A Framework for Managing
You can use it to plan and manage more effectively

This essay describes a practical, effective tool that I've used to successfully establish corporate objectives, set priorities, evaluate resources, assess needs, develop strategic and tactical plans, launch projects, and determine the strengths and weaknesses of competitors. It is my Framework for Managing.

Resources and Objectives
Managers determine the objectives of their business and then select, organize, and use resources to achieve them. Once achieved, objectives become resources. In a successful business, the economic value of the objectives achieved exceeds the economic cost of the resources used.

The components of business resources and business objectives can be grouped into three categories: People, Methods, and Materials. Figure 1 summarizes what is included in each category. A specific resource or objective is a combination of one or more components.

Fig. 1: Resources and Objectives

People
Ask managers who their People resources are and they will immediately say: “employees.” That answer isn’t wrong, but it is dangerously incomplete. People resources also include: Customers, Suppliers, Associates (Bankers, Sales Reps., Distributors, Board Members, Stockholders, etc.), and Competitors! Key individuals in every category impact the success of a business. A businesses needs the best people it can get; including Competitors! Success is optimized when managers plan for and carefully select, "hire," train, and manage key individuals in every category.

Customers are obviously important because they pay the bills. But individual customers do much more than that. A successful, informed, enthusiastic customer is also a terrific salesperson who attracts other customers and convinces the sales force that its business has worthwhile products. Customers find and actions establish the market value of our goods and services. On the other hand, an incompetent or unhappy customer makes our company and our products look bad.

The health of a company correlates directly to the successfulness of its key customers and to what they believe about it and its products. Let's use IBM’s corporate health to illustrate the connection.

Until the mid 1980s, some 80% of the key executives, MIS managers, and other computer users designated IBM as their preferred supplier of computers; in spite of a 25% or more cost premium and its less than leading edge products. (I worked at Burroughs ElectroData in the early 1960s. When we had better computers, it didn’t matter.) Their commitment to IBM came from IBM's careful cultivation of their beliefs over the previous 30 years. They believed that they needed constant care from an omnipotent computer supplier of proprietary systems and custom software.

However, during the 1980’s many faithful customers retired and younger decision makers replaced them. The new decision makers had learned (with their PCs) that they could take care of themselves, do better jobs, and save money with open systems and commercial software. IBM's computers were still in place, its sales force was in place, but it suffered staggering setbacks as customer beliefs changed and its competitors picked off many of its traditional accounts.

This discussion leads us to a critically important conclusion: For sustainable, strategic success, it is as essential to carefully select customers in the selling process as it is to carefully select employees in the hiring process. Furthermore, it is as critical to manage customers as it is to manage employees! (Just think: customer interviews, customer orientation programs, on the job training......!)

Suppliers are another vital people resource. Their integrity, competence, and beliefs about our employees, our company, and about how we use their products and services determine the quality, timeliness, and price of what we get from them.

While I managed Pro-Log, we paid our suppliers as promptly and as religiously as we paid our employees. We worked with good suppliers through long term relationships: at the operating level and at the executive level. As a consequence, just to cite one example, when memory chips and other semiconductors were critically scarce, we got the parts we needed; sometimes with the names of other companies lined out of the shipping documents.

In the typical supplier relationships, when supply exceeds demand, customers screw their suppliers; when demand outstrips supply, the suppliers retaliate. This cycle of mutual hostility was traditional between semiconductor manufacturers and their customers, and left both vulnerable to their Japanese competitors in the 1980s.

Associates such as third party sales professionals (Reps, Distributors, VARs, Systems Integrators), bankers, and lawyers are often poorly managed resources because they are “outsiders.” In my book, The Hanbook of Channel Marketing, I show that Reps, Distributors, VARs, and direct sales people are actually key customers, and should be managed as such.

Competitors are vital resources! Seek out strong competitors. Create them, if necessary, and then manage them! A Competitor is anyone who offers our People resources an alternative to a choice our business offers them. There are competitors for our customers, for our employees, for our suppliers, for our associates, for our investors, and for our competitors!
Furthermore, our customers, employees, or suppliers always have the competitive option to go it alone instead of working for us. In a sense, this option makes them our competitors too! To paraphrase that immortal quote of Walt Kelly in Pogo: “We have met the competitor, and he is us.”

Competitors experiment with alternatives to our business propositions. We can learn from them to find opportunities and to avoid mistakes. Our competitors can be encouraged to win our unprofitable customers, uncompetitive suppliers, and unproductive employees. These are but a few of the numerous opportunities to profitably manage our competitors.

Competitors enable us to work and play together as consenting adults. Consenting adults are the only people capable of sustaining healthy, self managing relationships. To relate as consenting adults we require three things: the ability to choose from among (attractive) competitive alternatives, accurate information about those alternatives, and Fun. (Oops... I went and said the "F" word of business)

Competitive alternatives establish the values we assign to our specific choices. For example, the price I'm willing to pay for an HP II laser printer is set by the competitive alternatives of other laser printers, other kinds of printers, and of doing without a printer.

Competitive alternatives improve our satisfaction with the choices we make. The satisfaction an employee gets from his job or paycheck comes, in part, from what he perceives as his work alternatives, including welfare. The banker's willingness to lend money is determined by his lending alternatives and his comfort from not taking any risks at all.

A person without competitive alternatives is enslaved. She is a child in a parent/child relationship, not a consenting adult. Russia, China, Eastern Europe and many third world countries have had political systems that eliminated competitive alternatives in business, politics, and religion. They predetermined choice and value through centralized (sole sourced), parent-child planning. Those systems didn't work. The people didn't work. Yet business managers often try to emulate dictatorships and eliminate their competitors, instead of managing them as valuable resources. These managers believe it will make their own lives simpler and more controllable to dominate employees, suppliers, customers, and competitors. Dealing with them as equals, consenting adults, is too scary.

Managing competitors as resources does not mean doing anything illegal. Let me give you an example. Pro-Log invented the STD Bus in 1978. It became a standard (and still remains a minor one in 1996) for industrial control systems because, in 1978, we sought out our competitors (for customers) and gave them the STD Bus technology, free, no strings attached. In fact the first company we gave it to was Mostek, then a $200 million business, about 20 times Pro-Log’s size.

Later we founded, and funded, a manufacturer's group that developed and maintained STD's technical standards and passed them on to an IEEE standards committee. By 1983 the manufacturers group included more than 100 of Pro-Log’s directcompetitors! However, had we made the STD Bus a proprietary product, it would have stopped producing jobs and profits within a few years. Today, Pro-Log’s actions look like conventional wisdom. In 1978 they were radical, and sprung directly from this conceptual Framework.

Apple eliminated clones for its computers during the 1980s. They selfishly clung to their "proprietary standards" and now have an unprofitable, declining, 7% market share.

Methods
The dictionary defines a method as: A way of doing something especially according to a defined plan. The visible methods of a company include: Plans, Policies, Procedures, and Data. The less visible ones include a company's norms and its culture, and the norms and culture of the society around it and the methods of its customers, suppliers, associates, and competitors.

Methods determine how people work and their work priorities. Methods link people to each other and link people to materials. Human Reason is a method. The Scientific Method is a method for solving complex problems. GAAP is a method for evaluating financial performance. ISO 9000 is a method for evaluating Quality performance. (By the way...ISO 9000 Quality assurance standards have as much to do with improving quality as GAAP has to do with improving profits...almost nothing.)

Materials
The visible materials of a business include its Products, Facilities, Equipment, and Money. The materials of customers, suppliers, associates and competitors are also part of a company's resource base. For example, a customer who has a successful product line and lots of money is a greater asset than a customer who can't pay his bills. A supplier with excellent products and the latest manufacturing equipment is a greater asset than one with mediocre products and obsolete equipment.

Resource Relationships
People are the most important, the most strategic resources and objectives of a company. People-first is the most successful strategy. In that strategy, methods support people and materials support methods. People, methods, and materials are used to attract and select the best people (employees, customers, suppliers, associates, competitors) and then enhance their effectiveness.

Fig. 2: How Resource categories are related for different styles of management. The majority of managers operate on a Methods-first basis: Materials support Methods which control People. The assembly line is a methods-first system.

In methods-first management, methods are used to control people. Make next quarter's profits; obey the rules; follow procedures; stick to formal plans; these are more important than the people. (Sometimes methods-first is a necessary tactic, however it sucks as a strategy.) Methods-first managers run their companies by the numbers. They attract mediocre, interchangeable people employees, customers, suppliers, competitors, etc.) and control them with policies and procedures. They don't don’t relate to other people as consenting adults. They expect them to be obedient children.

Venture capitalists, CFOs, Bankers, and Lawyers are overwhelmingly methods-first managers. I've started four companies; two successes, four learning experiences. I've found that most venture capitalists, to pick on one group, say they invest in people, but they crunch the numbers and must get a right answers before they'll evaluate the people.

A few VCs really do invest in people. Phil Fisher, one of the first and a most successful venture capitalist was a shining example. He invested in people for the long haul, 10 years or more. He believed in one page agreements and told me “A one page agreement is enough to specify what we expect from each other. Longer agreements mean that one party doesn't trust the other. I don't invest in people I don't trust. He was an original investor in FMC and Texas Instruments. He invested in my first successful company, MSI Data Corporation.

The bean counters who control everything to spruce up the quarterly financials are materials-first managers. Money dictates the methods, accounting controls, and people are controlled by those methods.

We use computers in a materials-first manner. Their technical limitations and costs dictate how we use them in business. We are expected to adapt to the computer's limitations and become computer literate. In a people-first system, computers are forced to be people literate.

Insects and Mammals
The process of Evolution illustrates the significance of how we prioritize and relate People, Methods, and Materials. In evolutionary terms two species have reached our level of complexity and consciousness: insects and mammals. The insects evolved to their present level about 300 million years before mammals, then stopped. The mammal phylum took longer to evolve, but has achieved a substantially higher level of complexity and consciousness and produced . . . us!

Insects and mammals have the same physical elements, skeleton and flesh, but they are organized in fundamentally different relationships. Insects are exo-skeletal. Their skeletons trap their flesh. That relationship made it easier to start evolving (tactical advantage), but limited the degree to which they evolved (strategic outcome). The flesh of mammals surrounds, goes outward from their skeletons. The structural elements are there, but hidden within. The mammal phylum has evolved to a much higher level of complexity and playfulness because of this improved relationship between structure and flesh.
In many ways each company is a living organism.

Methods and materials are its structural elements; people are its flesh. When methods or materials control people, a company becomes insect like. Most large companies are managed like insects, with people encapsulated by the company’s money, plant, equipment, plans, policies, etc. This encapsulation works for a while, but it is intensely frustrating for most of us.

Key Characteristics
We have developed a detailed picture of resources and objectives. The next step is to assess their most significant characteristics. Warning to academics: this assessment is operational, not academic. Its purpose is business success, not absolute truth.

The key characteristics affecting People, Methods, or Materials are: Quality, Timeliness, and Cost. Quality is by far the most important characteristic from a strategic perspective.

Philip Crosby defined Quality as conformance to specifications.” It's a good starting point for materials, but too limited for methods and people. A broader view is that: Quality is the harmony produced by the relationship between an object and its context.

Quality exists only when a product works for its user in her application, or when a procedure helps someone succeed, or when a person fulfills his job, his own expectations, and the expectations of those he works with. Quality does not exist in the object nor in the object’s environment. Quality flows from the harmonious fit between the two. To put it another way: there is no such thing as a “quality product.” There is no product that the wrong customers or inappropriate applications can't trash. Customer selection and Product design both contribute to what is called a quality product.

Michael Jordan is a good example of how Quality applies to People. Michael Jordan, in the context of basketball is a "quality person:" the best basketball player in history. That context includes his team's coaches, other players, rules of the game, characteristics of the basketball courts, fans, and competitors. However, Michael Jordan in the context of baseball didn't make it to the major leagues!
The best book I've read on the subject of Quality is Zen and the Art of Motorcycle Maintenance by Robert Pirsig. He suggests that the rhetoricians of Greece considered Quality to be the highest ideal. To them Quality was a personal noun, not an adjective. Aristotle and Socrates later put reason (a method) above quality as the ultimate context for human life and thereby initiated the insectization of human philosophy.

Timeliness is a measure of how quickly something fulfills the expectations and needs of its context. State-of-the-art, first-to-market, or meeting schedule are timeliness values.
Cost (or price) measures the resources consumed, transformed, committed or risked to produce an objective. It also measures the value of the resulting objective in the same terms. Cost in monetary terms is only one measure of this criteria.

Quality, Timeliness, Cost Relationships
For strategic success, Quality is the most important characteristic, Timeliness is second and Cost is third. All three are critical. A “cost first” plan is the most short sighted, and is usually tactics without strategy.
However, the relationship is not that of ranking, but of context. That is, Timeliness is evaluated in the context of quality and Cost is evaluated in the contexts of Quality and Timeliness. (See Fig. 3)

I agree completely with Crosby on this point: Set out to improve Quality and you will reduce costs and improve profits more than you will if you set out to cut costs. However, the most important source of Quality are people whose fit within the business generates it: employees, customers, vendors, associates, and competitors. Those people are fundamental to developing and sustaining Products whose fit with customers and their applications also generates Quality.

There are six principles for identifying, selecting, and managing people who will generate Quality in long term business relationships: Mutual Benefit, Mutual Competence, Mutual Respect, Mutual Integrity, Mutual Enthusiasm and Competitive Alternatives. My book The Management Handbook for Selling Systems explains these principles and how to apply them.

QTC Business Strategies
In the early 1950s the Japanese did business on a cost-first, timeliness second, and quality-third basis. They made cheap and dirty products, and weren't a serious international competitor. For the last 40 years they have put quality first in picking suppliers, employees, and markets and in making automobiles, semiconductor chips, and consumer electronics. They've been enormously successful.

In the 1970s and 1980s National Semiconductor followed a cost first, timeliness second, quality third strategy. They did OK in a booming market, but they weren’t stellar performers. Intel's strategy (Sparta) was timeliness first, quality second, and cost third. Hewlett Packard (Athens) has consistently put quality first, and they apply it first and foremost to their people resources.

Fig. 3: The Framework for Management. All nine squares are critical
to sustain success. Quality/ People are the most important, most
strategic factors for business success. Profits, are the most tactical.

The Framework for Managing
When we rank People, Methods, and Materials and their key characteristics Quality, Timeliness, and Cost on the basis of strategic value we get the management framework shown in Figure 3. This framework has nine critical areas to plan and manage. The area marked 1 is Quality People, the most strategic resource and the context for all others. Area 9 is the Cost of Materials, the most tactical parameter.

A financial statement primarily measures square 9 and fails to account for Squares 1-8. Is it any wonder that so much business planning is tactical? We concentrate on tactics because we are measured on tactics.

Conclusion
All nine squares of the Framework for Managing are vital to business success. For sustained success, the more tactical elements must be managed in the context of the most strategic: Quality People. Excellent managers operate with business plans that systematically produce quarterly profits primarily by helping them attract and work with successful people.

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Copyright © 1996 Edwin Lee, All rights reserved. You may download and freely reprint this essay provided you include this copyright notice. 9351 Holt Road, Carmel, CA 93923
Tel: (831) 626-8719 
Email: edwinlee@alum.mit.edu