from the achievement and learn along the way).

What’s in it for me? Reward for achievement of goals should not be just financial incentives, but should be tailored to the individual, as for some it could be promotion to a more senior role, continued education or an overseas assignment, all rewards that can add to the value of the individual.

How am I doing ? People must have feedback along the way, and your continuous interaction with your people gives you not only the ability to reinforce the required behaviours, but it also allows you numerous opportunities for real-time feedback on their performance. For some this will mean regular weekly reviews, for others, particularly the more senior ones this will be significantly less often, and may be enough with managed, seemingly chance, encounters.

Where do I go for help ? A skilled manager will ensure that the team is as self-managing and self-supporting as possible, to ensure that not all issues always float up to him for resolution. The more that the team can help each other to resolve issues, the more time the manager has available to focus on strategy and planning, rather than fire-fighting.

Author: Lilyu; via Wikimedia Commons; WTFPL 2.0


I believe that if you hire more for attitude rather than just for skills, that you create an environment that can breed success, that your people are aware of what is expected of them and that you give them the freedom to do their jobs, including allowing them to trip up regularly, not only can you increase your span of control, but you can also be significantly more successful.

WOULD DISASTER HAVE STRUCK LEHMAN SISTERS ?

I have been inspired by Jonas Ridderstrale, a speaker at the AtelierSAP conference in Berlin last week, to speculate on what would be the state of the world today if Lehman Brothers had not been founded in 1850 by Henry, Emanuel and Mayer, but had instead been started by Henrietta, Emanuelle and May to become Lehman Sisters.

On September 15, 2008 Financial Services firm Lehman Brothers filed for Chapter 11 bankruptcy protection.

Author: David Shankbone; GFDLicense; via Wikimedia Commons


Lehman Brothers was forced into this position through the mass exodus of its clients, drastic losses in its share price and the devaluation of its assets by the credit rating agencies, mainly driven by the number of defaults in their sub-prime mortgage business. With holdings of over $600 billion in assets it was the fourth largest investment bank in the US and it remains the largest bankruptcy filing in history, many seeing it as having played a major role in precipitating the global financial meltdown that we are facing today. Major Banks across the globewho dealt with Lehman Brothers lost billions, bankrupting millions of small investors and what followed has been called “the perfect storm” of economic distress factors, which we are still struggling with today.

(Note that I hesitate to call it a “crisis” as traditionally a crisis has a beginning and an end, and I believe that this is not so much a crisis as a dramatic shift in the economic environment and in business fundamentals that will necessitate rethinking of many business principles that we have taken for granted as “truisms” over the last 200 years, such as the ready availability of loans to fund growth.)

Chairman and CEO Richard S. Fuld Jr had been with Lehman Brothers for over 30 years and was the longest serving CEO on Wall Street (1994-2008), which should have already been a red flag (see “Hero to Zero” posted October 29, 2012), and he also had a history of long serving underlings such as Chris Pettit his second in command for 20 years finallyserving as President and COO (Second warning sign see “How do you know when you should step aside” posted April 2, 2012). In 2008, even as Lehman Brothers was disintegrating Fuld’s annual salary was $22 million and he is estimated to have earned in the vicinity of $500 million during his tenure at Lehman Brothers.The bankruptcy examiners found that he had also been involved in “cosmetic accounting practices” in his quarterly reporting to make Lehman Brother’s finances appear less shaky than they really were.

Author: World Resources Institute Staff; CC BY 2.0 license; via Wikimedia Commons


I have long speculated on whether women are better managers than men (see “Do women make better managers” posted November 22, 2010), despite the fact that today they fill so few board seats, estimated at 10% in the western world in 2012 (16% UK, 13% US), but the question now is whether women would have made the same insane gambles and been driven by greed as much as did the leaders at Lehman brothers.

I believe from personal observation within my own family, friends and colleagues over the last 40 years, and supported by numerous studies over the decades (example “Men, Women and Risk Aversion” paper) that women are definitely more risk averse than are men, which may explain the low number of IT company start-ups by women entrepreneurs, Arianna Huffington being one rare example. Couple this with women generally possessing a greater social conscience and sense of responsibility for the longer term than do men, and it brings me to the belief that the world would currently be in a calmer and safer state had it been Lehman Sisters rather than Lehman Brothers that had had control of the $600 billion. It is not that business women are totally risk averse, it is just that they are more risk cautious than men, and are therefore unlikely to bet everything on the throw of a single die.

I believe that the difference between men and women in their attitudes to risk can be summed up in the following quotes:

If it’s a good idea with calculated risk, go ahead and do it. It’s much easier to apologize than it is to get permission.–Rear Admiral Grace Hopper, computer scientist and pioneer (1906-1992).

Author: James S. Davis; via Wikimedia Commons


versus

Life isn’t worth living unless you’re willing to take some big chances and go for broke.–Eliot Wiggington, American historian and writer.

As Jonas Ridderstrale said during his presentation “Companies have been built by men, for men, but we will need to rely more heavily on women to find the talent needed to build companies for the future.”

A recent study by the Higher Education Policy Institute (HEPI), an independent university think-tank in the UK has found that women outperform men in almost every single aspect of higher education, and that the number of women at university began to exceed the number of men nearly 20 years ago. The study shows that not only are there more of them studying, but they are less likely to drop out and will most times end up with a better degree. It also found that about 50% of women now opt for higher education compared to about 37% of men. It is no different in the US where American women today are more likely to earn college degrees than men, with women receiving 57%of all bachelor’s and 60% of all master’s degrees.

Sadly however, a recent survey shows that when it comes to science, technology, engineering and maths (STEM) they’re still far behind men. In fact, in the US women receive only 21% of degrees in the field of computer and information science, and only 19% of engineering degrees. European numbers are similar but are rising steadily with support from EU initiatives like “Science. It’s a Girl Thing”, which despite being lauded for its intent, was criticised for its representation of young women (focussing on giggling, stilettos and makeup,so no doubt an initiative designed by men). It does however show a changing and growing commitment to attracting women into the STEM courses.

I have little doubt that this move to STEM courses by women will change dramatically over the coming decade, particularly as women realise that this will open higher paying opportunities for them, and I believe that as women take their rightful and equal place at the highest corporate levels, we will actually build a better and more sustainable business world.

FIFTH RULE OF MANAGEMENT

The first rule of management is that successful management is actually more about how you manage yourself rather than being about how you manage others (see “First rule of management” posted June 25, 2012).

The second rule of management is that the key to your own success is totally dependent on the success of your people (see “Second rule of management” posted September 24, 2012).

The third rule of management is that no man is an island, and you need to build a network in all directions (see “Third rule of management” posted
October 1, 2012).

The fourth rule of management is that you do not manage people, but you manage their behaviour (see “Fourth rule of management” posted October 15th, 2012).

The fifth rule of management is that if you are serious about moving up, you need to first move sideways.

Author: Rover 777; GFDL license; via Wikimedia Commons;


I have observed that there appears to be no real shortage of people trying to build a career in their own professional and functional area. For example, for every sales manager that is currently in place there are generally more than enough salesmen below him who are elbowing each other as contenders for the next sales management slot. This doesn’t mean that all of them are really suitable for a management role, nor that they will all be successful if given a chance to lead a team of people, but it does mean that generally they are in a very crowded field with a large number of aspirants and starters in the race.

The shortage that exists in senior management skills and roles, in every industry that I have had contact with over the last 40 years, are people who have shown an ability to perform effectively in a much broader set of experiences, both functionally and geographically, rather than just in a single functional vertical silo, in other words there is a really serious shortage of people with general management experience.

Author: Virtual Steve; CC BY-SA 2.5 license; via Wikimedia Commons


To be able to compete effectively in today’s global and highly competitive markets, the need for senior executives who have spent time in multiple geographic regions, and in a number of different divisional areas, is significantly greater than the need for purely functional managers, and this becomes even more important the higher up the ladder that one climbs. The complexity of business today means that senior executives need an understanding of every element of their business, and it is unlikely that someone will be able to achieve this by staying in a single functional area and in the one country, no matter how successful they have been.

I therefore believe strongly that people who have a serious desire to move up the corporate ladder to the most senior levels in their company will need to spend some significant amounts of time in different parts of the business, either in a totally different role or at least on a long term project assignment. They should also be prepared to look at opportunities in different parts of the world, even if this means taking a sideways rather than an upward move at the time.

Author: Stemonitis; via Wikimedia Commons


The boards that I serve on always value most highly the breadth of experience of candidates when evaluating them for an executive management team role, and one executive board that I was a member of, even stipulated that no-one would be invited to join the board from an internal position without having worked in at least two of our various business areas, with a preference for three. I have often been surprised at finding candidates who according to their CVs seem to imply, and they also probably believed, that they have 20 years of experience, but on closer scrutiny, really may only have four years of true experience repeated five times, but with different and ever more impressive titles.

The best software development executives that I have worked with over the four decades of my career in the IT industry were without fail those that had also spent some time in a customer facing role. Those that had moved up the ladder only vertically from developer to development management roles tended to always have too inward-looking a view of what their markets and customers needed, and were generally more fixated on the technology and the “elegance of the architecture” that they were creating, rather than on the customer experience with trying to use the technology for some business benefit.

One positive example of a general management driven successful career from my personal past is that of Jim Hagemann-Snabe, currently co-CEO at SAP.

Jim joined SAP in 1990 in a software product consulting role in Denmark, helping customers implement SAP, rose to the role of country consulting manager, then on to a sales role moving to the position of Danish country MD and then to the position of Nordics regional manager. In 2002 he moved to Germany to join the software development division,went through a number of different management roles there to become global head of software development, and ultimately co-CEO of SAP in 2010. A 22 year career progression and development through the three major functional areas of SAP across various countries from an individual contributor role as a software consultant to co-CEO of a global company with over 50,000 employees and revenues of about € 15 B in 2011.

The ability to work in different functions and in different geographic regions is a wonderful adventure and is not just great for your career, but also gives you a chance to mix with different people, experience different cultures and business challenges, and to develop a greater understanding of what drives and excites people and how different, and yet how similar we all are.

Author: E Pluribus Anthony; via Wikimedia Commons


To be a great global leader you need more than single silo slices of life experiences … you need to have also developed your versatility and sense of adventure.

As summed up by Mark Jenkins, English professor and author

“Adventure is a path. Real adventure – self-determined, self-motivated, often risky – forces you to have first-hand encounters with the world. The world the way it is, not the way you imagine it. Your body will collide with the earth and you will bear witness. In this way you will be compelled to grapple with the limitless kindness and bottomless cruelty of humankind – and perhaps realize that you yourself are capable of both. This will change you. Nothing will ever again be black-and-white.”