IESE Insight
Short-term Gain, Long-term Pain
Ariño, Miguel Angel
Editor: Ediciones Deusto
Artículo basado en: Toma de decisiones y gobierno de organizaciones
Año: 2005
Idioma: Spanish

In the early 20th century, Henry Ford said, "Business must be run at a profit, else it will die. But when anyone tries to run a business solely for profit... then the business must die as well, for it no longer has a reason for existence". This quotation from the pioneer of automobile manufacturing and industrial organization captures very well the message of the book "Toma de decisiones y gobierno de organizaciones" ("Decision Making and Organizational Governance") by IESE Professor Miguel Ángel Ariño.

The author delves into the problems that managers face when making decisions and explains what a company must do in order to achieve a sustainable competitive advantage. Ariño's approach is based on the anthropological model developed more than a decade ago by Professor Juan Antonio Pérez López of IESE.

According to this model, "saying that a company's purpose is to maximize profits is like saying that man exists in order to breathe. The fact that a man cannot live without breathing is one thing, but the ultimate purpose to which all man's energies must be directed is quite another. Similarly, it is one thing to say that a company cannot survive without a certain minimum of profits, and quite another to say that the purpose of any company is to maximize profits".

Effectiveness, attractiveness and unity
For Ariño, the purpose of every company is to deliver a product or service that meets a need. That means that every company "must have the necessary minimum of effectiveness to survive in the short term, and the maximum possible unity and attractiveness to guarantee future effectiveness".

Thus, a decision is effective if it resolves the problem facing the person who made the decision; conversely, if it fails to resolve the problem, it is ineffective. If we only consider effectiveness, however, we may end up resolving an immediate problem at the expense of creating another bigger one in the longer term. Also, focusing exclusively on effectiveness may have an undesirable effect on the other two parameters. A manager's skill lies largely in judging the possible consequences of his/her decisions, some of which may cut both ways.

Attractiveness may be defined as the satisfaction the members of an organization obtain by the mere fact of belonging to the organization. Unity is determined by how closely they identify with the organization's goals. That identification is based not on what a person receives from the organization or the learning opportunities the organization gives him/her, but on the belief that the organization's goals are worth striving for.

Ariño compares the company with a tree, in which effectiveness is the trunk, branches and leaves, while attractiveness and unity are the roots. Effectiveness is the tangible and visible part of the organization, while attractiveness and unity are intangible values.

Strategic, executive and leadership ability
To run an organization, managers must have both strategic ability (to enhance effectiveness), executive ability (to generate attractiveness), and leadership ability (as the basis for unity).

Without leadership ability, a good strategic plan may undermine unity because employees will cease to identify with the company's goals. That might happen if a manager were incapable of understanding that his subordinates are motivated not only by money and other extrinsic rewards, but also by career development opportunities or the chance to serve others.

Leadership cannot be separated from other people's acknowledgment of authority. Authority has to be earned, and it cannot be earned overnight. Earning it is slow and laborious, and losing it, quick and easy. Authority is founded on respect, rather than coercion. To acquire authority, a manager must set a good example, not put obstacles in his subordinates' way, and at the same time make them aware of the consequences of their decisions. Conversely, a manager loses authority if he or she uses power unfairly, is rude or disrespectful to others, fails to acknowledge other people's merits or his/her own mistakes, or takes credit for other people's successes. "Only a vulgarian claims all the successes and blames all the failures on others," Ariño declares.

To illustrate these reflections, the author cites the experiences, good and bad, of Cerner Corporation, American Airlines, Agilent Technologies, Southwest Airlines, Enron, Mary Kay Cosmetics, Men's Wearhouse, General Motors, and Mercadona.

From all this, Ariño draws one simple conclusion: to achieve sustainable competitive advantage, a company must show more interest in doing things right than in whether it is more profitable than its rivals or not.

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