Business Policies in the Making (Routledge Revivals)

Three Steel Companies Compared

Jonathan Boswell

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317671268
• Edition: 1
• Topic: Commerce
• Subtopic: Management

First published in 1983, this study investigates and compares three leading firms in the British iron and steel industry between 1914 and 1939, analysing their strategies, boardroom politics, and their responses to the problems posed by the Great War and by the vicissitudes of the 1920s and '30s. Jonathan Boswell illuminates certain issues that are of perennial importance for students of business: rationality and 'error' in decision-making, ethics, centralisation versus decentralisation, and the question of cyclical phases. The central theme throughout is the pursuit of three partly conflicting objectives: growth, efficiency and social action. The trade-offs between these three pursuits are used to examine significant contrasts in corporate strategies and behaviour, including towards government and public opinion.

Boswell's rejection of economic determinism; his insistence that managerial influences fall into definable long-run patterns; and his theses on managerial specialisation and long-term policy biases confront fundamental issues for theories of the firm.

1 Management: trade-offs, biases and phases

Few important groups in modern society have neglected their own history as much as managers. Soldiers, doctors, lawyers, teachers, scientists, politicians, trade unionists – all appear to have shown far more interest in the historical development of their professions. They have looked to the past, partly to help in understanding how their arts and skills came to be what they are, partly because of an acceptance that past experience still has many lessons for policy today. By contrast, business management’s attitudes have been remarkably ahistorical. Moreover, this lack of concern is shared by those who should be better able to stand back from the current hurly-burly in the cause of a long perspective – the management educators. The neglect of management history is all the more surprising because of the avalanche of literature about management problems and techniques which has poured forth over the past two decades or more.

The consequences are serious first of all for management itself. Much that could contribute to a proper sense of collective dignity and pride lies buried. Ignorance of the economic and political tribulations confronted by their predecessors encourages a belief that contemporary adversities are special and, perhaps, also encourages a tendency to over-react. Managerial understanding of an industrial decline like Britain’s is distorted when the deepseated origins of that century-long process are ignored. Managerial gloom over the contemporary difficulties of the Western advanced economies generally is compounded when the realities of past depressions – let alone the achievements of past managements in confronting them – are neglected. Further, an absorption in the ‘recent’ and the ‘current’, torn from their historical context, may also produce complacency. It is this that underlies the optimistic assumption that there has been a great collective advance or even a revolution in managerial techniques and capacities. This view has no solid empirical support and remains no more than an interesting hypothesis.

For outside observers of management even greater distortions arise. Contemporary studies are unlikely to uncover either long-term trends or managerial conflicts and errors. Naturally enough, companies resist searching enquiries into boardroom arguments, failures of judgement, or alternative strategies considered and refused. Consequently, in the absence of proper historical correctives, all manner of superficial pictures of management continue to flourish, often fed by one-sided journalistic exposés or ideological biases: conspiracy theories; ascriptions of super-efficiency (socially benign or lethal, depending on one’s point of view); notions of a rat race or a soulless technocracy; assumptions unconsciously inherited from Keynes’s ‘defunct economists’, notably Adam Smith and Karl Marx.

This neglect of management history has equally baneful consequences for academic work on business behaviour. It helps to make much theoretical work in this field repetitive and esoteric. It contributes to the assumption, tempting for adherents of some familiar ‘theories of the firm’ but signally unwarranted, that business behaviour has already been largely explained. It helps to preserve, for example, the continued influence of the profit-maximising hypothesis which, whatever its merits in predicting competitive market behaviour, has severe limitations when it comes to understanding the nature of management and decision-making in firms. The management history gap makes many important issues much harder to investigate, notably patterns of company success and failure over long periods, the relative importance of economic forces and strong individuals, and phases in the long-run development of firms.

If we want an idea of what really happened, then only one effective method exists: a detailed history covering a long period and written well after the events concerned. The question may be asked, why choose 1914–39 as the period of study? I was influenced in my selection by three main considerations. First, a period of such length is needed because economic ups and downs affect the evaluation of business failure and success. Major decisions, for example over capital investment, mergers and diversification, often take fifteen or twenty years to bear fruit, whether for good or ill, generally through several turns in the economic cycle. The 1914–39 period, although largely characterised by recession, contains a sufficient variety of economic conditions to allow for fair judgements of performance.

Secondly, avoiding a recent period reduces the problems of corporate managerial bias. A capable contemporary historian, interviewing managers in a large, well-known firm, may doubtless produce colourful topical material. But almost certainly such interviews will be swamped by immediate crises and decisions, and flawed by the public relations rationalisations, the romanticisations and self-justifications to which leading businessmen, like the rest of us, are prone. Even after an interval of fifteen or twenty years a successor management may show biases: a pro-tegé’s loyalty to his ex-boss, sensitivity towards the feelings of predecessors who are still alive, sometimes a contrary tendency to denigrate predecessors in order to show the new management in a better light. There is often, too, a nagging doubt as to whether those agreeing to co-operate are representative. Such problems can be overcome by surveys of large representative samples in which anonymity is provided. But these impose an unwelcome sacrifice of identifiability as well as of length of perspective.

A third reason towers over the rest. Only in this way, almost invariably, can comprehensive documentary evidence be obtained. Even sophisticated and co-operative firms are reluctant to give a historian full access to, and use of, their relevant papers, except for periods long past. Often their history makes full sense only if the papers of some other companies are examined, perhaps those of near competitors, and also those of the relevant trade associations or national bodies. Such additional material is even less likely to be available for a recent period. Moreover, the political and social aspects of management decisions often suggest that official records should be consulted but in Britain these are subject to a ‘thirty-year rule’. Normally, therefore, only a thirty- or forty-year wait will ensure the necessary access to managerial intimacies, boardroom secrets, external relationships, and details of how the firm looked to others.

This study is a comparative one, analysing the 1914–39 managerial experience of three companies, Dorman Long, the United Steel Companies (USC), and Stewarts and Lloyds. The sources on these companies are particularly full. All were large and important firms which contended with a wide range of problems. They displayed significant contrasts in strategy, attitudes and performance, and they all went through managerial changes during the period. The comparative approach enables their managerial characteristics, successes and failures to be treated more fairly than is possible in a single company history. Such comparability has been feasible because, following nationalisation in 1967, the British Steel Corporation organised the records of the previously independent companies, and because that organisation observes the thirty-year rule. The BSC factor also ensured the availability of the records of other firms with which our three had important dealings, together with those of the industry’s national federation, which played a significant role. If the industry had remained in the private sector, it is possible that one of the firms would have co-operated but unlikely that all three would have done so, let alone the other diverse interests involved. Of course, the thirty-year rule means that the present study could have gone up to the late 1940s. But 1939 was preferred as the cut-off point because it is arguable that conditions during the Second World War and its immediate aftermath were exceptional compared with the periods both before and since.

A warning to the reader is necessary. Most company studies provide an exhaustive description of the firm, its products, markets and innovations, its strategies, organisation and personnel. They are rich in circumstantial detail, ranging from incorporation dates through technical developments to works outputs. Despite the great value of such exercises, that path will not be followed here. A comprehensive approach to the history of three large firms over twenty-five years would make the book far too long; in fact, three full-length books would be needed. More important, this study is deliberately selective. It assumes that history’s usefulness rests considerably on its ability to stimulate thinking and test hypotheses, and that it should somehow be combined with theory. Such a combination is particularly desirable in management studies. For here empirical history and theories mainly from the social sciences have long continued to neglect each other with the consequence that both are impoverished.

Concentrating on a few central issues involves fewer sacrifices than might be supposed. Of course, readers who desire much technical detail will be disappointed, although it is hoped that the full footnotes provided at the end of each chapter will guide specialists towards the materials they seek. It should be strongly emphasised that a thematic concentration does not imply a loss of objectivity. The writer’s conscience should mean that wherever the data do not fit some guiding idea or theory, this is admitted, and every effort has been made to attain such objectivity here. However, the notion that objectivity is possible in the sense of a complete detachment from theories and values is, of course, an illusion. Even the historian most devoted to the notion that ‘the facts speak for themselves’ necessarily uses theories and values in selecting data and explaining ‘what happened’. This is all the more the case if he seeks to explain why things happened as they did, let alone to interpret their significance. The difference between his approach and that of the present study is, therefore, only a matter of degree. But there are also positive advantages in thematic concentration. For without guiding themes and relationships with theory it is easy to slip into formless description: easy to miss the perennial issues of management which make its history relevant to the policy problems still being faced today.

A final introductory point is that this book is concerned with business policy, that is to say the central objectives, concepts and decisions of the firm. This includes, very importantly, what is usually called ‘business strategy’, namely the firm’s responses to market opportunities and problems in terms of specialisation and diversification, horizontal and vertical integration, mergers, pricing and other forms of competition, and so on. But business policy includes much more than strategy in this sense. It stretches upwards to embrace the firm’s objectives, values and purposes, and sideways to cover its organisation, notably its policies on centralisation and decentralisation. Business policy also includes the neglected field of relationships with public opinion, social issues and government. In fact, it is comprehensive and synoptic. It is also para-functional, transcending the conventional divisions of marketing, production, finance, etc. Its formulation constitutes what is, perhaps, the most distinctive task of management, using this term to signify the top direction of the firm.

The rest of this chapter briefly outlines the three sets of themes relating to business policy with which the book is concerned. These themes relate to decision-making processes, managerial or corporate objectives, and long-term phases in the development of firms.

Decision-making processes: rationality and error

To begin with, there are the classic issues of how business policy is formulated and applied, of the methodology of decision-making. How explicit was the formulation of policy? How comprehensive was the information mobilised for decision-making? How conceptually clear was the use of that information? How fully were the diverse abilities of management employed in reaching key decisions? What major errors occurred, both of commission and omission, and how far could these have been avoided?

This field has been dominated by three main approaches.¹ The first may be termed broadly the rationalistic view. According to this view, management pursues clear and consistent objectives (just a few or only one), considers all the available alternatives, calculates or estimates the costs and benefits of each of these, and then decides on the ‘optimal’ course of action. The most rigorous form of this approach, which derives from microeconomic theory, sees decision-making as a matter of quantified calculation. It assumes that the firm: (a) pursues a single, constant, quantifiable objective, usually maximum profit; (b) observes various quantifiable constraints; (c) clearly perceives a full range of alternatives; (d) accurately forecasts future trends or at least assigns numerical probabilities to them; and, therefore, (e) arrives precisely at an ‘optimal’ decision. Technically, profits are maximised when marginal costs and marginal revenues are equal or, in the case of diverse activities, when the marginal returns from applying identical inputs to those activities are also equal. This is the theory at its purest. However even in its less rigorous forms, as set out in many textbooks, the rationalistic view adheres to the same spirit. It lavishly imputes logic, unity and consistency of purpose, clarity and predictive power to management or at least holds that these desiderata are attainable.

At the other extreme is the approach often described as ‘behavioural’. According to this view, the rationalistic theory just outlined is unrealistic. A better hypothesis is, for example, that ‘administrative policy characteristically involves a continuation of past policies with the least possible, i.e. incremental, modification to suit changing circumstances’. Decision-makers ‘make do’ with decisions that ‘get by’, the easiest being those that follow past precedent. Management processes involve searching for a ‘coalition’ or consensus among groups inside the firm which are separate or even conflicting, not homogeneous and united. Decision-making involves ‘satisficing’, or the pursuit of minimal or acceptable standards, rather than ‘optimising’; balancing efforts or ‘appreciation’ rather than weighing-up quantified alternatives; a search for ‘better’ solutions rather than the ‘best’. Such phenomena, it is sometimes suggested, are not necessarily irrational. Indeed, they may attain the status of ‘a science of muddling through’ and may be both effective and creative from the viewpoints of the firm and society. They are definitely felt by their protagonists to be good descriptions of what managers actually do.

Although both of these approaches are useful as conceptual devices, in my view they are too extreme. If the first is too elegant and formalistic, the second is merely formless and loose. Fortunately, there is a middle position, one which concentrates on degrees of rationality in decision-making.² This approach makes various concessions to the ‘behavioural’ view: in particular, it says that risk and uncertainty do restrict managers’ forecasting abilities, that the ordinary human constraints of intellect and imagination do limit their powers of comprehension, and that decision-making is obviously further complicated by conflicts of interests and values inside the firm. Depending on these various constraints, however, the rationalistic ideal can be, and is, approximated to in many specific ways. For example, although pure quantified problem-solving is inapplicable to major strategic decisions, it is perfectly appropriate for various lower-level ones. Although firms clearly lack a precise knowledge of their marginal costs and revenues, they may be perfectly capable of estimating the ‘marginal’ effects on profits of making particular decisions, for example on output, investment or prices: perfectly capable, too, of estimating the contribution of particular activities to profits. It is possible for managers to make an implicit use of such concepts as discounting and the opportunity cost of capital, to marshal several alternatives, to estimate the costs and benefits of each, including the alternative of ‘staying put’, to employ probability thinking by, for example, preferring ranges of estimates to single-figure forecasts. A top management can think imaginatively about competitor reactions in an oligopolistic market, it can ensure that the firm’s best minds are mobilised in its ma...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Table of Contents
• Foreword
• 1 Management: trade-offs, biases and phases
• 2 Management: iron and steel
• 3 Exuberance and caution
• 4 Miseries and grandeurs of recession
• 5 The managerial watershed
• 6 Mergers and investment, liaisons and wars
• 7 Efficiency and organisation building
• 8 Labour and local community problems
• 9 Relationships with public policies and government
• 10 Conclusions
• Source material
• Index