The individualized corporation

Christopher Bartlett
on Strategy, Structure
and Systems

Midwesterners are funny people, capable of refreshing openness one moment and glowering narrowness the next. Ours is a culture capable of wonderful individuality that has also fashioned systems that cramp and confine the individual spirit.

We can offer up the world a belligerent genius like Mark Twain, who said, “I came in with Halley’s comet, and I expect to go out with it.” Or a skinflint engineer like Henry Ford who is credited with this gem: “All I want is a good pair of hands. Unfortunately, they come attached to a person.”

Christopher Bartlett, Australian-born and -bred, and Harvard-employed, flew into Minneapolis on the heels of Comet Hayukatake with an armful of slides urging that we abandon the Henry Ford vision of mechanization and embrace the individualized age announced by the most recent passby, in 1985, of Halley’s comet.

Seriously. Bartlett offered a one-slide, three-line history of corporations, commencing around 1835. Not only was that the year the comet came and Twain was born, it was also the time of the birth of the modern corporation, the legal fiction we know and love today that allows groups to band together and enjoy limited liability for debt.

The “corporation” was the key to financing the age of machines. This new kind of organization was necessary because a new era was under way, an industrial revolution that would utterly alter the whole scope of business. These first corporations would be the first vertically integrated organizations, involved in the planning, designing, making, and selling of products across national borders. It was a powerful idea, many of whose offspring, like Singer Sewing Machine Co., are still alive and kicking two comets later.

The next time the comet passed overhead was 1911. E. I. Du Pont de Nemours Corp., hearing rumbles of impending war, began to diversify into explosives and then paints and, eventually, plastics. This diversification blossomed in the 1920s into the divisionalized organization described by Alfred Chandler, who studied four prototypical divisionalized corporations — DuPont, Sears, Standard Oil, and General Motors — and handed down to a generation of managers the mantra of Strategy, Structure, and Systems.

By creating divisions, the heads of corporations were able to allocate capital to a diversified, competing portfolio of businesses at the same time. Divisionalization was the wonder of its day, allowing corporations to grow larger than ever while still being led by a relatively small group.

The third coming of the comet occurred in our own era, in 1986. What happened was that a new generation of creative managers began to sense that the old model of the divisionalized corporation was running out of gas. The three S’s still worked, in a mechanistic way at least, but large U.S. companies that were wedded to that methodology struggled to compete against smaller companies, and against corporations that had broken from that tradition.

False Starts

These first inklings we had that something was awry, or that the industrial age was giving way to something different, did not lead automatically to a more successful view of how large corporations should work. Bartlett clipped one paragraph from a 1986 Newsweek article that highlighted the misperceptions of the day:

It’s a bit like the end of an empire, a colonial era coming to a close. Companies in the United States and Western Europe are reining in far flung foreign subsidiaries.

Executives are streamlining their divisions, trying to produce standardized global products, and pulling decision making power back to home offices. It’s a formula that, not coincidentally, many Japanese companies have used for years.

A very astute insight, Bartlett said — and completely wrong. The pathway toward the corporation of the future did not point toward the Japanese model. The examination of the corporation to come was only just getting under way.

Three Chapters

Bartlett has spent much of his time in recent years trying to understand where we are going, and he cites four models for large transnational corporations and shows how each was appropriate to its era, or, as he calls it, chapter.

Chapter One was the Pre-War European Model. This was the corporation centered in one European nation, with loosely controlled divisions in other nations. These European large companies had 85 percent of export markets at one time. Each was integrated into its country, able to make its own decisions and market its products in that country. Examples: Philips of the Netherlands, Unilever of England, Nestlé of Switzerland. Lord Lever of Lever Brothers, for instance, sent his son to North America to run things on that side of the pond. The mission was broad: to go forth, make money, and send dividends home to investors. Bartlett joked that the black sheep of such families was usually assigned to Australia. The focus of the model was, in Bartlett’s phrase, “a strategy of national responsiveness.”

Chapter Two was the Post-War American Expansion Model. In the wake of World War II only one national economy was in a position to do multinational business, and it was ours. The colonial empires that protected the previous model were breaking down. The American solution was to tie foreign subsidiaries more closely to home. Management was king in this era, and America’s managers were hailed as the best in the world, able to manage tasks of any complexity from any distance. Examples: Pfizer, General Electric, Procter & Gamble. No matter what product we were selling, though, our real business was expertise. The focus of the model was “a strategy of knowledge transfer.”

Chapter Three was the Recent Japanese Challenge. By the 1980s the unchallenged American model had lost its discipline and was ripe for an aggressive competitor with a new grasp of how to do things right. Tariff barriers worldwide had lowered, opening the door to a new vision of efficiency. The strength of the Japanese model was its emphasis on group discipline and joint decision making. The focus of the model: “a strategy of global efficiency.”

And it succeeded handsomely, only to stumble on its own successes and limitations. American hopes that Japan was the wave of the future — and thus that we had only to imitate it in order to reap equal success — were dashed by Japan’s comeuppance in the 1990s. Where did that leave us?

The Dead Machine

It left us groping for a new way of thinking about corporate strategy, a Chapter Four of multidimensional strategic capabilities. We know that no single aspect of previous successful strategies will be strong enough to carry corporations into the future — not the national responsiveness characteristic of the Chapter One European companies, not the innovative capabilities of Chapter Two American companies, and not the global efficiencies of Chapter Three Japanese companies.

In many cases, it seems that management in the 1990s is staggering under the impossible burden of trying to catch up too far, too fast. When Bartlett looks out over the corporate clamor of our time, he too often sees companies trying to implement third generation strategies in second generation organizations, calling on the talents and skills of first generation managers.

Bartlett related the sorry story of Westinghouse’s last four CEOs. Each in turn, starting with Robert Kirby in 1975, came to the company brimming with ideas, armed with the conventional weaponry of Strategy, Structure, and Systems. Each CEO drove the organization through a new regimen of changes, pronouncing it to be on the threshold of a bright new era. Each, except for the current CEO, Michael Jordan, saw his hopes dashed utterly. The company took horrendous write-offs for twenty years, and has yet to see profits or revenues anywhere approaching those of its ostensible rival, General Electric, which has thrived throughout the same period.

What all this spells, Bartlett said, is the breakdown of the three S machine. Strategy, Structure, and Systems have run out of gas. The old machine must now be replaced by something revolutionarily new.

Organizations like General Electric and its CEO, Jack Welch, have been improvising a successful replacement approach. The tack these pioneers have taken has been to set aside the old verities:

Strategy was no longer an executive function because front-line people knew more about business pressures and customer needs than CEOs. Andy Grove’s experience during the memory chip wars in the late 1980s provided him with the humbling news that just about anyone at Intel could crystal-ball better than the people at the very top.

Structure building as a task of CEOs is often irrelevant because the structures they design are irrelevant. How many reorganizations of the last 15 years succeeded in righting an unbalanced organization? Jack Welch of GE saw through the fog of restructuring to the truth, that in a truly competitive environment executive preoccupation with organization charts is a one-way ticket to “the boneyard.” He described GE’s structure even in its early 1980s heyday as an organization “with its face to the CEO and its ass to the customer.”

Systems design likewise is the wrong line of work for CEOs to go into. Percy Barnevik of Asea Brown Boveri lamented the fact that so little of the talent and ability of workers is being tapped in even the best organizations. Senior management can crack the whip and tell people to give their jobs their best efforts — but engaging people’s imaginations and designing work so that it matters to people is not something that can be done from a penthouse suite. It can only be done on the ground, where people live. What would happen, Barnevik wondered, if instead of squeezing an organization’s financial assets, where there was so little give, the organization created a system that reliably switched on the dormant 90 to 95 percent of workers’ minds and hearts?

“The Smell of the Place”

In keeping with the alliterative theme of his presentation, Bartlett drew a diamond on an overhead, linking four concepts starting with the letter C: Constraint, Contract, Compliance and Control. These are the four compass points of the dysfunctional organizations of today, and each one exerts a stifling effect on the people in an organization and on the quality of the work they do.

Constraint is the negative face of Strategy. Constraint means not exceeding expectations. Cash cows must be milked, and dogs (unprofitable business units) are treated as such. If an opportunity didn’t match a company’s elegant strategy, it was ignored. Constraint kept Westinghouse from expanding into cable because cable wasn’t “broadcast.” Constraint is the philosophy of no surprises — and no imagination.

Compliance is the negative face of Structure. It is the sum total of all the rules that spring up around an organization and choke its ability to act freely. Compliance is doing everything by the P&P book — and throwing it at whoever tries to find a better way.

Contract is the negative face of Systems. The contract is what keeps a company running, the implied “what if” that will happen if people don’t hold up their end of the bargain. Thanks to Contract, workers get paid, shareholders get dividends, customers get products and services. Contract is the philosophy of meeting specifications — and never exceeding them.

Control is the negative face of Systems. Bartlett likened it to the kind of game playing that occurs in organizations where people who should be sharing information for the good of the organization withhold it from one another. Control is the philosophy not of collaborators but of competitors.

Put ’em all together and you have what academics call an organization’s “behavioral context.” A rank and filer Bartlett met called it “the smell of the place,” the culture that can either drive an organization to great performance or focus it on secondary issues.

Bartlett connected the four points of the diamond and drew a stick figure inside. “This is ‘The Organization Man,’” he said, referring to William H. Whyte’s gray-flanneled flunkie of the 1950s, hemmed in on all sides by an organization that has no interest in his individuality. Bit by bit, the smell of a place, if it is bad enough, can undermine any possibility of organizational capability for cooperation, commitment, learning, and initiative.

Here is where Henry Ford’s dictum about hired hands reveals so much about what kind of place Ford Motor Corp. was — what it smelled like — in his lifetime and beyond. It brought to mind the remark of Harold Geneen of ITT that the objective of a modern organization is to make people as predictable and controllable as the equipment they run.

Surely there is a better (smelling) way.

“The Individualized Corporation”

The better way is to build an organization to bring out the best of the people within it. Bartlett drew another diamond. In this one the unhealthy compass points have shifted away from machine thinking toward people thinking. North, which was Constraint, has been changed to Stretch. South, which was Compliance, has been changed to Discipline. East, which was Contract, has been replaced by Trust. West, which had been Control, was now Support.

Stretch is ambition, the ability to engage people with a challenge and move them to a level of performance they did not know they were capable of. Bartlett used the example of Kao, the upstart Japanese detergent company that wrested market share from Procter & Gamble by putting Buddhist philosophy to work. Decades before Peter Senge’s “learning organization” caught fire, Kao ran a corporate university with the goal of building and leveraging employee knowledge.

Discipline is the hard edge of the individualized corporation. It includes the rules of engagement in the organization, the level of behavior that is absolutely a condition of employment — but it is positive. At Intel, for instance, workers are mandated to speak their minds. People are expected to challenge one another, not emotionally but on points of information. You can’t say one thing in public and mutter something else in the washroom. No meeting adjourns without commitment — you can agree or you can disagree, but you must commit.

Trust is the glue that bonds organizations together and allows people to experiment. Bartlett cast his line close to home to profile trust: “3M has built its whole culture around a belief in the individual,” he said. It is a place where it is OK to take a risk, even to produce a well-intentioned failure.

Support is the idea that people are not hung out to dry. The organization gets behind its people and allows them to succeed. Bartlett used the example of ISS, a Danish office cleaning company that does $3 billion in annual business. In an industry whose front-line employees are usually treated as if they are as disposable as styrofoam cups, ISS takes the opposite tack, training its cleaners to feel important, to innovate, and to take responsibility for a high level of customer satisfaction. People matter is the philosophy of ISS, and it has paid off.

This paradigm is not an abstraction to Bartlett. He spent much of the second half of the session analyzing how Percy Barnevik and his senior management team at Asea Brown Boveri created a remarkable individual-minded organization with only a wafer-thin layer of management at the top.

It was a powerful illustration of what leadership can do if it sets aside tasks that it might have been competent at in a preindividualized era — the three S’s — and takes a stab at a new order in which management is a support function for the knowledge of others in an organization.

Bartlett cited several tasks of the new leadership, as exemplified at ABB:

A philosophy of paradox, by which an organization could manage to be simultaneously global and local, big and small, decentralized and controlled.
A fierce commitment to “rationalizing” an organization’s operations in the present, making them lean, disciplined, and accountable.
An equally fierce commitment to improving the organization’s processes for the future, paying heed to cycle time and product and service quality.
The creation of new opportunities, either by extending existing lines or finding whole new markets and product applications.
Building new competencies to counter decay of the old.
Serving as an integrating factor in the creation of a less hierarchical, highly networked organization.
Fashioning and prioritizing goals that even the most far-flung organization can subscribe to and understand.
Coaching front-line managers in an ongoing, reciprocal teaching/learning dialogue.
Ensuring “dynamic disequilibrium,” never allowing the organization or its parts to come completely to rest, always challenging, staying involved by keeping “fingers in the pie.”
Instilling norms and values that will endure when product lines and technologies have faded into extinction.

The new organization Bartlett described will bear little relationship to the three S corporations we are familiar with today. Instead of the conventional linear structure of top-down boxes, the three P organization will resemble the network structure that James Bryan Quinn alludes to. It is a vision less of bureaucratic boxes than of an arcade game in which every bumper and light pulses with every other, connected by an integrative management.

This organization will be a network based not on boxes of functionality and lines of command but on the individual “points of light” that constitute an organization. In this structure everyone is a knowledge center, and so the challenge for leadership is to keep abreast of these knowledge points, apprise them of the corporate plan, and help them achieve their part in it.

The task of building effective businesses, of driving performance, long the purview of senior management, thus devolves to a new breed of entrepreneurial front-line managers.

The task of developing a successful company, of capability building, once the strategic task of the CEO, devolves to senior management in the individualized corporation — the team immediately under Percy Barnevik that kept the lights at ABB lit worldwide.

What is left for the very top to do? The task of ensuring an enduring institution, of continuous renewal. It is the task of keeping a light burning for all to see, much like a comet high in the sky.

Is the current generation of managers, here in the midwest and around the world, up to this daunting task? Or will we revert to the Henry Ford inside us all? So much depends, so much depends.

Michael Finley

Christopher Bartlett