All Posts in Business Ethics

|In: Business Ethics|Last Updated:

As we speak, a business is about to fail.

I’m not talking statistics. I’m talking about a specific business, one that experienced years of rapid, profitable growth. It’s about to fail, its management has no idea it’s about to fail, and the reason it’s about to fail speaks volumes about both the nature of business process, and its limits.

As a result of Hammer and Champy’s publication of Reengineering the Corporation in 1994, Jack Welch’s highly publicized adoption of Six Sigma at General Electric in 1996, and Toyota’s development of Lean Manufacturing, publicly codified in the 1990s, a perspective has coalesced among business leaders and thought leaders that corporations are collections of processes. Optimize processes, the thinking goes, and companies will decrease costs, improve quality, and increase throughput, all while reducing their dependence on individual employees.

As is so often the case when it comes to business thinking, the search for silver-bullet solutions blinded the searchers to the difference between validity and completeness. Yes, businesses are collections of processes (more accurately, they’re collections of business functions — a term we use in my consulting practice that includes process, practice, and all points between).

But that’s not all they are. Businesses are also composed of:

  • Individual, self-interested human beings,
  • Interpersonal relationships,
  • Communities,
  • Knowledge … subject-matter expertise,
  • Contests for power and influence,

… to list just a few of the most important perspectives.

And while legally “the corporation” might have hard, clear, well-defined boundaries, operationally the boundary separating inside from outside is both fuzzy and permeable.

The most obvious example is outsourcing. When a company takes a business function handled by staff and puts it in the hands of another company, it’s still that company’s business function.

Supply chain management and the use of independent distributors are also outsources: Whatever components a company purchases from outside suppliers are components the company could also choose to produce internally; likewise, whatever an independent distributor does is something a company could do with its own warehouses, trucks and so on.

Customer relationships are another fuzzy boundary. While customers are outside the corporate wall, customer relationships lie partially inside the company.

Which brings us to the about-to-fail company. Like many other companies, it relies on Asian sources for its components. Also following a familiar pattern, it employed a local representative to deal with its suppliers on a day-to-day basis while establishing formal processes for managing the supply chain.

Regrettably, the company followed another familiar pattern. Its founders mistook their success for their being the sole cause of success. As a direct result, they lost both their on-shore supply chain managers and their local representative in the course of just a few months. The on-shore managers’ departures were caused by the poisonous atmosphere engendered by the company’s founders. Without the on-shore managers to provide insulation, the local representative was exposed to the same atmosphere, and left as well.

What does this have to do with process, practice, and the company’s impending failure?

Everything. Because it isn’t just true that companies are collections of interpersonal relationships as well as business functions. They’re collections of interpersonal relationships before they’re collections of business functions.

And the smaller the companies involved, the more this is true — smaller firms are qualitatively different from bigger ones. The relationship between Apple and Foxconn might depend on nothing more than a negotiated contract and regular flow of controlling documents and management reports. I doubt it, but it’s possible.

The flow of components (or finished goods if the company fully outsources production) to a company with 250 employees that designs, manufactures, and sells, say, specialty shoes, or designer purses, or high-end baseball gloves, or any other product produced in quantities counted in thousands rather than millions … the flow to a company like this from its offshore suppliers of similar size depends on the relationship between the people who own and run its suppliers and the company’s local representative, and to a lesser extent to their relationship with the company’s on-shore supply chain management team.

Lose both and when the time comes to introduce new products that depend on new components, the negotiation will be between strangers, not between trusted partners.

This doesn’t make the situation irretrievable. Employees do move on to other opportunities, after all, and if they were able to build effective working relationships, their replacements can, too.

Whatever it is that a company needs to run effectively, whether it’s a critical piece of machinery or interpersonal relationships, when the people who run a company don’t value it they won’t invest in it. And if a company doesn’t invest in what it needs, it won’t get what it needs.

Which is why I expect it to fail.

Comments

|In: Business Ethics|Last Updated:

Human beings are nature’s superior communicators.

That’s the theory, at least. Watching how often and how persistently we misunderstand each other, we can only be jealous of honeybees. They admittedly have less to say to each other (mostly, the subject is where to find food), but they’re able to ask and understand the answer with perfect precision.

Our hidden assumptions just might be the biggest barriers to understanding each other. When they differ, what you say and what someone else hears can be radically different.

And when the “someone else” is the CEO, it really doesn’t matter that the root cause was different hidden assumptions. The problem is yours.

Last week we explored four types of CEO — competitors, mechanics, referees, and economists — each of which makes very different assumptions about what “business benefit” means. It matters to you because if you work for, say, an economist … a CEO who thinks of the enterprise as an asset whose value must be maximized  … then you aren’t going to get very far proposing investments intended to (for example) reduce time to market for new products.

The issue isn’t whether you disagree. If you both understand that you disagree you can have a productive discussion about it. It’s when your hidden assumptions disagree that you get into trouble.

To improve your odds of spotting these crossed assumptions, this week we look at three more types of CEO: explorers, servants, and players.

Explorers are red-ocean/blue-ocean sorts of people, and probably embrace my friend Adam Hartung’s Phoenix Principle as well. For explorers, competition is for other, less imaginative people who aren’t able to find brand new, unexplored territories to colonize. Or, even better, territories others who aren’t very good at colonization have discovered– an approach at which the late Steve Jobs was superb; likewise Amazon’s Jeff Bezos and, prior to his retirement, Bill Gates.

Servant leaders … a concept first codified by Robert Greenleaf … think of themselves as “humble stewards of their organization’s resources,” to quote the Wikipedia entry on the subject. Businesses run by servant leaders are wonderful environments. It isn’t at all clear how they fare when faced with a competitor, though. Being the steward of a resource isn’t necessarily correlated with obtaining maximum competitive leverage from that resource. Servant leaders will have a lot in common with mechanics — in the end, their view is internal. Where they differ is that where mechanics focus more on processes, servant leaders focus on the people.

No CEO taxonomy would be complete without the player. Players see business as a game. Not as a game among businesses, as competitors do. As a game among individuals, which they intend to personally win. For players, the business is the playing field, not the point, and so long as they win, they’re happy.

Players are the CEOs most likely to encourage conflict among the executives who report to them. They do so for two reasons. One is that this is how they see the world. They’re competing against everyone else, and look how well that thought process has worked for them. So of course everyone else should be doing the same thing.

That’s the first, more benign reason. The second is more manipulative, but just as clear: By pitting the executives in the next level against each other, each is kept politically weak enough that none pose a threat.

Players are, after all, very good at playing the game to win.

Every one of the seven CEO perspectives presented here and last week are just as valid as the others. While each is incomplete, they all accurately reflects a very real aspect of organizational dynamics: Companies do compete in the marketplace; they are collections of processes organized to get the work done; they do consist of individuals whose self-interests aren’t in perfect alignment; and they really are assets, too.

Many do have untapped markets they could exploit given the right collections of insights, creativity, and attention to detail; and they all certainly are collections of people who need management support to do the best work they can.

And, like it or not, not only are we each responsible for our own careers, but executive-level career management really is a game. Those who refuse to play generally lose.

But just because these seven perspectives are equally valid, that doesn’t make the CEOs who prefer each of them equally enjoyable to work for. Given a choice, most of us would, I suspect, prefer to work for competitors, mechanics, explorers or servants.

I wonder what the odds are.

Comments