Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited
Exit and transition strategies: now and then, here and there
Exit and transition strategies: now and then, here and there
About the Guest Editors Harold Lazarus is the Mel Weitz Distinguished Professor of Management at Hofstra University's Frank Zarb School of Business. He was the dean of that business school for seven years, and professor of management at New York University's Graduate School of Business for the previous ten years. He also taught at Columbia University's School of Business and the Harvard Business School. Dr Lazarus is a fellow of the International Academy of Management, president of the North American Management Council, past president of the Eastern Academy of Management and serves on corporate boards of directors. His MS and PhD degrees are from Columbia University's Business School.Yair Holtzman earned his Master of Science in Accounting with distinction from Hofstra University's Zarb Graduate School of Business. He holds an MBA degree from Cornell University's Johnson Graduate School of Management with concentrations in Operations Management and Marketing. Yair earned his BA in Chemistry, with high honors from Brandeis University and completed the doctoral coursework in chemistry at the University of Pennsylvania. He has served as a consultant to the chemicals, industrial textiles, and automotive industries since 1994 and has worked at Pittligio Rabin Todd & McGrath (PRTM), A.T. Kearney, and Plating Control Systems. Currently he is a Tax Consultant with Ernst & Young.
Exit from the world of work
Dr John Ullmann is an engineer, statistician, and economist whose major, professional interests lie in the interaction of business, technology and politics. In this special issue, he discusses the wide-ranging changes and downward auctions that have taken place in worklife, including topics such as Walmartization, the deindustrialization of the US and what he calls “the spurious GDP.”
Harry Truman said, “If you can't convince people, confuse them.” There is an alternative to convincing and confusing, i.e. interesting the readers. All the peer reviewers found John Ullmann's manuscript stimulating and therefore, recommended its acceptances, but also suggested that his paper appears first in the special issue. You might want to read the Ullmann's paper first to see whether you agree with the peer reviewers.
If you would like to read additional papers written by John Ullmann, please write to him at Hofstra University, Hempstead, New York 11549, USA. I shall arrange for him to send you a list of his publications and any papers you choose at no cost to you.
Since I am a compulsive editor, I read Dr Ullmann's manuscript eight times looking for places to make appropriate changes and decided to recommend no changes. The only recommendation I even considered was his use of British punctuation, i.e. periods and commas outside, not inside, final quotation marks. I was not justified in making this “correction,” since this special issue of the Journal of Management Development will be published in Britain where Dr Ullmann lived from 1938 to 1948.
Even during my eighth reading of Dr Ullmann's manuscript, I found it stimulating. It would be a pleasure for me to get your response to his paper. Rest assured that I would never ask you to reread anything that I wrote, unless you have difficulty falling asleep.
Years ago I advised a bright, young management major who disliked math even though she earned “B” grades in math courses. She and I agreed that psychology is sometimes really biology, that biology can really be chemistry, that chemistry could actually be physics, and that physics is always math. This student wanted to know with whom she should take a statistics course.
“If I were you, I'd choose Professor Ullmann,” I said and promptly forgot about my advice. Weeks later, I saw here on campus and asked her how things were going. Her answer was “Professor Ullmann is the best-educated teacher I have ever had.”
I was not surprised.
While reading Dr Ullmann's paper, you may also not be surprised by that young woman's comment.
Large organizations' transition strategies – past, present and future
George S. Roukis earned his PhD in History and Russian area studies from New York University. He held senior-level, administrative positions in the federal government, county government and higher education.
Dr Roukis is an expert in industrial relations with many years of experience as an arbitrator and professor of management. He is presently Professor Emeritus of Management at the Hofstra University, Frank G. Zarb School of Business.
George Roukis served as United States Deputy Assistant Secretary of Labor (1973-1975) and as neutral defense referee on the National Railroad Adjustment Board (1977-1992). In 1986, Dr Roukis was appointed by President Ronald Reagan as chairman of an emergency board to resolve a nationwide railroad labor dispute. Finally, Dr Roukis edited several books dealing with corporate security issues.
We are pleased to include this highly respected scholar's informative paper on transition strategies in the British East India Company and in contemporary transnational corporations. Dr Roukis points out that transnational corporations can, for example, follow the British East India Company's model of utilizing its own military and security forces or utilize the services of private intelligence, security and military firms.
We learn from Dr Roukis' paper that in The British East India Company's 258-year history, it faced problems similar to those in our own time, e.g. intense religious conflicts, global piracy (the terrorism issue of the 16th and 17th centuries), and widespread disease not unlike the current AIDS crisis in Africa, China, Russia and India.
Dr Roukis discussed decentralization. The British East India Company was so far from London, that it was granted the power to take prompt, preventive action and even to wage war. It had an army of more than 250,000 men and a navy that patrolled the waters surrounding India. It also administered two colleges in England that trained 3,600 civil servants and military officers for service in India. On the faculty of those colleges were such luminaries as John Stuart Mill, Thomas Malthus and Charles Lamb.
Although a private company, in business to make money for its stockholders, The British East India Company, was granted the powers of a nation. Therefore, it could make quick decisions that related to its environment in India and not have to wait for decisions to be made centrally by executives in London, thousands of miles away, by people less familiar with Indian society and perhaps, less able to empathize with the concerns of the Indian suppliers, customers, employees and members of the many Indian communities.
Had decentralization/organizational flexibility not been used, bureaupathology might have been created and so, The British East India Company might not have had such longevity. It is certainly not common for a company to last 258 years. Its managers did many things right and Dr Roukis did an excellent job of describing its management history and practices, e.g. its information-gathering capabilities that often prevented unpleasant surprises and permitted the company to influence events.
The company recognized the importance of planning, hiring and training effective, efficient managers who “recognized that core competence, environmental fit” and knowledge of customers were all required for success.
However, Dr Roukis pointed out that transition strategy of using military force to advance British interests worked well for years, but finally led to the company's demise. Also the company's attempt to remake India “a mirror image of England, unleashed a deep-seated hatred that lasted for generations.”
George Roukis also discussed the major problems our world is likely to face in the future. These include the need for one billion new jobs by 2015, more safe drinking water, literacy for one billion people, organized crime's use of information technologies for trafficking weapons, human cargo, and drugs, civil wars (that are anything but civil), poverty in mega-cities, angry people in them, and intense religious conflict. These require governments, transnationals and non-governmental organizations to rethink transition strategies now.
In his discussions of the past, Dr Roukis helps us to assess current management approaches, e.g. privatization of functions that were formerly performed by government agencies. He encourages us to consider whether we should be more concerned with managing cooperation or conflict in the future. His analysis of The British East India Company certainly has relevance for managers who read his paper today.
Transition strategies in a business profession
Yair Holtzman earned his Master of Science degree in Accounting with distinction from the Frank G. Zarb School of Business at Hofstra University. He holds an MBA degree from Cornell University's Johnson Graduate School of Management in Operations Management and Marketing, and a BA in Chemistry, with high honors, from Brandeis University. He has served as a management consultant to the chemicals, industrial textile and automotive industries since 1994 and has worked at Pittligio Rabin Todd & McGrath (PRTM), A.T. Kearney and Plating Control Systems. His background in management consulting includes: designing cost reduction initiatives, process re-engineering, and improving the sourcing/procurement process.
Mr Holtzman currently works for Ernst & Young in their Tax Consulting practice. In his paper, Mr Holtzman examines the evolution and metamorphosis of the accounting profession over the past 30 years, and sheds light on how the profession got to where it is today. He offers some thoughts to managers everywhere on how to avoid some common pitfalls in successfully running their operations.
Obviously, one of our major business professions is accounting. Yair Holtzman gives us a brief recent history of the transitions in that profession resulting from such factors as fraudulent financial reporting and regulatory changes to correct such abuse. His paper discusses recent changes in auditing, financial accounting, tax compliance, tax consulting and management advisement/consulting. These followed the accounting profession's lack of forcefulness in self-regulation and changes in tax laws.
Mr Holtzman has collected a great deal of useful information about the earlier history of accounting. I have, therefore, urged him to write a book, tentatively titled A Short History of Accounting Management. I suggest that his book might contain pictures of major contributors and quite useful discussions of their contributions to legislation and to the management of accounting firms, their auditing, and management advisory/consulting services.
I believe that this proposed book should be a joint venture containing contributions from practitioners and academics in the US and abroad, people from the Accounting Principles Board, the American Institute of Certified Public Accountants, the Securities and Exchange Commission, The Public Accounting Oversight Board and clients from multinational corporations and other companies and law enforcement organizations. They would not all agree, but that disagreement might be quite useful.
Although I have not done an analysis of the market for such a book, I believe that many thousands of people would profit from reading it or at least parts of it.
Transitions in a corporation
Edward Fred earned his MBA in the Executive MBA program at Hofstra University. Edward Fred, President and Chief Executive Officer of CPI Aerostructures, Inc. has an exciting story to tell. It offers take-home value. We can learn from both corporation's failures and successes. The three lessons are:
stick to core competencies rather than diversify;
do not assume synergy from acquisitions; and
debt service can drain cash needed for expansion of the core business.
Before introducing his story, here is a bit of information about Ed Fred. While serving as both chief financial officer and president of the CPI Corporation, he was the most active, learning-oriented graduate student in his outstanding Executive MBA class.
Although Ed was a polished public speaker, one of his oral presentations was torn apart, even though Ed worked hard at preparing that talk. Was he defensive? No! Instead, he listened carefully to every single recommendation for improving his platform performance. Then, he said “I'll do better next time.” And he did.
Many talk about lifelong learning. Ed actually practices it!
Now, let us introduce Ed's exciting story. I am tempted to say that it is a happy ending. That would be foolish, since it is the story of an existing corporation that has been through several transitions. The last few have been happy.
Here is a thumbnail sketch of CPI Aerostructures, Inc. It produces structural replacement parts for out-of-production US military aircraft, those airplanes that are no longer being manufactured. That is its niche market. But that market might contract when there are substitutes for those airplanes that are no longer being produced.
Question: What long term, transition-strategy planning should CPI do now or in the near future?
CPI revenue in 2001 was $15,000,000. In 2002, it was $24,000,000. In 2003, it was $30,000,000. It made a profit of about $4,000,000 in 2003.
It is now debt free.
Forbes Magazine recently recognized CPI as its #10th ranked small business in the US.
I predict that you will find Ed Fred's story exciting. I certainly did.
Exit and transition strategies in Chinese business
Luke Ng, an Entrepreneur, Marketing and International-trade Specialist used his education and business experience in Asia to write a stimulating, useful paper on exit and transition strategies in China.
More specifically, Mr Ng has a wealth of experience with exit and transition strategies as a broker importing food and other products from China, as owner of and consultant to Chinese restaurants, as a marketing manager at Proctor & Gamble, as manager of Chocolate Marketing at Nestles, as group product manager for American Home Products (including the Chef Boyardee Group), as an adjunct professor.
Whereas some of the papers in this special issue stress the economic, political and historic issues involved in exit and transition strategies, Professor Ng stresses the managerial, sociological and psychological issues. (Think of the psychological implications of selling his home, in which he had lived only one year, for 49 percent over the purchase price. The economic implications are more obvious.)
Luke Ng discusses the lyrics of Kenny Roger's song, “The Gambler” – “there is a time to hold and a time to fold.” Deciding when to fold is one of the most difficult decisions a business founder has to make. A founder is a parent. The firm is his or her child. How does a parent feel about giving his or her child away for adoption?
Professor Ng earned his MBA degree as a Baker Scholar at the Harvard Business School. There he was exposed to cases dealing with transitions and exits. One of his teachers, the late Harry Hansen, told company founders to take helicopter views of the landscape of business – looking ahead in order to consider the long term prospects for their firms. Bill Gates, Founder of Microsoft, did just that before delegating the day-to-day operations of the corporation to Steve Ballmer, the President of that dominant software giant.
Having worked in Asia, Luke Ng reports on the problems of Japanese banks that suffered for over a decade with bad debts, while creating no effective transition and exit strategies. This is also true for Pacific Century Cyber Works (PCCW) based in Hong Kong. This once high-flying telecom conglomerate has been muddling through a series of metamorphoses lacking effective transition and exit strategies.
Most Chinese family business founders do not trust outsiders. So they pass their businesses along to their first-born sons or more recently and rarely, to their daughters. Increasingly the pass along is to sons who may have had business educations in the US, Britain and Canada. They tend to use western organizations structures.
In modern-day corporate Hong Kong and China there are notable exceptions to the number one son transition. Margie Yang, a Harvard Business School MBA graduate, is a notable exception. She built Esquel into a dominant force in the world apparel industry, with offices in nine countries and 17 plants employing more than 47,000 workers, and generating half a billion dollars in sales. Esquel makes more men's cotton shirts than any other company in the world. It does for such famous brands as Tommy Hilfiger, Hugo Boss, Ralph Lauren and Brooks Brothers. It will be interesting to see whether, in the future, more women ascend to top management positions in Asian corporations.
Transitions in the venture capital industry
Jason Green studied the venture capital industry at the Harvard Business School while he was an MBA candidate and after earning that graduate degree there. He has since been associated, in several capacities, with venture capital firms on both the east and west coasts of the US.
Mr Green is currently a founding general partner with Emergence Capital Partners, an early stage venture fund located in Burlingame, California. He is also chairman of the Kauffman Fellows Program, a national fellowship in venture capital.
Jason Green's intelligence, training, research and experience, added to the superb communication skills he acquired as the son of Lola and Walter Green, have all prepared him well for teaching us about the history of the venture capital industry, its past and present practices.
Mr Green brings the rationality and analytical skills of a Harvard-trained researcher with the knowledge and perspective of a practicing insider to the task of offering us several lessons that are useful in the venture capital industry and, perhaps, in your industries as well. The nine lessons are the following.
The venture capital industry is like many industries – high perceived rates of return and modest perceived risk attract new capital from existing players and from new entrant.
More deals raise prices.
Excess capital is the enemy of returns.
Then the initial boom reverses itself.
Cycles are inevitable in our type of economy.
The economic interests of venture capitalists (general partners) should be aligned with those of their investors (limited partners).
Invest in companies, not products.
Focus on your firm's competitive advantage.
Trust, integrity and reputation are extremely important in the venture capital industry, just as it is in the professions. For a discussion of this, please see the very interesting paper dealing with transitions in the accounting profession by Yair Holtzman in this special issue of The Journal of Management Development.
Closing a plant and the transitions involved
Dominic Bratta, an executive in the United States Postal Service, earned his MBA degree in the Executive MBA program in the Frank G. Zarb School of Business at Hofstra University. He was the leader in a class of leaders. Mr Bratta has written a useful paper about a plant closing in the public sector. The environment was both similar and different from that in private-sector, company plant closings. In Bratta's case unions were involved, so was an organization of supervisors.
Why was the plant being closed? Productivity was increasing while the volume of required work was declining. The savings resulting from the plant closing was significant.
Communication with the associates in the plant that was about to be closed was effective. However, communication with associates in the main plant was not treated seriously. This resulted in insufficient acceptance of the associates who moved from the closed to the main plant. This is a problem that has occurred many times over many years. It is, therefore, a lesson worth learning. The people in the main plant should have been motivated to accept their new colleagues.
Associates are often given little notice of plant closing and so they have little time to plan for the changes in their lives that result. Happily that was not true in Dominic Bratta's case. With open communication destructive rumors and unnecessary fears were reduced.
Bratta points out that, there are adverse impacts on production, of informing associates of potential closings too early. He also discusses the utility of contingency planning.
I predict that you will find Bratta's paper useful and interesting.
Humane approaches to layoffs
In Leadership Behavior, an interesting, informative book, co-edited by Joseph Cangemi, he presents the following memorable quote from Aristotle:
"We are what we repeatedly do.Excellence then is not an act, but a habit."
Drs Joseph P. Cangemi and Richard L. Miller, colleagues in the Department of Psychology at Western Kentucky University, follow the Aristotle principle; they repeatedly do excellent work. The aforementioned book contains an instructive article they wrote together titled: “Why Total Quality Management Fails – Perspectives of Top Management.”
The team of Cangemi and Miller have done it again. In this special issue, they present memorable examples of humane approaches to layoffs. In one case, it was a state college that experienced record losses in state funding. It met the need for cost cutting with a participative, fair, effective approach to layoffs.
In a second case, it was a corporation that, although faced with bankruptcy, utilized again and again an employee-sensitive, participative approach to downsizing. Ten years after the layoff of hundreds of employees, these former associates still spoke in glowing terms of that corporation and their work experiences in it. When things were bad, everyone shared the pain. Employees felt that they were treated with respect, given voices in the solutions of problems that faced the continued existence of the corporation and therefore, their employment in it.
Psychologists Cangemi and Miller suggest that both managers and their associates might profit from emotional support during periods of downsizing. In addition, they suggest that executives empathize with workers about to be laid off – put themselves in those associates' shoes. For some executives a layoff may be an unpleasant, rational approach to cost cutting. For many of their associates, it may create extremely painful exits. What are the impacts on people's feelings of self worth, after losing jobs? How many times have you read about laid-off workers who return to their former places of employment ready to use guns? What support might outplacement services offer?
In addition to consulting advice and memorable, instructive cases, our psychologist authors report interesting findings from a PricewaterhouseCoopers study of middle managers. Over 50 percent would leave their current positions to follow good mentors, even at lower salaries. Half of them were actually looking for other positions and 75 percent said that they would remain with their companies less than five more years.
Our authors present a third memorable case dealing with the State of California. It offers work-sharing benefits to employees when their wages and hours of work are cut in order to save money for their companies during tough times. California thus assists both employers requiring large scale layoffs and employees caught in the process.
You will find that in addition to memorable cases that teach readers useful lessons about downsizing/cost cutting with a heart, the fine Cangemi-Miller team also teach us by using their values, their consulting experiences, and research findings.
Our last great adventure
The papers in this special edition deal with different types of exit. For example, the first deals with the exit of manufacturing from the US, another with the closing of a plant, with The British East India Company's exit after a 258-year history in India, Chinese company exits, and a corporation's exit from debt, etc. The final paper in this special issue deals with the ultimate exit strategy for our last, great adventure.
Barbara T. Pace, an attorney, wrote that last paper. She is so bright and articulate that, when she took a graduate business course titled “Innovative Management of Contemporary Organizations,” she actually team-taught the course.
Barbara Pace is the International Human Resources Specialist at Hofstra University. She is also working for a Human Resources Graduate Certificate in the Zarb School of Business at Hofstra University, Hempstead, New York, USA. Her paper was inspired by Benjamin Franklin and Terri Shiavo. It presents a charming, brief, useful discussion of the reasons for giving thought and taking action with respect to your end-of-life care, your own final exit, your demise.
As an attorney, Barbara Pace points out that, in order to assure that your wishes will be followed, they must be written and shared with family. She points out that there are three types of advance directives:
Health care proxies;
Do-not-resuscitate orders (sometimes combined with Living Wills).
Mrs Pace attached a sample Living Will Directive that is circulated in Great Britain. It states that if, in the opinion of two independent physicians, there is no reasonable prospect for recovery, from severe illness or impairment that is expected to cause severe distress, then the person be allowed to die and not be kept alive by life-support systems, e.g. resuscitation, tube feeding, or blood transfusions.
Barbara Pace also gives us an example of a Health Care Proxy. Using this form a health-care agent and an alternative health-care agent are selected to make any and all health-care decisions, if the person becomes unable to make his/her own health-care decisions.
Perhaps because of the litigious nature of Americans, 55 percent of those 65 and older have advance directives. Such directives relieve loved ones of guilt they might feel, if they had to make end-of-life decisions without knowing the person's wishes.
This special issue was reviewed in an undemocratic, but kind manner. If any one of the six highly professional, expert, experienced peer reviewers recommended rejection, the submitted manuscript was rejected. However, every author was given reasons for acceptances or rejection and three opportunities to make changes.
Harold Lazarus and Yair HoltzmanGuest Editors