Cor­po­rate my­opia and quick fixes

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The pres­sure for ever greater cor­po­rate ef­fi­ciency and ef­fec­tive­ness, to sat­isfy mar­ket and share­holder ex­pec­ta­tions of en­hanced prof­itabil­ity and value, in­evitably will pro­voke an ‘ac­tion plan’ from cor­po­rate boards and se­nior man­age­ment. They could hardly get away with a ‘do noth­ing’ re­sponse. And therein lies the rub. Many of the re­sponse op­tions likely to pro­duce the de­sired re­sults, whether alone or in com­bi­na­tion, will take time to de­liver, whereas se­nior man­age­ment feel them­selves to be un­der in­tense pres­sure to pro­duce quick re­sults. They feel the need to be seen to be ‘do­ing some­thing’, if only to pro­tect their own jobs.

Cost con­trol and rev­enue growth are ob­vi­ous twin pri­or­i­ties for any man­age­ment, but it is oh so much eas­ier and quicker to de­liver cost con­trols than rev­enue gen­er­a­tion. So, top of the list of quick fixes is a ma­jor re­or­gan­i­sa­tion in­volv­ing large-scale job losses or ‘down­siz­ing’ to use a rather passé term i.e. cut the wages and HR over­heads bill. This may well be a re­al­is­tic op­tion in cases of over-staffing and in­ef­fi­cien­cies, but not in ev­ery case. Re­gret­tably, ev­i­dence sug­gests that many com­pa­nies al­most fall over them­selves in a rush to press the cut-and-re­or­gan­ise but­ton as a sop to real, ef­fec­tive trans­for­ma­tion. It cre­ates an il­lu­sion of sal­va­tion and misleads pos­si­bly gullible share­hold­ers and mar­ket an­a­lysts into be­liev­ing that firm ac­tion has been taken.

Over the past twenty years, I have warned re­peat­edly about the dan­gers of ‘sal­va­tion mod­els’ in risk man­age­ment and man­age­ment gen­er­ally. Over the past four decades, there has been a litany of ‘mir­a­cle’ cures for cor­po­rate ills: Man­age­ment By Ob­jec­tives, Busi­ness Process Reengi­neer­ing, To­tal Sys­tems In­ter­ven­tion, To­tal Qual­ity Man­age­ment, cul­tural re-en­gi­neer­ing and so on, none of which has, in the long-term, ful­filled its prom­ise of nev­erend­ing suc­cess. The clas­sic ex­am­ple of sal­va­tion model fail­ure was surely the Peters & Water­man ‘Cor­po­rate Ex­cel­lence’ for­mula from the 1980s. There was in­deed a lot of good stuff in their ‘ex­cel­lence’ model but the cru­cial mis­take was for or­ga­ni­za­tions to be­lieve that it was a sal­va­tion cure-all. It is sober­ing to re­flect that the ma­jor­ity of the ‘ex­cel­lent’ cases cited by Peters & Water­man had come a crop­per within a few short years.

A large and suc­cess­ful en­gi­neer­ing com­pany, with global op­er­a­tions and a recog­nised global brand, ap­pointed a new CEO charged with revitalising the com­pany and ratch­et­ting up in­vestor value. Within short or­der, he com­mis­sioned an or­gan­i­sa­tional re­view by out­side con­sul­tants, the re­sults of which sug­gested a cor­po­rate re­or­ga­ni­za­tion and the largescale shed­ding of jobs. The in­de­pen­dent study is al­ways vi­tal to pro­vide some le­git­i­macy for what­ever ac­tion plan fol­lows. How­ever, there is of­ten a sus­pi­cion that con­sul­tants are not al­ways as in­de­pen­dent as they ap­pear and may even be rec­om­mend­ing easy ‘quick fixes’ if they per­ceive, or have been told, that is what the board is seek­ing.

The cull of sev­eral thou­sand jobs got un­der­way. How­ever, the ma­jor­ity of those se­lected for re­dun­dancy were mid-level tech­ni­cal man­agers who were cus­tomer-fac­ing and ser­viced the com­pany’s safety-crit­i­cal prod­ucts used by large clients. Many of these in­di­vid­u­als had twenty or more years’ ser­vice with the com­pany and their ex­per­tise was highly prized by clients. They were ir­re­place­able, at least in the short-term.

Most of the younger tech­ni­cal ex­ec­u­tives were not sacked. They per­formed their jobs largely at a desk, had very lim­ited sharp-end ex­pe­ri­ence with client prob­lem-solv­ing, and rarely vis­ited clients. No need, you un­der­stand. With mod­ern IT and tele­coms, ap­par­ently one can al­ways deal with such mat­ters re­motely! Be­ing pro­moted at a young age and not be­ing made re­dun­dant cre­ated in some of them a false sense of com­pe­tence and self-worth, while at the same time buy­ing their loy­alty to the new CEO. One can only pray that their lim­ited ex­per­tise does not re­sult in a client’s safety dis­as­ter in­volv­ing the com­pany’s prod­ucts, es­pe­cially if large num­bers of peo­ple are killed. By then, no doubt, the new CEO will have al­ready moved on leav­ing yet an­other new CEO to sort out any mess through yet an­other cull and re­or­gan­i­sa­tion!

As a foot­note to this case, i mme­di­ately af­ter the re­dun­dancy an­nounce­ments, the CEO set up in­ter­nal train­ing cour­ses on ‘Mo­ti­va­tion in the New Or­gan­i­sa­tion’ which the var­i­ous swathes of ex­ec­u­tives were re­quired to at­tend – in­clud­ing all those who had just been made re­dun­dant (sic)! It is hard to imag­ine a worse ex­am­ple of crass in­com­pe­tence by a CEO.

Cor­po­rate trans­for­ma­tion (a fancy term for ‘change’) has long been high on man­age­rial agen­das, link­ing as it does such top­ics as strat­egy, busi­ness pro­cesses, sys­tems, or­gan­i­sa­tional cul­ture, power re­la­tions, HR and many others. It was the sub­ject of my PhD the­sis some 20+ years ago, fol­low­ing a fly-on-the-wall study over sev­eral years of three large or­gan­i­sa­tions un­der­go­ing ma­jor change.

One of the things I ob­served in these cases was that strate­gic change is rarely de­liv­ered well by for­mu­laic pro­grammes that have overly op­ti­mistic claims or ex­pec­ta­tions of suc­cess. This sup­ports sim­i­lar ob­ser­va­tions by ac­knowl­edged ‘change’ ex­perts such as Minzt­berg (1994).

Sim­i­lar sober­ing ac­counts are found in the Har­vard Busi­ness Re­view ar­ti­cle (1990) by Beer, Eisen­stat and Spector ‘ Why change pro­grammes don’t pro­duce change’. My 1998 book with Prof Ian Glen­don, also sum­marises the con­trast be­tween what or­gan­i­sa­tions es­pouse as their change phi­los­o­phy and what they ac­tu­ally do. The es­poused and en­acted strate­gies are of­ten poles apart.

Part of the ex­pla­na­tion for strate­gic drift lies in the mo­ti­va­tions of in­di­vid­u­als and groups within an or­gan­i­sa­tion, es­pe­cially those in po­si­tions of au­thor­ity, de­ci­sion-mak­ing or in­flu­ence. It is usu­ally taken for granted that a board of di­rec­tors or a se­nior man­age­ment team, for ex­am­ple, pos­sesses a com­mon set of shared mo­ti­va­tions as ex­pressed ex­plic­itly or i mplic­itly in pol­icy state­ments, strate­gic plans and so on. How­ever, this overt ex­pres­sion is usu­ally far from the covert truth. In re­al­ity, there are al­ways com­pet­ing mo­ti­va­tions within in­di­vid­u­als as well as com­pet­ing mo­ti­va­tions among/be­tween in­di­vid­u­als and groups.

For ex­am­ple, why did BP Amer­ica CEO Tony Hayward and his col­leagues gam­ble that the Deep­wa­ter Hori­zon in­stal­la­tion would not ex­plode (as it did in 2010) and there­fore safety and en­vi­ron­men­tal con­sid­er­a­tions could be played down? Was it, de­spite BP’s cor­po­rate pol­icy state­ments that safety was their num­ber one pri­or­ity, sim­ply a case of mis­guided cyn­i­cal as­sump­tions that a rig­or­ous safety regime, if en­acted, would au­to­mat­i­cally hit BP’s profit mar­gins? If so, such as­sump­tions proved to be dis­as­trously wrong, both for BP’s rep­u­ta­tion and its fi­nances – at least $50 bil­lion in com­pen­sa­tion and fines alone.

More­over, whereas cor­po­rate in­ter­ests are al­ways ex­pected to be put first, the sober­ing re­al­ity is that in­di­vid­u­als and in­ter­est groups are in­stead likely to put their own un­de­clared per­sonal mo­ti­va­tions and in­ter­ests first. As noted in

(1998), re­gard­less of the type of risk (pure e.g. safety, or spec­u­la­tive e.g. in­vest­ment), an in­di­vid­ual’s de­ci­sion-mak­ing will al­ways in­volve a large de­gree of spec­u­la­tive trade-offs to ben­e­fit his or her self-im­age and self­es­teem let alone greed. The ap­par­ent mo­ti­va­tion of the board in the Olym­pus fraud and corruption case in Ja­pan, for ex­am­ple, cen­tred on avoid­ing pub­lic hu­mil­i­a­tion for in­com­pe­tence at the risk of caus­ing a cor­po­rate col­lapse. Most in­stances of cor­po­rate fraud in­volve mo­ti­va­tions of ei­ther per­sonal greed (e.g. En­ron bosses; Stam­ford In­ter­na­tional; Mad­off; Ad­aboli in the UBS fraud) and/or self­ag­gran­dis­e­ment (e.g. Lee­son in the Bar­ings col­lapse; Kerviel in the Soc Gen fraud). Po­lit­i­cal ex­pe­di­ency is an­other mo­ti­va­tion for bad de­ci­sions or de­ci­sion-avoid­ance in gov­ern­men­tal or­gan­i­sa­tions (e.g. the Mari dis­as­ter).

Per­sonal/ca­reer mo­ti­va­tions of­ten trounce higher or­der cor­po­rate gov­er­nance/eth­i­cal mo­ti­va­tions and may in­volve an ‘amoral cal­cu­la­tor’. In the global brand en­gi­neer­ing com­pany case above, did the CEO’s own risk trade-offs and an amoral cal­cu­la­tor fea­ture in his Mo­ti­va­tion in the New Or­gan­i­sa­tion cour­ses?

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