Detachment is an enlightened philosophy of management
Management gurus started waxing lyrical about "value webs" and "business ecosystems" in the early 1990s. During the dotcom bubble these ideas became achingly fashionable. Silicon Valley superstars such as Cisco, the networking equipment company, showed it was possible to grow at an astonishing rate by outsourcing just about everything. The way Cisco managed its army of business partners became the stuff of myriad case studies and cover stories.
When the dotcom bubble burst, such fancy notions fell out of favour. Executives hunkered down with copies of Jim Collin's Good to Great or Larry Bossidy's Execution, determined to get back to basics. This was not a bad thing. Many companies had lost sight of fundamentals. It was time for a counter-revolution.
Back in 2005, however, the language of the go-go 1990s is making a comeback. The reason is that while growth is again at the top of the management agenda for most CEOs, competition is intense, pricing power elusive and demand in most industries growing at only a modest pace. So thinking laterally about how to grow is a necessity. This means exploring "business model innovation", "demand innovation", "value webs" and so on. Welcome back to the future.
A few weeks ago in this column I waxed lyrical about what I dubbed "radical delegation", the way successful companies are loosening command-and-control mechanisms to harness the energies of employees, customers and suppliers. Recently I received a copy of Let Go To Grow by Linda Sanford, a senior vice-president at IBM, and co-author Dave Taylor.
I hesitate to recommend the book because, notwithstanding the fact that the publisher is Addison-Wesley, a corporate cousin of the FT, it is among the most badly written volumes in the dismal management genre.
"Letting go means following these management principles," advise Sanford and Taylor. "Componentize your business. Integrate your components end to end. Expand your growth space through collaboration. Liberate your cost structures."
The sad thing is that IBM people really do talk like this. Just read a few speeches by Sam "business process transformation services" Palmisano, Big Blue's chief executive. However, readers brave enough to hack through the tangled prose of Let Go To Grow will find plentiful current examples of the 1990s approach.
Consider, for example, the story of TAL Apparel, a Hong Kong-based clothing manufacturer. For years, TAL was just another supplier, sending bulk orders of shirts to the warehouses of JC Penney, the US department store group, where its goods would often sit for weeks or months before being sold at heavily discounted prices.
The breakthrough came when the retailer agreed to let TAL deliver shirts direct to its stores, reducing the amount of inventory in the system. When this went well, TAL persuaded JC Penney to share point of sale data, so the manufacturer could forecast how many shirts would be needed by each store each week. TAL next took on some design work, using its factories to test-market new styles before deciding with the retailer whether to go for a full launch.
As Sanford and Taylor tell it, the collaborative relationship has been successful for both sides. TAL is now the world's largest shirt maker. JC Penney makes decent money on merchandise that was previously a low-margin commodity. This happened -- and here's the punchline -- only because the retailer was willing to let go, share information and delegate responsibility.
Other examples include dotcom darlings Amazon and eBay, which have turned themselves into platforms upon which customers can build successful businesses, and Procter & Gamble, the "old economy" company now aiming to unearth half its new product innovations from outside its research and development labs.
The Let Go To Grow approach is not the only way to win, of course. One of the most striking differences between Lenovo, China's largest personal computer company and the PC operations of IBM, which it acquired in May, is the degree of integration and control exercised by each side.
IBM's PC business, as you might expect, exhibits many Let Go To Grow characteristics, with assembly and testing outsourced to contract manufacturers and service and support handled remotely by IBM Global Services. Lenovo, in contrast, is highly integrated. Its headquarters campus in suburban Beijing includes not only offices but also an assembly line, a call centre and an automated warehouse running on software written by the company itself.
I cannot say that either approach is inherently better. There may be good reasons for keeping operations in-house. Note that Dell, which had been kicking sand in the face of IBM's PC division for years, like Lenovo, owns its own assembly plants. Unusually, Dell PCs for the US market are also assembled in the US, close to the customer.
The hard part is deciding which parts of the value-creation process to control and which parts to delegate. Forward-thinking companies recognise that finding the right balance can be a source of competitive advantage. They also know that developing the flexible management approach required to work cooperatively with others is an absolute prerequisite in this interconnected, globalised, outsourced world.
'Let Go To Grew: Escaping The Commodity Trap', by Linda Sanford and Dave Taylor, Addison -- Wesley Professional, December 2005.