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The Portuguese professor

How following the latest management trends can, sometimes, turn into a sure-fire way to make money

The Economist; May 11, 1996

In 1984 Belmiro de Azevedo almost gave up business to become one of Portugal's first management professors. Instead he stayed at Sonae, then a small family firm making laminates and other bits of joinery. Since then, Sonae's turnover has increased 25-fold, to 357 billion escudos ($2.5 billion) and its net profits 40-fold to 12.9 billion escudos, making it the second-largest quoted firm in Portugal. Yet Mr de Azevedo sometimes still has second thoughts.

Although it is hard to imagine Mr de Azevedo, an engineer with an autocratic manner, staying in an ivory tower for long, his fondness for management theory is not a pose. Few bosses would admit that their success came from others' ideas. However, ever since he bought a teach-yourself book on cost-accounting in the 1960s, Mr de Azevedo has steered Sonae by studying new foreign ideas and applying them at home. He makes a point of surrounding himself with cohorts of thrusting young MBAs (most of his top managers are in their early 30s). As he says, with a faint smile, "it is as if I were the dean of a business school."

Sonae's success comes from being just a bit more modern than the rest of corporate Portugal. Take, for instance, its biggest business, retailing, which accounted for over three-quarters of its sales in 1994. In the mid-1980s Mr de Azevedo, then mainly a wood-chip merchant, sought out Promodes, a French hypermarket chain. Advised by the French firm, Sonae opened its first hypermarket in 1986. Now it is Portugal's biggest retailer, with 10% of the market; and Mr de Azevedo is developing a Portuguese version of America's "speciality stores" - small chains offering goods such as menswear, designed for shopping malls.

Another division of Sonae, Pargeste, looks at first sight to be a ragbag: it includes a construction company and a firm that freezes vegetables. Many of these businesses have some synergy with Sonae's retailing arm (a supermarket chain sells lots of frozen vegetables). However, the real point of Pargeste is to use foreign know-how to chisel a way into new markets. Most of the Pargeste companies are joint-ventures with foreign partners, operating in markets where other Portuguese firms are small and old-fashioned.

Acting as a sort of cultural arbitrager sounds easy. But Mr de Azevedo claims that it requires detailed study. He imports ideas only after he has sat through enough case-studies to crease an American MBA student's chinos. For other business people events such as the World Economic Forum in Davos are an occasional refreshing break; For Mr Azevedo they are an annual necessity. Most years he spends a few weeks at an American business school; his most recent outing was a course on global strategy at the University of California in Los Angeles.

Mr de Azevedo insists that his managers take the same interest. He moves them around the different parts of Sonae as if they were switching classes at a business school. Most are expected to brush up on organisational theory at a real college too. Each year Mr de Azevedo names business books that managers are expected to read: one recent example was "Competing For the Future", by Gary Hamel and C.K. Prahalad (Harvard Business School Press, 1994).

The notion of coming home from a hard day being bossed around by Mr de Azevedo to an evening snuggled up with Messrs Hamel and Prahalad would surely strike even talented managers as hell. So why do Sonae's "students" put up with it? One reason is that, although their teacher tells them to study such new ideas, he does not insist that they follow them: "We never take more than 10-20% of any new fashion," says Mr de Azevedo, "but we always take something." Another is that it seems to work. Any system that has turned a carpenter's son into Portugal's most powerful businessman must have something going for it.

Management theory: a licence to print money?

Now Mr de Azevedo's system faces two challenges. First, Portugal is looking less of a special situation. As the economy opens up, more foreign firms (led by managers who have read the same books as Mr de Azevedo) are arriving. Within a couple of years, Portugal will be well stocked with hypermarkets; within four there will be enough shopping malls. Second, having outgrown its domestic market, Sonae is pushing abroad. Its wood division, which Sonae has partly floated on the Portuguese bolsa (stock exchange), is now based in Madrid. It has also pushed into retailing and wood-products in Brazil.

In Brazil, where there is a growing middle class, Sonae's hypermarkets may once again seem new. Mr de Azevedo talks of turnover there doubling to $1 billion by 1998. But Brazil's bureaucrats are a notoriously awkward bunch, and Sonae will not have the market to itself: France's Carrefour and America's Wal-Mart, two of the world's biggest retailers, are competitors.

Yet Sonae has shown a few signs that it can come up with ideas of its own. It was a pioneer in introducing store credit cards, which give shoppers a special discount, and in developing a smaller hypermarket format. However, the group still looks too much like one of those old-style diversified conglomerates loathed by the management gurus who worship "core competences". Sonae may go part of the way in their direction by selling its wood business. But the real-life exam for Mr. de Azevedo's students is just starting.

Copyright: The Economist Newspaper Limited