Sumantra Ghoshal (1948-2004): professor of the spring strategy.
Sumantra Ghoshal was born in India in 1948. After taking an undergraduate degree in Physics, he spent 12 years (1969-81) at the Indian Oil Corporation as a management trainee. His appetite for understanding what makes organisations work is underpinned by the fact he obtained two doctorates--one from MIT, a business school which championed rigorous scientific method, the other from Harvard which espoused a more pragmatic approach based on case studies, observation and practice.
Following periods of lecturing at MIT and INSEAD in the late 1980s, Ghoshal became Professor of Business Policy at INSEAD in 1992, and Robert P. Bauman professor of strategic leadership at the London Business School in 1994. He first came to prominence with the publication of the well-received 1989 book co- authored with Christopher Bartlett, Managing Across Borders.
Managing across borders
Ghoshal and Bartletts' thinking began with two fundamental questions:
What does strategy mean?
Why do the time-honoured business models--exemplified by Alfred Sloan's General Motors--no longer work?
Their initial research led them to ask over 250 managers in nine multinational companies how their companies were facing up to the complexities of international competition and the growing global marketplace. Ghoshal and Bartlett identified a pervasive organisational inability to cope, survive and succeed, in the face of problems of growing diversity and accelerating change. They identified organisational models in operation as:
* the multinational model--exemplified by Philips or Unilever--which operated as decentralised federations of local firms held together by posting key people from the centre
* the global model--illustrated by Ford and Matsushita--which benefited from large scale economies and conduits into new market opportunities
* a more widespread international model--which focused on technology and the transfer of knowledge to less advanced environments.
Ghoshal and Bartletts' research led them to conclude that the old business models were no longer working in the changing global markets of the 1980s. They concluded that a fourth model was necessary--the transnational--which could combine all the elements of a, b and c above, and concentrate on exploiting local know-how as a key weapon in identifying opportunities, rather than just operating sites overseas as outposts of the centre.
Efficiency vs. economic progress
To understand why the old business models don't work any more, Ghoshal cited the example of Alfred Sloan's General Motors as a pioneer of the three Ss of Strategy--Structure--Systems. The organisation's top people are the ones who craft strategy, then design both the structure to enable the strategy to unfold and the systems which make the strategy operational. General Motors' business divisions became the hallmark of the three Ss, which other companies emulated for decades.
The three Ss were designed to make the management of complex organisations systematic and predictable through reliance on information systems which dealt with facts, reducing the human element to a minimum. Employees on Ford's assembly lines, for example, were viewed as replaceable parts. ITT, under Chief Executive Harold Geneen, abolished the possibility of surprises by constantly rooting out 'unshakeable facts'. For years, this systematic approach worked, starting to break down only in the 1980s. At that time, converging technologies, fluctuating markets, overnight competition and technological innovation all combined to make such control systems cumbersome, unresponsive and ultimately a risk to the very survival of the organisation itself.
Formerly excellent companies started going down. In an article by Ghoshal, Christopher A. Bartlett and Peter Moran in the Sloan Management Review of Spring 1999, ('A new manifesto for management', pp 9-20) it was pointed out that criticisms of these companies for stifling initiative, creativity and diversity were valid--but that was their point: "They were designed for an organisation man who has turned out to be an evolutionary dead end" (p 11).
In the same article, the authors make an implicit attack on Michael Porter's work, which influenced strategic thinking for over a decade, by arguing the need for organisations to beat the competition by gaining a stranglehold on value: by either reducing their value--perhaps through competitive incremental cost or quality improvements--or buying them out. Ghoshal et al wrote: "Porter's theory is static in that it focuses strategic thinking on getting the largest possible share of a fixed economic pie" (p 12). For Ghoshal, companies do not exist to appropriate value, but to create it, and they get to a position of creating value by what he called 'changing the smell of the place'.
Fontainebleau and Calcutta--the 'Springtime theory'
Ghoshal developed his 'springtime' theory whilst teaching business policy at INSEAD, in the forest of Fontainebleau, about 40 miles south of Paris.
During a summer visit to his home city of Calcutta, he found the humidity oppressive and draining, and likened this to the stultifying atmosphere found in control- and system-oriented corporate climates. Later, while walking in the woods at Fontainebleau, Ghoshal realised that the fresh, energising forest reminded him of the cultural atmosphere encountered in more open, vibrant and dynamic organisations. Ghoshal went on to propose his 'Springtime theory' from this, arguing that managers and approaches to management, strongly affect cultures, and can create or change the organisational context: 'the smell of the place'.
So how do you create a Fontainebleau forest springtime atmosphere in the operating units of a large organisation?
The three Ps
Ghoshal considered that today's leading companies are built around the 'three Ps' of Purpose, Process and People. In an interview with Bob Little, reported in Management Skills and Development ('Leadership by Ghoshal!', Feb/Mar 1999, pp 38-40), Ghoshal claimed that, as shapers of purpose, senior managers need "--to create a shared ambition among their staff, instill organisational values and provide personal meaning for the work their staff do." The creation of that shared ambition has to be an active management process, going beyond a normal business approach in challenging poor performance, establishing a common goal that binds people together in the organisation, demonstrating managers' commitment and self-discipline; and providing "meaning for everyone's efforts" (p 40).
In the same interview, Ghoshal stressed the need for organisations to look at how to:
* start thinking outside the 'strategic planning' box and begin to examine how they actually learn
* complement vertical information flows with horizontal personal relationships
* build a trust-based culture by spreading a message of genuine openness
* share all the information that has traditionally been a source of power.
Ghoshal stated: "You cannot have faith in people unless you take action to improve and develop them. The success of businesses depends now more than ever on the talent of people working for them" (p 39). To develop such a situation, he proposed that organisations need to forge a new moral contract with their people.
The new moral contract
In the past, the contract between organisations and employees promised relative security in return for conformity. In the 1980s and 1990s, however, this began to change, as job security was undermined by downsizing and re-engineering. At the same time, managerial approaches such as Total Quality Management and Customer Focus demanded more involvement and initiative from employees. The new contract Ghoshal proposed was based on developing people's employability, and providing challenging jobs rather than functional boxes. Personal development is essential both to improve employee performance and to make people more employable in their future working lives. This moral contract should not be viewed either as an act of altruism on the part of a company or as a 'programme' that is inflicted upon employees; it is, rather, a new management philosophy which recognises that employment and market performance stem from the initiative, creativity and skills of all employees, and not just from the wisdom of senior management.
A contract based on employability involves a great leap for both organisations and employees. For employers, it involves creating a working environment that can provide opportunities for personal and professional growth, within a management environment where it is understood that talented, growing people mean talented, growing organisations. For many employees, the new contract would involve movement towards a greater commitment to continuous learning and development, and towards an acceptance that, in a climate of constant change and uncertainty, the will to develop is the only hedge against a changing job market.
This approach is not a completely new one, and is already at work in some organisations, such as Intel, Motorola, ABB and 3M, where the focus is on development for creativity and innovation and where, it seems, both the employee and the organisation win. Ghoshal, however, gave the approach expression, viewing the ethic of value creation as a key step for business in regaining social legitimacy: something that he thought companies lost when they appeared to become increasingly greedy and lacking in social concern during the downsizing, cost-cutting, and value acquisition period of the 1980s and 1990s. For Ghoshal, value creation makes the individual, the organisation and society all winners.
Companies as value creators
Ghoshal felt strongly that organisations must stop focusing attention on the incremental squeezing out of every morsel of efficiency, every possible minute improvement, every conceivable waste reduction and every last cost saving. While this concentration upon efficiency may seem the final staging post of TQM and continuous improvement, organisations for which it is a sole focus are not very good at anything other than improving existing activities. They don't push attention towards new or different things--that is, towards value creation. Instead, their emphasis is almost wholly upon conservation which, as Ghoshal pointed out in the interview with Little referred to above, has been described by Jack Welch of GE as a 'ticket to the boneyard'.
For Ghoshal, the key to competitive advantage in a turbulent economy is a company's ability to innovate its way out of relentless market pressures. As companies shift emphasis from acquiring value to creating it, the focus for managers should shift away from obedience, control and conformity to initiative, relationship building and continuous challenge of the status quo. Instead of being cogs in a system, managers should become facilitators and people developers, drawing creativity from others. This is the main message of Ghoshal and Barletts' book, The Individualized Corporation, 1998.
In an interview published in the Professional Manager, Ghoshal pointed out that the modern world has brought about an enormous improvement in the quality of our lives and that this improvement--this value--has been created by business. While politicians create the content, they do not, in Ghoshal's view, create value--this has come from companies and managers. Seen from this perspective, management is the most important social profession today, in that the wealth of the nation depends on it: "The quality of BT's management matters, perhaps matters more than a quarter per cent change in interest rates, because it creates value. If BT, ICI or Marks and Spencer are poorly managed ... the UK loses because these institutions are the engines of the country's progress. The most important source of a nation's progress is the quality of its management." ('Professor of the Spring strategy', Professional Manager, May 2000, pp20-23.)
In the ten or so years since Ghoshal came to international prominence, his focus shifted from international strategy to the importance of putting people, creativity and innovation to the top of the agenda. Ghoshal, especially working in collaboration with his long-time colleague Christopher Bartlett, looked to the potential of the 21st century with an enquiring mind, and imagination, emphasising the importance of high quality management as an important social and moral, value-creating force.
Key works (all co-written with Christopher A Bartlett)
Managing across borders, 2nd ed
London, Hutchinson Business, 1998
Selected journal articles
Changing the role of top management: beyond structure to processes
Harvard Business Review, Jan/Feb, vol 73 no 1, 1995, pp86-96
Changing the role of top management: beyond systems to people
Harvard Business Review, May/June, vol 73 no 3, 1995, pp132-142
The Individualized corporation: a fundamentally new approach to management
London, Heinemann, 1998
Changing the role of top management: beyond strategy to purpose
Harvard Business Review, Nov/Dec, vol 72 no 6, 1994, pp79-88.