Entrepreneur to Deal Maker: the strategic manager’s progress

As recounted in ‘The Rise and Fall of Management’, from the earliest days of industrialisation down to the present day, perhaps one of the most striking step changes to take place has been the adoption of the strategic perspective. It was not till the mid 1960s that long range planning and what became known as strategic management received much overt attention. First in large companies, then among consultants and, finally, in academe, strategy became a dominant perspective, widely acknowledged as the lynch pin of management theory and practice.

Strategic thinking, however, has always been at the heart of business, right from the start. What about building the world’s first industrial scale silk mill as John Lombe did in Derby in 1717? He had to raise the funds, build and equip that first factory, produce unprecedented quantities of thread, at an acceptable price and quality for markets which had hitherto not existed, using workers who had no previous experience of factory work let alone silk production, and to do it all at a profit which ensured survival and long term prosperity. That whole process was somewhat strategic. And, it involved all of the management specialisms that were to emerge from the division of management labour: financial, technical, manufacturing and marketing.

Those early entrepreneurs and industrialists clearly thought and acted strategically, intent on protecting and developing the business organisations they created. And as they did so, they benefited other stakeholders in the business: customers, employees, shareholders, suppliers and the rest, providing employment and economic advantage for their local community and for the economy as a whole.

When, two and a half centuries later, the strategic perspective first emerged as an explicit sub-division of management, it was initially the concern of the accounting function and was based around long term projections of quantifiable items such as cash flow, profit and capital spend. In an era before much computerisation these processes were labour intensive and expensive. The advent of the early simplifying strategic models, such as Boston Consulting Group’s portfolio, streamlined the strategy process and reduced strategic decisions to varieties of buy, sell and hold. Under this influence, the top decision making mechanisms of large companies were focused on the possibility of making advantageous deals by selling ‘dog’ businesses, milking ‘cash cows’, investing in ‘stars’ and taking change decisions in regard to ‘problem children’.

Thus, the advent of the so called strategic perspective seduced top management from the former concern with customers and products, technologies and employees, to a focus on making deals. Subsequently, under the influence of Friedmanite economics, those deals were to be evaluated solely in terms of their impact on shareholder interests. Maximising shareholder wealth was to drown out all other considerations, even the survival of the company itself. And that, despite company law which in its letter as well as spirit, requires top management to be concerned for the long term interests of their company. Thus the strategic perspective has engineered the destruction of many British companies and whole industries, Cadbury and the confectionery industry being merely a current example, with Tata’s closure of the Teeside Corus steel plants demonstrating a later stage in that same process.

2 thoughts on “Entrepreneur to Deal Maker: the strategic manager’s progress”

  1. As a long time share holder I have been of the opinion and some shareholders, at least here in the USA, are rebelling somewhat over the excessive fees, bonuses, golden handshakes and the like that our managers are rewarding themselves. No one can possibly earn by their work as managers what they pay themselves. The hourly rate could only be defined as grand theft from the share holders. Recent results have shown how very good they are not at doing their work.
    I would venture to put forward therefore that maybe the book should be entitled “Management – The Rise And Falter Thereof”. As many of these management characters seem, it appears, that if they fell in a cess pool they would come up with a gold tooth. Many could be likened to an aged dog dropping, that in fact smells worse, should it be accidentally or even purposely for that matter be trodden upon.
    I am of the opinion that management should be rewarded on what they earn and pay to the shareholder.

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  2. I agree the exhorbitant remuneration (including extraordinary basic pay, bonuses, transfer golden hellos and handshakes etc) that gets paid today is an obscenity and hugely divisive. It has nothing to do with the intrinsic merit of work as manager. It is mainly a phenomenon associated with the financial sector rather than the real economy of manufacturing and services. The problem arises largely from the total acceptance of Friedmanite free market economics which requires directors to ‘make as much money as possible for stockholders’. Even in the medium term this is self defeating and leads to the acceptance of exhorbitant pay as top managers convert themselves into owners. The extent of the abuse you refer to is much less in economies where shareholders are not the only stakeholder to be considered (eg Germany with supervisory boards having 50% employee membership), or where other stakeholders (eg employees) have a vote – see John Lewis Partnership, the Gore-Tex people or even the Co-op.

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