Chapter 5 - Contours of the Clever Organization

Organizations represent a complex and tangled set of relationships with various groups of people: owners, executives, management, employees, customers, partners, suppliers, regulators, etc. Even this is an oversimplification because people do not behave as archetypes: not all customers or employees want the same relationship with the organization, but each is individual in what he wants and what he is willing to give in return, and there's a great deal of covariance as members of these groups interact with one another.

The author provides an example of an employee who is intellectually curious about the way the company works, investigating the groups of people and the way they interact - a closet sociologist, one might say. In particular, he recognizes the organization as the environment in which he works, and relationships as assistive or obstructive to his goals. His sense is that managing relationships is the key to succeeding.

Another example is an employee who works in real estate, going to different cities to set up corporate offices, and remarking on the difficulty of doing so: she recognize that workspace isn't merely about warehousing people, but the layout of a facility can determine the degree to which they interact with one another, and it can make a significant difference to the success of the organization if the right connections are made among people, or if they are prevented by physical walls from ever seeing one another.

A third example is of an executive who is experience frustration with his firm's inability to innovate. The employees are all bright people and good at their jobs, but each seems lost in his own world and unable to connect with others. The few ideas that bubble up are obviously skewed to be good for whomever suggested it, but not necessarily good for the entire organization.

In each of these examples, it is clear that the issue is not having clever people, but getting clever people to interact with one another and take a broader interest than the immediate problem of the moment. There are many companies that are well-stocked of clever employees who seem to flounder or fail, and it is the management of relationships among them that is lacking.

The authors consider the notion of free agency - clever people who work as independent consultants and answer to no single master was once proposed as the solution to the problem. However, this does not work out as well as planned - instead of being freed from organizational constraints, independent consultants encounter the constraints of each of their clients, and go through the same process of trial and error to learn multiple cultures rather than learning to act within one.

Remember: clever people need organizations as much as the organizations need them. They need the resources of a large organization to do their work. But just because organizations have such resources doesn't mean they dole them out freely: the clever worker must learn to work the system to get the resources they need. As such, it's an uneasy relationship.

Beware: Fragile

The authors assert that organizations have a false sense of security, that people are interchangeable. This may have been true in the industrial era, as one person can shovel coal as well as the next, but in the information economy the individuals who have the intelligence and knowledge upon which their companies rely are not so easily replaced. In extreme cases, the loss of one person can render and organization impotent.

In recent decades we have seen many new firms emerge and take dominance in their markets, and we have also seen decades-old industrial giants crumble. There is often an attempt to blame it on changing consumer tastes, shifts in the economy, global competition, and other circumstances that were beyond the control of management.

But in truth, companies depend on clever people and many have failed to create a culture in which they can be successful and make their firms successful. Clever people are fragile and need to be handled with care: they can be demotivated quickly, and when their motivation to innovate is squelched, they either leave or settle into a non-innovative role.

The pace of change and the random ways in which many organizations react to it further complicates matters: when an employee is shuffled from one department to another at a whim, and when it's not uncommon to have ten different mangers in a five-year period, it becomes clear that firms do not know what to do with their people or how to manage, develop, and support them.

Human relationships are, like a great many other things, easier to destroy than to build. It's very easy to be negligent or careless, and much harder to be attentive and precise.

Rich Organizations

(EN: I think the authors' intent in this section was to give some examples of organizations that provided role models, but it was several paragraphs of disjointed rambling around a few simple platitudes. Didn't find much of interest worth preserving.)

Priorities of Clever Companies

One technology executive identifies seven key priorities:

  1. Contribute to the organization's mission and vision
  2. Foster an environment of open innovation
  3. Recruit and develop passionate people
  4. Develop a research and development culture
  5. Develop "knowledge networks" within the organization
  6. Design quality into the systems and processes rather than bolting it on afterward
  7. Help to organize support for expertise

A quote that provides advice for managers: "If you can get intelligence and competence and teamwork working together, then you will have a very rich career with the company."

The authors observe that many companies that are successful in the fast-moving world of consumer goods are highly innovative, because the need to be so is obvious. Meanwhile, services companies tend to be stodgy because their products are largely invisible to one another and the notion of quality is subjective.

Learning to Forget

In addition to adopting new ideas, a company that wishes to be nimble an innovative must also "learn to forget" some of the habits it formed in the past because they are no longer applicable.

The first habit is the tendency to "process" people - that is, to treat people as generic "human resources" that were more or less uniform and could be used as the firm pleased, and who could fit anywhere in the organization with sufficient training, and then to set processes that they would follow to accomplish their work.

The author refers to Frederick Taylor, whose approach to scientific management divided people into two camps: those who do the work of thinking (management) and those who do the work of execution (labor). Taylor's ideas were very well accepted in his time because it was very familiar to those who regarded humanity as consisting of a noble ruling class who gave orders and a peasant class who merely followed them.

As a result, scientific management progressively de-skilled work, reducing the work of a craftsman such a blacksmith into a series of steps so simplistic that a person of very low intelligence could perform a step without understanding the process. This was a boon to manufacturing uniform goods on an assembly line, but this is no longer as valuable as the ability of the worker to think and adapt.

This tendency to reduce things to processes is linked to a second problem: a focus on efficiency to the exclusion of everything else, including innovation. An organization focused on efficiency seeks to become better at what it does, reducing costs and improving speed while doing the same thing over and over. This is different to an innovative firm, which changes the speed at which it is able to adapt to do different things.

This is particularly a problem for large and long-standing corporations, who have for years been highly proficient at efficiency, but haven't a clue as to how to be innovative. Innovation itself is an obstacle to efficiency, as changing the activities performs means losing the efficiency improvements that were discovered for the old activities. As such, they seek to "innovate" in very small ways - changing the flavor or color of a product so that they can toss different ingredients into the same machinery.

A final problem with efficiency-seeking organizations is dehumanization and demonization. People, unlike animals, have minds and seek to improve themselves. Simply performing the same routine task over and over, with little challenge except doing it faster, is thoroughly unchallenging. Particularly on the assembly line, workers lose as sense of purpose because they are not involved in the act of creation, nor do they recognize the product of their labor in the finished product.

It's suggested that the current interest in "employee engagement" is a result of organizations whose practices have caused employees to become alienated and disengaged from their work. The author suggests that "studies show" less than 20% of employees around the world are engaged in their work - and that disengaged employees may be obedient and compliant, but they do not bring much enthusiasm or creativity.

Clever Evolution

The author looks to Nestle as a company that has made a significant evolution over the years, from a commodity food producer which leveraged the factory model of production to an innovative firm that has become highly innovative. The firm has not only been innovative in creating different products, but also in exploring different channels of distribution and methods of promotion, to transform itself from a simple chocolate manufacturer into a company that has multiple products in global markets for nutrition, health, and wellness.

However, spreading out like this is not the only way - and many firms remain specialized and remain highly successful. (EN: Consider Hershey's, which has never considered itself to be anything but a chocolate company. They are highly profitable and entirely viable.)

Others argue that innovation could be left to small firms - and those that succeed at discovering a new product should later seek to become integrated into larger firms who, while not very innovative, can take a developed idea and scale it up efficiently. (EN: This was a strategy among software firms, all of whom developed a product in hopes of being bought out, usually by Microsoft. It worked for some, but failed for many.)

Some large firms seek to foster innovation in part of the company. The authors refer to Procter & Gamble, a major consumer goods manufacturer, who invest heavily in research and development of new products while continuing to seek efficiency in manufacturing established product lines. Should a new product perform well in test markets, it can be moved to mass markets very rapidly. This is a model for which P&G is famous, and has been highly successful for many years.

It's also possible, though rather more rare, for a large firm to change itself entirely. IBM is an example of a dramatic change, from a manufacturer of office equipment to a provider of software services. While it took the company quite some time and practically "sleepwalking off a cliff" for them to recognize that they had lost their edge in equipment and needed to find a new line of business, they managed to make this change, albeit rather clumsily.

Clever Services

The authors then turn to the services industry, in which firms generally start off very small and grow to significant size by standardizing their operations. Consider financial advisors: many start off as an independent professional who consults with individual clients, then the business grows to require him to hire help, and if he can distill his methodology of serving clients into a process, he can branch out further by training other professionals to follow his procedures in providing service to customers in branch offices around the world. Naturally, the problem in this approach is that it reduces employees to the mindless execution of procedures for the sake of having a standardized and uniform service process that can be centrally controlled.

(EN: The authors totally miss the fact that this approach not only reduces employees to routine procedures, but it also reduces customers to routine procedures - they must consent to be served the way the business cares to serve them, regardless of whether it suits their needs. For this reason, many service companies remain small and local, and there are no national chains except in very specific areas, such as accounting.)

One common problem for service corporations is they have difficulty retaining smart people. They have a high turnover rate among their best employees because they leave within a few years. The standard complaint is that other companies woo them away with higher salaries, but it's often found that they leave out of boredom with the constraints of monotonous processes. The traditional response to this has simply been to recruit more people to accommodate the high level of churn - but that has not been satisfactory because the challenge is not merely retaining employees, but retaining good employees. When the bet people leave, what do you suppose stays?

The authors suggest that one accounting firm has undertaken an "important initiative" to ensure the first five years are rewarding for its new recruits - they provide compensation that scales more quickly and attempt to identify and fast-track the brighter employees so that they find the work rewarding, both financially and intellectually, enough to stick around. They also attempt to cross-train employees in a number of areas (tax, auditing, business recovery, etc.) and rotate them more frequently to prevent monotony from setting in.

This leads to a second problem in services: overspecialization: workers "dive deep" into a very specific area of specialty, to the point that their work becomes monotonous. Consider the degree to which this occurs in fields such as law or medicine, such that an attorney may specialize in divorce cases or a doctor may specialize in treating a single condition of a single organ. The danger in this, aside of lowering morale, is that it caters to the bad habit of becoming myopic - focusing on one thing to the exclusion of everything else - such that they lose sight of the big picture.

A third issue in services is that clever professionals identify with their profession rather than their employer, and sometimes even ignoring their customer. A surgeon isn't loyal to a specific hospital, but to the medical profession - and in dealing with patients he is focused on procedures he intends perform rather than the patient's need for medical care.

A final issue is the pursuit of professional recognition, which can go to a persons' head and cause him to lose sight of what is most significant. For example, the author mentions the BAFTA awards (British Academy of Film and Television Arts) and the manner in which those who have won these awards become arrogant, unproductive, and difficult to work with. Some mention is made of the BBC's effort to encourage identification with the whole organization and foster cooperation between different people - such that when an award is won, it's recognized that it is the cooperation of multiple people, rather than the inordinate talent of a star, that earned the recognition.

Clever Collectives

The authors attempt to define a kind of organization as being a "clever collective" but cannot quite explain what they mean, instead providing a list of firms (Google, Microsoft, Arup, Roche, J&J, Oracle, etc.). They then provide a brief history of Google, but never quite explain what they mean before discussing the weaknesses.

The first weakness of a collective is that it can often become a cult, built around the legendary exploits of its founders. The simple philosophy on which the firm is founded, which was originally a departure from conventional ways of thinking, can become a rigid code that is even more ingrained than those conventions and alienate any employees who do not toe the line and follow the dogmatic ideology.

Another weakness is that collectives can be split into different and warring groups. Google is an excellent example of this, as there is a significant difference between the core group who seek to keep improving the search engine's breadth and capabilities and the marketing group which seeks to keep the business profitable by selling advertising (which the search-faction despises as undermining the accuracy of the search and getting in the way of what the user wants).

Incidentally, the formation of factions is the reason that mergers between such companies often fail, or at best are very difficult to manage. When Microsoft launched a bid to acquire Yahoo, there was much consternation from within as well as without, because it was recognized that the two organizations had very different cultures that would be difficult to reconcile - and it was suspected many of the Yahoo employees would defect to Google.

(EN: The fact is that this happens in every merger, and it's often understood that the stronger company's culture generally wins, and there is a high defection rate in the weaker one as people reject the new culture. Various methods have been attempted to mitigate this, but I'm not aware of a good solution, other than allowing an acquired firm to remain encapsulated, which undermines the benefits of a merger.)

Complexity of Scale

Another significant challenge for large organizations is overcoming the complexity that comes with scale. Traditionally, "big" firms dealt with their size by implementing processes and procedures to homogenize its processes, ensuring consistency while preventing innovation. This is generally effective in enabling a firm to do "more of the same," but when a company depends on reacting to change, sameness on a grand scale prevent them from being nimble - they are tied p in their own red tape.

Knowledge workers are not as oxen who are tied to the yoke and made to plod along, and they must be led with a light touch rather than micromanaged, yet precise management of granular details, down to the individual motions of the body, is the precise means by which large organizations have been successful in gaining efficiency.

This is likely the reason that highly innovative firms seem very chaotic and even a bit insane to more traditional managers. People operate without much in the way of constraints, and don't' seem to be making progress in the traditional way, but somehow amazing things seem to occur.

There's also a passing mention of some of the bizarre elements of innovative companies - the casual and festive environment that seems more like a teenage social club than an office. All of these are superficial symptoms that can occur in a loose culture - a traditional organization cannot simply put video games in the break rooms and expect its people to become innovative as a result. (EN: having worked for large firms that tried this, the more likely conclusion is that anyone who touched the games in the break room would be earmarked for the next layoff - and this is not entirely a matter of perception. The trappings were adopted but the culture did not change one bit.)

Another attempted solution has been the development of a matrix structure: breaking out of traditional silos and putting people in cross-functional teams with minimal supervision. However, these structures "rarely operate in quite the way they were planned." The power struggles between silos became power struggles between individuals because the same differences in culture and objectives remain.

Given this, many organizations are now in "some fuzzy post-matrix phase" in which there is no clear structure, and firms operate not as a matrix but as a loose collective of independent companies, each serving or consulting with one another as needed to accomplish a given objective. This often leads to many internal conflicts, not the least is that while people are ostensibly free to mix and match as needed, each person reports to a specific manager and this creates a behind-the-scenes hierarchy with silos and conflicting agendas.

(EN: Another issue that isn't mentioned is career stagnation. In the chaos, people get lost. This may be OK for some individuals, the type that want to do the same tasks and be in the same role throughout their careers. But many find this difficult to cope with, and end up jumping ship to advance in their careers.)

Another problem of chaos is lack of direction. Sometimes amazing things can happen, but often there are long periods in which no progress seems to be made and no-one seems to have the formal authority to push forward on any initiatives. Some are able to disguise their total lack of productivity, whereas others are working very hard and making no progress.

The Need for Clever Management

While it is clear that traditional organizations that are designed for efficiency fail to leverage the potential of clever workers, what is not clear at the present time is what might work better. Various solutions have been attempted with varying levels of success, and the same arrangement that works well in one environment and situation completely fails in another.

It is highly likely that additional effort is needed to better understand the creative process, much in the way that scientific management analyzed the physical processes, in order to define an organizational structure that will be effective (rather than efficient) at creating a fertile ground for creativity and innovation.

In smaller words, what clever workers need is clever mangers.