by Mary Adams ~ August 15, 2008.
Permalink | Filed under: Hybrid Vigor, Valuing Intangibles.
I just finished this book by two consultants from McKinsey, Lowell L. Bryan and Claudia I. Joyce. Even if you haven’t read Mobilizing Minds, you may have been exposed to one of its key recommendations: that corporations use profit per employee as the “primary metric of profitability.” I disagree with this simplistic recommendation: it seems like a number that could be endlessly manipulated and it ignores the contribution of external partners who play an important role in more and more businesses.
However, it is worth reading the analysis that led them to this conclusion. Their examination of the largest 150 companies in the world showed that after growing at 3% from 1970 to 1994, their total market capitalization grew at 11% per year through 2004, even taking into account the bursting of the internet bubble in 2001. They then separate the companies into two groups: “labor-intensive” and “thinking intensive,” looking at net income per employee. It probably won’t surprise you that the thinking intensive companies had much higher income per employee. (Note that this data is in the Introduction to the book which is available as a free download)
The authors go on to state that “almost all of today’s companies…were built primarily to mobilize their labor and capital assets—not the intangible assets that enable profits per employee to rise to levels never seen before.” And further that this model leads to “massive, unnecessary, unproductive complexity.” They also imply that many of the companies that have succeeded at this game have done so more by intuition and luck than by deliberate strategies.
The authors’ focus on complexity reflects their focus in their data and in their suggestions on the largest companies in the world. But that does not reduce the value of their recommendation that organizational design and innovation be a primary focus of business leaders in the coming years. Unlike Gary Hamel and Bill Breen, who made the same recommendation in their recent book The Future of Management but stopped short of suggesting how to accomplish this, Bryan and Joyce explore in great detail what they call “ideas” for the reader’s consideration:
- Backbone Line Structure
- One-Company governance
- Dynamic management
- Formal networks
- Talent marketplaces
- Knowledge marketplaces
- Motivating economic behaviors
- Role-specific performance measurement
- Organizational design as strategy
I found that many of the recommendations would only be relevant to the mega-corporation. No surprise as that’s McKinsey’s market. Not every company has the same complexity of challenges that need complex solutions. Nevertheless, this is a valuable contribution to the field of intangibles.