Avoiding the Most Serious Management Mistakes

By Frederick R. Adler

"Happiness is positive cash flow" should be printed in letters a foot high on the wall of every chief executive's office. Cash is the lifeblood of a corporation. Misunderstanding the importance of positive cash flow is by far the most serious management mistake. The most common error is spending earnings to build up more volume and to increase the share of the market. That is not necessarily wise. Ask the right questions first: Is the company increasing its share of the market with a profit? Or is it losing money with each dollar spent?

Another serious mistake is settling for second or third-rate employees. You need top people and to get them you have to pay a fair price. Entrepreneurs who resist giving away part of their stock end up with stock not worth having. Chances for success of the enterprise increase tremendously when really first-rate talent is in place in each key area. There is a bonus here: top management talent in depth increases the value of the company when it is time to go public or merge.

A third mistake is the tendency of very bright people not to delegate enough. They are so good that they find it easier to do everything themselves. The best way to develop a good manager is to give him responsibility and then act almost as a management consultant for him. A still better approach is to teach him to become his own management consultant. Good managers learn to analyze their own problems as if they were sitting on the opposite side of the table.

Bright managers also spend too little time analyzing markets. Too often they are entrepreneurs in a hurry. They come up with a magnificent new product, but fail to recognize that the market for it is very limited. Failure occurs either because market research is weak, or they spend too much time and money coming up with products on the major markets. Large markets create large opportunities; small markets create small opportunities. It is that simple.

Evaluating new product ideas is another mistake-prone area. Too often when a manager solicits opinions on a new idea, the inevitable result is a series of objections under the not-invented-here syndrome. A much better approach is to ask subordinates to prepare a one-page analysis what's bad and what's good about it. Suggest that they start with what is bad, and then advance to the good. Avoid presenting a new idea with a strong statement about how good you think it is. The listeners' instinctive tendency is to back away. Present the alternatives dispassionately, and encourage the other person to make his own analysis.

Hands-On Management

By Dr. Leonard R. Sayles

As financial pressures mount, the temptation grows stronger to substitute financial controls for effective management. A symptom of the trend is that nearly three-fourths of the students in major graduate schools of business specialize in finance now. But this development is a gross distortion of the original purposes of such controls. Their prime function is to tell management if the business has adequate cash and to inform shareholders and tax authorities about the company's overall health.

Management by exception, intervening only when a problem shows up in the financial results, has become an excuse for managers who don't want to get their hands dirty finding out what is really going on in the company. But some things a manager must know can't be learned from financial reports. And errors don't appear in the reports until it is too late to rectify them. Examples:

• Loss of the firm's strongest customers. Sales can be kept high by developing less-valued customers.
• Failure to provide good service. After computerizing its commercial accounts, a large New York City bank tracked the number of errors being made and was satisfied that the incidence of error was normal. What didn't sow up until too late was that the mistakes that were occurring were huge ones. The result was the loss of several major accounts.
• Growing isolation and competition among departments, especially in decentralized companies. Overemphasis on financial results forces each unit to try to maximize its advantages over the rest. The bottom line is departmental efficiency, but at the expense of companywide effectiveness. One symptom is balloon squeezing by managers to make sure costs and/or problems show up in somebody else's department.

A better way is hands-on-management. Though a somewhat overworked buzzword, it is a very simple concept. Management must observe directly what is going on, get a sense of the organization and understand the relationships among people and departments. The aim is easy give-and-take among interdependent units rather than defensiveness or an inclination toward one-upmanship.

How to set a hands-on-management style for the company:

• On occasion, deal directly with people several levels below.
• To avoid isolation, spend time in the operating units and staff groups. But do not use visits as an opportunity to second-guess managers.
• Give individuals and departments special, tough assignments periodically and watch carefully how they are carried out. Ask managers questions about which parts of the assignment were most difficult, how they went about doing the job, etc. People want cues, and well-framed questions are a way to give direction.
• Ask people questions that can be answered only if they are doing their jobs well. For example, query a purchasing manager on the likelihood of strikes this year and how many alternative supply sources the manager has lined up.
• Always be curious about how people are handling the discretionary, coordinating, and subjective aspects of their jobs. Problems in these areas are leading indicators that something is wrong. Financial results are a lagging indicator.

By being good hands-on managers, top executives in a company counter the tendency of middle managers to narrow their jobs and do only those things that are measured. By learning how things are done, a good top manager can encourage other managers to facilitate coordination and thereby serve the interests of the company as a whole.