Human Factor in Management

Management is about human beings.

The task of management is to make people capable of joint performance, to make their strengths effective and their weaknesses irrelevant.  This is what organization is all about, and it is the reason that management is the critical, determining factor.

Management must be built on communications and on individual responsibility.  All members need to think through what they aim to accomplish – and make sure their associates know and understand that aim.  All have to think through what they owe to others – and make sure that others understand. All have to think through what they, in turn, need from others – and make sure others know what is expected of them.

ACTION POINT: Management must enable the enterprise and each of its members to grow and develop as needs and opportunities change.

Strengthening Isolating Mechanisms

When an isolating mechanism is based on the collective know-how of groups, it may be strengthened by reducing turnover. 

An isolating mechanism inhibits competitors from duplicating your product or the resources underlying your competitive advantage.  If you can create new isolating mechanisms, or strengthen existing ones, you can increase the value of the business.  This increased value will flow from lessened imitative competition and a consequent slower erosion of your resource values. 

The most obvious approach to strengthening isolating mechanisms is working on stronger patents, brand-name protections, and copyrights.  When a new product is developed, its protection may be strengthened by stretching an already powerful brand name to cover it.  When an isolating mechanism is based on the collective know-how of groups, it may be strengthened by reducing turnover.  When protections are unclear, legislation or courtroom verdicts may clarify and strengthen certain positions.

ACTION POINT:  Identify and strengthen the resources that provide any competitive advantage you have.

Creating Higher Demand

Engineering higher demand for the services of scarce resources is actually the most basic of business stratagems.

A competitive advantage becomes more valuable when the number of buyers grows and/or when the quantity demanded by each buyer increases.  Technically, it is the scarce resources underlying the advantage that increase in value.  Thus, more buyers for small airplanes will increase the value of Embraer's (Brazil) brand name and its specialized skills in design and production.  Note that higher demand will increase long-term profits only if a business already possesses scarce resources that create a stable competitive advantage. 

Because so many strategy theorists have mistakenly equated value-creating strategy with "having" a sustainable competitive advantage, they have largely ignored the process of engineering increases in demand.  Engineering higher demand for the services of scarce resources is actually the most basic of business stratagems.

ACTION POINT: Identify your resources that will create a stable competitive advantage and create demand for those.

Broadening the Extent of Advantage III

...a failure in the new arena can rebound to damage the core.

Extensions based on proprietary know-how benefit from the fact that knowledge is not "used up" when it is applied; it may even be enhanced.  By contrast, extensions based on customer beliefs, such as brand names, relationships, and reputation, may be diluted or damaged by careless extension.

Although great value can sometimes be created by extending these resources, a failure in the new arena can rebound to damage the core.

ACTION POINT: Avoid careless extensions of your brand that may end up damaging your core.

Broadening the Extent of Advantage II

Bemused by the idea that their company's competitive strength lies in vaporous generalities...companies may diversify into products and processes they know nothing about.

The idea that some corporate resources can be put to good use in other products or markets is possibly the most basic in corporate strategy.  Its truth is undeniable yet it is also the source of great mischief.  Bemused by the idea that their company's competitive strength lies in vaporous generalities such as "transportation," "branded consumer products," or "management," companies may diversify into products and processes they know nothing about.

The basis for productive extensions often resides within complex pools of knowledge and know-how.  For example, DuPont started as a specialist in explosives.  After World War I, its skill at chemistry and chemical production led DuPont to manufacture cellulose, synthetic rubber, and paints.  The work in synthetics led to new skills in polymer chemistry, which, in turn, left to Lucite and Teflon in 1935.  Similar patterns of accumulating and extending technological resources can be found in General Electric, IBM, 3M  and many pharmaceutical and electronics companies.

ACTION POINT: Identify any complex pools of knowledge and know-how to extend any competitive advantage you may have.