Back to my General Theory of the Organization,
let’s take stock of where we are after a long series of posts:
·
we
have proposed a classification of types of organization based on their ends
(educational, political, religious and economic)
·
we
have defined a number of dimensions that can vary between two extreme values,
and determined that ADVISE organizations (Adaptable, Dominant, Voluntary,
Isocratic, Simple and Egalitarian) are better than RACKET ones (Rigid, Anomic,
Compulsory, Kleptocratic, Enmeshed and Totalitarian)
·
we
have developed a model of what elements of organizations (members, roles,
dyadic relationship between them, environment in which they operate, resources
they consume and goals they pursue) are descriptive enough of their functioning
to grant us a deep enough understanding of how they work
·
finally,
we identified a number of simple rules that guide the evolution of
organization, or explain how they change in time (their ability to achieve
their goals gets worse, innovation partially restores that ability –as long as it
really changes some elements of the model, and if not checked by innovation,
the ensuing degradation increases the number and intensity of
intra-organizational conflict)
Now it is time to see how the model
holds up to reality, using it to gain a deeper understanding of the dynamics of
a real world organization. I will thus present a case study of an actual
company and how it evolved from the 90’s to the 00’s, with some change in the
names of the company itself, its subunits and even some of the main characters
to protect confidentiality (although many of my readers will recognize the
environment immediately) and avoid liability.
Let’s start then by describing a
small slice of the history of a multinational company we will call “Amundsen
Consulting”, starting in 1995, which later on would change its name to “Emphast”
(a vague reminder of its “Emphasis on the Past”). Any resemblance with actual
events or organizations is pure coincidence, of course. Finely intended, but
coincidental all the same.
In the mid nineties of the past
century (eeks! One feels really old using those sentences and realizing he was
already in the midst of the action back then) this company was on a roll. They
had established an early leadership in a market booming thanks to a number of
trends they didn’t originate (cheapening of computing power due to to Moore’s
law, deregulation and lowering of international tariffs, lowering of
communication and transportation costs, fall of communism that brought hundreds
of millions of new consumers for the first time willing to exchange their labor
for commodities in market economies, all of which favored bigger and bigger
corporations that required central monitoring and control) but of which they
would benefit. Starting with brand recognition and a superb commercial channel
from the parent company inside which they originated (one of the “big 5”
accountancy firms, let us call them “Roald Amundsen”), they also inherited an
organizational structure typical from professional services firms of the age
based on a pyramidal scheme (in more than one sense) with very few roles.
Basically four professional categories: consultant, senior consultant, manager
and partner, with the latter (the real owners of the company) sitting at the
top and reaping all the benefits. Each national practice being essentially
independent from the rest (forming a separate pyramid making their own hiring,
promotion and contracting decisions, that paid a certain amount of the locally
accrued benefits in exchange for global brand awareness raising activities and
common “methodologies” that helped justify billing customers for the hours of “professionals”
who were fresh out from college as if they were seasoned experts). That scheme
showed itself to be enough to produce annual growths in the order of 20-25% (so
the company doubled every 3-4 years, no small feat) and kept the pyramidal
scheme (or rather the constellation of pyramidal schemes, as each country and each
industry had its own P&L) going nicely, as at its core it required the
lower levels working their asses off and generating more value than they kept
for themselves (literally, as the rates billed for them were pretty higher than
their “loaded cost”), value that in turn was siphoned off by the partners (who
could not bill themselves at rates that covered their salaries and benefits, so
had to compensate with their subordinate’s rates), who, regardless of how many
hours spent in the office (after years of having gone through the motions to
earn their badges they normally didn’t have much of a family life or social
life outside of their professional acquaintances to fall back on), really didn’t
had that much work to do.
So it sounds like the only goals
being met (remember that the main goal every member of an economic organization
wishes to attain is the maximum improvement of their social status) were the
partners’, as any other employee would get a better reward working
independently, or in a company where they could keep most of the value they
themselves generated. Indeed that was the case, and everybody there understood
it quite exactly. Why didn’t they leave en masse, then? Well, many left (the
employee turnover on any given year was routinely above 20% of the headcount,
and the labor market outside the firm had to badly seize to have to resort to “unplanned
attrition” and actually fire people against their wishes), and the ones who stayed
did so in the hope of becoming partners one day, and then be able to milk the
advantages of the system that so far had been milking them. As in any good ol’
fashioned pyramidal scheme, most were being suckers, as every partner needed on
average around 100 employees generating profits for them, which meant at any
given time only 1% would make it to partner, and if you accounted for all the
ones that left before the possibility came, probably the number of new hires
that actually made it to the top was less than 0.2%. Even with that dismal
prospects, for most the deal was well worth it, as it provided a good experience,
and many a naive freshman started with the idea of doing 2-3 years of
consulting work to then jump to a plusher, comfier position in some of the firm’s
clients (or in some competitor hungry to replicate the firm’s success with very
similar policies).
Be it as it may, with the approach
of the new century the motor started to sputter for a number of reasons, in
what proves to be a nice illustration of our first law. In the absence of
change the ability of “Amundsen Consulting” to fulfill its goals (or the sum of
its employees’ goals) grew worse and worse, negatively impacted by a number of
developments:
·
As
is wont to happen when a business model consistently delivers high profits year
after year, a flood of competitors was crowding the market. From other auditing
firms trying to leverage their C-Suite connections as well to cross-sell “consulting
services” (whatever those may be, although soon it was clear enough the big
bucks where in the installation and maintenance of complex enterprise wide information
systems) to technological behemoths trying to extend the scope of their
services from merely providing Hardware and Software to adapting it so it
became actually useful (a hugely challenging stuff). For a time none of them
looked specially threatening, but towards the end of the century there came a
third kind of competitor that would prove to be much more disruptive: the “Pure
Indian Players”, able to mobilize throngs of computer programmers, fluent in
English, to do a work as crappy as the one “Amundsen” had specialized in doing,
for a fraction of the price
·
At
the same time, the dotcom bust and the slowing of the global economy (dying
from a thousand cuts from a number of originally local currency crises that
just kept recurring), along with the increasingly crowded market made it more
and more difficult to keep the original rate of growth, and even caused it to
slow to “single digit” (9% or less –to the point of the business actually
contracting in local currency some years)
To top it off, differences of opinion
between the executives of “Amundsen” and its parent company led to a formal
request for arbitration that kept the minds of the top level of the company away
from the market and clients for the better part of two years. The Solomonic
decision of the arbitration allowed the company to break free without having to
pay crippling penalties, but forced it to change its venerable name (hence “Emphast”),
which turned out to be a hidden blessing, when the “Amundsen” of the parent
company got intimately bound in the court of public opinion with a series of
accounting shenanigans that brought low a number of formerly admired companies
in the US.
Interestingly, the company initially
pursued a series of mostly unsuccessful strategies to change its fortunes,
which all seemed to consist in variations of the same recipe: “reorganize” to
better align with the needs and demands of the customers (so what one day was
called “business groups” became “growth platforms”, and a part of what was “variable
salary” became “eUnits”) without any actual change in the people, the roles and
the relationship between them, so regardless of what organizational unit one
belonged to, or how his or her role was called he had the same rights, the same
obligations and related with the same people as before. Unsurprisingly, its
competitive position kept eroding, the oversized salaries kept being trimmed
and, most damaging of all, the ultimate reward (becoming partner) kept being
pushed farther and farther, as without breakneck growth there was simply not
enough business to keep promoting the same amount of people every year. Of
course that is not the end of the story, as the partners (at the end of the day
the owners of the company), very clever people whatever their other qualities
may have been, devised a way to monetize to the hilt all the good will they had
spent decades creating (or, in most cases, inheriting from their predecessors):
sell the company to the public, so they exchanged the masses expectations of
profit (which History shows once and again have no basis in reality whatsoever)
for their own, much better informed, knowledge of what they would be able to
distribute as liquid profit every year. The company went public in the NYSE in
July 2001, and the partners pocketed a nice 1.7 billion USD for floating just a
20% of the company (there were about 2,500 of them at the time, so the average
they took in liquid form was 680,000 USD… not bad, but peanuts compared with
the 3,400,000 USD per head they retained in their hands, with minimal strings
attached, at a valuation slightly above 14 USD per share… it stands today above
95 USD, so make your own calculation of how wealthy they made themselves by
that clever move).
Of course, that solved the problem
for the existing partners (it has to be said in their favor that they increased
their numbers generously the year before the IPO, although each new one
received a significantly smaller percentage of the company than the ones
appointed on previous years), but was far from solving the concerns of the 99%
of the workforce that actually brought home the bacon. Close to 75,000 schlubs
(I may know, as I was one of them) that were seeing the chance of ever making
it so big evaporate in front of their noses, as they were asked to work as
much, and sacrifice as much even as what they would get in exchange was a
fraction of what their forebears had got. I’ve already devoted a post to my
opinion about the choices I made back then (What an asshole I was...),
and I am not complaining; by sheer obstinacy I still made it to what was
previously called partnership (in an amazingly watered down version, but you
take what you can) before calling it quits in 2010, two years in the financial crisis
when in my little corner of the world the company was going to hell in a breadbasket,
having to actively fire near 20% of the headcount (no unplanned attrition back
then, as the labor market had completely seized). One of the best strokes of
luck in my life, as even when in the rest of the world things have pretty much
recovered, my old buddies still complain every time we meet of how lousy things
are in there, how the morale is low, the raises nothing to write home about,
the commitment of the new hires is mediocre, the old hands remaining are not so
brilliant and so on and so forth.
However, this post is not about my
own little (and mostly inconsequential) story, but about the application of the
ADVISE model to this “hypothetical” company. We mentioned that it attempted
some “false” organizational change that never got it anywhere, just swapping
labels, but without really affecting how people worked, what they did and who
they did it with. However, that is only part of the story, as after the
arbitration there was a change of guard (George “Shah-him” was replaced by Joe “Backhand”
let’s say) that enabled a more inclusive management style, which in turn
allowed the company to tackle more vigorously the more problematic aspects of
their operating structure. The new executive team promptly realized their main
problem was their cost structure, that had become totally non-competitive for
the kind of work that brought in 80% of the revenues (development of very
complex information systems for big corporations), and moved aggressively to
address that issue, creating new business units based on not so brilliant
(downright cheap) programmers, working for a substantially lower salary with no
perspective whatsoever of ever getting to partner before the Sun turned into a
supernova and obliterated Earth (well, sometimes the company was not very
straightforward about this and tried to fool those poor souls with some
semblance of hope that some day they would be able to ascend to heaven too).
They also stole a page from their harshest competitor’s playbook, setting
development centers in India itself (and other low salary countries with an
educational base to churn out high numbers of programmers with basic English
proficiency, like the Philippines) that have kept growing to the extent that “Emphast”
today employs more people in India (80,000 and counting) than what they had
spread all over the world (“110 offices in 46 countries” if I recall correctly)
when they went public.
Has that substantial shift (always underplayed in their internal
communications, as they do not want their Indian partners to do to them what
they did to “Roald Amundsen”’’s partners almost two decades ago) entirely
reversed the entropy and the inability to deliver the social status (high salaries
and a great brand recognition, although their parents still have not figured
out what on hell they do day in and day out to receive those, other than “works
with computers”) their employees aim at? Not that much. Some countries have
fared better than others, but most had to adapt to the reality of not being an “old
school” professional services firm any more, where a hectic (slavish) first half
of your career would be amply compensated by more relaxed and enjoyable second
half. That means that what they can demand their young guns is not as much as
what they used to, and that some really big deals that partially relied in squeezing
that kind of commitment and oomph from everybody have inevitably gone sour (UK’s
NHS would be the poster child here). In graphic form, this is how the old “Amundsen
Consulting” of 1995 compares with the “Emphast” of 2010 (as any good
anthropologist, I only describe what I could experience firsthand, I leave the
analysis of the last five years to better placed observers):
Few of my old colleagues would argue
that the organization has grown:
·
less
adaptable, although it can always shed non performing units, having so many of
them, with size comes a bigger inertia, and it is more and more difficult to
turn things around… although it is trying to establish a presence in the
digital media market, where it has none, it remains to be seen to what extent
it can incorporate in its very marked corporate culture the acquisitions it is
making all over the place
·
less
dominant, as the rewards it offers to its employees have become less dazzling
they are devoting less time in the office doing their masters bidding
·
less
voluntary, as a result of a job market outside the firm that is as little
inviting in most of the world as it had ever been in the best decades, more and
more people were staying out of fear of not finding anything remotely
attractive elsewhere, rather than because they really liked what they were
doing or their professional prospects in there
·
(even)
less isocratic, as the partnership (where at least every partner had a vote)
has been replaced by a diffuse structure where decisions are made at the top by
a clique that represents a smaller percentage of the firm
·
Less
simple, as the number of roles has multiplied. Not only has the number of intermediate
levels increased (something that started in the late nineties with the addition
of the categories of senior manager and associate partner), but the number of
career path and specialist positions has also vastly increased, as befits an
organization of humungous size and variety
·
Less
egalitarian, as the introduction of new professional categories (low paid
programmers) with less potential for advancement open to them led to a more
unequal distribution of the benefits, and the growth in size and (in the good
years) in total profit has been very much concentrated for its distribution at
the top
All of it pretty standard fare, and what the three laws predicted would
happen to a company in such situation. So the application of my model allows me
to quantify what I already knew from deep in my gut: my old company has become
less of a place where you would ADVISE your friends to accept a job offer, and
more of a RACKET where the bosses excel at deceiving the rest of the employees
in making them believe they have a most brilliant future only to more
intensively benefit from the huge sacrifices they demand from them. I’ll end
somewhat qualifying such statement so I’m not accused of just being bitter and
throwing shit on my old comrades out of spite and resentment (not that I would
care, I give exactly zero fucks about what anybody may accuse me of). I do
believe it applies to this company what has been frequently said of democracy:
it is the worst possible place to work, with the exception of all the others
that are actually out there. If the preceding argument seems to isolate it as
an especially evil or inhumane place it is because I have not compared it with
any of the many other companies I know of, which are considerably more rackety,
even less respectful of their employees and
even less conductive to them achieving their goals (at an acceptable price).
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