Listener 4 August 2001

Keywords Business & Finance; Growth & Innovation

Despite being used as a text book in some business schools in the 1990s, Theory K: The Key to Excellence in New Zealand Management was always a bit of a joke, for the crash of October 1987 put an end to some of its best examples of ‘excellent’ New Zealand businesses. The book devotes most space to Equiticorp (although a number of other did-not-survives were also praised). One is left wondering how a firm founded only two years before the book was published could be given such prominence. (You will find part of the answer in Ollie Newman’s “Lost Property”, which explains how public relations had a key role in gulling the investor public. )

A rather different sort of book – compensating for a lack of slick slogans by solid research – is World Famous in New Zealand: How New Zealand’s Leading Firms Became World Class Competitors. It is written by Colin Campbell-Hunt, who is shortly to take up a chair in Management at the University of Otago, and six other academics (John Brocklseby, Sylvia Chetty, Lawrence Corbett, Sally Davenport, Deborah Jones and Pat Walsh) as a part of the ‘Competitive Advantage New Zealand’ (CANZ) project. (They have also contributed to three NZIER reports including the just published Global Player?.)

The team’s approach was to investigate ten New Zealand businesses which each had at least a decade of creditable performance: Criterion Furniture; Formway Furniture; Gallaghers (electric fencing); Kiwi Dairies; Montana Wines; Nuplex (chemicals); PEC (point of sale systems); Scott (engineering products); Svedela Barmac (quarrying equipment); Tait Electronics. While the description of their products is simplified here, each is well focussed on a few, and the focus is on producing and selling things, not on finance. Only Gallaghers is among the 50 odd companies the Theory K team looked at, although with more resources the CANZ team might have been interested in some of the other firms among the (probably less than) half that were still in existence fifteen years later.

The team found no simple formula for success. Instead, each firm had a broad set of resources, attributes and strategies, which they managed in a balanced way. As it happens, each was in the export sector but even here were two development strategies: becoming global leaders or becoming regional leaders. Among the foundations of competitive advantage the book identifies are networks of business relationships and internal relationships; quality reputation; innovation; organisational learning and decision processes; multiple technologies; production capabilities; and organizational culture. There is not much a top firm can afford to get wrong. (Another crucial element is luck. Some good firms went to oblivion without it.)

You will have to read the book to get the flavour of the complexity – to see which management style and strategy suits you or the firm you work for or want to invest in. Others will read the book for the pleasure of observing successful New Zealand businesses, without being overwhelmed with the PR hype.

There are some broader lessons. Here are New Zealand firms that have proven they can succeed in a tough international environment. They did so by designing good products and services, producing them at competitive prices and in high quality, and marketing and distributing them vigorously and intelligently. They are not big firms by international standards, and typically there is some local peculiarity which enhances their probability of success. (Although I was disappointed that there were no fishing, forestry and horticulture equipment business examples. These are sectors where we ought also to have an underlying advantage.) In some cases it is simply an outstanding leader who loves living here.

Did government policy matter? The book sets out the case for and against, but it accepts the sample is too small. Because it only looks at successes, it cannot comment on promising firms that were destroyed by government measures. Or by financial takeovers. Allflex (livestock eartags) was not in the study. Two decades ago it was coupled with Gallagher Holdings as having the excellent promise of leading edge technology businesses in niche international markets. But privately owned Gallaghers missed the Theory K speculation, and got on with the job of developing, producing and distributing world leading electric fences. Meanwhile, Allflex was bought and sold by financial companies, each paying higher prices and disrupting the firm’s management while stripping it of financial flow. (Wine drinkers must be a bit worried about the future of their montanas.)

Twenty years ago I wrote (in Listener columns such as that of 1 September 1979) that if we were to give even half the attention to farming and manufacturing that we have been giving to the large scale capital intensive projects, then we could double our confidence in the future, and that we needed to find small businesses and give them the support they need to make a dent in our economic problems. Instead we went for financial mysticism with even more disastrous consequences than ‘think big’. Even more sadly, too many of our business school students were trained in that thinking. Hopefully the CANZ book will lead to more managers who focus on the fundamentals rather than formulaic cliches.