Dr. Eric Flamholtz, our founder and President, began doing consulting relatively early in his academic career. However, it was related to his doctoral dissertation in an area now called “Human Resource Accounting.” The origins of our firm (Management Systems) were largely due to a series of “serendipitous events” and were an outgrowth of Dr. Eric Flamholtz’s work in a very different kind of consulting.
One day in the early spring of 1976, Dr. Flamholtz was sitting in his office at UCLA’s Graduate School of Business (now known as The Anderson School of Management) preparing to teach a class, when the phone rang. It was the Executive Assistant to a medical doctor who was also the President of a rapidly growing entrepreneurial firm that staffed Emergency Medical facilities at hospitals. She was looking for someone to “tutor” the founder and CEO of her firm in how to manage his business. Eric asked her how she got to him and she said that she called the office of the Dean, who recommended him. He said that he did not do that and asked why the Doctor did not come to UCLA for an MBA. She replied that he had an “MD” from a leading university and did not want a degree; rather he wanted skills. She was persistent and asked him if he knew of anyone else that did tutoring in management, and he replied, “No, I don’t.”
Dr. Flamholtz asked her why she was looking for a “tutor” and she replied that he had a tutor from UCLA for his hobby (astronomy), so she thought the same thing might work for learning to manage his business. She then asked Eric if he was willing to meet with “Dr. Jeffrey H.” and he agreed to meet with him. The reader should note the strong entrepreneurial attitude with which Flamholtz approached this conversation and opportunity: “No, I don’t do this; no, I don’t know who does it”; etc.
When Eric did meet Dr. H, he hired Flamholtz to tutor (or coach) him in how to be a CEO. For Flamholtz, it was an opportunity to see what was immediately relevant and practical from the MBA curriculum that could help this individual.
They met about twice a week for a few hours each time, and Flamholtz found the work very interesting. It was really “one on one teaching.”
A Related Event
Dr. Flamholtz had been doing some consulting/research for a CPA firm in Chicago involving the application of Human Resource Accounting, and his contact there (Todd L.) decided to leave that firm to join a real estate firm. Todd L.’s role was to build a residential and commercial real estate business. He and Flamholtz decided to meet for dinner just to continue their personal relationship the next time Todd visited Los Angeles. At one point during their dinner, Todd asked quite simply, “What are you doing that is interesting?” So Eric told him about the work with the medical doctor. Todd said, “That is interesting. We just purchased a residential real estate firm in San Francisco. Do you want to do the same thing with our CEO there? Flamholtz replied, “Sure.” Then in rapid succession Todd purchased other companies in Denver, Houston, and Chicago. Flamholtz said to him, “Todd, stop buying companies! I can’t do any more of this and continue my academic career!” He laughed and said simply, “Build a company. We like what you are doing, and we will be your ‘anchor client’.” So, in August 1978 Management Systems was founded.
At that point, Dr. Flamholtz began to train some other faculty to do what he was doing part time, and in 1983 hired the firm’s first MBA. That same year he moved the consulting practice from his home to our first office on Wilshire Boulevard in Los Angeles. Now he had a “nut” and a payroll. It was a micro business but a business nonetheless.
Identifying a Market Niche
In 1983, most of Management Systems’ clients were relatively small firms that were led by entrepreneurs like the medical doctor. Working with these firms and some others, the academic perspective kicked in, and Flamholtz began to see patterns of issues emerging across companies and industries. Very different firms and very different CEOs seemed to be suffering from the same problems. That led to four things:
- Flamholtz’s recognition that there was an un-served market segment: rapidly growing entrepreneurial firms that needed what he was doing to help them make the transition to a more professionally managed organization with MBA-like competencies and more formal systems.
- The systemization of what Flamholtz was doing and the development of service-type “products,” including methodologies for strategic planning, structure design, leadership development, performance management, and more recently culture management.
- The development of models to help explain organizational success and identify problems related to organizational growth – including the Pyramid of Organizational Development™, Growing Pains, and the Stages of Organizational Growth.
- Publications by Flamholtz – first a few articles and later a book (the first edition of Growing Pains in 1986) describing his theory and models; and providing case examples of companies dealing with these organizational development issues.
As the number of clients increased, Flamholtz had to make some difficult decisions. In 1986, he made the strategic decision to specialize in working with rapidly growing entrepreneurial firms that needed help to make the transition to a more professionally managed organization.
Development of the Practice
MBA programs teach all about marketing and advertising; but traditional marketing and advertising are not appropriate (or at least they were not appropriate) for a professional services firm like Management Systems. Our “marketing and advertising” consisted of publications (articles and books) which led to invitations for presentations, which led to invitations for consulting engagements which led to more invitations for articles and books, and so on. Successful client engagements also led to referrals.
These engagements were instrumental in providing the impetus for Flamholtz to develop the firm’s core methodologies. Clients frequently asked Eric to assist with things where he had a limited background, and when he demurred, their response typically was, “We like what you do and trust you; go figure something out and come help us.” In searching the literature for tools relating to strategic planning, structure design, and performance management, Flamholtz found that all there was were concepts and little in the way of well-designed tools. That led him to develop tools of his own.
The publication of the first edition of Growing Pains (then called How to Make the Transition from an Entrepreneurship to a Professionally Managed Firm) contributed to Management Systems expanding its client base to companies located throughout the United States. In addition, we began working with larger, more complex companies who frequently told us, “We are experiencing some of the same problems that the smaller entrepreneurships you describe in your books and articles are experiencing and we would like your help addressing them.” As our firm’s consulting experience deepened, it led in turn to improving our products and to more examples of successful applications.
In 1990, the second edition of Growing Pains was published. That book led to a phone call from Orin Smith, then CFO of Starbucks Coffee, in the spring of 1994. At that time Starbucks was relatively unknown except on the West Coast of the US, but it was on Flamholtz’s radar. Smith said, “Your book describes what our company is going through. Come on up to Seattle and if the chemistry is good, we want to work with you.” Flamholtz went to Seattle and began what turned out to be an intensive 3.5 year consulting engagement with what is now one of the premier companies in the world. It involved coaching the top three leaders of Starbucks, helping them create what Flamholtz now terms “a Leadership Molecule,” applying Management Systems Strategic Planning Method, doing Leadership Development for various managers, facilitating the Team Building for Starbucks’ leadership team as the company rapidly grew, and redesigning the company’s structure from a functional to a “divisionalized matrix” concept.
The subsequent success of Starbucks growing from a relatively small company with a commodity product to a multi-billion dollar world class company with a global brand led to Howard Schultz (Starbucks’ founder and CEO) writing a book about the development of Starbucks. In that book, he cited Flamholtz’s contribution to Starbucks’ growth and development. This in turn led to clients contacting Management Systems with the desire to “become the next Starbucks” in their own space.
In 1998, Flamholtz and Yvonne Randle published Changing the Game – that dealt not only with entrepreneurial transitions to professional management, but also vision and revitalization transformations. It included a Forward by Howard Schultz. Management Systems client portfolio now included firms from start-ups to giant, multi-billion corporations.
Just as the new Millennium began in 2000, two things happened that were also significant for Management Systems. First, Flamholtz began to publish a series of academic articles reporting empirical tests of the validity of the firm’s core models. This research all consistently showed that there was statistically significant evidence that the models had predictive validity for financial results. Second, Management Systems began to develop an international clientele. The fourth edition of Growing Pains was published in 2007 and was followed by another book titled Leading Strategic Change in 2008. The research and publications all reinforced Management Systems position as a thought leader.
The Next Challenge: Globalization
In February of 2010, a Professor from Moscow State University contacted Management Systems via our website. He said that he had read all of Flamholtz’s published materials and believed that the methodology was unique. He wanted to bring it to Russia, Eastern Europe, and possibly Europe as a whole. This exchange led to a business relationship that, in turn, resulted in the launch of what we term “our global affiliates program.”
Our current challenge is to train other consultants to be our global affiliates. This involves identifying potential global affiliates, licensing our “intellectual property” (our tools and methodologies) to them, and training them to deliver our tools to their clients. We currently have affiliates in China, Egypt, Kazakhstan, Poland, Russia, and the Ukraine.
Present Day and Beyond
One thing that is different, if not possibly unique, about our firm is that for more than 35 years since the initial contact by the Executive Assistant of Dr. H. and the subsequent discovery of “patterns” to the issues faced by our core client segment, we have been systematically developing a methodology for building sustainably successful best of class organizations through a disciplined research based approach that we now call the Management Systems’ Approach.
This approach has led to something else that is different, and we think unique, among consulting firms: an integrated set of products and services which comprise a true “management system:” assessment, planning, structure, leadership development, performance management, and culture management. Each of these tools (which are also products) both standalone and also combine to an integrated management system.
As we look to the future, we will continue our focus on developing and delivering to our clients – whether directly or through our affiliates – the tools to build sustainably successful organizations.