Sunday, May 6, 2007

Business Mis-Management

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The recent and distant past of company management and its track record in New Zealand leave a lot to be desired.

While the calibre of management in selected companies listed on the NZX is clearly very good: Mainfreight Ltd [MFT.NZ], Pumpkin Patch, Michael Hill, Fletcher Building, Rakon among a shortlist, the great bulk of management is littered with far too many candidates for the top prize of mis-manager of the year.

On the negative side the list includes Feltex at the top followed by Restaurant Brands ,with Telecom, The Warehouse(previous Management)Tourism Holdings and Sky City all worth a mention.

The bottom rung seem to share some common traits. Basic bad decision making, at times it is part of the culture- Telecom, in Feltex Carpets case bad decision making was endemic and used to cover up problems, Restaurant Brands suffers from a culture of denial when it comes to decision making-witness the complete ignorance of store level service, Tourism Holdings simply couldn't make a decision as to what their problems were caused by and Sky City Ltd [SKC.NZX] has made a hastie decision to buy a cinema unit that drags down profit and is capital hungry for no return but they refuse to make the decision to let go and cut lose a bad business.

The Warehouse's woes were widely canvassed but they suffered from a man,Tindall, that rushed into a new business with too much confidence, ignoring basic differences in the shopping culture of 2 different countries.

Managers are paid to manage and that means, as much as possible, decisions being made at the right time and in the right direction as consistently as possible. When managers begin to garner a track record of bad decision making, it is time to look at the problem, fix it if possible or move that manager on if an easy fix isn't possible.

Shareholders need to have a means of making their opinions known to those who manage their investment in the company they have bought and apart from the likes of Bruce Sheppard from the Shareholders Association, the rest of us appear to be sheep when it comes to standing up for our vote on the board.

The buck stops with the person at the top rung of management but a clear stumbling block with our listed and private companies is the bottleneck of middle managers ,who often serve the purpose of mere relay people, of information from productive workers on the shop floor to those executives at the top. We could do with less of these people in our companies, in my humble opinion they can confuse the clear messages that must get through from upper management to shop floor and back in order for a company to function efficiently and competently.

Restaurant Brands suffers from this syndrome in spades. Store workers don't get to communicate clearly as to what is going on at store level directly to upper management, problems are filtered through a multifaceted layer of store, area and regional management before getting operating concerns to the top.

Of course RBD store managers often don't have the motivation to let upper management know if there are problems at store level anyway, lest they be in the gun themselves. This happens to a lesser extent in other New Zealand companies but is still clearly a problem. Telecom suffers badly from the same syndrome.

The solutions to our problems may lay in what Toyota calls the "Toyota Way" that is, where there is a free flow of reciprocal critical information between upper management and productive workers. In essence this means that a shop floor worker has access directly to upper management and vice versa.

Like a pyramid of cheerleaders whispering advice from the bottom of the pile to the top, by the time it gets there the message is often completely different from its original form. Remove the middle of the pyramid and it will collapse but remove middle management from the management pyramid and it will serve to make the company stronger.

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c Share Investor 2007