The Means Justify the End

Determining IW's Best-Managed Companies a valuable endeavor

Ask a group of executives and self-styled management gurus what it takes to be among the world's 100 best-managed companies, and you'll get plenty of different answers. But first you'll have to respond to a flurry of questions. IndustryWeek editors faced these questions during the exhaustive evaluations leading to the selections for this year's IW's 100 Best-Managed Companies list. Skeptics will ask: "How can you truly tell--across geographic boundaries and cultures, and across the varied industries--what it takes to be one of the world's 100 best-managed companies?" Good question. "Surely," they'll add, "the better thing to do would be to choose the best in each of the major countries or the best in each of the industries." A decent alternative. But both the skeptics' question and their recommendation miss the point. We want to know--and we think others want to know--which companies are the best in the world, and what are they doing that makes them the best. To do this, we need to identify the attributes of a best-managed company. Period. Nearly every human endeavor is measured on the world scale; witness the Olympic games and the Nobel prizes. Why should management be different? Once you've persuaded your panelists to participate in the dialogue for the sake of argument (if not for any real possibility that they could identify the world's 100 best-managed companies), the real debate begins. What are the core characteristics of a best-managed company--regardless of industry or country of origin? The majority will say that it takes profits. "A company exists to make money," they'll assert. "Therefore, the companies that make the most profit are the best managed." "Nonsense," a few will argue. "Profits are numbers that can be manipulated for the short term. Sell off a few assets or slash personnel, and profits increase." They will counsel you to consider whether the company's profits have been good for the long term, not just for the most recent year. Still others will recommend that you look into how the company made its profits. "Only then," they will claim, "can you truly determine whether a company is among the best managed in the world." It sounds like common sense, but even members of this group won't agree with one another. After all, the number of management strategies grows daily, if the number of books published on the subject is any indication. Some will say the company that puts its shareholders first is the best managed. "Let the market decide!" proponents of the market will proclaim. "Smart investors are careful about where they put their hard-earned money; they'll put it with the best-managed companies." Dissenters of this viewpoint will counter: "Trouble is, a lot of investors are out there gambling for the short term. Markets can be manipulated or misunderstood, so choosing based on market capitalization alone can be risky." They will point to outrageously overpriced IPOs and over-valued stocks as evidence of the irrationality of shareholders. Others will argue that the customer should be the focus. These experts have created and cultivated the clich, "The customer is king." "But companies need to lead their customers, not just follow them," another group will caution. "If this is an important attribute--and we think it is--you should look at how companies put customers first." A few others will point out that successful companies cultivate the best workforce--find the best and brightest, give them the freedom to create, and amply reward them. A small group will insist that a company must be a good corporate citizen, serving as a positive role model in the community, nation, and world. This group will contend that a company's environmental, health and safety, and labor records should be taken into account. The list of potential indicators of best-managed companies goes on. Hard-core management book readers will talk about the management strategy of the month: reengineering, total-quality management, management by walking around, etc. Financial wizards will suggest a veritable alphabet soup of measures (ROA, ROE, EVA, etc.). Yet another group will throw its hands in the air and take the "I'll know it when I see it" approach. This group will attempt to persuade everyone to brainstorm a list of companies that is generally considered to be exceptionally well managed, and work backwards. Of course, all the arguments are right to some degree. Good management is a witch's brew of the previously mentioned attributes (and probably some that weren't mentioned). No single measure can consistently and accurately determine the best of the best. And the relative importance of each attribute probably differs dramatically from country to country, industry to industry. Further, with all the various measures available to judge whether a company is well managed, it's a wonder that any group could agree on a list of core attributes, let alone a list of the best-managed companies. Or that any other group could independently ratify those lists. However, it's safe to say that the best-managed companies are those that balance the needs of their various constituents. Just as each of us, as individuals, serve as parents, spouses, employees, and community/nation/world citizens, a company has many stakeholders (shareholders, employees, community) whose interests must be satisfied before it can be truly successful--and become a best-managed company. A company that emphasizes one stakeholder over the others will suffer in the long term. In the end, the exercise of choosing the 100 best-managed companies--and the exercise of studying the list--is as important as the list itself. It challenges us to examine what we mean when we say a company is well managed. It serves as a benchmarking tool. Just as each of us might look to successful individuals to emulate in part, executive teams can identify management strategies of the companies on the list to incorporate into their own companies' plan. And it serves as a reminder to those companies that just missed making the list that sometimes even great management isn't good enough. It's an exercise that every company and every executive with aspirations to be the best should perform every year.

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