Maxims in Need of a Makeover
Forget those management cliches. These professors say it's time to follow the evidence
Witness the recent successes of SAS Institute, the world's largest privately owned software company, and Xilinx, a maker of computer chips. Both companies struggled mightily through the dot-bomb crisis with the same slumping growth as their competitors, but they avoided layoffs--and the loss of service, product innovation, and development that often come with them. The result: "SAS made a killing in the middle of the downturn," says Pfeffer, by attracting customers frustrated with the dwindling services offered by their competitors. In 2005, Xilinx was named the No.1 high-tech company to work for by Fortune magazine. Both companies successfully weathered the recession and are still hiring.
Too many managers have itchy trigger fingers when it comes to layoffs. In one survey of 720 companies conducted by the American Management Association, 30 percent said they'd been forced to hire back people they'd laid off or to use them as contractors. Sometimes, of course, layoffs can't be avoided, but before managers take such a drastic, morale-destroying step, they should consider the myriad other, cheaper ways to cut costs--trimming travel budgets, say, or executive pay. Believe it or not, it might even save them money.
MYTH 4.
Mergers Are a Good Idea
It is no secret that the vast majority of mergers fail to deliver their intended benefits--about 70 percent, according to some estimates. What's incredible, though, are the sheer numbers of executives who keep trying them anyway. "Everybody says they know the data but it's not going to happen to us," says Pfeffer. The bankers come knocking, the PowerPoints go up, the smell of blood is in the water, and companies close their eyes and take their leaps of faith. "If a doctor tells you that 70 percent of the time this is going to make things worse instead of better, and people keep doing it anyway, well, that's crazy," says Sutton.
Most mergers fail to live up to expectations for one of three reasons: The companies are too similar in size (DaimlerChrysler), they are too geographically distant (SynOptics and Wellfleet Communications), or their cultural differences run too deep (AOL-TimeWarner). Hewlett-Packard's merger with Compaq in 2001 is an example of the perfect storm: Two companies of roughly equal size, one in Silicon Valley and one in Houston, struggled mightily with their fundamentally different cultures. (One example: HP employees used voice mail to communicate; Compaq used E-mail. "So they literally couldn't talk to each other," says Sutton.) The result? A tailspin that resulted last year in the ousting of CEO Carly Fiorina.
Still, there are a few companies, like Cisco Systems, for example, that seem to be exceptions to this merger rule. Since 1993, Cisco has acquired a total of 108 companies without a major hiccup. Its secret? Senior managers have looked at what went right and wrong in other companies' mergers--and used the evidence to their benefit. They have avoided the pull of the big deal, focusing instead on smaller, targeted acquisitions. They have learned to trust their instincts: "When you're going through the negotiation process, it's like dating," says Dan Scheinman, the company's senior vice president of corporate development. "If you don't like someone you're dating, getting married doesn't solve the problem." Most important, the company practices what it preaches: "A lot of companies treat [mergers] as an event: 'We did it; we've got the press conference; we're done,'" he says. "For us, we've got the acquisition, then the next step, then the next." Evidence-based management seems to work: Nearly half of the 10,000 employees Cisco has acquired in the past 12 years have stayed with the company.
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