Inside Business: Firms that fail their IQ tests

All the faddish theories won't help a business which lacks corporate brain-power, writes Roger Trapp. A new book tells how it's done

THE RECENT financial turmoil in South-east Asia appears to have caught most businesses on the hop. Even now, some weeks after the initial shock, executives seem undecided about what to do next.

Some may have been so concerned by the developments that they will abandon attempts to break into what only a little while ago were seen as highly lucrative markets. But, say two management consultants, that could well be the wrong decision.

Just as businesses should have seen the possibility of problems in Asia, so should they now see the potential opportunities, say David and Jim Matheson, authors of the just published book The Smart Organisation (Harvard Business School Press).

They suggest that at the heart of organisations' troubles in this area is a lack of strategic decision-making ability. Encouraged by management fads and books such as In Search of Excellence and Re-engineering the Corporation, companies have made great strides in improving processes, or the ways in which they do things. But, says this father-and-son team, they remain less adept at doing the right things.

In the Mathesons' view, companies can be like athletes who concentrate on body-building at the expense of mind-building. In trying to be "mean and lean", they have done such muscle-flexing exercises as productivity drives, efficiency initiatives and corporate restructurings, but left themselves brain dead.

As they write: "We have seen many organisations achieve great things during that journey: new, life-enhancing drugs, customer-pleasing designs for new products and improved process technologies. In these firms we have observed behaviours and practices that energise and inspire people. We have seen the opposite as well: companies that routinely snatch defeat from the jaws of victory; behaviours and practices that suck the creative spirit out of employees; R&D efforts that lead nowhere. What explains these differences? In most cases, the differences are explained by strategic choices and - just as important - how these choices are made. Companies that consistently make smart decisions end up ahead."

This requires much more than slavishly following the principles set out by the quality movement. This approach takes a company only so far and may even divert attention from important issues. Just as commentators have enjoyed pointing to the rapidity with which many companies featured in Tom Peters and Robert Waterman's In Search of Excellence stumbled, so have they feasted on the setbacks experienced by winners of the Deming and Baldrige quality prizes.

The authors quote with approval Edwin Artzt, chairman of consumer goods company Procter & Gamble: "The limitation is in the area of strategy: total quality does not guarantee that companies will produce winning strategies. Winning strategies have to come from the minds of leaders and be augmented by input from the troops. Total quality ensures the success of a winning strategy and sustains success, but it doesn't automatically solve strategic problems."

So can companies improve? The Mathesons say they can. They extend their analogy between companies and people to talk of the concept of corporate IQ. Fortunately, unlike people - who are stuck with their IQ - companies can improve theirs.

How? The Mathesons and Strategic Decisions Group, the California-based consulting organisation Jim founded, have devised a formula. This is based on nine principles that underly strategic leadership and so have the potential to - in the current terminology - unlock "untapped value" in organisations.

These nine principles are ranged along three "axes" - Achieving Purpose, Mobilising Resources and Understanding the Environment. Within the first group are continual learning, a value creation culture and creating alternatives; in the second are open information flow, disciplined decision making and alignment and empowerment; and in the third are systems thinking, embracing uncertainty and an "outside-in" strategic perspective - shorthand for an appreciation of the external factors affecting the organisation.

Many companies will have difficulty grappling with these concepts, and many no doubt pay only lip service to them. But the authors are confident that adhering to this framework is what sets apart the likes of the diversified industrial group 3M, the electronics company Hewlett Packard and drugs group Merck, from the rest. But SDG, which has offices in Boston, New York, London, Caracas and Singapore besides Menlo Park, is particularly concerned with boosting research and development efforts. It has, after all, long been acknowledged that just spending more money in this area does not make a company more innovative than its rivals; rather, it is how it allocates that finance that is important.

For those willing to give it a try, there is even a Corporate IQ test at the back of the book.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Operations Manager

£30000 - £38000 per annum: Recruitment Genius: They are a financial services c...

Guru Careers: Stockbroker

£Basic (OTE) + Uncapped Commission: Guru Careers: A Stockbroker (qualified / p...

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Day In a Page

Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk
Nepal earthquake: One man's desperate escape from Everest base camp after the disaster

Escape from Everest base camp

Nick Talbot was sitting in his tent when the tsunami of snow and rock hit. He was lucky to live, unlike his climbing partner just feet away...
Adopting high fibre diet could dramatically cut risk of bowel cancer, says study

What happened when 20 Americans swapped diets with 20 Africans?

Innovative study in the US produces remarkable results
Blake Lively and 'The Age of Adaline': Gossip Girl comes
of age

Gossip girl comes of age

Blake Lively is best known for playing an affluent teenager. Her role as a woman who is trapped forever at 29 is a greater challenge
Goat cuisine: Kid meat is coming to Ocado

Goat cuisine

It's loved by chefs, ethical, low in fat and delicious. So, will kid meat give lamb a run for its money?
14 best coat hooks

Hang on: 14 best coat hooks

Set the tone for the rest of your house with a stylish and functional coat rack in the hallway
Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?