During a recent meeting with executives of a large U.S.-based retailing company, the president and chief operating officer made an assertion that resonated closely with statements we have heard time and again from other senior managers. “We’ve found that there’s a direct correlation between [X], [Y] and our bottom-line profitability,” the executive said with pride. Almost every day, senior managers, using their own Xs and Ys, make similar claims — as if to say that, at last, they have finally uncovered the levers that drive performance.
Many of today’s senior managers have an impressive understanding of operations. For example, they know how faster cycle times and lower costs can lead to improved profits. However, they often run into problems when they overreach — when they seize upon causal relationships that are tenuous at best and perhaps don’t even exist. It’s hard to believe that corporate managers who are entrusted with the financial health of their organizations would consciously embrace distorted views of reality. But if one considers some of the more popular management fads of recent years — for example, reengineering, total quality management or diversification — one has to wonder about senior management’s overall level of due diligence. Indeed, select any area of management, and a sober examination is likely to reveal that the best-known shibboleths are deeply flawed.
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