Management Models – Pro's & Con's

Management tools and models – as the SWOT or the 7s-Model – are discussed controversially. Some people use them as important tools for analysing businesses and developing strategies. Others call them “buzzwords”, used by consultants to boost their profile. The truth about the value of management models probably is somewhere in-between. So what should you take into consideration when using models?

A management model is a model – that is a simplified picture of reality. 

Models show those elements of reality – that can be a business or an industry – that are relevant for analysis of a certain problem. Those elements that are not relevant are neglected. Furthermore, models normally limit the number of elements included, in order to reduce complexity. For instance, the Boston Box analyses the market share of own products in relation the competitors’ products. It includes only existing products, but does not take into account possible new competitive products to come. Hence, this model does not allow analysing potential future actions of players.

- Never base your decisions just on one single model.

Management models were developed in a particular historical context.

Normally they presuppose some economical assumptions, e.g. the competitive environment. If these conditions change, models do not necessarily lose their validity. Nevertheless, they cannot contribute to decisions as precisely as they did in their historical context. Ian Turner has allocated the most important management models to various periods of competitive environments.

In our time, a single E-Start-up can revolutionise the business models of whole industries (always a good example: Amazon.com). That makes many of the “old” models limited in their validity. Of course, even today every company has to make the general decision, whether it wants to win its customers with low prices or high quality (Porters Generic Strategies). However, it would be a big mistake to base corporate strategy solely on this decision. New technologies and distribution concepts can change the bases of any cost leadership within a short time. Similarly, businesses can lose differentiation advantages quickly when competitors imitate product or service features.

- Never trust a model blindly, only because it proved worthwhile in the past.

Finally, management models bear another great risk: They can become a matter of fashion. Sometimes it takes only one best-selling book by a reputable author and the enthusiasm seizes whole industries. An example is the era of diversification. Large groups of companies emerged from the objective to spread risks across operations in various industries and to exploit synergies. Some of these groups grew that large and complex that is was virtually impossible to manage them economically. The result was the era of core competencies. All subsidiaries and operations that were no core businesses were sold or closed down. Some companies reduced their operations to core companies in an extent that they outsourced important corporate functions. Later they had to realize that it is not always possible to manage the quality of outsourced processes as perfectly as this would be possible in-house. The management of complex outsourcing-relationships turned out to be a demanding task.

-  Not every model is valuable for every business in every situation.

So far the risks. How about the strengths of management models?
In view of today’s information-overload, models can be valuable tools to organize and to analyse information systematically. A management model is not able to take a decision; however, it can help to make an informed decision.

It does make sense to apply some selected models to a corporation or an industry from time to time. This can be done as a brainstorming-exercise, so that it brings together the variety of knowledge of different members and departments of the organization. If a particular model proves not applicable (e.g. Porters 5 Forces analysis does not fit the pace of change in an industry), it can be neglected anyway. The combination of different models may compensate for the weaknesses of some models with the strengths of others. For instance, a PEST-analysis can supplement a Boston-Box-exercise by pointing to possible future developments. 

Management tools can help to better understand particular aspects of an organization or its environment. For the following step – the analysis of insights provided by the models – however, there is no model. Management models are effective only if their users are able to realize connections and gaps and to draw appropriate conclusions