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BUSINESS PLANS

The Classics
 

A noted author offers readers a guide to the best business and management books of all time.
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The complete guide to the best business and management books ever written

Earlier this year I assembled a reading list for Inc. ("Book Value," January), which excluded business and management books. Company builders, I argued, would be better off reading primarily from history, biography, philosophy, literature, the sciences, and the arts. Only a handful of the management books written in the past 50 years are worth the time of a thoughtful company builder.

Well, here's that handful of all-time management classics. Sure, it's a somewhat personal list, but I believe every selection has made a significant contribution to the practice of management. Some selections, like The Soul of a New Machine, can be devoured in one or two sittings, whereas others, like Diffusion of Innovations, require many hours of concentration. Nonetheless, each selection should prove worth the effort.

A note on exclusions: I've consciously left out books that, while undeniably classic, would mainly interest the serious academic rather than the business practitioner, such as The Functions of the Executive, by Chester Barnard, and Strategy and Structure, by Alfred Chandler. I've also omitted books that, though influential in their day, have done more harm than good, such as Alfred Sloan's frighteningly clinical My Years with General Motors. Finally, and most important, I've excluded books published in the past 10 years. "Classic" status requires that a book has stood the test of time.

Reflecting on the nine classics on the list, I noticed three dominant themes. First, the path to progress often involves doing less, not more: getting out of the way and letting people work; eliminating barriers; managing better, not more; removing the need for control. Second, virtually every classic recognizes the complexity, unpredictability, and randomness inherent in human affairs, and each book provides a framework or theory to guide our decisions in the face of that complexity. Third, management is not science. The timeless classics rest not on "hard science"--management and organization are not analogous to physics and chemistry--but on understanding and releasing the capabilities of human beings.

While compiling my list of classics, I was struck by how many "new" or "revolutionary" ideas there are today that have actually been around for decades. As the saying goes, everything old is new again.

Setting the foundations of learning organizations

The Social Psychology of Organizing
BY KARL E. WEICK (1969)

This book has had a huge behind-the-scenes influence on management thinking. Published nearly 30 years ago, it sets forth the foundations of what today we call "learning organizations" and does so more cogently than any other book I've read. The book is also a brilliant treatise on managing amid chaos, paradox, and dramatic change. Weick counsels managers with tidbits of advice that read like popular management precepts of the 1990s, not the 1950s and 1960s, when he conceived them:

"Don't panic in the face of disorder."

"Chaotic action is preferable to orderly inaction."

"Stamp out utility."

"Rechart the organizational chart."

"Look for persistent galumphing."

"Complicate yourself!"

Behind those simple-sounding precepts lies a deep understanding of human organization that will give any thoughtful businessperson profound insights into building and managing a company. Weick teaches that organizations are complex systems wherein any action can create far-reaching, unintended consequences--the proverbial butterfly flapping its wings in California and causing a thunderstorm in Chicago. The problem facing most companies is not poor management but too much management, which, while well-intentioned, often does more harm than good.

Entrepreneurs wrestling with the problems of growth would do well to embrace Weick's insight that organizations are by their very nature messy and that all attempts to impose complete order and predictability will ultimately fail. Learn, adapt, change, evolve, and grow, but don't ever expect to have things under control or to know fully where you're going. "It's OK to not know where you are going," writes Weick, "as long as you are going somewhere. Sooner or later, you'll find out where that somewhere is."

I suggest starting with Weick's last chapter, "Implications for Practice," and then allowing yourself to be drawn into the earlier chapters, which will provoke and stimulate your thinking.


Exploring why some innovations succeed

Diffusion of Innovations
BY EVERETT M. ROGERS (1962)

I have referred entrepreneurs to the concepts in this book perhaps more than those in any other book. Rogers presents the definitive exploration of how new innovations become adopted by the general public, why some superior innovations fail to become adopted while inferior innovations become standards, and why some innovations take decades to proliferate while others spread seemingly overnight.

Rogers's key concept, the "innovation/adoption cycle," should be as much a part of your tool kit as the concept of supply and demand. When a new innovation hits the market, it appeals first to a rare breed of "venturesome innovators" who habitually experiment with novel ideas and products. Rather than waiting for the social approval of other users, these people ignore the ridicule and skepticism that often greet a new idea, and become its first champions. In the next stages, the innovators influence a group of "early adopters," who in turn influence a larger group called the "early majority," who then act as role models for the skeptical "late majority," who finally convince the traditional, change-resistant "laggards." Nike, for example, moves first from elite athletes (venturesome innovators) to serious wanna-bes (early adopters) to weekend warriors (early majority) and eventually to the vast majority of people who wear weird-looking, bright-yellow-and-fuchsia running shoes around the house.

Many entrepreneurs make the fatal mistake of jumping directly to a mass market with an innovation. They fail to grasp the central dynamic of innovation adoption: most people respond not to the superiority of an idea but to whether other people are using the innovation. Most people don't want to look dumb trying something novel that turns out to be stupid. To make an innovation successful, first you target the most influential venturesome innovators and early adopters and move sequentially through the cycle. If you jump straight to the mass-market laggards, your idea will probably fail.


Tapping human potential to enhance performance

The Human Side of Enterprise
BY DOUGLAS MCGREGOR (1960)

This masterwork has had a profound effect on the trajectory of management thinking and is as relevant today as when it was written, more than 35 years ago. McGregor set forth the foundations of humanistic management and argued that how well an organization performs is directly proportional to its ability to tap human potential. That ability, in turn, relies on rejecting the Theory X view of people and embracing the Theory Y view of people.

Which of the following two sets of assumptions more closely resembles your beliefs? 1) The average person would prefer a life of leisure over a life of work; organizations must have mechanisms of control, direction, and punishment to ensure adequate effort from the average person; most people seek security over achievement; the average person would rather be told what to do than shoulder significant responsibility. 2) For the average person, work is as natural and desired as rest or play; most people will exercise self-control, display self-initiative, and actively seek responsibility when they feel committed to a set of objectives; commitment comes primarily not from fear but from rewards, especially intangible rewards like the feeling of achievement and self-actualization; the average person has significant untapped capacity for creativity and ingenuity. If you chose the first set, you operate under a Theory X view of people; if you chose the second, you fall into the Theory Y category.

Theory X management still dominates most organizations. Many managers and entrepreneurs still hold hidden assumptions that people cannot be fully trusted, need to be "checked up on," need "motivation," or don't really like to work all that hard. Fear, distrust, coercion, carrot-and-stick management, and authoritarianism are alive and well in the 1990s. And it's not just limited to big old companies; many entrepreneurs rule their kingdoms with a Theory X iron fist, too.

Unfortunately, McGregor died in 1964, long before the popular explosion of management books, and his work never reached a broad audience. Too bad--it would do the world a lot of good.


Motivating high-performance work teams

The Soul of a New Machine
BY TRACY KIDDER (1981)

Read The Human Side of Enterprise and The Soul of a New Machine simultaneously; they complement each other beautifully. Kidder's book portrays the dynamics of high-performance work teams and of Theory Y management at its best by telling the true story of a project team working with limited resources to design a new computer in less than a year.

Kidder reveals a truth of management that all who have worked on a great team know but that most businesspeople and economists seem to forget: the strongest motivation and the best work do not come primarily from the lure of money, stock options, formal recognition, or advancement. Not that those are irrelevant (most people--even creative artists--want to be recognized and rewarded for their work), but I can point to many companies laced with such incentives that utterly fail to display the high performance, dedication, and team spirit portrayed in Kidder's book. The challenge of a difficult task, the pursuit of a clear and compelling goal, personal responsibility for a significant contribution to the overall effort, and individual freedom in the pursuit of one's work--those elements provided the primary fuel and source of commitment. The individuals in Kidder's story had to come through; they could not let their comrades down.

Not one of the engineers in the book had the prospect of getting rich off the project. The pursuit of the project itself--not the rewards it would bring--made life meaningful for the people on the team. I'm reminded of NASA scientists on the moon mission, and pilots who worked without pay in the early days of Federal Express. They look back on their experiences as some of the most satisfying of their lives--even though they looked forward to the end of the struggle--for it was then that they felt most alive.


Setting down the bible on management thinking

The Practice of Management
BY PETER F. DRUCKER (1954)

Drucker stands as the most significant management thinker of the 20th century. Enlightened and, above all, effective management is to him the central skill needed in all parts of a free society. Effective management dispersed throughout society--in business, in nonprofits, in education, in local government--made the triumph of the free world and the end of the Cold War possible and is the only workable alternative to a resurgence of tyranny or dictatorship. Drucker's goal is to make society more productive and more humane. He strives to lift us to a higher standard, not merely to help us be successful or amass wealth.

As I culled through Drucker's prolific writings, a few timeless themes emerged. The primary function of business management isn't making a profit; it's making human strength productive and human weakness irrelevant. "The rhetoric of profit maximization and profit motive are not only antisocial," he writes. "They are immoral." Channel your energies into building on strength, not into remedying weaknesses. Give people freedom and responsibility within the context of well-defined objectives; "enable your people to work!" Authority must be grounded in competence, not in position or status. An organization must have built-in mechanisms for self-induced change, or else it rots. A business enterprise is not strictly a private institution; it is a social institution that must exercise social responsibility in exchange for its freedom from societal control. Yet social consciousness does not excuse poor performance or incompetence; the foundation for doing good is doing well.

Picking one classic from Drucker's many writings is like trying to select one classic from all of Beethoven's compositions. I could pick any one of half a dozen books that could legitimately stand as timeless classics. I finally settled on his first pure management book, The Practice of Management. Here you will find the roots of all his ideas and influence. The book had a profound effect on the thinking of many company builders, such as David Packard, who quoted it like the Bible and used it as the blueprint for the management architecture of Hewlett-Packard.


Competing in your best industry

Competitive Strategy
BY MICHAEL PORTER (1980)

I'm not a huge fan of the traditional strategy school of management. Companies don't attain long-term success primarily by strategic planning; it's achieved mainly because of such factors as people, culture, organization, innovation, persistence, adaptability, and vision. The founding and growth of companies that become great stem surprisingly little from well-formulated corporate strategy.

That said, Michael Porter's books make a significant contribution. His work focuses not on planning but on thinking and understanding. His most powerful and useful contribution is a set of conceptual frameworks for understanding the realities and forces of the external environment. It's like mountain climbing: you can have a great team of gifted climbers, but it makes no sense to launch blindly up the side of a cliff without considering the realities of the mountain. Where are the natural lines of ascent? Where are the objective hazards, like rockfall? What are the weather patterns? What other climbing teams do we need to worry about? What type of rock will we encounter? Sure, if you ignore the external environment, you might get lucky and succeed anyway, but then again, you might end up dead.

Some of Porter's key concepts best apply to entrepreneurs. Most large companies already have significant investments in a given industry, and if it is an unattractive industry, too bad. But an entrepreneur can make great use of Porter's industry-analysis tools when they are most powerful--when he or she is deciding which industry to enter in the first place. Porter's famous "Five Forces" tool for analyzing the attractiveness of industries is of particular value to prospective entrepreneurs who aim to start or buy a company. Entrepreneurial imagination and energy can overcome massive odds, but it doesn't hurt to apply that energy and imagination in a field where the fundamental forces and external realities help rather than hinder.

Simply put, some industries are inherently more profitable than others. It's best to build a great company in an attractive industry. Competitive Strategy won't help much with building a great company, but it will certainly help with picking the right industry.


Doing better today than you did yesterday

Out of the Crisis
BY W. EDWARDS DEMING (1982)

Deming, the man, probably had greater influence than his book. Most people gained exposure to his ideas by reading about his work or by hearing him talk, not by reading his work directly. That's unfortunate because Out of the Crisis is one of the two key texts of the quality movement (the other being J.M. Juran's Juran on Planning for Quality, 1988) and is also an eminently readable book full of vivid examples that bring powerful ideas to life.

Deming's entire approach stands in stark contrast to faddishness, and I'm distressed by the number of companies that have adopted techniques and tools of the quality movement without embracing the philosophy of continuous improvement. For Deming, continuous improvement was not a bag of tricks but a way of life--a Zenlike discipline to be practiced day in and day out. It requires an unwavering commitment to facing every day with the question, What can we do better today than we did yesterday? There is no finish line, no "we've arrived." In Deming's world, you never arrive. You can always do better, and you should never stop the process of improvement.

Although the techniques of statistical quality control originated in the West, Deming's perspective reflects a more Eastern habit of mind. In the Western world, we seek to affix blame and reward to individuals. Deming teaches that we must reject that lens and look instead at the system in which individuals operate. To improve quality, fix the system, where 95% of the problems lie.

Deming's perspective requires another non-Western lens: accept randomness and reject the idea of complete control. Random events cannot be eliminated, and any attempt to prevent or correct for specific random events without addressing the entire system will likely produce unintended and often worse consequences than the original event. The question, of course, is, How do you distinguish between a random event and a systemic problem? How, for example, would you determine if a sharp rise in bus accidents came about by chance or from a systemic cause, like poor brake installation? The wisdom to ask and the ability to answer that question is the essence of Deming's teachings and should be in every manager's tool kit.


Igniting the creativity within your company

Creativity in Business
BY MICHAEL RAY AND ROCHELLE MYERS (1986)

No enterprise can prosper solely on efficiency; it must also have that magic spark of creativity and innovation. The problem, of course, is how to nurture and capture that elusive element. In the 1970s Stanford professor Michael Ray pondered the enigma of human creativity and decided to take a sabbatical to India to contemplate the question. He concluded during his quest that creativity emanates from deep inside the human spirit and that all people have an innate capacity to be creative. Upon his return he teamed up with Rochelle Myers to create a truly revolutionary course on creativity at Stanford Business School.

Ray and Myers wrote the book and built the course around "live with" assignments, whereby you take a concept and spend an entire week trying to live--to act out--the concept. The live-with assignments rest on the assumption that all humans have a creative resource within, which gets stifled as we grow up and become socialized. The key, therefore, lies in removing the barriers to the creativity that we already possess, not to "acquiring" creativity through techniques.

The course on which the book is based became one of the most popular on campus, despite the fact that Ivy League­educated, Wall Street­bound M.B.A.'s were required to meditate, practice visualization, discover their passions, and develop their intuition. Many of the graduates of the course readily describe it as the single most significant and influential course of their graduate education, and most still consciously practice the live-withs years and decades later.

Be prepared to have this book challenge your assumptions and frame of reference. It can be tough going, especially for those of us trained in the analytic tradition. I myself, with a background in applied mathematics, almost abandoned the pursuit after only two days. "I can't take this; it's just too weird," I moaned to my wife. Fortunately, she urged me to continue. "It will do you good," she said. Indeed, she couldn't have been more right. It's one of my most treasured books.


Railing against oppressive, inhuman structures

In Search of Excellence
BY TOM PETERS AND BOB WATERMAN (1982)

OK, here it is--the grand pooh-bah of business books; the all-time best-seller; 67 weeks on the New York Times best-seller list, 30 weeks at number one; more copies sold in one year than the Bible; the most talked-about, reviled, and praised management book ever written.

But is it a classic?

I must admit, I'm a bit biased on this one. I worked in McKinsey's San Francisco office during the research phase of the book. Bob Waterman hired me, and my office was directly across the hall from the office of Tom Peters. As a very junior researcher, I did a bit of the background research on Boeing, which sparked my interest in studying great companies--a passion that has guided much of my own work and remains with me to this day. Nonetheless, I still think In Search of Excellence is legitimately a classic.

I didn't select the book for the soundness of its research or of its conclusions. In fact, the "eight attributes" of excellence came not from thoughtful analysis but straight from Peters's head when he had less than one day to prepare a talk for Pepsi. Furthermore, some of those original eight attributes have proved wrong. For example, a company need not "stick to its knitting" (Motorola hasn't) or be "close to the customer" (Sony isn't) to be excellent.

Some of the particulars may have been wrong, and the research may have been flawed, but the essential theme was correct and powerful. As an all-out broadside attack on the rational man/scientific-management models that had dominated American business, In Search of Excellence rang through with a desperately needed message: Soft is hard! It railed against the rational-man theory and the economics-is-all ideology that sensible managers knew in their own gut to be inhuman, wrong, and destructive. It was, in fact, not a research book but a manifesto--a call to arms--that gave hundreds of thousands of people the confidence to trust their instincts and participate in a revolution to dismantle the oppressive structures that dominated our business institutions. It's a revolution that continues to this day and has done much more good than harm. In Search of Excellence earns its classic status because of its huge, positive impact on the practice of management.


Jim Collins is co-author of Built to Last: Successful Habits of Visionary Companies (HarperBusiness 1997) and operates a management laboratory in Boulder, Colo.

Copyright c 1996 James T. Collins. All rights reserved.

Last updated: Dec 1, 1996




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