knowlege base

Knowledge Base


Myths of Modern Business

Dr Jack Jacoby
Managing Director - Jacoby Consulting Group

It is increasingly common to hear shareholders and directors talk about the difficulties they face in maintaining control over their organisations, particularly in ensuring that their organisations deliver what their owners expect. The consequences of the excesses of the 1980s and 1990s have drawn attention to the importance of this issue, that has led to critical assessments of management style and performance in both commercial and academic circles. It has also brought into fashion previously esoteric discussions of corporate governance.

This has led to pressures on legislators and regulators to enhance controls over corporations through initiatives such as corporate disclosure and increased accountabilities and responsibilities for directors. Corporations, on the other hand, have responded with initiatives such as the appointment of investor relations specialists, and enhanced investor and regulator communications, among other measures. As a result, corporate governance has taken on a much more pragmatic tone with a profound new urgency relevant to virtually everyone in the commercial environment.

However, an area still receiving little attention but upon which corporate performance is based, is that of the corporate assumption, the strategic 'principle' or model that drives business and against which fundamental investment and management decisions are formulated and the destiny of organisations determined. It is these corporate models that contribute significantly to shaping the way managers perceive their roles, the relationships they mould for their organisations, the investments they make, the initiatives they undertake, the resources they employ and allocate, and ultimately, the outcomes they produce.

The writer's experience supports the contention that corporations frequently make decisions that are not only dysfunctional from their owners' perspective, but are even hard to comprehend from their own internal perspective. There are many examples of corporations that have adopted strategies that seem appropriate because of the publicity given them in the media or in business circles, or because of their 'motherhood and apple pie' nature, or because they are the latest managerial 'fad' (Shapiro 1995; Hillmer & Donaldson 1996), but are inappropriate when examined rigorously against owner objectives.

Accordingly, and in the context of the writer's 'model of congruence' some of the most common and basic flaws in strategic and operational thinking encountered in modern business are outlined as they relate to shareholders, and the relationship between them and the organisations they invest in. The implication that this alternate view has on some corporations is quite profound, and seriously questions the suitability and applicability of many modern managerial practices.

Myth 1 The Corporation exists for its shareholders

Myth 2 All corporations exist to produce the same outcome

Myth 3 A corporation's mission statement is the principal reason for its existence

Myth 4 The corporation should be in charge of its own destiny

Myth 5 Each investor has a fixed objective for all his/her investments

Myth 6 Organisations know what their shareholders and owners want

Myth 7 Owners and managers of corporations share common objectives and perspectives

Myth 8 There are 'Strategic Principles' that apply to all corporations

Myth 9 Maximising customer service is the path to success

Myth 10 Structural change is the key to improvement

Myth 11 All companies should strive for sustained competitive advantage

Myth 12 All organisations should strive to become 'quality' organisations

Myth 13 World's best practice is a legitimate aspiration for all organisations

Myth 14 Corporate efficiency is achievable from a detailed knowledge of current performance

Myth 15 Churn in a corporation's share registry is an indicator of poor performance

Myth 16 Corporate and CEO performance is best measured by industry ratios and competitor performance

Myth 17 Organisational culture is a given

Myth 18 Organisations must, as part of the fundamental reason they exist, 'fulfil' their staff

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