By Chip Cutter
A trash hauler, a liquor giant, a maker of hip replacements and
the company that brought us the iPhone all share one distinction:
They are among the most effectively run U.S. companies today.
Those are some of the revelations of this year's Management Top
250, a landmark ranking that uses the principles of the late
management guru Peter Drucker to identify the most effectively
managed companies.
Topping this year's list is Apple Inc., the world's most
valuable publicly traded company. The iPhone maker climbed to the
No. 1 spot in the 2018 ranking, dethroning Amazon.com Inc., by
performing consistently well across each of the five main
components of the overall ranking. Amazon places second this year,
followed by Microsoft Corp. and chip makers Nvidia Corp. and Intel
Corp. Other management highfliers include Google parent Alphabet
Inc., consulting firm Accenture PLC and Johnson & Johnson, Nos.
6, 7 and 8, respectively. Rounding out the top 10 are Procter &
Gamble Co. and International Business Machines Corp.
What sets this effort apart from other "best companies" lists is
its holistic approach. Researchers at Claremont Graduate
University's Drucker Institute, which compiles the list, evaluate
companies on five dimensions of performance: customer satisfaction,
employee engagement and development, innovation, social
responsibility and financial strength.
Those pillars represent core values of Mr. Drucker, who wrote
more than 30 books over his more than six-decade career and, to
many in the world of business, defined the field of modern
management. Mr. Drucker long believed companies should exist for
purposes beyond profits, stressing that they should care for
workers and benefit society. The Management Top 250 attempts to
model Mr. Drucker's thinking, using dozens of inputs -- from
employee ratings on Glassdoor to five-year shareholder returns and
trademark filings -- to arrive at its management scorecard. The
result is an unmatched look at how companies balance the often
competing pressures confronting executives today.
While tech companies account for seven of the top 10 most
effectively managed firms, the list also spotlights plenty of
unsung management successes. These include garbage-collection
company Waste Management Inc., cleaning-products giant Ecolab Inc.,
Jack Daniel's whiskey maker Brown-Forman Corp., and Stryker Corp.,
which produces everything from replacement hips to hospital bed
frames.
"Good management is a series of practices," says Rick Wartzman,
director of the KH Moon Center for a Functioning Society, a part of
the Drucker Institute. "That doesn't come from any one sector or
any one type of company. Good management and bad management, for
that matter, can be found anywhere."
In this year's ranking, the Drucker Institute expanded the
universe of firms it analyzed to 752 from 693 previously, and added
new components to its mix of 37 indicators, which contributed to
some of the movement among the companies. For example, to measure
innovation, the institute considered the number of cutting-edge
jobs a company posted, such as drone operators, and incorporated
how the stock market values a company's patents, calculated by
professors at Northwestern University and Stanford University. To
be eligible for inclusion, a company needed to be part of the Dow
Jones U.S. Total Stock Market Index or the S&P Composite 1500
Index, and meet other benchmarks pertaining to market value and
annual revenue.
A financial all-star
Apple rose to the top of the list by getting high marks in every
one of the Drucker Institute's categories, a consistency shared by
only a handful of companies. A foundation of the company's success
-- and a rallying point of pride for many of its employees -- is
the beauty and simplicity of its products, investors and analysts
say. Apple reported record profits and revenue for its fiscal year
that ended in September, helped by raising prices for its iPhones
and selling more subscription services. Earlier this year, it
became the first company to achieve a trillion-dollar market
valuation, although its market value has since fallen.
On Drucker's measure of financial strength, Apple outperforms
every other company. It commands a premium price for its iPhones,
outsources much of its manufacturing to suppliers and sells devices
used by millions of consumers. "Those are the ingredients for
outrageous returns on capital," says Toni Sacconaghi, an analyst at
AllianceBernstein, and "outrageous cash generation."
Apple also improved from last year in Drucker's measure of
social responsibility, which Mr. Drucker saw as an important driver
of a company's innovative spirit. After facing criticism years ago
for working conditions at its suppliers' factories in China, Apple
has worked to introduce more-responsible working practices into its
supply chain, increasing the training and education of workers.
This year it also launched a $300 million fund in China to support
clean-energy initiatives to power operations for its suppliers, and
introduced a proprietary process to recycle aluminum for the newest
editions of its MacBook Air and Mac mini.
"If there's a knock" on Apple, Mr. Sacconaghi says, it's in the
realm of innovation. Apple faces questions over how it will
navigate the second decade of the smartphone era, when people may
be waiting longer to replace their iPhones. Despite introducing its
Watch and HomePod smart speaker, the company has failed to produce
a new blockbuster device to rival sales of the iPhone. Apple's
latest revenue projections also disappointed Wall Street investors,
and the share prices of some of its suppliers have fallen after
they reported cuts in iPhone production.
"We just launched an incredible range of new products for the
holidays and couldn't be more excited about what we have in the
pipeline," says Luca Maestri, Apple's chief financial officer. "We
manage our company for the long term and are investing
significantly in game-changing services and technologies that we
believe our customers will love."
Innovation standouts
Amazon, second on the Management Top 250 list, is a more uneven
performer. It is the ranking's highest scorer in innovation, yet it
rates in the bottom quarter on measures of corporate social
responsibility.
Ardine Williams, a vice president of people operations at
Amazon, says the company is able to be innovative because it makes
"lots and lots of small bets." Employees come up with new products
and services by working backward -- writing an internal press
release of a new product feature and then gaining buy-in from
company leaders to build it. "This is a seniority-agnostic
process," Ms. Williams says. "Anyone with a good idea can put
forward their own document to senior leaders."
Critics, though, say the e-commerce juggernaut has done too
little to help the communities in which it operates. Amazon faced
fierce backlash after the company won billions in tax incentives to
open planned new hubs in New York and near Washington, D.C.,
raising worries about gentrification. "They have demonstrated zero
regard" for communities' general welfare, says Scott Galloway, a
professor of marketing at New York University, who has been
critical of Amazon's selection process for its additional
headquarters locations.
Amazon's Ms. Williams says the company is focused on making a
"uniquely Amazonian impact in the communities where our employees
live and work." She points to Amazon's support of efforts to fight
homelessness near its Seattle headquarters and its work using its
vast logistics network to help communities recover from disasters
like hurricanes and wildfires. The company also supports science
and technology education for underrepresented communities, she
says.
Other innovation standouts include Allstate Corp., a top-10
company in the category. Allstate is a rising star in the
Management Top 250, climbing to No. 39 overall this year from No.
109 last year.
The company has introduced improvements such as a quick photo
claims feature for customers involved in an auto accident, reducing
the need for an adjuster to verify damages in person. Allstate also
now uses drones to assess home damage after hurricanes or natural
disasters. It is working on longer-range bets, too. Chief Executive
Thomas J. Wilson describes a new model it is developing for
car-sharing as "Airbnb with cars."
Mr. Wilson says a greater focus on innovation in the company
comes, in part, from employees better understanding their purpose.
More than 27,000 Allstate employees have attended a day-and-a-half
workshop the company hosts called Energy for Life, which includes
everything from body-composition tests to assess employees'
physical health to activities on what motivates them. The result,
Mr. Wilson says, is employees with a clearer sense of who they are
and how they can contribute to the company. "Our belief is we have
to give to get," he says. "You can make people do stuff, but that's
not the point, particularly when you're trying to be
innovative."
At Johnson & Johnson, also in the top 10 for innovation,
Chief Financial Officer Joe Wolk says the company looks for ways to
reinvent products even in markets where it is the No. 1 or No. 2
player. "We can't come out with simply me-too ideas and me-too
products," Mr. Wolk says. One example: This year the company took
the step of relaunching its baby wash and shampoos to be more
transparent about those products' ingredients after sales dipped,
despite maintaining a market-share lead over rivals.
How values work together
The Management Top 250 is meant to show that the principles of
good management work together. Greater employee engagement, for
instance, leads to greater innovation, customer satisfaction,
social responsibility and financial strength. "These five areas all
seem to be interrelated and mutually reinforcing," the Drucker
Institute's Mr. Wartzman says.
Still, no model is perfect. General Electric Co. has had a
tumultuous year, marked by about a 55% drop in its share price and,
in October, the replacement of its CEO of 14 months. GE's overall
score in the Management Top 250 ranking fell from last year, but
the industrial conglomerate is still ranked No. 18. A deeper look
at the numbers shows GE posted declines in financial strength and
employee engagement, but saw an increase in its innovation
score.
"For all of GE's very real financial and operational problems,
they remain in many respects a cutting-edge engineering
organization," Mr. Wartzman says, noting that a rapid decline in
the company's fortunes may not yet be reflected in the available
data. "GE was the paradigm of management for decades," Mr. Wartzman
adds. "It does take a long time for those things to unwind."
GE says the company continues to build important technology.
"While this is a time of great change at the company, curiosity,
ingenuity and invention -- essential traits of our founder Thomas
Edison -- continue to be core to who we are and the products we
deliver to our customers," says Vic Abate, GE's chief technology
officer.
Those who have studied Mr. Drucker's thinking say he valued a
long-term perspective. "The reason he became the father of modern
management is not to help organizations function better, although
that's important," says Bernie Jaworski, a professor who teaches a
class on Mr. Drucker to incoming graduate students at the Peter F.
Drucker and Masatoshi Ito Graduate School of Management, a separate
institution from the Drucker Institute. Mr. Drucker's management
teachings were "a tool to get to an end, and the end was having
better societies," he says.
Mr. Cutter is a Wall Street Journal reporter in New York. Email:
chip.cutter@wsj.com.
(END) Dow Jones Newswires
November 30, 2018 08:36 ET (13:36 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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