We have dealt with some detail in previous posts with the potential for conflict within organizations between the goals pursued by each individual member and the means he was supposed to employ towards them (what he was supposed to sacrifice, accepting the roles and responsibilities the rest of the group foisted on hi, thus limiting the freedom to employ his time as he saw fit). Today I want to draw my readers’ attention towards the potential conflicts that may arise between different organizations, and how a particularly insidious way of dealing with them has become pervasive in our society. I want to focus on conflicts between a particular type of organization, what I called economic ones, marked by having as their ultimate goal the improvement of the social standing of its members. Not because I think that other types of organizations do not conflict between them (specifically, religious conflict seems to be almost every day in the news, and is famously intractable, appealing to the most basic principles about how life should be lived, while political conflict seems also to be ever more prevalent and less amenable to rational resolution, as I discussed in this previous post: On political polarization), but because I believe economic organizations present some distinct features that make them more amenable to alleviation by reflecting on from the right perspective.
There are couple of those features worth considering: in their dealing with one another, organizations are engaged in a zero sum game, where one’s gain can only come from another’s loss; and when defining their terms for exchanging resources there is only a limited amount of conditions that can be explicitly stated, necessarily leaving a number of expectations unsaid (and increasing the potential for misalignment). Let’s review both in turn:
· Zero sum game: a lot of literature has been devoted to papering over this feature of any interaction between economic organizations. If you (mistakenly) believe that the goal of such organizations is making money (or maximizing shareholders return, or even pursuing some other socially sanctioned end), nothing would prevent two organizations to collaborate towards a mutually beneficial outcome. Finding that goal is what most negotiating books point towards, under some bromide like framing the exchange as a win-win situation, entering in partnerships where the common interest somehow overrides that of the individual parties, being “unconditionally constructive” and keeping the other party interest always in mind and appealing to “game theory” (a giant indicator that unabashed bullshit is about to be proffered in 99,9% of the cases) to exemplify how a “more optimal” (sounds pretty redundant, uh?) state can be achieved if only the small coordination problem of every part pursuing his own interest could somehow be overcome. Unfortunately, in our theory all those stated goals are more or less clever cover-ups for the real goal, the only goal that by definition this type of organizations can have: to improve their member’s social standing. And again by definition, social standing IS a zero sum game. We may both decide to take some short term action to improve jointly, at the expense of some other set of chumps, but at some point we will need to battle it out and see who can end on top of the other. We may form a coalition, or a cartel, or a consortium, to capture a biggest share of the social product (expressed in a less conceited manner, see how we can take a bigger portion of the pie from the rest of the players in the market), but as so many examples in history show, in the end we will either merge (and become a single organization to better align our members’ interests) or split and fight each other. These inherent enmity between organizations is best expressed (more clearly visible) in supplier – purchaser relationships: when organization A buys something from organization B there are always some considerations in the foreground (“in theory”, as these are the only factors apparently paid attention to), and some others, very different ones in the background. In the foreground we typically see considerations of efficiency, optimized costs, focus on core competencies and the like that make it very advisable to outsource some activities and leave ample way to settle on terms acceptable to both parties (“mutually beneficial”) regarding price and conditions. In the background (“in practice”, as this is what really drives any negotiation between purchasers and suppliers) there is always the fear on the purchaser side of being taken for a ride, of paying too much, and thus they see it as incumbent upon them to force the price down as much as possible, way beyond the point where it makes economic sense, even if such reduction jeopardizes all the other conditions of delivery (from schedule to, most obviously, quality of the supply). Why such an obsession? Because, as a purchaser, you are not only trying to maximize the benefit you extract from your products and services by reducing their cost of production as much as possible, but because (many times in an entirely unconscious way) you also want to minimize everybody else’s benefit, so they are a less formidable competitor in the race for social standing. That’s why junior consultants are discouraged to wear their flashiest suits, or ride in their fanciest cars around their clients’ teams (which would feel affronted by them making more money and enjoying a higher status), while partners can do it around their counterparts (which typically belong to the C-level of multinational corporations, and are similarly well-off, so they wouldn’t feel threatened by such displays), but not if they go to negotiate an agreement with the purchasing organization (which is not only underpaid, but takes special pride in bringing low haughty suppliers with scandalous hourly rates). It is precisely within these supplier – purchaser dynamics where we will see that the “pound of flesh” metaphor holds more sway
· Incomplete definition of the conditions: we can probably all agree that most interactions between organizations are exchanges. They exchange their employee’s time, in the form of services, goods, commitments (financial or otherwise), information… typically using money as a universal yardstick to assize the value of whatever it is they are exchanging, and expecting that both sides of the exchange are of the same value. Of course this is a convenient fiction at best, because for most of what changes hands on a day to day basis there is not a readily usable, liquid enough market that could confirm what in tis absence is but a rough estimation, so the valuations are pretty approximate, and a constant source of discussion (as for every item to be exchanged except money itself the provider will tend to overestimate its value, while the receiver will tend to underestimate it). The problem (which we could name as “unavoidable lack of precision in the perceived value of each exchanged item”) is compounded by the fact that such value is dependent on an almost infinite constellation of accompanying facts about how the underlying item is to be delivered. Even the most basic exchange we can conceive, like the purchase of a well defined piece of hardware with a well defined price, is fraught with such conditions: when will it be paid? What warranty will it enjoy? What penalties is the provider willing to accept if the item does not perform as required? What documentation will accompany the hardware? How will it be transported (and who bears the risk of damages during transportation)? With what regulations does it certifiably comply? How has such compliance been ascertained? Who has the right to modify the hardware, and how does such modification affect the warranties and potential penalties? How are mutual obligations affected by external events like force majeure, default of one of the parties, etc.? It would be unrealistic to expect all of those uncertainties to be solved every time some company buys some equipment (from paper clips to a 1,000 MW steam turbine), and even though there are standard contracts contemplating all of the above and more, and there is a commerce code (at the international level, the Lex Mercatoria and the ICC rules) to give general guidelines and step in in case of differences about unstated terms, it is clear that for commerce to go on the parties have to learn to live with some uncertainty about what they expect to receive from each other. There is indeed a whole branch of the juridical code (commercial law) intended to deal with those subtleties, and to provide judges with guidelines about how to adjudicate in case of dispute, although the vast majority of such disputes are resolved privately between the parties, and do not require the costly procedure of filing a lawsuit, defending it in court and waiting for a verdict (which at least has the advantage of being unconditionally binding, and carries with it the authority of the state to enforce it, something private agreements lack). If that is the case with a run-of-the-mill purchase, something which is happening millions of time a day, and has been doing so for centuries, imagine how murky more complex transactions can be. When an engineering firm agrees to deliver the design of a whole power plant to whoever intends to build it, or a functioning thermal control system to an experimental spacecraft, or a CRM information system to a telecom provider (to mention just examples in which I have been personally involved), it is downright impossible to contemplate all the requirements to be fulfilled and conditions that may arise during the design, manufacturing/ performance and delivery of what was agreed. Not even the most comprehensive contract, written by the craftiest lawyers, can then reflect accurately all the duties and responsibilities of each part, and that in turn means that during the delivery phase some disagreements will arise, and some conflict resolution will be called forth. This is when the “pound of flesh” kicks in
The idea of a “pound of flesh” comes from Shakespeare’s play The Merchant of Venice. In it, the moneylender Shylock provides Antonio with a certain amount of funds, so he can pursue his business (whilst allowing his friend Bassanio successfully suit Portia), but demands as guarantee a somewhat odd condition: were Antonio not to pay back the money in the agreed date, he would provide Shylock with a pound of his own flesh. Although Antonio seems during the play to be a sensible albeit moody guy (other than agreeing to forfeit his life, as presumably there was no way in those barbarous times to extract a pound of flesh without killing the subject, liposuction not being that much developed back then) the ships with the cargo he had bought with the borrowed money are allegedly lost, and he finds himself unable to pay, which triggers all the drama you would expect from a play by the immortal bard from Stratford. I won’t spoil the end (although you probably can guess it even if you haven’t seen or read it), but I’ll just highlight some aspects of the situation: one of the most salient features of Shylock (that has earned the author the accusation of being an anti-Semite) is that beyond certain point, he really is more interested in getting Antonio’s flesh than in getting his money back (he rejects an offer by Bassanio to pay back twice the original amount). The desire for profit is masterfully portrayed as becoming secondary to the redress of a clear class resentment (so Shylock really wants to take revenge on Antonio for being younger, nobler, having more friends and receiving more social recognition than himself, even when broke). In our previous language, Shylock’s foreground motives (making a profit with the money lent to Antonio) cede their place to the background ones (humiliating Antonio, punishing him for flaunting previously his superior social standing and having forced him previously to lend at a lesser interest).
And this is where I wanted to draw the parallelism between the play and many, many situations of conflict in our only apparently modern corporate world. In almost every single contract of some complexity, as we have seen, there will be a moment when the most powerful party (typically the purchaser, as almost every market today is a buyer’s market) will think the other party (the supplier) is not meeting its obligations. May be they are not even explicitly stated obligations, clearly and unambiguously written down, but just implicit expectations that were never discussed during the negotiations. And when that moment comes, the universal response (as I have seen it through many different cultures, as different from one another as Brazilian and Japanese, German and American, Mexican and French) is to ask for a “pound of flesh” from the delinquent party. Something extremely painful, even if it is of absolutely no use to the aggrieved part. Typically what they ask for is that they work as many extra hours as humanly possible, that they forfeit holidays and weekends - again, regardless of that forfeiture being of any practical use (as all the extra effort may make the provider’s staff just more tired and prone to make errors, and very seldom has any positive impact in the delivery of the contracted product or service). And I would say that ten times out of ten the offending party agrees, and attempts to give the offended one what they require, usually with less than stellar results (because it doesn’t matter how hard they try, they will tend to overpromise their level of commitment and to oversell the sacrifices they are willing to withstand, and for each hour beyond midnight or each Sunday they are not at the keel the aggrieved part will feel slighted and protest that the other part is shirking their responsibilities and not upholding their side of the deal). But in the process they make serious harm to their ability to reach their own goals by reducing the morale of their team, burning them out and overworking them, making them loose faith in the ability of their leadership to defend their interests, and most times negatively impacting the bottom line of the company (which leaves less benefits to distribute at the end of the year).
It has to be noted that this dynamic, although it has been presented as developing between two organizations bound by a contract, can very well happen within organizations. Every time a person is promoted to a new responsibility and find difficulties performing her new duties (and that’s something that every and all professional will face sooner or later, as per Peter’s principle) she is similarly violating the not necessarily explicitly stated expectations of the superiors that put her there. And both the superiors and the employee herself will feel the strong pressure to resort to the “pound of flesh” dynamic: “may be I’m not doing things as flawlessly and effortlessly as assumed (prior to the hiring/ promotion, which is a period of cavalierly feeding the wildest expectations of the other part), but to compensate for my (real or perceived) shortcomings I’m killing myself on the job, clocking in those famed 80 hours weeks, coming to the office on Saturdays and Sundays, arriving here at 7:30 and leaving past midnight until I set everything right” (although everything is never entirely right, and people find themselves in such vicious circles for years on end, whether they end up mastering their new position or not)…
Seen from the outside, it is clear that both demanding and accepting to deliver a pound of flesh (even if it is a symbolic one) in exchange for a (real or imagined) non compliance is foolish, and very unlikely to contribute either to a satisfied purchaser or an economically viable supplier. What can be done, then, to steer clear of such situations? There are no easy answers, specially for such a frequent situation. I would say that the first step is to recognize the resentment and disillusionment at the heart of the more powerful party request of such “pound of flesh”. The supplier part (or whoever is the weakest) tends to focus only in the unreasonableness of the purchaser position, requesting something that is of no real value to them, but in the origin of such request there is some implicit (or sometimes explicit, but then we are more in a “shit happens” scenario that requires additional care) expectation that has not been met. The second, much more difficult step, is to bring those unmet expectations to the foreground, and discuss openly what it would take to satisfy them. Many times, such satisfaction is not necessarily material, but symbolic (recognition of guilt, self-abasement, promise of future deference towards the aggrieved part), as its main goal is to assuage the aggrieved part and convince them that if a similar misunderstanding happens in the future, it will not be accompanied by a similar “misbehavior”. What the offending part needs to be able to do is to achieve such assuaging and convincing without resorting to the almost universal remedy of “we will work harder”, “we will throw more effort at it”, “we will sacrifice more of our personal life for you”. Those are all variations of “you can take your pound of flesh” which shows great commitment, no doubt (and that’s why it has worked so “well” historically, and assuaged and convinced so many customers who should have known better), but also very little foresight, as without that pound of flesh the offending organization (or individual) may very well be less capable, not more, of honoring its commitments.
I hope with these reflections I have given my readers (all two or three of them) some tools, then, to at least recognize when they are entering a “pound of flesh” situation (again, in my experience this tends to happen at least once in every project/ sale, and usually many more than once), and to consider potential ways of getting out of it without killing themselves or their teams in the process.