The management theorist Peter Drucker says “management is doing things right; leadership is doing the right things.”
How then does management do things right?
A management philosophy I learned during my exposure to the Innscor group and during my 1000 Day CEO training, is that good managers manage using psychology, walkabout and stats.
Management by psychology
Psychology is all about understanding the knowledge and personalities of the people, the idiosyncrasies of the organization, and the type of situation you are trying to manage. To do this well, we need to ask lots of questions, understand decision making processes and limits of authority.
A key tool for understanding people, and one that I have really enjoyed using, is the Enneagram test.
The enneagram is a personality test which helps you learn more about your motivations, and the ways in which you interact and relate to others. There are nine enneagram types, and after undergoing a 45-minute online test of answering a selection of questions, you are assigned one predominant personality type. The nine types are as follows: the perfectionist, the helper, the achiever, the individualist, the investigator (me), the loyalist, the enthusiast, the challenger, and the peacemaker.
By age mid 20s, most individuals have generally developed one of the nine predominant personality types. Each type has some strengths, some faults, a basic fear, and basic desires. Taken together, these lead to a predictable type of behaviour in times of stress and in security. It is important to note that there is no enneagram type which is better or worse than the other. Each type has benefits and drawbacks, and there are both famous and infamous personalities who subscribe to each type. For example, a type 5 (the investigator), at their worst are detached, yet highly-strung and intense. At their best are visionary pioneers, often ahead of their time, and able to see the world in an entirely new way. Bill Gates, Elon Musk and Mark Zuckerberg are apparently 5s.
In managing a team, I always want to understand my team members enneagram type, because from this, I can understand what motivates them, and how they will interrelate with other team members. When they are stressed, and not performing, I can use the enneagram descriptions to understand why they are behaving in a certain way and how they should course correct.
We can use enneagram to determine whether people are in the right jobs for their personality types. We never want to put square pegs into round holes, in other words, we never want to put someone into a job for which they are not suited. When employees go into the right jobs, it should feel like they “click” into place. If employees are in the right jobs, they will be happy, and generally happy employees make effective employees.
I have found enneagram to be very insightful, and given its usefulness, I’ll write about enneagrams in a different blog post.
Management by walkabout
As the name suggests, this type of management involves walking the streets, the factory floor, the offices, asking questions, observing behaviour, understanding how people make decisions to buy, choose and consumer products. I love getting out of the office and going on walkabout. During my time as CFO of a property development company, I like to take time out at least once a week to visit the construction site, walk around, speaking to contractors, employees and project managers to understand how the project is coming along in terms of the critical path, what are the key risks, whether we are on track, and any pressing cash-flow requirements.
We need to know low people in high places, and high people in low places. It’s amazing what information you can procure by people in what would be considered low jobs such as security guards on sites, or receptionists. These people see things, observe behaviour and have interesting insights.
Management by stats
Management by stats involves using data and stats to make decisions.
As managers, we need to hunt trends, so that we can adapt our businesses accordingly, and change tactics where necessary. The trend is your friend, as they say, and once a trend starts, it often continues.
As managers, we need to be 100% familiar with our business model, and constantly compare the current performance to budget and model, understand why there is a gap and how it can be closed. E.g. if our model gross profit margin is 40%, but we are at 30%, we need to understand why this is. Is it due to shrinkage, or wastage in the production process, or overpaying for inputs, or undercharging?
We need to access comparative data from comparable businesses from around the world and compare this to our business. With online sources such as yahoo and Bloomberg readily available, we can analyse how a world class QSR operator such as McDonalds operates and compare the performance to our own businesses. For example, we take McDonalds’s key statistics such as profit margins, and compare this to Simbisa, and understand where Simbisa is tracking versus McDonalds. For example, looking at the latest quarterly trading data, McDonalds achieved an operating profit margin of 41%, whereas Simbisa was at 15%. This difference is unusual and means I need to delve into the numbers more and understand why McDonalds margins are considerably higher than Simbisa. I suspect it may be due to franchise income being a sizeable part of McDonalds’s revenue in comparison to Simbisa. Also it is surprising to note that Simbisa doesn’t report a gross profit margin.
Stats are factual, and decisions should be made on facts, rather than feelings or emotions. When analysing someone’s performance, we shouldn’t argue with them, but rather use stats to determine whether they have hit their targets or not. The ball is either in the net, or it’s not.
Dashboards
Every company should have a one-page dashboard circulated daily or weekly showing the various key stats and KPIs that inform the health of a business.
During my time at a fashion retailer, which we had acquired, the dashboard included some of the following stats:
- Unit and dollar sales by each chain (Jet and Edgars)
- Sales split between cash and credit
- Liquidity and gearing ratios
- Weeks of stock cover
- Average age of stock
- Number of employees and sales per employee
- Number of stores and sales per store
- Total number of credit accounts, number of active accounts, and number of new accounts
- Number of existing accounts purchasing per month
- Average first-time purchase value, and average repeat purchase value
- Accounts in arrears by month
The stats from a chain of credit retail clothing stores is quite complex compare to most trading businesses due to the long lead time from purchasing inputs, to selling on credit, and finally to collecting the cash from the sales. Having these stats enable management to very quickly pick up on problems ahead of time, e.g. if there is not enough stock cover, or if not enough customers are buying on credit.
All too often, we think of management as some highly convoluted function, which requires a $200,000, 2-year MBA program from Harvard to do well. But the best managers in my experience often aren’t even properly qualified, they just do simple things right. And the framework of psychology, walkabout and stats enables us to do this.