1 s2.0 0263237395000437 Main

EuropeanManagonentJournalVo[. 14, No. 1, pp.
1-20, 1996
Pergamon
0263-2373(95)00043-7
Copyright 1996 Elsevier Science Ltd

Printed in Great Britain. All rights reserved
0263-2373/96 $15.00 + 0.00
Factors Affecting Success

in Business:
Management Theories/
Tools Versus Predicting
Changes
SPYROS MAKRIDAKIS, Research Professor, INSEAD
Management theories and tools, like the fashion

industry have their moment of glory and die. Very
few survive and, in some cases, their passing leaves
extensive corporate damage in their wake. Spyros
Makridakis reviews the large number of theories
that briefly blossomed from the 1960s onwards, and
also looks to see if prescriptions can be learned from
examples of 'excellent' companies. He advises
against extrapolating from past success stories
since the environment continually changes.
On 20 September 1995, the price of AT&T's shares

soared, within a few hours, by almost 10 per cent - adding nearly $11 billion in value to its market
capitalization. The r e a s o n - the company announced
its break-up into three separate and independent firms. In
splintering AT&T, Robert Allen, its CEO, accepted that
buying NCR for $7.4 billion in 1991 was a big and
costly mistake. His simple explanation was "We reached
a time when the advantage of integration was
outweighed by the disadvantage of complexity'. 1
Companies will stand a much higher chance of

success in the future if they follow a strategy of
expecting change and adopting an attitude which
accepts that future performance will be directly
linked to accurately predicting forthcoming change
and correctly assessing their implications. While
human beings have not been too successful at
predicting technological change, one thing is certain, it is highly likely that computers and telecommunications will have a continuing outstanding
impact on data processing and the performance of
tasks as their costs fall and speed increases
exponentially. The consequences for business and
society will be dramatic.
AT&T has not been the only company to grow by

buying other firms (often paying hefty premiums).
During the 1960s it became popular to diversify into
unrelated industries, creating huge conglomerates like
those of LTV and ITT. Senseless diversification,
however, produced 'average' profits, in the best of
cases, as by definition a large number of business units
cannot consistently outperform the average of the
market. Once this simple principle was accepted, albeit
empirically, after long periods of mediocre profits and
underperforming stock prices, the emphasis was shifted
to acquiring, or merging firms, where synergies between
them could be developed and exploited - - hence the
NCR deal. But AT&T's break-up shows that even
synergies are illusive and that there are advantages to
concentrating on one's core business - - in particular
when competition is fierce.
Spyros Makridakis explores these consequences,

drawing an analogy between the industrial and
information revolutions. Among other conclusions,
he emphasizes the importance of educating and
motivating corporatestaff to innovate in the newlycompetitive environment generated by advances in

the information industry.
European ManagementJournal Vo114 No 1 February 1996
AT&T, like the great majority of large companies,

follows the latest of management theories, tools and
thinking in its effort to improve its operational
effectiveness and efficiency as well as its long-term
I
FACTORS AFFECTING SUCCESS IN BUSINESS
Table 1
Major M a n a g e m e n t Theories I Have Come Across Since 1 9 6 5
Management Theory
Brief Description
Problems or Unrealistic Assumptions
Management by Objective
Setting goals through negotiations between

superiors and subordinates and then evaluating
performance on how well such goals were
accomplished.
People play the game of setting low objectives

easy to achieve. Too much paper work. Too timeconsuming.
Theory X and Theory Y
Authoritarianism (theory X) should give way to

participative management (theory Y).
Participative management can reduce efficiency

of decision-making and dilute responsibility.
T-groups
Encounter groups for managers aimed at

increasing their sensitivity to others and making
them less authoritarian.
Sensitivity gained during T-groups did not last.

Some participants remain hostile toward thai r coworkers.
Management Science
Using quantitative tools and computers to

improve decision-making and actual operations.
Many decisions (notably those involving people

and strategy) cannot be quantified.
Matrix Management
A form of organization where an individual can

have more than one boss.
Problems of conflict and split alliances can

develop.
Diversification
To maintain high growth, companies must

diversify into promising industries or new
markets.
Difficulty in accurately forecasting promising

industries/markets.
Decentralization
Decision-making is placed in the hands of line

managers.
Without effective coordi nation, decision-maki ng

can become ineffective.
Conglomerates
Acquiring dissimilar businesses under a single

corporation.
By definition the most conglomerates can achieve

is average returns.
Optimal Investment Portfolios
The risk of investing can be minimized by

selecting stocks that do not go up and down at the
sametime.
Past patterns in the movement of various stocks

do not also hold for the furture.
The Systems Approach
The whole is much more important than the sum

of its parts. Decisions must therefore be made
having the w h o l e - not the parts - in mind.
Complexity increases beyond human capability if

it is assumed that everything relates to
everything else.
The Managerial Grid
Classifying a manager based on his/her concern

towards people and/or production.
Managers cannot be classified into nice boxes.

Their behaviour and motives are complex.
Econometric Models
Statistical models capable of capturing the

relationship(s) among complex phenomena in
order to use it to predict future situations.
Past relationships do not necessarily hold true

intothe future.
Long-Range Strategic
Planning
Extrapolate long-term trends in sales, demand,

etc., and plan capital investments and other
expansions accordingly.
The established growth in sales, demand, etc.,

cannot be guaranteed in the future.
S-curves and Product Life

Cycles
The life cycle of products (and technologies)

follows the logic of an S-curve, which can be
predicted beforehand.
No S-curve can be predicted, although selffulfilling prophecies can make it seem that such a
prediction is possible.
Zero-Based Budgeting
Start from scratch in making next year's budget.
Too much uncertainty for longer-range planning.
Portfolio Matrix
Products or business units are classified as dogs,

cows, question marks, and stars. The objective is
to get rid of dogs and to promote stars, financing
them with cash generated from cows.
It assumes future stars can be identified. It

ignores synergies. It can drop profitable
products. It disregards competitive action and
learning.
Experience Curves
As production doubles, nondirect costs decrease

by a constant percentage.
It might work for mass production. But

bureaucracy can wipe out economies of scale.
PIMS
Too many methodological problems and

tautologies to make the results reliable and
useful.
One-minute Management
An empirical database containing companysupplied information whose purpose is to

discover the relationship between profitability
and other factors.
Strategy must be formulated at the top, where the
whole picture of corporate goals and long-term
visions is available.
Natural resources are limited, thus their price will
increase indefinitely as the size of population
keeps increasing.
Managers who predominantly think in the right
hemisphere are intuitive, those who think mostly
in the left are analytic. Such a dichotomy can be
used to facilRate training and improve decisionmaking.
Through empirical research, identifythe factors
common to excellent companies and use them to
become excellent too.
Balancing praise and criticism in sixty seconds.
Management by Walking
Around (MBWA)
Visiting the line people and customers to obtain

fi rst-hand information.
Centralized Corporate
Strategy
Limits to Growth
Intuitive/Analytic
Management
Searching for Excellence
2,
Individual managers have little or no say in

determining the strategy for their units/
departments.
Technology has lifted the Malthusian fears to
growth. Products are cheaper in real prices now
than in the past.
Empirical research has shown no help in training
or improvements in decision-making by
exploiting the left/right hemispheres.
Past excellence cannot be used to achieve

excellence in the future.
Gimmicks do not change managers' or
employees' behavior.
MBWA imposes formidable time constraints.
Information can be gathered much more
effectively.
European Management Journal Vo114 No 1 February 1996
Table I (continued)
Management Theory
Brief Description
Problems or Unrealistic Assumptions
Restructuring
Getting rid of unprofitable businesses or those

that do not fit the corporate identity.
The challenge is to know which businesses to get

rid of.
Entrepreneurship
Encourage entrepreneurial spirit (and projects)

within the corporation.
The challenge is howto achieve

entreprsneurship. This is not trivial.
Competitive Strategies
Analyze the competitive situation in your industry

and learn to read competitive signals.
The challenge is to predict future competition, not

analyze that of the past or present.
Theory Z
Adopt e Japanese style of management (life

employment, job enrichment, product quality,
long-term goals).
It is difficult to adopt without a Japanese culture.

In France, life employment has not increased
productivity.
Quality Circles
Form groups, or committees, within the firm to

discuss and promote ways of improving product
or service quality.
Form Alliances (if necessary even with your archrival(s)) to improve your competitive position.
Helpful if quality can be improved without wasting

too much time.
Global Rationalization
The market place is the world. Thus, production,

marketing, finance and R&D decision must be
made with such aview in mind.
How do you know future conditions? A change in

exchange rates, for instance, can make all plans
useless.
Total Quality Management
Sophisticated consumers demand high quality

which must be provided by focusing the
organization on doing so.
Although quality is essential, firms must also be

concerned with other factors in order to be
successful - if not survive.
Core Competences
Special skills or technologies that provide lasting

competitive advantages to firms.
Core competences can change and be a

disadvantage to firms that do not recognize the
change.
Self-directed Teams
A small group of employees directly responsible

for practically all aspects of their work.
It may be difficult to motivate the team members

and trust them to make the 'right' decisions.
Benchmarking
Measuring and comparing performance against

that of competitors (often those best-in-class).
It may be difficult to measure and compare

exactly the same thing.
Just-in-time (JIT)
Reduce inventories by getting raw/other material

and parts just before they are needed.
Requires very accurate forecasting which may

not be possible. If an order is delayed, production
stops.
Cycle Reduction Time
Reducing the time required to complete a certain

task by using parallel developments, and by
minimizing waiting time while eliminating nonvalue added activities
Difficulties in coordination, inefficiencies and

higher costs may become problems.
Delayering/Restructuring
Reduce the layers of middle management and fire

workers/employees through improvements.
Losing valuable people whose experience,

knowledge and skills may be needed, either now
and/or in the future.
Horizontal Organizations
Flat, non-hierarchical organizations where

information is shared to facilitate functional
coordination.
No problem as long as appropriate computer

networks, open-minded management and an
educated workforce exist.
Empowerment
Em power those at lower levels to take whatever

decisions are necessary to improve things while
motivating them.
Those making the decisions must be capable of

doing so. The limits of whet they can and cannot
do must be made clear, otherwise anarchy can
result.
Reengineer (or Business

Process Reengineering)
The radical redesign of critical business

processes to achieve dramatic improvements.
Like chemotherapy, radical redesign can destroy

good processes while attempting to correct
inefficient ones.
Agile Manufacturing
The speedy and efficient mass production of

customized goods through the use of flexible,
computerized techniques.
Degree of customization has to be limited,

otherwise number of options become infinite.
Also customization may increase costs.
Virtual Organizations
Through the use of computers and

communications and by subcontracting and
outsourcing, firms can achieve large revenues
with very few people.
The suppliers, subcontractors or outsourcers can

realize that they can offer the products/services
themselves.
The New Future Theory
There is one certainty. There will be many new

theories, although I cannot predict what they will
advocate, how popular they will be, or how long
theywill last.
Only through critical evaluation can you avoid the

same mistakes managers made in the past by
adopting fashionable theories.
Strategic Alliances
profitability. When AT&T bought NCR, the concept of

synergy from the convergence of communications and
computers was fashionable and was highly recommended by strategy consultants. But synergy proved
to be a mirage that dragged down AT&T's performance
in its core business of telecommunications. The consequence was that AT&T's stock price was lower before
European Management JournaIVo114 No 1 February 1996
/I
Long-term effects can be detrimental, as they

provide a false sense of security.
the breakup announcement than two years earlier (at the

same time the Standard and Poor index had increased by
more than 50%). Reality showed, and the stock market
confirmed, that popular management thinking turned out
to be disastrously wrong. Once Allen accepted his
mistake, the stock market applauded his courage (most
CEOs have great difficulty in facing up to their mistakes
3
or letting a part of their empire go) and AT&T's stock

increased considerably. However, the turnaround in his
thinking raises a critical and extremely important
question: How are we to know that existing, popular,
management theories, tools or advice provided by
management gurus or consultants will not cause firms to
make the same type of costly mistakes as in creating
monstrous conglomerates or buying NCR?
matrix of the BCG5 and Competitive Analysis. Porter,

for instance, wrote in 1980:
Studying popular management theories, tools or popular

thinking (e.g., the advice of management gurus or wellknown consultants, or recommendations published in
business magazines and books) leaves little doubt that
practically all of them fall out of favor in time. After an
initial period of euphoria, their limitations become clear
and problems associated with their use are identified and
written about in the business and academic press. Some
of these limitations/problems are eventually corrected
but others still persist while new ones are also
developed. In the final analysis few theories, tools or
thinking stay popular for more than a few years. The rest
die, or are only used occasionally, in special
circumstances, when they may be useful.
Needless to say, 15 years after the book was published,

IBM and GM have lost more than $40 billion between
them while Chrysler has become the star of the
automobile industry. Today Porter's statement seems
outdated, if not ludicrous. Competitive analysis is useless
unless the strength of future competition can be
predicted. The same is true of the portfolio matrix,
which was used by practically all large firms in the late
1970s and early 1980s, and the PIMS 7 approach which
assumed that the bigger the competitor and the higher
its market share the more important its advantages. Such
thinking failed to see the bureaucratic disadvantages
associated with being big, or alternatively the value of
being small and therefore more entrepreneurial and
flexible. 8 The recent excellent performance of smaller
firms (e.g., Chrysler) and their ability to outperform their
much bigger competitors (e.g., GM) point to the
impossibility of drawing conclusions about the future
from what has worked well in the past. Explaining the
past does not guarantee the most accurate performance
in the future. On the contrary, being different9 or even
going against conventional wisdom like Sam Walton or
Richard Branson may contribute more to future success
than imitating past successes or following some alleged
recipes aimed at improving a firm's fortunes.
What Can We Learn from Management

Theories or Tools?
The management theories or tools listed in Table 1
cover the period from the early 1960s to the present.
Those at the top of Table 1 were popular in the 1960s.
Those at the bottom are popular at present. The
remainder became fashionable some time in the intervening years. Each theory or tool, when it appeared,
gave rise to a surge in the number of papers and books
written on the topic, courses offered at business schools,
and consultants selling the ideas to business firms which
were attempting to implement them. Within a few years,
however, they inevitably became unpopular as experience with their application and empirical investigations
showed few benefits, if any, or, in some cases, extensive
damage. Today only a handful of the theories listed in
Table 1 are taught to business students; the rest are all
but forgotten. Some of these theories, however, brought
huge losses to those who utilized them, like the senseless
buying of businesses by conglomerates, the use of the
Boston Consulting Group's (BCG) portfolio matrix, or
the buying of NCR by AT&T.
Corporate planning and strategy, an area of special
interest to top management and critical to a firm's
success, has become popular since the early 1900s as size
and complexity increased and as competition in business
intensified.2 Although early attempts in the field
concentrated on long-range planning, later there was a
shift towards accepting and dealing with uncertainty as
it was recognized that trends can change and unexpected
events can occur, rendering long-range plans useless.3
Prominent among these methods and tools that became
popular during the late 1960s and 1970s were the
Product Life Cycle Planning approach, 4 the portfolio
4
'Also, some firms persistently outperform others in terms of

rate of return on invested capital. IBM's return has
consistently exceeded that of other mainframe computer
manufacturers, for example. General Motors has persistently
outperformed Ford, Chrysler and AMC.' (pp. 126-7)
Mintzberg (1994) ~ in his book entitled The Rise and Fall

of Strategic Planning concludes that 'strategic planning'
did not work, that the form (the 'rationality' of planning)
did not conform to the function (the needs of strategy
making)' (p. 415). He also mentions the findings of a
study conducted among Japanese firms11 which show
that Japanese firms distrust formal strategic planning
which they use instead for 'identifying major problems
and for creating an atmosphere conducive to the
development of creative ideas and hard work within
the company' (p.217).
Today we cannot assume that management theories or
tools available to everybody can automatically provide
competitive advantages. In a survey of such management theories or tools 12 which is made up of those listed
in Table 1, the following conclusion is reached: 'no
correlation exists between the number of tools used and
satisfaction with financial results'.
Needless to say, the literature on how to succeed is
voluminous. The vast majority of the 'serious' books and
articles on the subject describe successful countries (like
Japan), companies (like GM or IBM), or individuals (like
Trump), listing the factors that led to their success and
often draw direct conclusions as to how others can
achieve similar results. Alternatively they imply that by
EuropeanManagementJournalVo114No 1 February 1996
following the same actions as those of successful

countries, organizations, or individuals the reader can
also succeed. Although reading success stories may be
exciting, it only provides an historical account of what
happened in the past. It cannot guarantee future success
for those who imitate the success stories being described.
For one thing, future conditions will rarely be the same
as in the past, but more important, even perfect
duplication of the factors that lead to success for one
person or company cannot ensure the same success for
another. Moreover, besides what can be described and
quantified, there is another element in all success stories
that eludes description and quantification. This 'something extra' which can be called talent, the appropriate
organizational culture or climate, the right moment in
time, charismatic leadership, or correct intuition is
usually present and distinguishes successful individuals
or companies from average ones. This is true in all fields,
not just business.
What Can We Learn from 'Excellent'

Companies?
The book In Search of Excellence,I3 published in 1982, is
the utmost example of 'how you can also succeed'
advice. This book became an instant success, selling
millions of copies soon after it was published. Based on
research conducted between 1961 and 1980, its authors,
Tom Peters and Robert Waterman, identified 36
excellent companies and presented the factors that
AMDAHL
DIGITAL
EMERSON
H-P
IBM
SCHLUMBERGER
Figure 1 shows the 1980 (the latest figures available

when the study leading to the book was completed)
price/eaming ratios, in comparison to the average, of as
many of the 36 'excellent' companies identified by Peters
and Waterman for which published data was available,
while Figure 2 shows the same ratios ten years after the
book was published. Figure 1 reveals that in 1980 the
price/earning ratios of the 'excellent' companies were,
with a couple of exceptions, well above the average.
However, the opposite is true in Figure 2 which shows
losses in eight of the 33 firms, three firms with
practically zero earnings making the price/earning ratios
meaningless (this means that one third of the once
'excellent' firms incurred losses or close to zero eaming
- - an extremely high proportion). Finally, there are only
three firms in Figure 2 whose price/earnings ratios are
above average. In addition, two firms (Data General and
Wang) found themselves in serious financial trouble that
lead to Chapter 11 bankruptcy proceedings.
Some people rightly argue that price/earning ratios
reflect psychological factors as well as real financial
performance and might not be the most appropriate way
of drawing conclusions about the 'excellent' firms
identified in In Search of F_zcellence:Lessons from America's
Best-Run Companies. To provide a more objective basis for
AMDAHL
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-4
brought about their 'success'. The objective of the book

and its intended value for other companies can be best
captured by its subtitle, Lessons from America's Best-Run
Companies. Could others have learned, however, from
America's best?
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F i g u r e 1 ' E x c e l l e n t C o m p a n l e s ' : T h e i r P / I R a t i o s in
C o m p a r i s o n t o t h o s e o f all F i r m s in 1 9 8 0
European ManagementJournalVo114 No 1 February 1996
-20-16
-12
-8
Figure 2 I Excellent Companies

A b o v e t h o s e of all F i r m s : 1 9 9 g
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Their P/E Ratios
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-30-25-20-1S-10-5 0 S 10 15 20
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197%1981% ANNUAL RETURN
1981-t991 % ANNUAL RETURN
Figure ~l 'Lcoellent Companles'l Their Return to

investors above the Fortune 600 Median
F i g u r e 4 ' l L x o e l l e n t C o m p a n l e e ' l T h e i r R e t u r n to
Investors above the Fortune 600 Median
comparisons, Figure 3 shows the average annual rate of

return to investors (ROI) for the decade before the book
was published while Figure 4 shows the same rates for the
decade after.14 Interestingly the 'excellent' firms did not
perform significantly above the average during the 1971/
81 decade, at least as far as the return to investors was
concerned (Figure 3) which proves that the selection for
naming a firm 'excellent' was based on the recent past. At
the same time Figure 4 shows that they did considerably
worse than average for the 1981/91 decade.
1990 in the annual survey conducted by Fortune.is Yet in

a short time span (middle of 1995) Rubbermaid seemed
plagued with problems with its income falling by one
third during the last year and its stock price also
declining by one third. I~ The same was true of GM,
Philips and Alcatel which were once considered textbook
examples of best managed companies. Yet today many
think of them as dinosaurs unable to adapt to the
changing business environment. Similarly Digital Equipment, Siemens, Mercedes, Olivetti, Polaroid, Xerox,
Lotus and even Apple, to name but a few, have found
themselves getting into serious difficulties, performing
below average, a fact that can be seen in their stock
prices which have declined or stayed stagnant. At the
same time other firms like Microsoft, lntel, Oracle,
Compaq or Virgin have become examples of successful
companies and Wall Street favorites.
The obvious conclusion from the above discussion is that

if the 'excellent'companies could not even manage to
stay average ten years later,h o w can they teach lessons
to other firms? Figures 2 and 4 even suggest that there is a
regression of the 'excellent'firm to below average as it is
highly unlikely that the resultsof Figures 2 and 4 are due
to pure chance. W e can even argue that 'successbreeds its
own failure' and that unless excellent firms make a
conscious effort to overcome the 'handicaps' (arrogance,
the attitude 'we do not need to change since we are so
successful', higher salaries and other costs related to
'excellence')and avoid the complacency associated with
excellence, there is only one way: doing worse and
regressing towards, or even below, the average.
The firms of In Search of Excellence are not the exception

to successful and admired companies that found
themselves getting into serious trouble. Very recently
the same has been true of Rubbermaid which was voted
the most admired US company in 1995 and 1994,
second best in 1993, 1992 and 1991 and third best in
6
The obvious challenge is not to know who has done well

in the past, although such knowledge may be useful, but
rather to discover future success stories, and even more
importantly help management to make their firms
successful. This need to concentrate on the future can
be dearly seen in the now disreputed portfolio approach
that has caused losses of many billions of dollars to the
firms that once used it as the centerpiece of their
strategy. In the portfolio matrix approach a product is
defined as a 'star' when its market is growing at a fast
pace while it holds a small market share at present. The
idea is, therefore, to invest in such a 'star' to increase its
market share, production volume, and reduce costs
through economies of scale and scope. Profits could,
therefore, increase by being a high volume, low cost

producer in a fast growing market. Such reasoning,
however, assumes that one can predict high growth
markets and that competitors will not attempt to also
invest in their own 'stars' if they could also predict these
high growth markets - - in which case the result will be
overcapacity, high competition and low profits, or
losses, even in the case when high growth markets
could be correctly identified. Moreover, it assumes that
economies of scale and scope outweigh the bureaucratic
and other disadvantages associated with 'bigness', which
recent experience has shown not to be the case. Equally
wrong, the portfolio approach was suggesting that
'cows' (products with high market share but in markets
not growing fast) should be 'milked' using the cash to
support 'stars'. However, as the following quote from a
Matsushita executive states,
'The principal fallacy of the portfolio concept is that all that

frequently stands between a division (or product) being viewed
as a cash cow or a star is management creativity in seeing
how to r~osition their products in tune with the
marketplace .i7
Predicting Changes in the Environment

Versus Extrapolating the Past
In 1984 John Opel, IBM's chairman, announced that the
sales of his firm, $50 billion at the time, would double to
$100 billion by 1990 while its profits would continue
their exponential growth. Figure 5 shows IBM's sales
between 1954 and 1984, the time of the announcement,
while Figure 6 displays its profits. Extrapolating the
historical growth of IBM's sales for 1990 results in $110
billion sales, $I0 billion more than Opel's forecast which
could, therefore, be considered conservative as it
underestimated the straightforward extrapolation of
IBM's past sales.
Based on such forecasts IBM hired more than 100,000
new personnel to be capable of providing its existing
and new customers with the high quality service it was
Sales
(in
Billions
of
much acclaimed for and which constituted the foundations for its strong competitive advantage. However,
things did not turn out as expected. Figures 7 and 8
show, in addition to the 1954 to 1984 era, IBM's sales
and profits since 1984. In 1994, eleven years later, its
sales were only $64 billion while it has incurred losses of
more than $13 billion over the last four years. Moreover,
its workforce was, by the end of 1994, little more than
half its 1986/87 peak of 430,000.
Should a firm like IBM, renowned for its high calibre,
professional management, and use of expensive consultants have made such a monumental mistake in
forecasting its sales and profits? After all IBM has been
well-known for the high quality (and pay) of its
management which, however, assumed that the business
environment and IBM itself would not change during the
following six years and felt, therefore, justified in
extrapolating the historical pattern of sales and profits
(Figures 5 and 6) and basing IBM's overall strategy and
expansion plans on such forecasts. This belief, however,
is false (not just in hindsight) for at least three reasons:
First, if nothing changes, the future will be deterministic,
as straightforward extrapolation is trivial and can be
done by everyone, including all of IBM's existing as well
as new competitors who would also make plans to
expand and take for themselves as large a part of the
growing pie as possible. But inevitably the lure of high
growth and big profits creates overcapacity, intensifies
competition and results in price wars that diminish
profits or even bring losses. Second, yearly growth rates
in the 15 to 20 per cent range may be possible for a
small or medium size company but become exceedingly
difficult for a $50 billion giant (the size of IBM in 1984)
as a 16 per cent growth meant an $8 billion yearly
increase, more than the revenues of all but a few dozen
of 1984's largest firms. Finally, even if IBM had managed
to grow in revenues it would have been highly unlikely
to have grown equally well in profits. History has
unmistakenly shown that no large, bureaucratic firm has
managed to maintain the growth in its profits at the
same level as when it was smaller, more flexible and
entrepreneurial. Bureaucracy and the associated diseconomies of scale inevitably take their toll.
$)
Profits
(in
Billions
$)
of
50
~' ;
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19541gssIgS8198019621SS41968198819701972197419761978198019821984
Figure 5
IBM's Aotuel Sales:
1954-1984
European ManagementJournal Vo114 No 1 February1996
19S419511958158019621984196619881970197219741976197819801g$21984
Figure 6
IBM's Profitm
1964-1984
7
Sales (In Billions of $)
20{
.i.,
Profits (in Billions of $)
Profits
i
1
"
"
"
25 - O i~rofits/~ftor'84 !l"r . -.- - . , . - - -
t7~
~si,i,,t=,
8i
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1954 1958 t962
Figure
IBM:
....
1966 t970
Sales
and
: .:..t.i_..:.._:.
1974 1978 1982 1986 1990 1994
1984
Forecasts
Many firms and whole industries (e.g., steel, automobile

and airlines) have found themselves in similar situations
to IBM, being unable to recognize that the environment
has changed, or is about to, and realize that it does not
suffice to extrapolate the past or continue doing well
what has brought them success and high profits in the
past. Stagnant markets, continuously changing industry
boundaries, new partidpants, like the Japanese, who do
not follow the established rules of the game have
resulted in much stronger, and global, competition, more
demanding customers, willing to only accept high value
products/services, and fundamental shifts in the way
firms have to be managed and operated. These changes
will continue to fundamentally affect the business
environment and businesses themselves as there is one
certainty about the future: Firms are to expect
continuous changes. They must embrace, therefore, a
new attitude that accepts that future performance, and
success, will be directly linked to accurately predicting
forthcoming change and correctly assessing their
implications as far as the opportunities and dangers that
such changes are bound to bring. Strategy without
adequate anticipation of forthcoming changes is not
possible. At the same time it does not suffice to say that
the business environment will change or that foresight is
indispensable for strategy. TM Concrete and accurate
predictions about forthcoming changes must be made
and their implications for firms must be correctly
anticipated so that a strategy can be formulated, plans
made and actions taken to exploit the opportunities
while steering clear of the dangers that such changes will
undoubtedly bring. But accurate forecasts cannot be
taken for granted necessitating a clear understanding of
what can and cannot be predicted and appropriate ways
of figuring out the most important/critical of
forthcoming changes.
The Human Ability to Foresee the

Magnitude of Technological Change
We humans have not been good at predicting the use or
practical value of new technologies. This is what Say, 19
the famous French economist, wrote in 1828 about the
8
" ~
.
....
- , . . . .
.-
....
" " :
" ,
i E x p e c t e d P'rofit . / .
" .
" " i~,-19e4 i ~ ' ~ "
10
75
25 ....
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.
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15
-S
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....
,---,
-10
1954 t988
Figure
. . . .
, - - - , - - - : - - - , - - -
....
1962 1966 1970 1974 t978
IBM:
Profits
and
1984
---.-
o~:~
1982 1986 1990 1994
Foreoasts
possibility of cars as substitutes for horses:

'Nevertheless... no machine will ever be able to perform what
even the worst horses can - - the service of carrying people
and goods through the bustle and throng of a great city.'
Even as late as the end of the last century, when cars

were actually being produced, and less than a decade
before Henry Ford mass-produced his model-T, neither
their potential value nor their widespread ownership was
obvious. In an 1899 book entitled La fin du Cheval (The
Demise of the Horse),2 its author fiercely argued that the
end of the horse was near, but he predicted that bicycles,
rather than cars, were about to substitute for horses. In
the numerous illustrations made throughout the book by
the futurist A Robida, few cars are shown while bicycles
abound. The same is true in a series of illustrations21
made in 1900 to commemorate the beginning of the new
century by depicting examples of life in the year 2000.
One of these illustrations shows a major boulevard in
Paris, where not a single car is circulating.
Say's objections were as valid in 1900 as they were in
1828. Cars were still dangerous, unreliable and terribly
expensive (in 1900 it took four-and-a-half years of a
skilled worker's wage to buy a car in France). Moreover,
there were few roads where a car could be used at speeds
that were hardly faster than those of horses. Yet, less
than ten years later cars were being mass-produced and
less than three decades afterwards more than half the
families in the US owned a car. Needless to say, cars
have profoundly affected all aspects of our lives by
providing us with personal mobility and the freedom to
choose where to live and work, do our shopping or, in
general, go anywhere at any time. Will the same thing
happen with computers and communications (C&C) or
will their impact, if any, be minimal, having exaggerated
their importance? Answering correctly such a question
has critical implications for the future of businesses.
There is a certainty concerning both computers and
telecommunications: their costs are decreasing exponentially while their speed is increasing exponentially.
Moreover, it is highly likely that these trends will
European Management JournalVo114
No 1 February
1996
continue in the future with critical implications for how

information is stored, retrieved, processed, communicated and used, as well as the type of tasks that
computers will be capable of performing more
productively than humans. As machines substituted,
supplemented and amplified practically all routine
manual tasks previously done through the use of human
muscles, computers will similarly substitute, supplement
and amplify almost all standardized mental tasks
currently performed by humans using their brain. If
present trends continue, computers will, in the not too
distant future, be able to read handwritten text without
major mistakes, understand and speak a limited
vocabulary of natural languages and, by the beginning
of the next century, acquire some elementary vision. In
the longer term, 2010 to 2020, they will be capable of
reading and speaking and probably 'seeing'. This means
they will be able to perform, in conjunction with
machines, practically all repetitive manual tasks and the
great majority of standardized mental ones currently
performed by people, while also helping to substantially
increase the productivity of all mental tasks performed
by humans, even those requiring high levels of skills
and/or creativity. The consequence will be another
major shift in employment, considerable changes, both
societal and organizational, and new skills required to
succeed either in life or in business. The implications of
the changes involved are enormous.2 2
Employment Shifts: The Analogy

between the Industrial and Information
Revolutions
Figures 9 and 10 show the percentage of the labor force
employed in agriculture, manufacturing and services in
the UK and the US since reliable data have been
available. The employment shift from agriculture to
manufacturing that started with the Industrial Revolution
reached its peak in the 1950s and consequently started
declining, with services increasing as the percentage
employed in both agriculture and manufacturing has
been decreasing. Figures 11 and 12 show the percentage

contribution of each of the three sectors to the overall
GDP of the UK and the US. Interestingly, this
percentage contribution of agriculture and manufacturing has remained constant, or slightly decreased, even
though employment in these two sectors has been
diminishing substantially. This means that the relative
productivity in agriculture and manufacturing is on the
rise (actual productivity is also increasing at a faster pace
as the real output of both of these sectors is rising too).
The relative contribution of services, on the other hand,
has been declining relative to agriculture and manufacturing while the actual productivity, according to
some authors z3 has been stagnant for the last two
decades.
The fact that white-collar productivity has not been
increasing, at least not as fast as manufacturing, in spite
of the huge investments made in computers and other
office equipment, has raised concem as to whether or not
C&C will be capable of providing the substantial
productivity improvements required so that the
expected benefits of the information revolution will be
harnessed. Evidence from an analogy between the major
inventions of industrial and information revolutions
indicates that the latter is on target.
Newcomen developed the first workable steam engine in
1707. It took more than 200 years before Henry Ford
used such an invention for the practical purpose of
building a useful car that the majority of people would
be willing to buy and could actually afford. Furthermore,
it took another half century before cars substantially
changed our mode of life by permitting people to decide,
among other things, where they would live (in relation
to their place of work) and where to do their shopping.
Similarly, it took more than 90 years between the time
electricity was invented and its use by firms to
substantially improve factory productivity. At the
beginning of our century it took more than 20 years
before the considerable investments in electricity paid
off.24 The same can be said of many other inventions
such as the telephone, the aeroplane and even the
100%
100%
75%
'illii|| llmlmH!
*i i I I I! Ili | Nll:ll l
50%
25%
0%
16S1801 21 41 61 81 1901 21
Figure 9 Pereentage of Labor Foroe in Agriculture,
Manufacturing and
Servloem UK
EuropeanManagementJournal
Vo114No1February1996
2:::I!O!RI!O!
! !!!
!'!'~~
10
Figure
Peroentage of Labor Foroe in
Agriculture, Manufaoturlng and fmrvioem USA
100%
75%
50%
25%
0%
1801 185t 1901 1924 1935 1955 1965 1975 1985 t987
1947
1957
1967
t977
1987
Figure 11 Percentage Contribution to GNP of

Agriculture, Manufacturing and Services: UK
Figure 12 Paroantage Contribution to ONP of

Agriculture, Manufacturing and Services: USA
washing machine that took several or many decades

before they took off. It cannot be expected, therefore,
that computers will produce immediate results. After all,
they were invented about half a century ago and they
are still used mainly for doing more efficiently, tasks
done without computers beforehand (the same was true
of engines before 1910 and electricity before the mid1920s). Thus, the fact that investments in C&C have not
as yet produced substantial retttms does not mean that
they will not do so in the future.
that productivity improvements due to investments in

information technology may have started to pay off.z6 If
the analogies continue, by 2015 the information
revolution should provide firms with as many improvements in productivity as those achieved by the Industrial
Revolution until today. The implications are huge.
Table 2 shows analogous events conceming major

inventions in machines and computers.2s These analogies
are done by relating major discoveries of the Industrial
Revolution to those of the information one. Analogies in
inventions like the steam engine and the mainframe
computer, electricity and time sharing, the internal
combustion engine and the microprocessor, cars and
personal computers, and so forth, can be justified on
logical grounds because of their similarities. If the
analogies displayed in Table 2 are valid, we will be
entering by the end of the 20th century, or the
beginning of the 21st century, into a period where
major productivity improvements from the computer
revolution will be achieved. Recent evidence indicates
Table 2
There are fewer than 20 years between now and the year
2015, by which time the information revolution should
be in full swing. The information revolution is not so
different today to when Henry Ford achieved substantial
productivity improvements between 1914 and 1915
(close to 90%) by implementing the moving production
line in his factories. Ford's innovation was to use
mechanical power in a brand new way by moving work
to a worker placed in a fixed position and forcing a
uniform pace of output which allowed the massproduction of the Model-T car. Ford exploited the
possibilities of the available technology of his time to
the maximum. His bet paid off, opening up a huge
market and a high growth industry. His success was
based on three aspects: (a) using available technology in
novel ways to substantially reduce production costs and
therefore prices (the price of the Model-T was reduced
by two-thirds between 1908 and 1914), (b) providing a
From Steam IEnginee to Unattended Fautorioe and from the IENIAC Computer to Expert Systems
Mechanical Power
Computer Power
1712
1784
1830
1876
1914
1890
1901
1919
Newcomen's steam engine

Wett's double action steam engine
Electricity
Otto's internal combustion engine
Continuous production line
Cars
Electricity in homes
Electricity in 113 of homes
1946
1950s
1971
1973
19709
1977
19809
1993
1950s
1960s
1970e
200?
Widespread use of:

Electricalappliances
Cars
Long distance telephones
Unattended factories
I0
200?
200?
200?
ENIACcomputer
IBM's business computers
Timesharing
Microprocessor
Electronic data processing (EDP)
Apple's computer
Computers with modems
Personal computer in 113 of homes
Widespread use of:

Computers/communications
Tele-services/shopping
Tele-work
Expert systems
European ManagementJournalVol 14 No 1 February 1996
product which was user-friendly and easy to repair, and

(c) choosing a product (the car as a form of personal
transportation) whose potential demand extended to all
households, or even every single adult and which greatly
increased people's freedom of choice to go where they
wanted whenever they wished to do so.
o~
Where do C&C technologies stand today with respect to
their ability to be used in brand new ways, substantially
reduce costs and prices, while opening up new markets
extending to all households or even individuals? What is
clear is that the equivalent of Ford's production line has
not yet been invented, but its invention is, in my view,
around the comer. It is about to come through the
digitalization of sound (including voice and music) and
image which will permit the marriage of computers and
telecommunications. The possibilities are limitless when
the fight products (hardware, software and groupware)
become popular, user-friendly and cheap enough for
households, not just businesses, to acquire and use them.
Most important, C&C will increase people's freedom of
choice as much as the car did, if not more. One only has
to think about the consequences of practically free and
unlimited computer power and telecommunications.
Their use will skyrocket in the same way that electricity
did when it became extremely cheap, providing a huge
explosion in both the development and use of all sorts of
electric appliances - - for both homes and offices.
o:.
~
:
oI
olo
olo
State of the Art in C&C and

Forthcoming Multimedia Applications
In addition to data which has been transformed in digital
form, i.e., in zeros and ones, since computers were first
introduced, the digitalization of sound and images allows
their storage, retrieval, and/or processing in exactly the
same way as data. Once this capability has been fully
achieved, and once the technology becomes both userfriendly and affordable, it will allow for multimedia
interaction(s) between sources and users, including the
simultaneous interaction among many users/sources
located anywhere in the world. Such interaction can
include data, sound, and/or image permitting rich and
instantaneous communications. The consequences are
enormous. A single computer can, in addition to its
traditional tasks, also become a terminal capable of being
used interactively for the following:
~ Picturephone and teleconferencing among users
who can simultaneously see each other and talk, or
send written messages, including data, graphs or
documents, to each other.
~ Television and videos on demand from any source
located anywhere in the world to be watched,
rented or bought wherever a customer wishes.
'~ Music (sound and videos) on demand from any
source to any customer/place.
: Access to shopping by directly connecting to a
manufacturer's computer and placing customized
orders directly. Alternatively the connection can be
EuropeanManagernentJournalVo114No 1 February 1996
oio
made in a warehouse/shop where the products can

be seen, examined and even, in the case of clothes or
shoes, worn by a computer model of oneself. Direct
shopping would avoid intermediaries and allow for
lower costs while getting an instantaneous and
personalized/customized service.
Access to banking and other financial services by
connecting directly to appropriate computers
carrying out the requested transaction.
Airline, hotel and car reservations made directly
from a personal computer rather than by telephone.
Medical advice, including diagnosis, offered through
specialized equipment which can monitor and/or
measure relevant bodily information allowing the
computer to make instant diagnosis or, in case of
doubt, pass it to a doctor for finalizing it and telling
the patient what needs to be done.
Access to all (other) types of services that can be
located anywhere in the world.
Video games (individually or with others) on
demand from any source to any customer/place.
Other games (e.g., gambling, chess etc.) on demand
from any source to any customer/place.
Virtual reality simulations (e.g., flying an airbus
plane, piloting a submarine or guiding a spaceship).
As professional pilots are already trained using
computer-driven simulators, which are as realistic as
flying the real 'plane, they can be extended to
anyone with a computer.
News, sports and weather reports, as well as any
other TV program which can be customized for
individual users and even be 'seen' interactively by
allowing the user to determine the speed or content
of what is being watched.
Access to data banks, libraries and museums located
anywhere in the world from one's personal
computer and easy retrieval or viewing of
whatever a user is interested in.
Moreover, as wireless telecommunications will be

possible, the above list of capabilities can be accessed
from anywhere in the world without the need of regular
telephone lines. This is considerably more than the Email capability of computers which allows sending
written messages to others, or the groupware (e.g.,
Lotus' Notes) programs which facilitate written communication as well as the sharing of information among
people having access to such a program. The Intemet
provides at present a glimpse of the new, brave world of
multimedia C&C even though there are still many
problems to solve and dangers to be conquered,z7
A high degree of interactivity and high added value
coupled with a low cost are opening up huge
possibilities which will, I believe, become the centerpieces of the information revolution. This is more so as
personal, wireless telephones (or telecommunication
devices) are spreading at a fast pace as they are
becoming progressively cheaper and more powerful. The
current battle shaping the telecommunications and
entertainment industries and the building up of
information superhighways will further increase the
1I

demand for multimedia computers and decrease their
costs, in particular as competition in this high growth
area is becoming fierce. Multimedia computers, which
can also be connected to the information superhighways,
are bound to become as popular and as easy to use as
telephones are today. They will fundamentally change
the way people interact, shop, get services, entertain and
educate themselves, and work. It will be the equivalent
of having combined the telephone, television and car in
one device that would allow simultaneous and unlimited
access to information, data, sound and images, together
with the freedom of choice of being anywhere, anytime.
Computers, Communications and

Superautomation: Implications for
Society
As computers become more powerful, smaller, and
cheaper, so will robots and other machinery which use
computers for their functioning. By the beginning of the
next century, unattended factories run by computers and
using robots will be common; by 2015, when computers
will be capable of 'seeing' and exhibiting some
elementary intelligence, they will be widespread. This
means that manufacturing employment (see Figures 9
and 10) will continue declining, and by 2015 it will
probably be, in advanced industrialized, or better
'informatized' countries, at about the same level as
agricultural employment is today, i.e. a couple of
percentage points. This will leave services to employ
close to 95 per cent of the working population in most
'informatized' countries. Consequently it is the service
sector where the highest need to improve productivity
will arise. However, higher productivity in the service
sector, including white-collar office work, will further
decrease traditional employment and would require new
sources for generating work for those becoming
unemployed through the widespread use of C&C and
superautomation.
By 2015 there will be little need for people to do
repetitive manual or mental tasks. The former will be
automated using machines and robots while the latter
will be performed through appropriate computer
programs and expert systems. Machine and computerbased automation have and will continue to increase
human productivity which allows firms to reduce the real
costs of their goods or services and pass part of the
savings on to consumers, in terms of decreases in real
prices, part to a firm's employees, in terms of increases in
real wages, and part to shareholders, in terms of higher
dividends and retained earnings. Productivity improvements have and will continue to be indispensable in
increasing people's buying power, under the combined
impact of lower real prices and higher real income, and in
raising their standards of living.
Ironically the drive towards improved productivity and
greater standards of living requires automation to
substitute expensive workers with machines and
I2
computers so that firms can continue to decrease costs

and therefore prices. This is particularly necessary
because of competition from developing countries where
labor costs are a small fraction of those in developed
ones. Advanced countries must, therefore, concentrate
on products and services which add high value and allow
their firms to pay the high wages and additional benefits
their citizens are accustomed to. The more advanced the
country, the higher its standards of living and the lesser
the need for low-level, unskilled jobs which are either
automated or exported to developing countries.
Moreover, as developing countries compete with
advanced ones and enter industries which provide
standardized products or services, the pressure increases
for advanced countries to move upwards in the quality/
price scale of the products or services they provide. In
this continuous spiral, technological innovation,
creativity and entrepreneurship become essential factors
in staying competitive and creating employment to
substitute for that lost through automation or
exportation to low cost countries.
The price for high living standards becomes, therefore,
the pressure to automate and continuously improve
productivity by eliminating repetitive and routine jobs.
This in turn requires a well-educated workforce capable
of using their heads, instead of their hands, to add extra
value for the high income they receive. Consequently, to
improve their productivity such a workforce will have to
use C&C to a maximum, to improve their effectiveness
and efficiency and continue increasing the living
standards of their advanced nations. We may be moving,
therefore, towards a dichotomy of high and low skills
and jobs, the former grouped around tasks that can add
high extra value and the latter around providing
personal services to those enjoying the high skills/pay
jobs but who have little free time.
The New High Growth Technologies

Table 3 lists the five most important technologies of the
industrial revolution. Each of them contributed
significantly to changing the way people lived, and the
organization, management and running of firms.
Electricity brought mechanical power everywhere,
whether in factories or homes, and allowed the effective
use of power tools. Batteries allowed the use of
mechanical power, even when electrical plugs were not
available. Electrical appliances, in particular those for
home use, freed women from household work, thus
giving them the opportunity of entering the labor
market. Cars provided people with mobility and
unlimited freedom to go wherever they wanted and
whenever they wanted in comfort. Cars permitted
people to move from cities, where the majority of the
jobs were located, to the suburbs, and go shopping far
away from their homes in search of bargains. Telephones
allowed people to talk to relatives or friends, obtain
information or services, or do business from their homes
or offices. As long distance calls have become cheaper
European ManagementJournalVo114No 1 February 1996
T a b l e :1 F i v e I n v e n t i o n s t h a t h a v e C o n t r i b u t e d to t h e
M o s t S i g n i f i c a n t C h a n g e s in our L i v e s
o:o
Electricity
- - Batteries
o:o Electrical Appliances
Programmable, Rechargeable
,~ Automobiles
I Greater Choice, Better Quality
o~o Telephones
Cordless, Mobile
o~ Television
- - Remote Control, Cable, VCR
and cheaper, communications over telephone wires have

become more and more popular, affecting both
customers and firms. Cellular and wireless telephones
have allowed the possibility of keeping in touch from
wherever one may be located. Television, finally,
brought entertainment to every home and reduced the
need to physically go out. Satellite and Cable TV
increased the choice of programs while VCRs permitted
additional freedom of what to watch.
The five technologies shown in Table 3 have achieved
practically 100 per cent penetration rate in most
developed countries. The obvious reason is that people
want them and are willing to pay to obtain them. It is
interesting to consider the five industrial revolution
technologies shown in Table 3 and their correspondence
in terms of C&C. As they will influence the pace and
impact of the information revolution it is important to
consider their consequences and implications for firms,
and society in general.
Electricity
Computer networks will take computer power
everywhere for anyone who wishes to use it. In addition
to desktops, portable notebook or smaller sized
computers can be used as terminals allowing unlimited
access to networks. Existing networks of networks such
as the Intemet are used by many millions of users all
over the world. At present they are mainly used for text
and data transmissions but eventually they will also be
used on a grand scale for multimedia communications
between and among people as well as for allowing
unlimited access to information and its processing.
Groupware such as Lotus Notes will further facilitate
interactions among people working in the same
company or belonging to a common group in ways
that will allow them to improve their decision making
power and their ability to work together, more
efficiently and effectively, as a team.
Electrical appliances
Software and groupware will become as easy to use and
provide as much value as electrical appliances have
already done, in ways that are not dear yet, as the value
of electrical appliances was not obvious 100 or even 50
years ago. Moreover, software and groupware will
proliferate and become exceedingly cheap and userfriendly, and as widespread as refrigerators or ovens are
today. Moreover, they could be used anywhere or at

any time as part of a network or stored in one's own
computer.
Automobiles
Of the five technologies of the Industrial Revolution
shown in Table 3, cars are the most problematic. Their
success has clogged up roads, made parking in popular
places impossible and has increased air pollution.
Computers and Communications can provide an
alternative to cars by permitting people to work, shop
or obtain services, and entertain themselves anywhere
they wish, including in their own homes, thus reducing
the need for automobile travel. Most interestingly, their
freedom of choice in terms of where they work, shop,
obtain services or get their entertainment needs not to
be limited by geographical proximity (the reach can be
truly global) or weather conditions.
Telephones
Computers through multimedia can augment the twoway voice communication of the standard telephone.
They can permit multiple connections, and allow
interactivity between and among users. As sound and
images, in addition to data, are becoming digital, and as
common standards are established, teleconferencing over
personal computers will become affordable and as
popular, by the beginning of the next century, as
telephones are today.
Television
Information superhighways running over fiber optics,
cable networks, and/or satellites will be competing with
regular telephone networks and will be allowing
multimedia interactions (bringing any kind of messages,
information, music and/or images) to any home. The
possibilities are limitless, not only for entertainment, but
also for all kinds of related leisure activities, from
reading, in one's own living room, a rare book in a far
away library to viewing the entire works of Picasso from
different museums around the world, from watching a
theater play in London to being given a personalized
tour of the Acropolis in Athens. In addition,
entertainment can become more personalized and
interactive including the possibility of competitive
games or virtual reality simulations played among
players who are not located physically at the same
place. Large, high definition TV screens connected to
computers can be used for high quality viewing, while
TV cables can be utilized to obtain access to global
networks that include all kinds of services that provide
among others entertainment, sports and shopping.
If established trends in C&C continue, there is no doubt
that multimedia applications will spread as fast as the
telephone, making the emergence of a tele-society
possible,zs The big question is whether or not people
will opt for using multimedia technologies on a grand
scale and prefer to shop and obtain services, work,
entertain themselves and communicate through telemeans rather than physically. This question divides
experts and excites many people. On the one hand, there
I3
are those who say that a tele-sodety is dehumanizing

and it will never be accepted, z9 They argue that people
are social animals. They like to go out, meet others,
touch what they intend to buy and judge its quality and
value by seeing it. They refer to the growth of
department and specialty stores and the weak performance of catalog and mail order outfits. Moreover, they
cite surveys where three out of four people tele-working
from home are not satisfied and would rather be in an
office with their co-workers. On the other hand, there
are those who refer to the large amount of time people
spend watching TV, teenagers talking on the telephone,
even though their friends are often down the road, or the
high percentage of services conducted over the
telephone, via computer or by post. Nowadays very
few people go physically to a stockbroker to buy or sell
shares, to an insurance firm's office to get a policy, or to
some office to pay a bill. Moreover, the proponents of
tele-society3 highlight the growth in mail sales of
computers, or other standardized products, and the large
number of self-employed people who work from their
own homes.
its present day inconveniences, thus opening up new

possibilities that can fundamentally change the
traditional distribution system.
Whatever is true for products is even more so for
services. Once a multimedia computer terminal is
connected to a network that provides access to service
firms around the world, there are no constraints or limits
to tele-services. These services can extend beyond
traditional ones to education or medical diagnosis (e.g., a
doctor can do the testing while in his office and a patient
at his home, or a student can have a lecture delivered at
his home). Again the possibilities are limitless as the cost
of such services decreases and the disadvantages of
obtaining them are being reduced.
Television is already widely popular, so its extension to

tele-entertainment will cause fewer problems than the
other technologies. Videos on demand, music records,
games, theater plays, concerts, ballets, operas, or any
sports event can be televised and shown to an audience
of any size according to demand. C&C networks will
allow for practically unlimited choices and a high degree
The answer to whether or not people will prefer teleof interactivity and personalization of what one chooses
versus physical shopping, services or entertainment
to watch, or play individually or with others. Moreover,
depends upon the value and cost, or inconvenience of
entertainment can move into additional directions (such
each alternative, where the social
as virtual reality) not fully
"lhe information revolution understood or explored as yet.
pleasure of physical interaction is
one of the factors that is added
has continued .for several
to value. For instance, the
Tele-work is another technomajority of people prefer to stay
decades; it only needs future logical possibility that invokes
at home and watch TV or a
strong positive and negative
historians to officially
video rather than go to the
reactions.3I Some people believe
movies while a considerable
that going to work allows for
decide when it stm ed
minority prefers the physical
personal interaction among coaspects of going out, even when it rains and when they
workers, making friends, participating in meetings and
have to queue before going into the movie theater.
making personal contacts with customers and suppliers.
Similarly, some people hate shopping and avoid it at all
Others refer to the long time it takes to commute to and
costs while others love it and will not buy anything
from work, the inefficiency of meetings, and the high
unless they can see, touch and try it. Until now,
cost of individual offices that are occupied but a small
however, the prices and costs of the various altematives
percentage of time by their occupants. With telehave been compatible. Moreover, buying through teleconferencing, computer conducted meetings can be held
means (e.g., homeshopping via TV channels or catalogs)
more efficiently without the need of physical presence.
has been inconvenient in that buyers cannot physically
Moreover, data and information can also be displayed,
examine their choices and have fewer alternatives than
minutes kept, action steps verified and various decisions
going to a store. Most importantly there are few price
and their implications viewed and debated. The
differences between physical and tele-shopping.
disadvantage of reduced physical interaction can be
corrected, or even turned into an advantage, by using
offices as clubs where people meet for breakfast or lunch
If tele-shopping is done directly from the manufacturer,
and maximize their interpersonal interaction rather than
prices can be substantially lower as all intermediaries will
locking themselves inside an office with a secretary
be avoided. Moreover, if the buying can be done
acting as a barrier. Equally important, when the cost of
through the manufacturer of one's choice, no matter
tele-work becomes considerably less than traditional
where in the world it may be located, the choices
work in offices, it will be hard to continue it as new firms
available will be practically infinite. Furthermore, high
using tele-work will be at a competitive advantage over
definition, color screens can provide as good a sense
traditional ones that use a lot of expensive office space
about what one buys as being physically there. In
to conduct their business.
addition, consumer reports done by independent, nonprofit organizations can be readily available to facilitate
Revolutions like the industrial or the information one do
one's choice. Finally, products (such as clothing or cars)
can be custom-made to one's individualized order. Lower
not happen overnight. Instead their impact spreads
prices, larger choice, and customization will increase the
gradually. Once such an impact has produced huge
attractiveness of tele-shopping and decrease or eliminate
cumulative changes with far-reaching consequences for
I4
European ManagementJournalVo114No 1 February 1996
FACTORS AFFECTING SUCCESSIN BUSINESS
all aspects of our societies, organizations and personal

lives historians name it a 'revolution'. In this sense the
information revolution has already been under way for
several decades. It is only a question of future historians
officially deciding when it started.
Firms and Management: From the

Industrial to the Information Revolution
The Industrial Revolution fundamentally affected all
aspects of business firms and their management, as firms
became bigger and more efficient and their professional
managers, separated from their owners, developed along
functional lines. Business firms became instrumental in
increasing productivity, fueling economic growth,
creating employment and, in general, raising the
standards of living of the countries in which they
operated. By exploiting the advantages of C&C, as well
as superautomation, firms will continue to improve
productivity, create employment and generate wealth.
However, the firms of the 21st century will have few
resemblances with their counterparts of the 20th century
in much the same way as 19th century firms and their
20th century counterparts. The biggest change, which
has already occurred and which is bound to continue,
owes its origin to the very success of industrial firms in
increasing productivity, cutting costs, and in general
supplying products and services at a rate that has
exceeded that of the increases in demand, at least in
industrialized countries. This success has created
overcapacity and increased competition, and has forced
firms to continuously improve themselves in order to
survive. With C&C the competition and pressure to
reduce prices and profit margins is likely to continue, if
not intensifying, bringing far reaching changes in the
business environment and firms themselves and in a
sense, creating the information revolution.
Sales:Billlonsof$
3000
: : : :
The Decline of Large, Industrial Firms

Figure 13 shows the real sales and Figure 14 the real
profits of Fortune's 500 industrial firms since data
became available in 1954. Between 1954 and 1979 sales
grew, on average, by 5.4 per cent a year, well above real
GNP which grew by about 3.3 per cent during the same
period. Similarly, real profits grew by 4.2 per cent
during the same period, higher than the 2.9 per cent
growth in real total corporate profits. The above
average sales and profits of the 500 largest industrial
firms indicates the importance of economies of scale and
scope3z that brought such results. Things reversed
themselves, however, starting in the late 1970s, as sales
started declining and profits plunged both in absolute
(Figures 13 and 14) and relative terms (Figure 15).
Similarly, in 1968 profit margins started declining after
having been, on average, steady at about 6.1 per cent of
sales (Figure 16). In 1991 and 1992 profit margins were
less than half their 1968 level of 6.1 per cent (see Figure
16). Thus, it seems that in a short period of time,
economies of scale and scope seemed to provide no
advantages to large firms, reversing a trend that had
established itself since the beginning of the Industrial
Revolution and which had become the Holy Grail of
modem management.
A similar pattern can be seen in the number of people
employed by Fortune's 500 firms (Figure 17) which
increased on average by 3.8 per cent a year, well above
the growth of the civilian labor force which was 1.9 per
cent until 1969, then it slowed down to 0.8 per cent
between 1969 and 1979 while it has declined on average
by 2.4 per cent a year since then. Figure 18 shows the
employment of Fortune's firms as a percentage of the
total civilian employment and indicates a reversal in the
relative growth too. After reaching 1.9 per cent of the
labor force in 1969 the percentage of people employed
t979
:"~:: :
1979
Proll~ Billionsof $
:
160~
:'::: :
t"1 ...................
2500
1,o .........
!i-!
.o I
.,.
-,- .,_ . . . _
2000
"l : : : : :
1500
"01 :
91
1000
1904t9S715001953t90$1989t$72t976197819911984t9871990199
Figure I a
Fortune 800: Reel Sales
-:
N'V't
-'--',--',-i
""
',
:
'
:i
1t01 ":" ":" ":" ":" ( " , ~ V "

:
-,t:..:
!-;--:--"--;--;
i,
19541957159019831909199919721275197919311984198719901993
Figure 14
Fortune 6001 Real Profits
15
1974
1980
Profit: %of Sales
Sales:%of GNP
":i:::
8'/,
7.9%
7%
8.5%
8%
5.5%
5%
.
4.5%
' . . ' . . ' . . '

,
4 ~
I l l l l l
It
.'
' . . '
. ' . . '
'
,% ............
'
2%
I I l i i l n i l i l l l l l i t l l l l i l i l i l l
F o r t u n e 6OO: Sales as P e r c e n t a g e of
I I I I I I I I I I I I
Figure 1 6
Sales
1979
Millions
.......
I I I I I I I I I I I I I I I I I I I I I I I
19541997t960 t96319991989197219781979t991 t994t9911990 t993
t984t957t9801993t986t99919721915t978t89119941981t9901993
Figure 1 6
GNP
i-!
Fortune liOOt Profit as Pcrocntagc of
% of TotalLaborForce1969
17
2'/,
: :..
t6
t5
1.8%
14
1.6~
13
t2
11
t.4%1
"
"
"
,"
"
,"
","
","
","
",
"
".
"
",
"
"
".
"
2"
t.2%1
10
8
1%
8
. I., I.. I.. I,,1.. I.. I.. I.. I.. I.. I,. I.. I
19541957196019631966196919721975197819811984198719901993
Figure 1 7
Fortune ISOO: N u m b e r of Employees
by Fortune's 500 firms dropped to less than I per cent (a

little more than half the 1969 level) in 1993. The largest
industrial US firms not only saw their sales and profits
decline, but they also downsized, firing rather than
hiring employees, while becoming less important in
terms of the sales, profits, or employment opportunities
in comparison to other firms in the US economy.
Figures 13 to 18 indicate the end of the Industrial
Revolution era. Its most prominent members, the
largest industrial firms of the most capitalistic of all
countries, declined, in both absolute and relative terms,
while their collective participation in generating profits
16
08%
I I
I I
I I
I I
I I
" 19541951196019631966198919121976197819811984198119901993
Figure 1 8 F o r t u n e 5 0 0 1 Their Employment as a

Percentage of the Total Civilian Labor Force
and their contribution as an employment source also

diminished. Yet the productivity of these large,
industrial firms continued to climb at a constant pace
between 1954 and 1993 as real sales per employee
increased by an average of 2 per cent a year during
that period while profits per employee also increased
albeit at the smaller rate of 0.5 per cent a year,
fluctuating more widely, however, since 1969, than
they did before. Although it is not possible to separate
cause and effects, the decrease in real sales and real
profits that follow cannot be unrelated to the
slowdown and decline in the growth of employment
that started about a decade earlier.
European Management JournalVo114 No 1 February 1996
region. Equally important, their intentions were often

known while many of their actions could be predicted.
Competitive analysis to determine the strength of the
various competitors and an evaluation of their signalsa4
Competition in the business environment has intensified
could, therefore, be used to predict competitive moves in
and will continue to do so, posing new challenges and
order to make capital expansion, pricing or other
bringing new threats to firms. Firms must consider the
decisions that maximize a firm's profits without creating
consequences of such competition as the information
overcapacity and falling prices in the industry involved.
revolution continues as far as both their strategy and
Since the early 1970s, however, as growth slowed down,
operations are concerned.
firms, traditionally part of a certain industry, ventured
outside their own, taking business away from other firms
Overcapacity
and forcing them in turn to search for opportunities, in
The fact that the prices of practically all standardized
other industries outside their own. For instance, there
products and services have been declining in real terms 33
was to be a telecommunications, computer, commercial
and that profit margins have also been decreasing (see
TV and cable TV industry. Today there are no obvious
Figure 16) indicates that supply is higher than demand.
boundaries between them, as telecommunication firms
Overcapacity fuels competition and forces prices and
want to provide interactive computing services to homes
profit margins downward as producers attempt to sell
using fiber optic cables. Moreover, entertainment
their goods in a buyer's market. Before the Industrial
companies, publishing houses, and software firms are
Revolution, people could afford few material possessions
also competing for the same business, making it
as their buying power was low. However, during the last
impossible to assess competitive threats as new entrants
200 years, as real prices have been dedining and real
can come from other industries, like satellite or wireless
income rising, the demand for goods and services has
transmission companies, that can render fixed wiring
been increasing at a fast pace, in particular since
telecommunication systems obsolete. Moreover, compopulation has also been growing, further stimulating
petition can come from a number of countries making it
the growth in demand. Until the late 1960s, although
impossible to assess its strength and estimate future
supply has been increasing at a
capacity. Furthermore, it was
fast pace it rarely exceeded
impossible for typewriter firms
Computers and
demand by a large amount or
to predict that their products
communications will force would
protected time span. Firms were,
become obsolete because
therefore, capable of setting
of
computer
word processors, or
firms to develop different
prices at such a level that
for banks to estimate the
skills and strategies for
allowed demand to grow but
negative effects on their business
which also permitted them to
by
credit cards issued by AT&T,
comparative advantage
increase their profits at a healthy
GM or lately by newspapers like
rate. By the late 1960s, however,
than in the past
The Times. Finally, stockbroker
the markets for standardized
firms have also been providing
products in industrialized countries were saturating as
their customers with banking services (checking accounts
consumers possessed practically all durable goods they
and credit cards). Such actions have forced banks to enter
desired and population growth was diminishing. Firms,
into insurance and other business to compensate for the
however, continued expanding their capacity, as they
loss in their traditional market.
believed that demand would continue growing at its
historical pace. Such an expansion coupled with the
Brands and luxury products
entrance of Western Europeans and Japanese
The quality of brand and luxury products was, usually,
multinational firms in the world markets further added
much higher than less known or generic products.
to existing capacity at a time when the demand for
Consumers were, therefore, willing to pay a price
standardized products was slowing down. In the face of
premium for such higher quality rather than risking
increased competition, and in order to maintain their
buying a cheaper, non-brand, product of unknown,
global competitiveness, firms had to reduce their prices,
doubtful quality. During the last decade, however, little
at a faster rate than in the past, and cut their profit
known brands as well as generic products have
margins (see Figure I6). To achieve such objectives they
improved their quality to the point that there is little
were obliged to downsize while, at the same time,
or no difference with that of well known ones. As
improving their effectiveness and efficiency.
differences in quality from cars and computers to soft
drinks and food products has shrunk, so has brand
Industry boundaries
loyalty as an increasing percentage of consumers are not
Until the late 1960s industry boundaries were well
willing to pay a higher price just because of a brand
established and respected. Although some multinational
name, or the luxury status of a product. The Marlboro
firms, mostly of US origin, operated across countries,
Friday (when Philip Morris was obliged to cut the price
competition from abroad was constrained by custom and
of its Marlboro cigarettes by 20 % because it was losing
other barriers in order to protect firms at home. In such
market share to generic brands), the problems of Heinz
an environment competitors could be easily identified
and Borden as well as those of IBM, Coca-Cola and
within a single, well-defined industry and geographical
PepsiCo and other well-known firms proves beyond
Increased Competition: Past and

Present
17
reasonable doubt that brand awareness does not suffice

to increase sales or charge a price premium for a
'company' or 'brand' name. Such a change further
increases competition as brands cannot be used as a way
of limiting supply and therefore controlling prices.
Rules of the game

In addition to well-defined and respected boundaries that
existed before the I970s, and the advantages that
economies of scale and scope as well as brand
recognition brought to large, established companies,
there were also established rules that firms accepted.
There was, for instance, a price leader, usually the
biggest firm of the industry, whose decisions were
followed by other firms. This was the case in the
automobile industry with GM in the leader role.
Alternatively the strongest and usually most profitable
firm of an industry set its prices at such a level that the
highest cost producer could survive. By letting high cost
producers continue, it permitted the strongest firm(s) to
reap handsome profits while avoiding anti-trust actions
against it. Such was the case in the computer industry
before the late 1970s with IBM being the strongest and
most profitable player. In other industries, and in
particular in Europe, there were widespread gentlemen's
agreements and informal cartels whose purpose was to
maintain high profits and prevent new entrants from
establishing themselves in an industry. Governments
used to, and in some cases still continue to, help firms to
impose such rules. For instance, airlines and telecommunication companies in the great majority of
European countries still operate using rules that make
competition impossible. The same is true in public
procurements or large construction projects where
competition is regulated in ways that allow insiders to
reap large profits while excluding outsiders. A major
objective of the European Union is opening up
competition at the European level by breaking down
barriers to entry, thus forcing prices down and
improving quality and service. The globalization of
business and the spread of C&C are bound to intensify
competition and speed up the fall in whatever barriers,
national or industry-wide, still exist at present.
Consumers will be the main beneficiaries of increased
competition that will force prices to drop further.
Future Competition
The overcapacity prevailing at present in practically all
industries will, in all probability, continue into the future,
fueled by the effective marriage of the mechanical and
computer technologies to superautomate all standardized, repetitive tasks whether manual or mental.
Although C&C will significantly contribute to maintaining, if not exaggerating, prevailing overcapacity,
their major impact will be in the way information is
disseminated and used, and the way firms are organized
and run, including the kind of products and/or services
they offer to their customers.
I8
In the last decade, airlines have lost many billions of

dollars. A major reason is the computerization of
reservations and prices. By connecting to a central
computer, any travel agency or individual can figure out
not only the most appropriate and convenient route to
go from point A to B but also the cheapest one.
Information is perfectly and instantly disseminated by
being available to anyone having a computer terminal
and permission to connect to the central computer. As
the service offered by the various airlines is pretty
similar (standardized), no carrier can afford to charge a
higher price than its cheapest competitor, thus the price
wars and huge losses - - even in Europe where airlines
are still protected by monopolistic barriers.
C&C will, by the end of this century, put the great
majority of products and services into a similar situation
as that of the airline industry. A consumer will be
capable, from his or her own computer, to connect
through regular telephone lines to centralized selling
networks. Once connected, he or she will be able to
compare prices and buy the product/service that
provides the highest value for its price. With such a
computerized system, information will be perfectly and
instantly disseminated, eliminating or reducing to a
minimum local or time-dependent scarcities and
intensifying competition as firms will have to list the
prices of their products/services together with their
technical and service-related characteristics.
A computerized selling system will allow consumers to
buy directly from manufacturers, or providers of
services, overpassing all intermediaries, and getting the
lowest possible price. In addition, there will be no
geographical constraints as many products and most
services can be bought from far away places. Finally, the
quality of their products/services will also be available,
in the computer, from non-profit consumer protection
agencies which will provide up-to-date information. In
such a setting where price and quality will be readily
available firms will not be able to charge higher prices
than their competitors by counting on physical
proximity, or the lack of information on the part of
consumers.
C&C will also allow for brand new forms of organization
which will be very different to the traditional
bureaucratic and hierarchical structure present in most
firms. Computer networks and groupware are allowing
'network' organizations where information is exchanged
irrespective of ranks or positions, giving rise to
horizontal, extremely fiat organizations. Moreover, in
the future, firms will not have to occupy large offices in
some centralized location. If we assume that
teleconferencing will spread and computer networks
will continue to become more user-friendly and cheaper,
then, in the near future, it will be possible to have access
to company information, hold meetings and run firms
with employees who are not necessarily present
physically. As being a low cost producer will be a
prerequisite for long-term survival, firms may not have
much choice but to avoid occupying expensive offices
and instead organize themselves in new forms that use

telework, subcontracting, outsourcing, and part-time or
consulting work to a much greater extent in ways that
would substantially decrease their fixed as well as overall
costs. This would be particularly true for firms
producing/offering standardized products/services.
Gaining and/or maintaining competitive advantages in
an era of superautomation when information is instantly
and perfectly disseminated will require different skills
and strategies for success than during the past. As
technology will be equally available to anyone who can
pay for it, producing or offering standardized products
or services will provide few or no competitive
advantages except to those who manage to use the
technology in more efficient/effective ways. But being
more efficient/effective than one's competitors will
require a well-trained and highly motivated workforce
capable of using their heads to improve their work
beyond the normal capabilities available through the
standard application of technology. Alternatively, the
service offered to customers ought to be speedier or of
higher quality than that of competitors, again requiring
well-trained and motivated employees.
Competitive advantages could be gained by firms that
make and/or sell new products or offer new services.
The newness of such products/services would exclude
overcapacity and will assure firms of higher profit
margins, at least until imitators come up with similar
products/services. For firms to be successful innovators,
they must have well-educated, highly motivated and
creative employees capable of conceiving, inventing,
developing and successfully marketing new products
that consumers will buy. In addition to the creativity
required to be an innovator, firms will also have to
invest, often heavily, in R&D and be willing to assume
the risk that their investment might not pay off. Finally,
they will have to be fast in conceiving and bringing to
market new products/services as their competitors will
be also attempting to do the same. Greater speed to be
the first in the market will require, in addition, team work
and an efficient and effective organization capable of
surviving in a highly competitive environment where
only the fittest could stay in business in the long run.
Conclusions
When the information revolution becomes widespread,
firms will have to provide their customers with real value
in order to survive in the long run. This can be done by
providing the lowest cost, with an acceptable quality, or
by offering new products and/or services ahead of their
competitors. In both cases they must continuously
innovate either by internal improvements to cut costs,
by improving quality, or by identifying existing or new
customer needs, and by coming up, faster than their
competitors, with new products/services to fulfil such
needs. An important factor determining success will,
therefore, be the education, creative potential as well as
EuropeanManagementJournaIVo114No 1 February 1996
the motivation and team spirit of those working, or

better being part of the firm. Their knowledge, innovative potential, entrepreneurship, and ability/willingness
to give their customers value for money will be critical
for success in an environment where superautomation
and the instant and perfect dissemination of information
on a global basis will be widespread. In such a highly
competitive environment, continuous improvements and
doing something better than the competitors will be
prerequisites for long-term survival and success as C&C
will eliminate barriers and intensify competition.
The biggest challenge for firms will not, therefore, be to
follow the latest management theory or tool, imitate the
strategy of today's most successful companies, or follow
the advice of the best consultant or most popular
management guru. History (see Table 1) has shown that
management theories/tools do not last long while the
performance of 'excellent' firms can fall below average
-even in a short time period. This means that success
cannot be based on past performance or criteria.
Although it is nice to read about success stories and
comforting to believe that such success can be replicated
by following what worked well in the past, or by
following some easy to apply 'recipe', in reality such
stories or recipes do not suffice. Instead succeeding
requires a fundamental understanding of the present and
the correct anticipation of forthcoming changes and their
implications. This article has concentrated on the major
changes which are bound to affect all aspects of our
society (and personal lives) while discussing their
implications for firms. These implications must be clearly
understood and used into both shaping top
management's thinking about the future and becoming
the basis for formulating and implementing appropriate
strategies to exploit the advantages while avoiding the
disadvantages of these forthcoming changes.
Notes
1. Amst, C., Spiro, L.N. and Burrows, P. (1995) Divide and

Conquer?, Business Week, October 2, 28--29.
2. Gilmore, F.F., and Brandenburg, R.G. (1962) Anatomy of
Corporate Plannin 8, Harvard Business Review (NovemberDecember), pp. 61-69; Ansoff, H.I., (1964) A QuasiAnalytical Approach of the Business Strategy Problem.
Management Technology, IV, pp. 67-77.
3. Ackoff, R.L, (1970) A Concept of Corporate Planning, John
Wiley and Sons, New York; Lorange, P., and Vancil, R.F.,
(1977) Strategic Planning Systems, Prentice-Hall, Englewood
Cliffs, NJ; Steiner, G.A., (1979) Strategic Planning: What
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SPYROS
MAKRIDAKIS,
INSEAD, Boulevard de
Constance, Fontainebleau,
77305, Cedex, France
Following the attainment
of a place in the Greek
Sailing Team in the
Olympics of 1960, Spyros
Makridakis set sail for
New York University
from where he obtained a PhD in 1969. Since then
he has advised numerous international organizations
and companies, and taught in several European and
American universities, including IIM in Berlin and
M I T and Harvard in the USA. He is currently a
Research Professor at INSEAD, working on the
implications of technological, competitive and other
changes on work and managemenL in particular, the
kind of corporate strategies that will produce winning
companies in the coming century.
Spyros Makridakis is the author or co-author of I8
books including Forecasting Methods for
Management (Wiley) now in its 5th. edition and
has sold more than I20,000 copies in I2 languages.
Also author of over 100 articles in journals, his latest
books are Forecasting, Planning and stategy for
the 21st. Century, and Single Market Europe:
Opportunities and Challenges for Business.

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EuropeanManagonentJournalVo[. 14, No. 1, pp.

Copyright 1996 Elsevier Science Ltd

Factors Affecting Success

Management theories and tools, like the fashion

On 20 September 1995, the price of AT&T's shares

Companies will stand a much higher chance of

AT&T has not been the only company to grow by

Spyros Makridakis explores these consequences,

motivating corporatestaff to innovate in the newlycompetitive environment generated by advances in

AT&T, like the great majority of large companies,

FACTORS AFFECTING SUCCESS IN BUSINESS

Major M a n a g e m e n t Theories I Have Come Across Since 1 9 6 5

Problems or Unrealistic Assumptions

Setting goals through negotiations between

People play the game of setting low objectives

Theory X and Theory Y

Authoritarianism (theory X) should give way to

Participative management can reduce efficiency

Encounter groups for managers aimed at

Sensitivity gained during T-groups did not last.

Using quantitative tools and computers to

Many decisions (notably those involving people

A form of organization where an individual can

Problems of conflict and split alliances can

To maintain high growth, companies must

Difficulty in accurately forecasting promising

Decision-making is placed in the hands of line

Without effective coordi nation, decision-maki ng

Acquiring dissimilar businesses under a single

By definition the most conglomerates can achieve

Optimal Investment Portfolios

The risk of investing can be minimized by

Past patterns in the movement of various stocks

The Systems Approach

The whole is much more important than the sum

Complexity increases beyond human capability if

The Managerial Grid

Classifying a manager based on his/her concern

Managers cannot be classified into nice boxes.

Statistical models capable of capturing the

Past relationships do not necessarily hold true

Extrapolate long-term trends in sales, demand,

The established growth in sales, demand, etc.,

S-curves and Product Life

The life cycle of products (and technologies)

Start from scratch in making next year's budget.

Too much uncertainty for longer-range planning.

Products or business units are classified as dogs,

It assumes future stars can be identified. It

As production doubles, nondirect costs decrease

It might work for mass production. But

Too many methodological problems and

An empirical database containing companysupplied information whose purpose is to

Visiting the line people and customers to obtain

Searching for Excellence

Individual managers have little or no say in

Past excellence cannot be used to achieve

European Management Journal Vo114 No 1 February 1996

FACTORS AFFECTING SUCCESS IN BUSINESS

Problems or Unrealistic Assumptions

Getting rid of unprofitable businesses or those

The challenge is to know which businesses to get

Encourage entrepreneurial spirit (and projects)