Thoughts of the osprey and the bald eagle popped into my head during a strategic brainstorming conference I recently moderated for a private equity firm and one of its portfolio companies. The objective of the conference, which included several of the firm's partners along with the senior management of their wholly-owned company, was to develop a crystallized methodology for achieving the company's ambitious three-year growth plan. The growth plan itself, developed by the PE firm during the acquisition of the company, consisted of little more than financial projections and budgets depicting solid double digit growth at both the top and bottom lines.
All day long I was struck by the stark difference in approach between the financial folks from the PE firm and the management executives from the company. To the number runners, the starting point for every issue and suggestion was cost, the variables were risk, and the destination was profit or loss. Conclusions were drawn on the basis of projected ROI (return on investment) versus actual COC (cost of capital). The worth of entire markets and individual customers were evaluated purely on the basis of markups and margins. I was impressed, to some extent, by the single-minded focus and sheer tenacity with which the firm approached its investment.
In sharp contrast was the perspective of the company's management, the operators of business. Certainly, they respected the figures and the essence of numbers being the barometers of success. However, they viewed the issues and decisions against a far broader landscape. In their view, the importance of customers was more than just month-to-month cash flows. Customers produced a steady stream of revenues, utilized capacity, and were the enabling force behind the company's decision-making on which products, services and technologies carried the kind of long term value to make investments worthwhile. Individual products and their profitability were less important than the overall long term profitability of the account. Key decisions were made on the basis of confidence in their employees, vendors and even customers. Interest rates were far less important than customer satisfaction rates.
Neither of the two groups took issue with the other - they acknowledged the difference between the financial specialists and the business generalists, and seemed to be on their way towards developing a working chemistry. But it dawns on me that we really are living in a society of increased polarization between the specialists and generalists.
And we see this difference in our everyday lives. Consider the way we shop: On the one hand, we have the generalists, megastores like Wal-Mart and Costco, modern versions of the general stores of the 19th Century American frontier, which stock everything from onions to tires. Yet this is also the age of neon-lit chain store strip malls, where we as a society still flock to highly successful specialty stores like Petco, Toys R Us, Bed Bath & Beyond, and Victoria's Secret.
Let's take a look at the staple product of the narrow web flexographic industry: prime labels. Consumer product manufacturers have traditionally purchased lengthy production runs of labels, typically servicing a general marketplace. Over the past dozen years or so, we have witnessed a definite trend towards multiple versioning of long runs. In recent years, thanks to technological innovations, variable information printing on labels has proliferated, and certain products are now marketed utilizing absolute customization of individual labels. Within the context of our discussion, these trends would seem to further indicate a shifting from generalization to specialization.
How about the type of products we purchase? Remember when there was just Coca-Cola and Pepsi? Now, between low calorie, no calorie and all the alternative flavors, there are at least a dozen variations of each drink. And then there is the medical world, where the general practitioner family doctor has long ago been replaced by specialists (pediatricians, internists, gastroenterologists, ob-gyns, cardiologists, neurologists, and so forth).
Perhaps nothing illuminates the shift from generalist to specialist more than the composition of the pitching staffs on Major League Baseball teams. Once upon a time, pitchers completed most, if not all, of every game they started. At some point, relief pitchers were introduced to replace the starters if they faltered or tired. In the mid-1970s, the closer began to emerge, stars who pitched the final two, three and even four or more innings. As the 1980s progressed, the closer's role was reduced to just an inning or two. By the beginning of the 1990s, the closer had become purely a ninth inning pitcher. At the same time, the eighth inning setup specialist was gaining acceptance, whose job it was to bridge the game from starter to closer. Ultimately, this position turned into a working audition for the closer role, as successful setup men were promoted (Mariano Rivera, Brad Lidge and BJ Ryan). And as if this wasn't enough specialization, today's bullpens feature seventh inning specialists who bridge the game from the starting specialist to the setup man.
For our purposes, if, as the great American sportswriter Thomas Boswell wrote, life imitates baseball, than is mankind better off with a society of specialists over generalists? Would the world be more efficient with six or seven billion specialists?
A recent cover story in The New York Times Sunday business section detailed a fundamental shift in education trends within the financial sector of the economy. According to the article, at investment banks, private equity funds, and hedge funds, the best and brightest young employees, those judged by their superiors to have the most potential, are no longer being encouraged to go to business school to get MBAs. This is in sharp contrast to past industry practices, where an MBA was required on your résumé if you had any ambitions of success and accession. The current line of thinking is that young professionals can learn all of the finance and develop all of the financial tools by remaining in their current positions. The companies feel strongly that they are best positioned to develop the budding specialists. From the employee's perspective, the cost of business school (tuition, room and board and other costs plus the loss of salary and bonuses during the two years in school) is no longer seen as a sure-fire investment, unless the purpose is to switch industries or remake one's self in some way. One investment banker even confessed to an automatic inclination to assume that someone who worked for a few years at a bank and then left for business school was a poor performer who needed the cover of pursuing an MBA to mask his or her inability to progress and ascend the corporate ladder. The sole competitive benefit of business schools, as presented by the article's author, is the network of contacts that might come in handy at some point in the future. Interestingly enough, at no point in the article were the advantages of a more well-rounded business education even acknowledged, let alone discussed.
But is this trend purely on Wall Street, or is it shared in industry? A recent global study by NFI Research revealed that a majority of senior executives and managers insist that their organizations favor specialists over generalists. This is not merely lip service: Most businesses studied had rewarded and advanced specialists considerably more than generalists. However, almost a third of the organizations preferred generalists to specialists, and one in five bemoaned the lack of generalists by claiming their department or organization would be more effective with more generalists than specialists. According to one respondent, "the irony of corporate America is that while generalists drive innovation and long-term results, specialists are most often rewarded at the vice president level and below."
I suppose the question of generalist versus specialist is one every organization must face in its own way and situation. And I further suppose that for each business, the value of the generalist and specialist varies over time. But for those seeking instant gratification, I refer you to the findings of 20th Century historians Will and Ariel Durant, who concluded that "The men who can manage men, manage the men who manage only things, and the men who can manage money manage all."