Marketing Wiz;

 

McMANUS: I think there are two ways to answer that -- one that has more to do with the business environment, one that has to do with a technique we've come up with here.

First the environment. Back in the late '50s, when I was at Procter & Gamble, it was necessary, if you were going to build an organization, to have elaborate corporate hierarchies with many layers of management. The brand men of P&G were not presidents of their own small businesses -- they were microprocessors, human chips that processed information so that the Howard Morgens, the company chairman, could make all the decisions about what the company would do. Today, you don't need human chips. You have the technology and the microprocessor instead, so that you need many fewer layers of management. And you can run a big and diverse operation with a tight-knit group of six or eight people at the top, a sort of SWAT-team approach.

INC.: But that presumes that you don't involve yourself in much detail on how the brand men, to use your analogy, run their own shops. For many entrepreneurs, that's the big obstacle.

McMANUS: Precisely. And within the organization, it can lead to all sorts of discord and jealousies and missed opportunities. I can remember five years ago, I would have managers coming in here, especially at budget time. And one would say he expected to do $50 million next year, and I would say, no, I thought he could do $60 million. And then maybe the marketing guy would weigh in and say $40 million. And there would be a lot of bitching, and it was all irrelevant, because this manager went out and did the best he could anyway. And then the manager would say that he had 15 salesmen and they all needed 25% pay increases, or that all his secretaries needed word processors to be as efficient as our competitors, or that he couldn't hang on to his consultants unless they flew first class. Wonderful! All I was getting was bullshit all day. I was just the backstop.

So I decided I had to turn the thing around. I spent about a year before I realized that all the power was in my hands, and what I needed to do was to get it into theirs. Finally, I said to all the divisional managers, "I want you to be entrepreneurs. I'll give you all the resources you need. The only thing I need is 15% of the gross revenue. Otherwise, you're in charge."

We call it margin management, and we have it working in all our divisions now, and it's marvelous. They're looking at every word processor, flying tourist, saving paper, using less floor space. Because everything above that 15% is theirs. And s a result, in most of these divisions, people are going to be making 60%, 70%, 100% of base salary in bonuses. It's just wonderful.

INC.: How do the incentives work out? Does it merely encourage people to save money on the expenditure side, or does it offer real incentives in terms of growth?

McMANUS: Take the consulting division, for example, which had been on a kind of flat growth curve, maybe 15% a year. Now, in the past three years, they've been growing the business 30% a year, and the reason why is that they all want to increase the pot that's available for bonuses. And if they can keep costs relatively constant as the revenues increase, the arithmetic is marvelous for them. Now, the minute the line turns down, it's terrible for them, but it's not my problem. Yes, I'll have 15% of a smaller pot. But there is so much individual reward out there to not let that happen, or to work out of it quickly, that I've got 22 people over there now with the attitude, "Out of my way, here I come."

INC.: So you no longer set overall budgets, or sales objectives?

McMANUS: You know, the greatest disservice that the Harvard Business School has ever played on corporate America is management by objective -- the idea that you can say your revenues will grow 15% this year or your profits will grow 20%. Let's take a football analogy. It would be as if Chuck Knoll were to get the Pittsburgh Steelers in the locker room before the Cleveland game and say, "OK, guys, I want you to go out there and beat them 21 to 7 today. And after the game is over, come back and you'll get your paycheck based on whether you do better or worse than that."

What does that mean? Score more than 21 points? Hold Cleveland to fewer than 7 points? And why should some guy who spends the entire game on the sideline get to say what the score should be? That's crazy.

Margin management is much more attuned to what's going on in the business, and in the marketplace. All the incentives are there for efficiency, for growth. But it doesn't say you have to grow, because some years you can't grow or shouldn't grow. Only when I finally realized that I didn't really care about growth did everything really fall into place.

INC.: I would think there would be an extraordinary amount of pressure on these divisional managers from underneath.

McMANUS: You've got it. Let's say you're one of these managers, and I'm working for you. I've got my three clients, and I'm generating $450,000 a year in revenue.

Now, all of a sudden, you're about to do something stupid. Well, I'm going to make sure you stay sane -- or I'm going to eat you for lunch. What happens is that the system goes from top down to bottom up. And the possibilities for growth are really limitless.

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