What is the greatest invention of all time? The wheel enabled men and women to transport heavy loads and travel long distances. The sextant permitted ships to leave their coastal routes, venture out into the uncharted oceans, explore new continents and open up worldwide sea trade. The invention of the printing press became the impetus for universal education. The steam engine ushered in the industrial revolution. The electric bulb, the locomotive, the automobile, the telephone and the computer have all played revolutionary roles in the development of civilization. But the greatest invention of them all is something without which virtually all these other discoveries would be rendered almost useless. That something is organization.
If the component people has been perceived as the greatest engine of growth by many companies, organization has been perceived as the greatest obstacle and constraint to that growth. Organization is the least appreciated, least admired of the five components. Almost everyone seems to be against it. There are outspoken, zealous advocates of the importance of people, market, technology and even capital. But being anti-establishment, anti-bureaucracy and anti-organization has become respectable and even fashionable. Yet, the fact is that organization contains the deepest secrets and greatest unutilized potentials for the rapid growth of your company.
Organization is the power that brings the other four components together, unites them and makes them productive. Without some type of organization, people cannot work together toward a common goal, money cannot be productively invested, technology cannot be developed or applied on a large scale, and markets cannot develop beyond the level of barter trade between individuals. We tend to regard technology as the real driving force for the evolution of society from the primitive to the modern era. But the entire development of civilization has actually been made possible by the evolution of larger, more complex, more efficient and more innovative types of organization.
In Chapter Two we described how two American entrepreneurs with a small amount of capital started a business in Brussels in a low-tech industry which is thousands of years old and utilized unskilled hourly wage-earners to build up a global network of consumer service centers. There was nothing extraordinary about the market they tapped, the technology they utilized, the people they recruited or the financial resources they invested. The real power that has propelled the phenomenal growth of Minit International is organization. Organization enabled this company to create a new delivery system to meet an ancient need. Organization enabled the company to expand the scale of what had previously been a tiny localized business into a global operation. Organization enabled it to revive a dying industry and convert it into a rapidly growing and very profitable field of activity.
This organization consisted of a highly decentralized management and supervisory structure, detailed standard operating procedures to define every major and minor activity of the service centers, sophisticated management information systems for centralized monitoring of performance by service units, regions and countries, close coordination of every activity in the chain of production from procurement of raw materials and fabrication of service center machinery to recruitment and training of supervisors and workers. Minit International put in place the right structure, systems, and well-synchronized activities to expand almost effortlessly around the world.
ORGANIZATON: THE LEVER
What is the essential difference between the CEO of a $1 million company and the CEO of a $1 billion or a $50 billion company? The CEO of the larger company is not 1,000 times bigger, more intelligent, or more experienced than his $1 million counter-part. Then what enables the one CEO to produce 1,000 more revenues and perhaps 1,000 times greater profits than the other? Organization. Organization enables an individual to extend himself infinitely in space and time, to perform thousands of actions simultaneously and to accomplish work on a scale that is impossible for any individual or group of individuals, no matter how large their number, to accomplish without it.
The Greek philosopher Archimedes once said, "If you give me a lever that is long enough and a fulcrum to rest it upon, I can lift the earth." Organization is such a lever and fulcrum. With it any company can rise to the top of its industry locally, nationally or even internationally. The one technology that is most essential to non-stop growth is the technology of organization. Organization is a toolbox filled with powerful levers that can elevate and energize market, people, technology and capital to unimaginable heights. The aim of this chapter is to explore the secrets of some powerful instruments in the organizational toolbox.
Think of a time when it was the most fun to work in your company. More than likely it was a time when the organization you had in place was well-suited to the size and nature of your business. When organization is right, work is expansive, smooth-running and enjoyable.
WHAT'S WRONG WITH ORGANIZATION?
If organization is as wonderful as we say it is, why then is it so maligned and misunderstood? There are five reasons. The first is because of the five components, its powers are the least visible and its actions the least dramatic, while its inadequacies are highly visible and its failures to act are directly felt by everyone. Few people are conscious of its powers, though everyone benefits from them. Organization is not something physical like people, money, a product or a customer that can be seen or touched. When it is most effective, it is least noticed and felt. On the other hand, because it is so pervasive and so essential, when it breaks down or malfunctions, everyone knows it and feels it and everything grinds to a halt.
The accusation most frequently raised against organization is that it stifles individual initiative and creativity. But in actuality, organization is the most creative of the five components. Creativity means to combine things in new ways to generate new results. Organization is constantly creating new combinations of people, actions, systems, capital, technology and market needs. In fact, without organization the full creative potentials of the other four components could never be realized. The most creative organizations bring out the greatest creativity from the other four. At the end of this chapter we return to the issue of how to make your organization most alive and creative.
What then of the bureaucracy which encumbers our operations, demotivates our people, turns off customers, and blissfully disregards new technology? Bureaucracy is all too real and pervasive. But bureaucracy has nothing to do with any inherent deficiency in the powers of organization. It has everything to do with the inadequacies in the way we use those powers. Just like the typewriter we curse at for typing the wrong letter or the computer program we blame for not behaving as it should, even though we have not read the manual, we reproach organization for our imperfections. When organization breaks down, the first impulse of every entrepreneur and many managers is to throw it to the wind and act on inspiration or impulse.
That brings us to the third reason organization is held in disfavor, one that strikes even closer to home: most companies and most managers are not very good at it. We have lots of motivating leaders, brilliant technocrats, financial wizards and marketing geniuses, but not too many entrepreneurs and executives who are really masters of the technology of organization.
The fourth reason organization is so often disparaged is that it has no defenders, no constituency and no special interest group lobbying for its needs, because no one has been made responsible for it. Most companies can clearly identify one or more persons or departments responsible for the development of the other four components-market, finance, technology and people. But what about organization? Who in your company is responsible for organization and its development? In a vast majority of companies the answer is "no one" or "everyone", which usually amount to the same thing. Sure, many companies have departments responsible for administration or management information systems, which are important elements of organization. But these areas represent only a tiny portion of the component.
The final reason is that to a large extent organization is a free resource. It requires relatively little or no investment in comparison with the returns it gives. Most companies are so preoccupied with caring for their "interests" that they ignore their greatest opportunities. If every company had to pay a licensing or patent fee for organizational technology, the way they do for computer software, perhaps this powerful software would be much better utilized.
For all these reasons most companies think of organization more like Achilles' heel than Archimedes' lever. This is especially true when companies are growing rapidly. It is relatively easy to increase production to meet increased market demand. The addition of new people during rapid expansion is usually a manageable task, even when the numbers are large. But most companies find that building up an organization while growing rapidly is like trying to repair an aircraft in mid-air. That is why so many of the negative characteristics of rapid growth reported in Chapter Five directly relate to organization, or rather the absence of adequate organization-chaos and confusion, breakdown of systems, internal conflicts, poor coordination and poor communication. Learning to grow your organization rapidly and properly is the single greatest challenge faced by companies aspiring for non-stop growth, and it is one of the most valuable skills that a manager or a company can acquire. As a senior executive of one fast growing company put it: "Nobody has yet addressed the fact that as we go to the next level of size, we have a major problem in managing this business."
HOW DO ORGANIZATIONS GROW?
People grow by releasing greater energy in themselves, improving their knowledge, acquiring new skills, changing their attitudes and committing themselves to higher values. How then do organizations grow?
It sounds like a simple question. But all the problems companies face with building an organization arise from the fact that the real process by which organizations grow is somewhat of a mystery. It is easy to describe the growth of an organization as the creation of new positions, new departments, new divisions or new layers of management. That is simple enough. We can visualize it. We can depict it on an organizational chart. But that is a very superficial conception and a dangerous one. For the moment we imagine that the only thing we have to do to grow our organization is increase the number of positions, our organization begins to lose power and degenerate into a bureaucracy. Growth in size is not the same thing as growth in power and creativity-either for the physical body or the organization.
Our goal is to generate greater energy, productivity and creativity from the organization, not to lose what we already have. Where then is that energy to come from? How does an organization grow more efficient and effective, more powerful and creative?
THE THREE BUILDING BLOCKS
The mystery of organization arises from the fact that we are so familiar with its basic elements, we take them for granted. To acquire mastery over the powers of organization, it is necessary to approach them freshly with the innocence and curiosity of a child discovering something wondrous for the first time. Only then do their real potentials clearly emerge.
In this chapter we propose to look at the organization of your company and determine how suited it is to achieve the company's growth and profit goals. We begin by looking at the fundamental principles upon which every organization is based and from which it derives its powers and potentials. Our objective is to identify the untapped powers, the gaps and missing links which when supplied will give greater energy, life and creativity to your organization and your company.
Organization consists of three basic subunits:
The key to the growth of organization lies in understanding how each of these subunits develops and how they interact with one another to form an organic whole, which is capable of life, growth and creativity. In order to understand how organizations grow in power and effectivity, we must first understand how jobs, activities and systems grow.
ANALYZING YOUR JOB
Structure answers the questions: Who is responsible? Who has authority? The structure of a company consists of many individual positions ranked in orderly relationship to one another. Let us begin by looking at your job and asking some basic questions:
Are your responsibilities clear to yourself and other people?
Of course, such basic ambiguities never occur in larger companies! A few years ago we called one of the nation's largest banks to negotiate a loan for an $80 million industrial project in India. When we asked the switchboard operator to connect us with the department responsible for industrial investment in foreign projects, we were connected to the real estate division. From there we were passed from department to department-a total of at least ten by our then blurry-eyed reckoning-before we finally reached the appropriate executive in the right department, who belatedly expressed great interest in our proposal. Contrast this with a similar experience we had at IBM, when we called to discuss a proposal for collaboration with India, where IBM does not even operate since its withdrawal in 1974. The switchboard operator immediately connected us to the appropriate vice-president, whose secretary informed us he was home sick and promised to get back to us shortly. Within 24 hours we were meeting with the one individual in the company most qualified to discuss our proposal, the former general manager of IBM's India division.
This is not a discussion concerning switchboard operators-which might merit a book of its own. It is about the clarity of structure in your company at all levels from the CEO and management team down to the lowest level foreman or supervisor; from corporate headquarters out into the stores, offices and plants; between departments, branches, regions, and divisions. It is not enough that you, your close associates and subordinates understand who is responsible for what in the company. In order for structure to support smooth functioning, that clarity should extend to everyone. How many companies can pass the test which Wiegel and the bank failed? How much frustration and confusion is generated, how much energy is wasted by a mere lack of clearly defined jobs-energy that could be converted into greater sales and higher profits? Think about your job, the jobs of senior executives and department managers. How many pass the simple test for clarity?
Does authority match responsibility?
Contrast this with the amazing achievement of Bajaj Auto Limited of India, which constructed a new $180 million motorscooter plant in 18 months-a credible accomplishment in any country, a miracle under Indian conditions! Rahul Bajaj appointed a single executive engineer as sole responsible and fully empowered authority for the project and met with him just once a month for a progress report. As the project neared completion, the biggest constraint became the inability of the local government to get approval and allocation of funds for a new telephone exchange to service the plant. In order to meet the schedule, the executive engineer constructed the government facility at company expense and was reimbursed after the plant was commissioned. That is the power of a proper blend of authority and responsibility.
To what extent do responsibilities and authority match in your company?
Are you sure you are doing what you should be doing?
Ask virtually any senior executive to carry out a thorough analysis of the way they actually spend their time, i.e. the physical tasks they perform, not the responsibilities they are in charge of. For each of those tasks, ask whether it could be more cost-effectively performed at a lower level of the company without sacrificing quality. The answer in many cases is "Yes." Now split those tasks into their component parts and ask whether any of the components could be carried out just as well or better and more cost-effectively at a lower level. The answer is almost always "Yes." After moaning and groaning about the arduous nature of the exercise, executives usually come back smiling and say as one dedicated and hard-working vice president did "I never realized before how much time I could save. I can free up 50% of my time for the design and construction of our new production facility." A vice president of marketing found he could free up 25% of his time from administrative tasks to go out and meet the company's Fortune 500 customers.
The same type of rationalization can be done at every level of an organization from top to bottom. It is most effective when it starts at the very top and moves down level after level. What are the savings in terms of efficient use of people that can be achieved by this one strategy? A few years ago, Ford Motors asked white-collar workers in some units to list all the things they do in a month, rank the duties, and stop doing the bottom 20%. This analysis has saved the company hundreds of millions of dollars a year.
By analyzing jobs, established companies usually discover, like Ford, that they can do more work with the same people or the same work with fewer people. On the other hand, young growth oriented companies usually discover that they are trying to do too much with the existing people and that key responsibilities needed to sustain high rates of growth cannot be properly handled without adding new positions at one level or another.
How about you? How can your company, your department or your career grow, unless you can find ways to accomplish more work more effectively in the same amount of time? The first exercise at the end of this chapter outlines a ten-step process to analyze and grow your job and the jobs of your people.
DELEGATION AND INTEGRATION
Job analysis is a powerful tool for the company to improve organizational efficiency and for the manager to grow in personal effectiveness. It also reveals part of the process by which organizations grow.
When a manager succeeds in improving his effectiveness and taking on higher responsibilities by delegating less important tasks to people at lower levels, he makes individual progress and rises in the organization. That is the process of personal growth. When the manager succeeds in creating a capacity in people at a lower level to do the same work with the same skill and quality under his guidance and authority, the organization progresses. That is the process of organizational growth. In other words, an organization grows when it is able to carry out a higher level or a wider scale of activity at a lower level of the organization.
The process of growing jobs is commonly referred to as delegation. Most people think of delegation as transferring a task or responsibility to a subordinate, but that is only half the story. Delegation becomes fully effective only when the tasks undertaken at different levels are properly integrated with one another. Integration means to harmonize the activities of all the levels, so they work together smoothly to achieve a common purpose. When delegation is accompanied by integration, the company is able to continuously push tasks to lower levels to improve efficiency, while ensuring that the activities carried out at different levels stay in harmony with one another. Integration is the real foundation for the growth of organization, because it enables organization to continuously transfer tasks to lower levels and yet at the same time ensure a common direction to activities carried out at different levels. Integration is the most powerful of any organizational values. The key to integration is effective delegation.
FOUR RULES OF DELEGATION
Delegation is one of the most important activities an organization has to manage in order to grow. A failure in this area can absolutely stop the growth process, as it has for many companies, or lead it quickly to crisis or ruin. Yet, regardless of whether you speak to the CEO or executive of a $1 million company or a $1 billion company, the responses are surprisingly similar.
Few managers will quarrel with the idea of delegating physical tasks. But the heart of delegation is delegating decisions, i.e. responsibility and authority. That is a different matter. Many sincere executives genuinely believe that no one else can take the decisions they are taking with equal or near equal effectiveness. In most cases they are probably right. But delegation does not mean just giving decision-making responsibility into someone else's hands. It means building up the capabilities of the organization, so that someone at a lower level can assume the responsibility with equal effectiveness.
When asked to identify the first step in effective delegation, most managers respond: "Find the right person." We disagree.
Institutionalize your skills
The CEO of a very profitable and fast growing industrial leasing company once told us that at $18 million, his company had reached the limits of growth possible for it. His rationale was that he was already spending 16 hours a day at the office, a good part of it reviewing lease proposals prepared by his staff of qualified MBAs, and there simply was no more time in the day available. When asked whether any one else in the company could approve the lease proposals, he immediately ran off half a dozen very convincing examples of wrong recommendations made by his staff that could have led to disastrous consequences, had he not reviewed and overturned them.
After listening patiently to his description of the process, we confronted him with the following challenge. "We believe it is possible for you to create a system that will not only take decisions as effectively as you do, but actually more effectively; because it will ask all the right questions all the time, whereas you ask most of the right questions most of the time." The CEO accepted the challenge. Six months later he reported that his company was again growing rapidly and as profitably as before. According to his own assessment, he had succeeded in creating a system which actually did a better job than he did of evaluating lease proposals.
"A leader is not appointed because he knows everything and can make every decision. He is appointed to bring together the knowledge that is available and then create the prerequisites for the work to be done. He creates the systems that enable him to delegate responsibility for day-to-day operations."21
It is difficult to conceive, but most managers never think of asking how their counterparts in larger companies are able to manage much larger operations than they without sacrificing the quality of decisions. It never occurred to the CEO of one mold manufacturer that he could create a system for estimating the cost and price on new jobs, until he heard three of his competitors talk about the systems they had developed in order to delegate estimating and keep growing. The CEO of a 30-unit hotel chain, who felt he had reached the limits of growth possible for his company, was surprised to learn how Willard Marriott had solved the same problems 25 years earlier. The real limitation is attitude. The moment we give in to the suggestion-whether our own or someone else's-that we are the only ones who can do it right, we put a lid on our own growth, both personal and corporate.
Harry Patten had a real knack for identifying rural properties suitable for development into homesites and he used to fly in his corporate plane to view every potential site for acquisition. That was alright at a time when Patten Corporation's activities were confined to a handful of offices in New England. But how could the CEO of a fast growing company spend all his time roaming the country to identify new sites and still manage the growth of his business. Patten analyzed the critical variables that go into selecting good sites, trained others to understand his approach and institutionalized the process of evaluating and acquiring new properties. Today there are over 50 specialists in offices throughout the Eastern and Midwestern United States selecting sites for the company. Patten institutionalized his skill so that both he and the organization could grow...and grow they did-from $11 million in 1985 to $116 million in 1988.
Identify the right people and train them
Who is the right person? First of all, the right person is one who has the ability to undertake the work-the right knowledge, skills and capacity for acting according to the guidelines you have established and through the system you have created. Second, and equally important, the right person is someone who has the time to undertake the work-whose present job is not so demanding that additional work results in burnout, errors or lapses in other areas of responsibility. It sounds obvious enough. But very commonly delegation breaks down, because we pass tasks on without first assessing what will be the impact of the additional work on the beneficiary. In other words, you cannot effectively rationalize your own job without also analyzing the jobs of those who report to you and making it possible for them to rationalize their jobs as well.
Delegate and Monitor
The importance of monitoring sounds obvious, but this is shaky ground. Very often monitoring is the door through which managers, knowingly or unknowingly, take back the decisions they have given away. The real issue is-"What should I monitor?" That brings us to the fourth important rule.
Monitor the results, not the actions
Delegation requires a psychological effort
The CEO of a $500 million manufacturing company complained: "I keep telling my executives to take decisions and act. But at every weekly production meeting, they ask me what I think. Then I ask a few questions. Before you know it I have reversed or seconded their decision and the responsibility is back in my lap." After some thought the CEO added, "I guess the truth is I really like to take the decisions."
Delegation requires many skills-in judging people properly, in communicating with them, in creating effective systems, etc. But delegation also requires a psychological effort to give up what you have delegated-to grow and let someone else grow too. Fred Smith knows what that effort is like:
"I've tried to give people who are in positions of authority lots of freedom, so they can be creative. That's the hardest thing to do, because it takes a lot of discipline. You want to insert yourself in lots of things, where you don't have any business getting involved or where you want to protect people from themselves or to protect the organization from the people. You've got to give people some degree of right to fail."
DELEGATION AND CORPORATE GROWTH
Everyone likes to be considered indispensable. But being indispensable puts a limit on our growth, because the company can never afford to take away from us what we already know and do well. Which means, in that measure there is no opportunity for us to learn new things, acquire new skills and master other fields of activity. The really indispensable executive is the one who constantly makes himself dispensable, so that others can take over his job and he can grow onwards and upwards.
Delegation is not merely an important management skill by which managers improve their efficiency and accomplish more work. It is part of the process by which companies evolve to higher and higher levels of organization. Through delegation, the structure of the company is constantly changing, even when the positions and titles remain the same. Delegation enables the CEO, the management team and managers at all levels to continuously redefine their jobs and the acts which they perform. Delegation, at the micro-level of the individual job and task, enables a company to instill a culture of perpetual change that ensures freshness and prevents the organization from becoming old, static and bureaucratic. A perpetual process of delegation enables a company to keep growing perpetually.
Delegation is a natural process, but it does not always happen naturally and by itself. And it cannot happen at all, unless there is someone to delegate to. The pressure to maintain high earnings in order to satisfy the board of directors, investors or analysts on Wall Street prompts many growing companies to delay adding people, until serious symptoms begin to manifest. The ability to recognize when new positions are needed and to add them in time is essential for continuous growth.
THE JOB OF MANAGEMENT
There is one other important reason why delegation is difficult for many CEOs, executives and managers. They do not know what they should be doing, if they stop doing what they are doing now. It comes back to the question we have heard so often, "What really is my job, anyway?"
Fred Smith has answered the question very clearly in the negative sense of defining what the job of a manager is not. At Federal Express's management course, he tells first line managers:
"If you think that management is moving this piece of paper from one side of the desk to the other, or being a megaphone for upper management, or signing your name for some performance review, you better start looking for a job. Because we're going to automate that right out of existence. We can't afford to have a nanny for every 15 people in this company. What you are employed for is to bring your intellectual energy to some sort of business problem. To make the cost of what we do less, or the value of what we do more for the customer. When we put that on the line to people, we go a very long way toward keeping the organization energized."
If pushing paper, being a megaphone or signing a performance review is not management, what is? To answer this we have to distinguish between two types of management: operational management of the existing business and developmental management of corporate growth. Smith is saying that his operational managers cannot afford to be doing mere physical tasks that can be delegated to a lower level or a system. But what about higher level managers in the company?
The real responsibility of higher level management is not operational. It is developmental. The primary responsibilities of the management team are to direct their attention toward the development of each of the five engines of the business in order to release their untapped potentials: i.e. development of people, identification of new opportunities in the market, evaluation of new technologies, examination of innovative financial techniques, and more importantly, accelerated development of the organization.
Review the list of tasks you perform. How many executives, even of multi-billion dollar corporations, really dedicate their time and energy to developing these five engines? If your goal is to grow rapidly and profitably, the job of the CEO and senior executives must evolve to the point where developing the business is their main responsibility, if not their sole occupation. But that is only possible when all levels of the organization develop in unison. Delegation is an important key to that development, but it is not the only key.
For the next key, we turn to another basic subunit of organization, the act.
Energy expresses in work as movement, as action. The faster and smoother the action, the higher the energy it generates and expresses. The energy and speed of movement on the streets of New York can be quite startling to first time visitors. That is raw, unorganized activity-people moving hurriedly in all directions, bumping into one another, each pushing to further his or her individual goal without regard for the others and without a common plan or direction. Peak performing organizations achieve a similar speed and energy, but without the haste, waste and confusion. They harness the energy and organize the action, so that it flows smoothly, quietly and harmoniously without friction.
The individual act is the basic subunit of corporate functioning. Each step performed by an individual in carrying out a task in fulfillment of a responsibility of his or her job is a mental or physical act. These acts are linked with other acts in a chain to generate activities. Organization is the capacity to carry out several different activities at different times or different places in such a way that they serve a common purpose. Anything that increases the capacity to conduct activities efficiently and effectively increases the power and productivity of the organization.
We began our examination of job positions by asking some fundamental questions about your job to show that jobs are capable of continuous development and that that development in turn enables the organization to grow. Like jobs, activities can be continuously improved too. Each improvement releases fresh energy and makes the organization more effective.
The approval of new drugs for medicinal application is a very laborious and time-consuming process in the U.S.A. and most European countries. The Dutch subsidiary of a huge multinational pharmaceutical company was averaging 32 months to obtain government approval for sale of new drugs in the Netherlands. The company accepted the long period as the inevitable result of government bureaucracy. In the course of reviewing major activities in the company, a consultant examined the drug registration process and came up with a surprising conclusion. He reported that in spite of the slow government procedure, it would still be possible to reduce the registration period from 32 months to 21 months. He argue that in the process of receiving potential new drugs from the company's overseas headquarters and evaluating them for possible marketing in Holland, the company was carrying out many actions successively, that could be equally well performed simultaneously. He also pointed out that while the government reserved the right to 90 and 120 days response times to submissions by the company, in the past the company had failed to issue reminders to the government, even when responses had been delayed over 150 days. The management of the drug company finally became convinced that the reduction in time was in fact achievable and calculated that by getting new drugs on the market nearly a year earlier, the company would earn additional net profit of more than $500,000 from each new drug it introduced. A week later, the head of the pharmaceutical division happened to meet his Dutch counterpart from Merck & Co. On enquiry, he learned with amazement that Merck's average registration time was only 16 months and that on two occasions they had done it in six months!
If that is the potential improvement that can be obtained on an activity so dependent on the government, how much greater is the potential in the hundreds of strictly internal activities in your company? The type of activity analysis applied by the pharmaceutical company for an administrative process can be applied to any research or manufacturing process as well.
Today many manufacturers are analyzing their product development activities in order to reduce the time from initial conception to putting a new product or new model on the market. Honda has cut the development time on new cars from five years to three. AT&T has reduced development time on their phones from two years to one. Hewlett-Packard has cut to less than half the time it takes to bring new printers to the market. Other companies are accelerating the time from receipt of order to delivery of finished products. General Electric has brought down delivery time on its circuit breaker boxes from three weeks to three days. Motorola has cut the time for delivering new electronic pagers from three weeks to two hours.
Think about some of the important activities in your company or your department. How much scope is there to improve the quality or reduce the time required for completing each activity? What would be the impact of such an improvement on the service to customers, efficiency, revenues and profits? What would be the result on other activities of the company of accelerating performance on just one major activity?
These achievements are triumphs of organizational innovation. They have been brought about by a minute analysis of every step in these key activities. They involve changes in the way activities are conceived, executed and linked together and in the way responsibilities are allocated to different positions and levels of the organization. But in order to raise performance on any corporate activity to the maximum possible level, a rationalization of individual acts and a reallocation of responsibilities is not enough. A third essential element is required, the third basic subunit of organization, systems.
Systems are the mechanism which an organization uses to link activities with each other and to link activities with positions. Activities involving thoughts and decisions are linked together through management information systems and manual or computerized decision-making systems, like the ones referred to under the section on delegation. Physical activities are linked together through standard operating procedures, which define a series of physical tasks to be carried out, like the ones Minit International employs for the operation of its service centers, regions and national subsidiaries.
Systems possess an amazing power of expansion. Systems supported the expansion of Minit International from one service unit in a Brussels department store to thousands of units world-wide. Systems enabled Compaq computers to reach the Fortune 500 list faster than any other corporation in history. Compaq grew from $111 million in 1983, its first year of operation, to $1.2 billion in 1987. At the time its was founded, Compaq put in place systems that would enable it to grow exponentially without slowing down or looking back.
Systems possess the power to carry out activities much more quickly, precisely and regularly than individuals can perform them on their own. Herein lies their tremendous power to energize an organization. The productivity of an organization is determined by the extent to which routine and recurring physical activities are systematized as standard operating procedures.
Systems are not dead or mechanical devices. They derive their power directly from corporate values like orderliness, punctuality, standardization, coordination, etc. Think for a moment of the last time an important decision or action was unduly delayed in your company. What was the impact on corporate energy? We have seen the morale of an entire company sink to a low ebb, because a performance review system introduced to improve morale was running six months behind schedule. Speed up that process and what is the result. Everyone gets energized.
Systems are usually associated with drudgery, bureaucracy and monotonous repetition. But the companies which are the most creative and fun to work in are very often those which have converting systematic functioning into a fine art. The high level of customer service and the genuinely friendly and relaxed manner of Marriott hotel employees are a direct result of the systems the company has in place to make everyone's job easier. Contrast the experience we described in the palatial Dallas hotel, when we asked room service to serve coffee an hour earlier with this one from the Marriott O'Hare:
It was the hotel's fault from beginning to end. We ordered breakfast for 8:15a.m. to be ready for a seminar starting at 8:45. Our breakfasts did not arrive on time and we were getting a little nervous. At 8:20 we called room service and they promised to send them up immediately. At 8:22a.m. there was a knock at the door. As the door opened, a smiling waiter said, "I am extremely sorry your breakfast is late. It is on us."
The impact was profound. The waiter was simply carrying out a company standard, which is written on a card in the room. "If your breakfast is late, it's on us." Think about what is happening here. In a split second, the customer's tension and the employee's anxiety are eliminated by a system. The employee, who probably had nothing to do with the late breakfast in the first place, can maintain his cheerfulness, because he is supported by a system.
Time after time we have found that in companies which have built up basic systems to support smooth-running routine activities, people are more relaxed and cheerful and enjoy their work better. AMRE is a dramatic example. Virtually every recurring activity has been reduced to a system at AMRE. It is a hard hitting, fast growing company where people, like Bud Lane, are really enjoying themselves. "I never had it so good. I'm working twice as hard, but I love it. I go home at night feeling good."
Systems have been the key to AMRE's non-stop growth. As the company has anticipated its people needs six months down the line, it has always tried to build its systems with plenty of extra capacity to accommodate future growth. Trying to bring your systems up-to-date after the fact is "like trying to build an airplane in the air. We've never had that problem. We build it on the ground," says Ward Richardson, vice president of Management Information Services. The other thing AMRE has done is to keep the systems simple, so that they are easy to understand and easy to operate. Richardson adds, "We keep our systems as simple as we can, so that people can interact and work with the systems. So they don't learn to hate them."
AMRE is not only a fun company to work in. It is a creative one too. "I've never been in a functionally freer creative environment that here," Richardson exclaimed. "The creativity has been tremendous." That creativity is made possible because the organization at AMRE is continuously evolving. Not only do jobs continuously change. The systems do too. "Systems constantly have to be changed," says Bud Lane. "Steve (Bedowitz) is constantly saying in staff meetings, Just because you did it this way a year ago, doesn't mean that it works now. What have you done recently to streamline your systems?"
As individual jobs constantly evolve in a growing organization, systems can be constantly improved in their functioning to carry the organization to higher levels. As jobs grow by adding on and shedding specific tasks in an incremental manner, systems grow by continuous refinement and innovation. Even relatively minor improvements can energize a simple activity.
Computerization has had a major impact on the growth of P.A.M. Recently the company added a small modification to its computerized dispatch system. It introduced a 13 digit alphanumeric code for each consignment that classified the shipment in terms of one-way or round-trip, the type of equipment required, the pick-up and delivery location, and other factors. The code improves communication between the solicitor who takes the customer's order and the dispatcher who arranges for a pick-up. It enables dispatchers to more efficiently utilize the equipment at their disposal by easily sorting shipments by the type of equipment needed and the location. It also enables the driver to identify key facts about each shipment at a glance and serve the customer better. The estimated savings from this small innovation could be several hundred thousand dollars a year.
Systems are like atoms. They contain tremendous latent energy. The more refined the improvements, the greater the power released. Federal Express recently introduced a peelable bar-coded label, which its couriers use to affix an airway bill number to each parcel, instead of writing out a number by hand at the point of pick-up and the point of delivery. The cumulative savings generated by eliminating 3 seconds from each transaction works out to 542 hours per day or more than $2 million per year!
Even in a company as committed to systems as Federal Express, evolving new and better systems fast enough to sustain maximum rates of growth has been difficult. Says Smith, "The brake on the company's ability to meet the demand in the market has been systems. Today organization is not just people in boxes. It's the way you align against business problems. The development of strategic information systems, which is an integral part of that organization, is probably the biggest brake on what we can do."
Think about the systems in your company. How effectively do they perform their allotted tasks? What have you done lately to streamline your systems and build them up for rapid growth? The second exercise at the end of this chapter is an analysis of your company's key systems. The future of your company depends on the constant development of new and improved systems to carry out activities faster, better and more efficiently.
ORGANIZATION: TOO MUCH OF TOO LITTLE
Organization is absolutely essential for the existence and growth of any company. The fast growing companies referred to in this book could never have grown as rapidly and as large as they have, if they had not grown their internal organizations to keep pace with their external expansion.
Yet we read constantly these days of how large companies are attacking what they perceive as excessive organization by slashing red tape, reducing the number of management layers, and decentralizing decision-making. So much has been written and said on the dangers of bureaucracy and complacency, that even small and mid-side firms which lack the minimum structure needed for survival and growth have developed an aversion to adding new people and more systems. Some entrepreneurial-style managers take such great efforts to prevent the growth of organizational weeds, that the flowers stop growing too. How can you tell whether you need more organization or less?
Does your company suffer from any of these symptoms: inability to respond aggressive to opportunities and changes in the external environment, slow decision-making, poor communication or coordination, declining speed, quality or productivity? If so, the company may have too much organization-or it may have too little! For the symptoms of both are often the same.
The bureaucratic, over-organized company is very slow to respond to opportunities and changes in the external environment, because senior executives are out of touch with the field and their own front-line operations. Its decision-making is slow, because too many people and steps are involved in getting approvals. Communication and coordination are poor, because the company has become segmented and fragmented into isolated departments and divisions. Speed, productivity and quality decline, because authority is vested in managers who are too far removed from the activities they are responsible for directing.
The under-staffed, under-organized company is slow to respond to opportunities and changes in the external environment, because senior management is so preoccupied by fighting fires and maintaining existing operations, that it has no time to think of the future. Its decision-making is slow, because there are too many decisions to make and too few people to make them. Communication and coordination are poor, because either there is not time, no system or no person responsible. Speed, productivity and quality decline, because people and systems are not adequate to handle the volume of work.
The symptoms of excessive organization and inadequate organization can be very similar, because in both instances the organization is not suited to the present needs of the company. Any company can assess the suitability of its organization by applying the basic tools discussed above to any problem.
APPLYING THE BASIC TOOLS OF THE TRADE
What does your company do when something goes wrong? In many companies, the first impulse is to blame somebody. Yet in most cases the real culprit lies elsewhere-a job that is not clearly defined, responsibility that does not match authority, systems that are inadequate, or an activity that needs to be streamlined. In order to properly diagnose the problem, you have to return to fundamentals.
General Electric's success in reducing delivery time on its circuit breaker boxes from three weeks to three days dramatically illustrates the power of analyzing organizational problem at their roots. The strategy GE employed involved analyzing and making improvements in all three subunits-the systems, the activities and the positions.
A team of manufacturing, design and marketing experts was assembled to analyze GE's entire $1 billion circuit breaker business. The team started by recommending a change in structure. It consolidated operations from six manufacturing units into one. It then analyzed the 28,000 parts used in making 40,000 different sizes and shapes of circuit boxes. By standardization, the number of parts was reduced to 1,275. A new computer system was introduced, which automatically programs factory machines when sales people enter new orders. This eliminated an entire activity of referring all new orders to the engineering department. The number of layers of plant management was also reduced to facilitate quick communication and decision-making. In addition, a new structure was created consisting of teams of workers, which were invested with the authority and responsibility previously exercised by managers at a higher level. Fortune reports: "Everything those middle managers used to handle-vacation scheduling, quality, work rules-became the responsibility of 129 workers on the floor, who are divided into teams of 15 to 20. And what do you know. The more responsibility GE gave the workers, the faster problems got solved and decisions made."23 These changes have enabled the company to increase productivity by 20%, reduce costs by 30%, and bring down the backlog of orders from two months to two days.
Think about the problems and constraints facing your company. How many of them can be resolved by restructuring jobs, refining systems or streamlining activities? How can you grow your business and double profits by applying these basic tools of organization?
THE REAL POWER OF ORGANIZATION
Thus far we have been looking at the basic subunits of organization and the way they fit together and interact to accomplish the company's work. We have also looked at some of the ways in which these subunits develop and how that development improves the functioning of the organization.
But the true source of organization's energy and creativity does not lie within any of these basic subunits. They are just the building blocks. The real energy of organization is generated by the relationships created between the subunits. The real creativity of organization lies in its ability to link these subunits-people, activities, systems, materials and time-together in ever new, more complex, more effective combinations. The real power of organization arises from its capacity for coordination and integration of people, activities and systems. Coordination and integration are two of the advanced tools of organization.
We said earlier that the development of jobs increases the level of integration in the organization by linking higher and lower levels closely together, so they act as a single whole and shifting actions from higher to lower levels. The development of systems increases the level of coordination in the organization by linking separate activities and separate systems together as part of a greater unified whole.
The power of coordination and integration can be most dramatically illustrated by their absence. Departments and divisions isolate themselves into duchies or mini-empires as they did at Chrysler before Iacocca arrived. When Iacocca joined Chrysler, the company had all the pieces in place, but they were not working together with one another. Production was not speaking with engineering, engineering was not listening to what sales tried to tell them the customers wanted. Management and workers were completely at odds. Talented middle managers were stifled by a top heavy bureaucracy of executives out of touch with the front lines. As a result in spite of its enormous resources and technological competence, the entire company-a $12 billion operation-came to the brink of bankruptcy. Iacocca broke down the barriers that divided divisions, departments and levels of the organization from one another, opened up communication, streamlined and accelerated new model development activity, and put in the systems needed for effective coordination and control of the giant company. These measures not only saved Chrysler and returned it to profitability. They also provided it with the organization it needed to more than double in size over the next five years.
Coordination of activities can generate a powerful impetus for growth. East Asiatic Company is one of the last of the giant trading houses of Europe. The company was founded in 1871 by a Danish merchant seaman who bought a shipload of teakwood lumber in the Kingdom of Siam and sold it in Europe. Throughout the decades the company diversified into many different fields, but still maintained its timber business. In the early 1980s EAC's timber operations consisted of 26 activities centers around the world buying, selling, warehousing and distributing lumber. Not infrequently, these highly decentralized timber centers ended up competing against one another for the purchase of timber from a supplier or sales to a customer. In 1983 the company made some changes to improve coordination and integration of its worldwide timber activities. It reorganized the timber division geographically and introduced new systems to closely coordinate the activities of each center with the other centers. As a direct result of improved coordination, profits of the division, which had been flat throughout the early 1980s, grew by 30% a year for three years in a row.
In our survey of U.S. companies, there was a significant difference in the level of coordination reported by the most successful and the least successful companies. The larger and more profitable companies reported closer coordination in all areas: between sales and marketing, marketing and research, research and production, and production and sales.
The power of coordination and integration can be demonstrated at any level and in any part of an organization. Bang & Olufsen operates three machine shops at its production facility on the Jutland peninsula of Denmark. Until recently the shops were each headed by a manager who reported independently to the vice-president. In early 1987 a new position, director of machine shops, was created to coordinate activities of the three departments. Within the first six months, productivity of the three shops increased by 25%. Per Kysgaard, the director, explained: "We really did not do anything much. We just talked about improving coordination between the shops. The response has been tremendous."
Organization has been a key factor in the phenomenal nine-fold growth of Linear Technology over the last five years. The company has a lean, simple structure with clear functional areas and clear lines of authority. When the work goes well and when there are problems, everyone knows who is responsible.
But the real power of Linear's organization arises from its commitment to the value of coordination in virtually every one of the company's departments, activities and systems. In Chapter Two we described how Linear fosters close coordination between its chip designers, production engineers, sales force and customers. Responsibility for that coordination is built right into the job description of the design engineer. "The designer knows his job is more than design," says Robert Dobkin, vice president of Engineering, who encourages his designers to get out and talk with customers-which he refers to as "sending out our crown jewels"-and to be actively involved in all areas of production where problems arise. It is the designers' responsibility go out with the sales force to learn what customers need, to move with the chips he designs right through the production process and work closely with production engineers to iron out any production problems, and to directly deal with customers who encounter problems in utilizing the chips in their products. Many companies have problems getting their design engineers to design products that are producible. Very often the problem is attitude..."a natural antipathy between designers and manufacturing" as one engineer put it. That is not a problem at Linear. "Our design engineers recognize the importance of the manufacturing component," says Brian Hollins, vice president of Operations. "They are very good at following the product through the production process." In this way the designers are not sheltered from quality and reliability problems.
Coordination does not stop there. Linear has created an entire cadre of field application engineers, FAEs, to accompany the sales people on visits to customers to improve the linkage between design, production and sales. There is also an FAE Coordinator, whose responsibility it is to report back opportunities and problems from the market to the designers. The coordinator's reports go to engineering, marketing and senior management. In order to generate quick responses to problems, the coordinator is authorized to directly interface with people in all departments without going through the respective vice presidents.
The same attitude and effort can be seen in other areas. Every week the company conducts a production control meeting to ensure close coordination between design, production, quality control, sales, and finance. "If this meeting didn't take place, you could plot the decline of the company on a graph," says CEO Robert Swanson. The meeting is run by the production control manager, PCM, who reports to the vice president of finance rather than to the head of production. This results in better coordination between inventory management and cost control and gives the PCM greater freedom to press for responsiveness from the production team.
The production control meeting is also a good example of how Linear fosters the value of integration. The meeting is attended by 25 top managers including the CEO and senior executives. It gives top management direct access to information from middle management. It also gives middle management direct access to the highest level of decision-making, which is one of the reasons for the company's great responsiveness to new needs and new situations.
THE ULTIMATE SECRET
Freedom is the essential condition for creativity. The individual grows only in freedom, but organization is based on the principle of order and stability. The ultimate measure of an organization is its ability to give people freedom without losing its cohesiveness and effectiveness. The proper balance of self-discipline and freedom provides the stability and creativity needed for an endless expansion.
Linear has developed its own formula for freedom and discipline. It has raised the value of freedom to a high level in some areas. It gives a remarkable latitude of freedom to its designers to decide what type of products they want to develop. "Freedom to design what you will is the key," says design director Tom Redfern. Yet in other areas it is run strictly according to the book, with no latitude for deviation. "I run a two-headed monster," says Swanson. "The design guys have a lot of freedom, because they need it. The rest of the company runs with an iron fist."
Freedom and discipline are not mutually exclusive. Rather they make each other possible. Freedom without discipline is chaos. Discipline without freedom is tyranny. The ultimate secret is to arrive at a delicate balance between the two. The company should provide freedom for entrepreneurial energies and newly emerging ideas and initiatives to sprout and develop, unencumbered by excessive organizational constraint. At the same time, it should fully organize all established areas, systematize every routine and recurring operation, so that those activities can proceed smoothly and effortlessly, leaving the best minds and the greatest energy free for creativity and innovation.
Yet Linear still has challenges to meet to keep its organization dynamic and growing. Swanson is still striving for that delicate balance between freedom and discipline. "Now I'm cracking down on the design group a little. The trick is that if I get them too organized, I'll destroy some of the free spirit, the creativity." Swanson is a very hands-on CEO. He is the driving force for growth, the source of the energy that propels the company forward. He is also still searching for a means to create engines of growth at the next level, so that the company can continue to expand rapidly, without everything relying on him. "There is an organizational challenge awaiting me here in the future. That is, how to create an organization where there is a focus of energy on each key area of the business. It can't all come from me any more."
Swanson has succeeded in implementing corporate values, like coordination, integration and freedom at a high level, that are critical for the continuous growth of an organization. But he has not yet been able to institutionalize that implementation to the extent that it becomes a self-generating and self-perpetuating source of energy for non-stop growth. The challenges he faces are the challenges that confront every company that wants to create a living organization.
CREATING A LIVING ORGANIZATION
An organization becomes creative when its capacities are fully utilized and it functions at peak levels. Otherwise it degenerates, its components parts operating in isolation from each other and ceases to be an organization. It becomes a bureaucracy.
The secret to keeping an organization alive and youthful is to keep it operating at its maximum capacity and to keep increasing that capacity by constantly upgrading the quality of its subunits and the coordination and integration between them. Then the organization flowers into a living organism with its own energy and dynamism for growth.
Organization is most alive when its every act is fresh and vibrant with energy. Usually in a company each fresh, energizing experience is counter-balanced by thousands of routine acts which dull our sensibilities and drain our energies. Yet it need not be so. It is possible for companies to structure and carry out work in such a way that every activity, every job, every individual act becomes a refreshing and energizing experience for the individual, and a stimulus for the further growth of the company. Chapter Fourteen presents practical strategies to energize individual acts and thereby energize the corporation as a whole.
STRATEGIES TO ENERGIZE YOUR ORGANIZATION
APPLYING THE TOOLS OF ORGANIZATION
A. Analyze Your Job
Here are ten steps to energize your personal organization.
B. Analyze Key Systems
C. Analyze Key Activities