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.
