John Kotter of the Harvard Business School often uses as a case study the history of International Telephone & Telegraph (ITT), a large conglomerate that has had its fair share of ups and downs.
Back in the 1960’s, as head of ITT, Harold Geneen used his formal authority in less than subtle ways to get everyone in key jobs to manage in a highly disciplined manner. That meant continuously producing detailed plans and budgets aimed at achieving financial objectives set mostly by Geneen (the key objective being 15% annual EPS growth). He also implemented powerful economic incentives to direct people toward achieving those plans and budgets. He established elaborate control mechanisms, such as detailed financial systems and regular business reviews, and then paid strict attention to the data produced by those mechanisms.
Geneen got his executives to apply his form of management across a wide range of businesses with great success in the 1960’s. During that time, ITT bought dozens of companies and then made them more profitable by managing them more competently. In the process, the firm’s revenue went from $811 million in 1960 to $5.36 billion in 1970, while net income grew tenfold ($38 million to $393 million). Very impressive!
The problem with this kind of management is that it leads to a rigidity that often is not capable of responding quickly enough to competitive thrusts. The tendency to try to control everybody discourages leadership. There is virtually no exciting vision of moving ahead via the kind of innovation and motivation that are typically necessary in a truly competitive environment. The absence of such leadership usually generates performance problems, which often only increase in size with the application of still more management.
This problem emerged vividly in the ITT case. With the emphasis on highly disciplined management but very limited leadership, ITT took a huge fall in the 1970’s, with its financial performance among the worst of all large corporations during that period.
So…what is really required? You need a strong leader that assesses the situation and lays out exciting and impactful plans to stay ahead of competition. But, that leader also needs to be a strong manager, putting the right budgets, systems and controls in place to manage the assets well and turn in good financial results. Strong leaders do both!