Can there really be an Effective Organization?

by John Persico

Why the answer may be no.

Can there really be an Effective Organization?by John Persico

Warren Bennis once said that a leader does the right things while a manager does things right. One could extend this to mean that you must have both efficiency and effectiveness in an organization. The real question is whether or not it is possible for an organization to be both efficient and effective. Before we can answer this question we must define just what an effective organization is. Some possibilities include:

  • Profitable
  • Meets or exceeds customer expectations
  • Fulfills its mission statement
  • Creates stakeholder value
  • Rising stock prices
  • Wins quality awards
  • Has satisfied employees and managers
  • Has been around for many years

Most executives would be more than happy to have an organization that satisfies even a few of these criteria, never mind all of them. With the exception of the last criteria, there are many organizations that can satisfy most of these criteria but they will probably not be around for fifty years (the average lifespan of a Fortune 500 company).

Managers can focus on achieving these outcomes and they will be focusing on the wrong things. Let’s take the example of the Titanic sinking. Review the above set of criteria. Would any of them have predicted its striking an iceberg and rapidly sinking? For another example, look at any number of corporate bankruptcies from the W.T. Grant Company in the mid-seventies to GM in 2009 and you will find that these criteria would not have predicted their failure and bankruptcy. Granted few bankrupt companies have met all of these criteria, but even if they had, they would be looking in the wrong direction and ultimately they would have failed. The same assertion can be made for those companies that are currently on the corporate “most successful” lists today. Most of them will succumb to the same problems that spelled the death of their predecessors.

A window to your soul

The success of today or the failure of today, it does not matter because most organizations are blind to the intrinsic problems that underlie their failures. A simple model can help explain part of the reason for this. The JOHARI window is composed of four quadrants: Known to self, unknown to self, known to others and unknown to others. The problematic quadrants are unknown to self and unknown to others and unknown to self, but known to others. The “blind spots” are a major source of problems for many organizations but at least they can be seen by others which provide some avenues for redress. The “unknowable” quadrant is the most dangerous, because it represents knowledge that is either invisible or unknown to everyone.
If it not known to anyone and it is unknowable, you may ask “why worry about it.” The answer is because the “unknown” may actually be hiding behind the “truth.” The truth is the generally accepted knowledge we believe without hesitation. Here are some examples of what we presently assume today are truths:

  • Higher education is vital to our country
  • Sports build character and teamwork
  • A good marriage is critical to raising children
  • Free enterprise is an essential element of democracy
  • A strong military is vital to our countries security
  • People should be paid according to their contributions
  • Prisons are necessary to protect society from evil doers

Each of these truths hides an array of unknown facts that would have radical and perhaps advantageous benefits for society. However, the logic and experience supporting the above “truths” is so compelling that you would think anyone a fool who tried to persuade you otherwise. Thus, you have fallen into the “unknowable” quadrant and you might also be in the “blind spot” quadrant. You will rest content in your belief that you are right because most of the rest of the world or nation agrees with you. It would never occur to you to challenge any of the above beliefs or to even look for data that could disconfirm your accepted truths. Now consider that the following beliefs were once considered “truths” by most of the human race:

  • The world is flat
  • Disease is caused by evil spirits invading people for wrong doing
  • Taking a bath every day is bad for your health
  • Living things were born from non-living matter

You can see a long list of such “Truths” at http://en.wikipedia.org/wiki/Category:Obsolete_scientific_theories

How good organizations become trapped in the truth

Every organization becomes trapped in myths or superstitions that over time take on the aura of indisputable truths. I once questioned my boss at the W.T. Grant Company and his reply was “The W.T. Grant Company has been in existence over seventy years and you are going to presume to tell us how to run our business.” At GM, John Z. DeLorean reportedly was told by his bosses that he was worrying too much about the small car market when the profits were in the large car market. Many years ago, my good friend Sam Packenham-Walsh was new to the brewery world and carried his trusty slide-rule to his first day on the job at Whitbreads Brewery. He was told by his foreman that: “We don’t use those things here.” If you need further evidence of what I am saying, think of the HR interview at the “best” companies where they want to make sure all new hires are a good fit.

A good candidate is one who fits the profile that has made the company successful. But will those same character traits help the company become successful in the future; perhaps not if the environment or landscape changes. Then, the organization will need new skills that it does not have. Just like a diversity of genes insures the continued survival of a species, organizations need “mutant” genes that can help point out new directions or challenges to existing truths. Who in the organization has the courage or audacity to challenge the truth? Is there any possibility that the fish can discover the water?

Let’s look at some common practices even closer to home. I have been teaching in a business college for over 14 years now. The textbooks get larger and larger and more and more expensive. Hardly any information is ever deleted from these books. An Introduction to Business Textbook by McGraw-Hill or Cengage will still carry the same worn out ideas from Frederic Taylor’s Scientific Management to the still common use of job interviews and performance appraisals. Here are some common practices that you will find in various business textbooks:

  • Management by Objectives
  • Interview techniques
  • How to manage performance
  • How to do an effective performance appraisal
  • How to set stretch goals
  • Motivating employees
  • Four functions of a manager

These practices have become “truths” on the stage of organizational theory. Telling you that these ideas are outmoded, outdated and even dangerous would elicit disbelief and perhaps disdain for anything I have to say further. However, if you could study these beliefs from a new perspective, you might learn some new truths that would change your way of thinking. Bloomberg Businessweek recently had an article describing the malaise that Google finds itself in today. “At a recent D9 Conference in Rancho Palos Verdes, California none other than Google’s former CEO, Eric Schmidt, made a somewhat stunning statement that he himself could have steered Google in a better direction to become a bigger player in the social arena; but ultimately he failed.”

Here is a company that was being lauded just a few years ago for its creativity and innovation. A company that during its interview of new applicants would ask questions designed to test innovation and creativity. Nevertheless, much like Bill Gates took months to accept the emergence of the Internet as a major force in the emerging tech market; it has taken Google valuable time to accept the role of social networking. It would appear that the “creative interviewing” process added no more to Google’s ability to be flexible and adaptive than the old interviewing techniques. Standard interviewing practices are still used in most organizations despite the ample evidence of the waste of time that these interviews entail. See “The End of the Job Interview” by Seth Godin

So can organizations be effective?

Returning to the question of whether organizations can be effective, The evidence suggests that in the short-term the answer is yes. In the long-term, the answer appears to be no. In general, most organizations optimize their systems around the present. Dr. Deming used to say that an organization needed to balance “the problems of today, with the problems of the future.” However, the truths of today blind organizations to the problems of the future. The Titanic was not worried about hitting an iceberg because it was unsinkable. The belief systems of most organizations are not designed for survival. Consider the following article on the 25 worst failures in business history. You may agree with some of the comments that not all 25 were really failures. If we define business failure as any of the following, we have a basis for discussion:

  • The withdrawal of an organization from the market for any reason;
  • The inability of an organization to realize the required market share to sustain its presence in the market;
  • The ultimate failure of an organization to achieve profitability.
  • Bankruptcy

The above list involves some slight modifications from Tim Berry’s article on product and brand failures.

If you look at these 25 failures (or select the ones that you agree are failures) will you find any common denominators? Are there any factors that seem to point to a single underlying cause? Indeed, there does appear to be several factors that stand out. I found the following five: Overconfidence, greed, short-sightedness, arrogance and laziness. These factors can be subsumed under the umbrella of “bad management.” Unfortunately, this reason can become part of a circular argument. Thus, any company that fails does so because of bad management. How do you define “bad management?” Easy, any company that fails. Circular arguments do not tell us anything except to provide us with a simple but useless truth. “Bad management is at the root of most business failures!”

If one really wants to make a great deal of money as a consultant, what they need is a truth or theory which can predict which organizations will fail. We know in the short-term many reasons why organizations fail. However, most of these reasons have nothing to do with companies that are currently “very” successful. Experts easily find reasons for the success of companies like Google and Facebook; but no one has yet found a theory that will eventually predict the failure of such organizations. One of the most successful organizations in the history of the world may provide some evidence for such a theory.

“Thomas Babington Macaulay, in his essay on Ranke’s History of the Pope’s in the 1840 Edinburgh Review argued that the Roman Catholic Church had proved itself the most successful and long-lived of all Western institutions and it had done so because — and this would certainly have been a point particularly surprising to Victorian Protestants — it handled dissent far more positively than had those who broke away from it.” George P. Landow

Developing a theory for long-term success

If you have been following the logic of this paper, you might have begun to see a set of factors that will provide a foundation for a theory of success in the future. The JOHARI Window, Thomas Kuhn, Ellen Langer, Manfred F.R. DeVries and most recently Dr. Liisa Valikangas (The Resilient Organization) all seem to suggest that such a theory is possible. Five factors seem to be the foundation for such a theory. These are:

  • Dissent,
  • Openness to criticism,
  • Mutant employees,
  • Examining the unknowable and unthinkable,
  • Looking for our blind spots.

These are factors that are not measured in Six Sigma Metrics, Malcolm Baldrige Assessments, ISO 9000 Audits or Strategic Leadership assessments. Indeed, most organizations expect employees to “fit in” which soon deprives the organization of dissent and criticism. Most leaders are soon surrounded by like-minded thinkers who simply mirror the current reality. “What the Titanic sink? Impossible.”

How can we minimize our blind spots?

What are some practical steps that you can take to minimize the JOHARI window problem? Here are seven things you can do that will help create openness and insure that you do not miss the next paradigm shift.

1. Avoid the Filter Bubble:

Eli Pariser coined the turn Filter Bubble to describe the problem that a surplus of information can put us in. Due to the Internet, we now have so much information that we can delude ourselves into thinking that we are being exposed to a wide range of new ideas and concepts. In reality, we have become trapped in a “filter bubble” due to a propensity (that is quite difficult to escape) to “filter’ pretty much the same sources and type of information into our knowledge channels. Thus, we literally end up knowing more and more about less and less. The danger is pretty obvious. We become blind to the very information that we need because it is obscured by tons of information that is redundant.

2. Hire mutants:

Tony Hsieh (Age 37, Net Worth 2.5 billion dollars) cofounded the advertising network LinkExchange which he sold to Microsoft for 265 million dollars in 1999. He has since gone on and started the very successful online shoe store Zappos. He worked for Oracle for five months after graduating college and quit because he did not fit in. I am sure some HR person has a “review” of Mr. Hsieh in a drawer some place that reads:

Mr. Hsieh is an average employee. He does good work when he is able to focus but he is easily distracted. He is constantly bringing up impractical ideas that have no relevance to the work we are doing here. Mr. Hsieh needs to apply himself more to his job and develop more practical business skills.

Mr. Hsieh gave two weeks’ notice that he is quitting today.

Recommendation: Do not rehire!

Are you on the lookout for employees with new ideas? Do you hire misfits and people who do not fit your employee profile? Are you putting people into boxes with your precise ten page job descriptions? Do you cultivate radicals and mutants within the organization or do you weed them out?

3. Beware the sycophants:

It is common to ‘”suck up” to the boss. The old story about “killing the messenger” is too often true. Most employees have probably suffered because of the propensity to deal harshly with those that bring us bad news. If you are a leader, you need to expect that such behavior can soon surround you with “YES” men and women. This becomes very dangerous, in that now all of your ideas are GREAT! Very flattering and like a drug, it soon becomes indispensable. Who wants to hear bad news? We would all rather be told on a daily basis that we are really smart and everything we do is right. You may be familiar with the story of the Trojan horse, but did you know that the Trojans were warned. Two Trojans (Laocoon and Cassandra) suspected the Greeks of treachery and tried to warn the rest of the Trojans. However, they were dismissed because they were the only ones who did not believe that the Gods were smiling on the Trojans. The Trojans people wanted to believe that they were great and the horse was testimony to their greatness, as even the Greeks were now paying them homage.

Do you surround yourself with people who like and agree with you? How open are you to criticism and argument? Do you always get the final say? Can you change your mind? When was the last time you gave in to someone else and changed a decision you had previously made? Are you always right?

4. Become a pauper for a day:

Mark Twain’s tale of two boys begins with Tom Canty, an impoverished boy living with his abusive family in London. One day Tom Canty and Prince Edward, the son of King Henry VIII and Jane Seymour meet and as a jest, switch clothes. While dressed in the pauper’s rags, the Prince leaves the palace to punish the guard who knocked Tom down. However, the boys look remarkably alike and because they have switched clothes, the palace guards do not recognize the prince and they throw him out into the street. The Prince fares poorly in London because he insists on proclaiming his identity as the true Prince of Wales.

Twain’s story is a fable of learning humility and tolerance for others. It is very easy to become so engrossed in our daily roles that we are no longer able to identify with others. I am the CEO becomes a cloak that masks who I really am as well as what is really happening in the world from me and those around me.

Do you ever leave your role behind you? Do you know how the other 9/10 of the human race lives? Do you ever stay in the cheap hotels or on the poor side of town? When was the last time, you left your role behind you and became a “pauper” for a day?

5. Walk a mile in their shoes:

I am a fairly outdoors oriented person. I swim, skydive, kayak, ski, trail run, dirt bike, scuba dive and am generally outside whenever I am able. Over the years, I have purchased, used and discarded more equipment than I can remember. Perhaps fifty percent of the equipment that I have bought for outdoor use has not measured up to my need or even its stated specifications. I have used the phrase “I wish someone who made this product actually used it under the same conditions it was made for” so many times, it has become boring. I keep threatening to open my own outdoor gear boutique and use equipment that I have actually tested.

Much of the stuff on the market looks good until you try it. For instance, years ago, I purchased a pair of boots made by the Chippewa Boot Company. They were called -40’s and were advertised as designed to keep your feet warm down to -40 degrees F. Fortunately, it was only -20, when my feet started to freeze and I realized that they were twenty degrees shy of their stated objective. It seems funny in retrospect, but when you buy gear and actually trust your life to it, you expect that it has been fully tested and will work under the conditions it was advertised for. How often do you actually use equipment produced by your company? Do you ever test your own equipment under the conditions you claim it was designed for? Do you buy your own products? Do your product designers and managers use the equipment or products? If not, why? Do you ever spend a day doing front-line work with customers? When was the last time you ran a cash register or worked on one of your own products? When was the last time you were a customer in one of your own establishments or tried to purchase a product through the same channels a customer might pursue? How often do you meet and talk to customers?

6. Meet Employees:

Rowan and Martin had a character on the TV show Laugh-In who played a doctor. He wore a badge that said “MD.” Whenever anyone asked what the MD stood for, he proudly and arrogantly replied “Me Doctor.” In many organizations, the Ivory Tower, Mahogany Row, Porcelain Palace, are sobriquets for where the senior executives reside. These names depict the rarified atmosphere which clearly marks the divide between the employee cafeteria and the executive dining room. An occasional brown bag luncheon is not enough to restore the perspective that is lost between most senior executives and the average employee. The divide that separates senior executives from employees runs from clothes to the size and placing of cubicles and offices and the parking areas allocated for different groups in the organization. However, pay and physical attributes are the least of the divides. Most of the separation is mental.

Dividing oneself from others is a dangerous form of isolation because it insulates the executive from the workers and the customers. The messages from these groups are filtered by the various layers that come between the higher and lower levels in the organization. Even in a horizontal organization, there is no certainly that executives are not isolating themselves from the messy day to day problems of the organization. You can have the same barriers in a horizontal organization as in a vertical organization.

Are you isolated from the work in your organization? Do your trappings of success insure that you are insulated from others? Do you have non-management employees whom you talk to on a regular basis? Do you ever get down in the trenches? Do you know what the biggest complaints of your employees are? When was the last time a non-management employee stopped in your office to talk?

7. Seek Dissidents:

There is a different between a mutant and a dissident. Some other words for a dissident are: agitator, dissenter, heretic, misbeliever, nonconformist, protester, rebel, recusant, schismatic, sectary and separatist. These are the people who are going to tell you that they disagree with you and that they think you are wrong and misguided. Their opinions are not easy to hear. There are a few in any organization. They are labeled as abrasive, highly opinioned and very negative. They are usually ignored and ostracized. Nevertheless, they are also beacons that might be trying to shed a light on ideas, problems and issues that everyone else has swept under the rug. If they were taken more seriously, they just might have been the salvation of some organizations

King George III wrote the following to one of his lords:

“I cannot conclude without mentioning how sensibly I feel the dismemberment of America from this empire, and that I should be miserable indeed if I did not feel that no blame on that account can be laid at my door, and I did not also know that knavery seems to be so much the striking feature of its inhabitants that it may not in the end be an evil that they will become aliens to this kingdom.”

Not only did King George deny any blame for the revolution but he went so far as to rationalize the loss of his American colonies because of the inherent “knavery” of its inhabitants. Talk about the pot calling the kettle black. Can you imagine what the world might have been like if King George had listened to some of the “dissidents” back in 1776? Actually, I am very glad he did not.

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John PersicoDr. John Persico is a partner with Ms. Peg Peck-Chapman in the Minnesota Consulting Alliance. Dr. Persico has been in management consulting since 1986. He has worked with organizations in both the profit and non-profit sector.

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  1. Liisa Välikangas

    Thanks for the interesting article. In my book “The Resilient Organization, How Adaptive Cultures Thrive Even When Strategy Fails” (McGraw-Hill, 2010) I suggest the key to resilience is the ability to undergo change without crisis, which requires, among others, the development of different options, and their mastering in good times. But it also suggest, as you point out, getting all the employees involved in change. Some passion but also some persistence, luck and smarts! In the book, I suggest three managerial steps that form the quest for strategic resilience.

  2. Dear Dr. Valikangas;

    Thank you for your comments. I refer to page 146 in your book where you note:

    “It is unlikely the strategic minds reside in the department charged with corporate strategy in the prior regulated world. Rather look for people who are used to dealing with uncertainty and trained in the art of studying it.”

    I guess my “projection” was that to develop many of the aspects of resilience that you describe, an organization must have an open mind, cultivate a wide range of ideas and involve more people in its decision making.

    You note many other aspects required to create a resilient, can I say effective organization for the long-term, in your book.

    I hope my brief mention of your name does not lead anyone to think they should or could skip reading your book. It is one of the best books on strategy I have read in many years. Anyone in an organization thinking about strategy should read your book.

  3. A good article, but you did not define “efficiency.” When I was the Director, Test & Evaluation for the Joint Cruise Missile Project (aka Tomahawk), my team was very effective — we had zero test failures (note: a test failure is one in which the necessary data is not collected. It is different than a system failure (of which we found many — failures that did not propagate into deployed systems)). I am far from convinced that we were efficient, but I don’t know how to capture that characteristic. Could we have done it more cheaply? Looking back — sure, looking forward, not so sure.

    VR,
    Guy

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