Management Styles that don't work...and why government uses them.

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My last article exposed some of the completely unnecessary micro-management functions, by as yet non-existent government agencies, written into the health care "reform" bill. Now I'll give some insight into why such things matter.

After the many decades I've spent working with and consulting to hundreds of business firms, I have seen just about every management "style" that probably exists. One style, which is apparent in a surprising number of small firms, is something I call the Delusional/Paranoid (D/P) style.

This management style is a direct reflection of the business owner's psychological state of mind...and it comes in many degrees, from the moderate to the extreme. The key elements are based first in the delusion that the manager is simply smarter than others, and that others must be monitored constantly or they will not be able to function at an acceptable level.

This is not surprising, or shocking, as the business owner is the one who has put everything at risk in starting a business. It's natural they worry about things "going right." Most managers are concerned with quality control, what their employees are doing when at work, and other issues of work quality...but the D/P manager just takes it a bit further than most.

I have seen situations where employees are grossly underutilized. As soon as they finish a project, they have to wait for the boss to approve it before moving onto another project. They may spend 15 minutes making a part...then wait an hour for approval...then spend another 15 minutes on the next part, and the cycle continues.

There was one example, a boss unable to trust anyone else to inspect parts...even though he had a nearly 0% rejection rate, that he worked as a full-time parts inspector rather than running the business. He did that work after the plant closed every evening...literally putting in 14 to 16 hour days.

The problem was that his micro-management was a "cost item" and not a revenue item. The time he spent on the floor inspecting parts did not contribute to the value of the product, and he could not charge for it, so there was no offsetting revenue to balance the expense. In essence, he worked all day for free.

The second element is the degree of paranoia the owner has in regards to employees and others. In extreme cases, the manager is certain employees are stealing, though there is no proof, or that they are conspiring to ruin the business, to steal ideas and technology, or to break out and start a competitive firm.

Now, of course, all of those things have happened and are possible. But the D/P manager, again, takes these fears to the extreme. Once again, oversight and micro-management is the response. And again the time and effort put into this oversight is an expense not balanced by added value.

Obviously every business will expend some degree of effort on monitoring employees and managing the work place. But these functions are direct expenses, and do not directly add to the value of the product so cannot be charged against the customer. The bottom line, for a business firm to grow beyond a certain very base level managers need to learn to train, trust, and to delegate or they will simply not be able to handle more than a few employees. Those who learn these skills can grow their firms into larger firms and eventually into public corporations.

So there is a direct relationship: the more time and effort spent on micro-management, the more the costs go up without increasing product, and the more expensive the product becomes per unit. Eventually the company languishes or goes broke.

I have seen similar styles in small divisions of large firms, where a local manager overdoes management of a sales force...leading to high turnover in the ranks due to frustration and loss of profit as costs go up without contributing to value. On the other hand, I've seen award-winning sales crews where managers watch from a distance, giving sales people "permission to excel" and guidance only when asked. Those sales managers grow value instead of expense.

Here's the bottom line: all management function comes at a cost. A certain degree of management is a necessary cost, but a management heavy firm loses money and the over-abundance of management is an expense that does not contribute to production. Therefore, the product costs more...there's less of it...and the customers pay more and make do with less. Unless, of course, there is competition...then the firm closes its doors as the customers move on.

This simple rule is true for a small business, a large firm, or an entire industry. The health care "industry" in the US, for example, is actually a term for the conglomeration of hundreds of thousands of small and large firms...from huge corporations to private practices. All of these firms put out a product, for which they have to charge us, the consumer, to cover their costs. One of those costs is management.

The health care bill is absolutely flooded with new micro-management requirements...not by the owners of these firms...but by government bureaucrats who will contribute nothing to the value of the products and services being delivered. This is simply a laundry list of new expense items...and the government will not be paying them.

These new expenses will run into the trillions of dollars...literally...and they will be passed on to the consumer, until the consumer is simply unable to pay. Then, services and products will simply become scarce, prices will rise dramatically, and the consumer will learn to live without...because there will be no competition. Every health care provider will have to expense the micro-management from government...no one will be exempt, so, as in a monopoly market, the prices will skyrocket as products become scarce.

When politicians tell you that health care is "unaffordable" now...or that the bill will "make it more affordable" or "balance the budget" they are either flat out lying to you or they are incredibly foolish individuals. Anyone who has ever run a business, or done a household budget for that matter, can look at the reality of the situation and understand that.

Of course, many elected officials are Delusional/Paranoids. Looking at it from their viewpoint...we're way too stupid to figure out what's happening to us and they don't dare tell us the truth...as we couldn't handle it...and they certainly can't give us choices. That might confuse us and screw up everything.

Maybe it's time for a little turnover in employees...and guess what...we're the employers. This coming November seems a good time to start!

The Professor