Corporate myopia and quick fixes

Salvation by Staff Cuts?

The pressure for ever greater corporate efficiency and effectiveness, to satisfy market and shareholder expectations of enhanced profitability and value, inevitably will provoke an ‘action plan’ from corporate boards and senior management. They could hardly get away with a ‘do nothing’ response. And therein lies the rub. Many of the response options likely to produce the desired results, whether alone or in combination, will take time to deliver, whereas senior management feel themselves to be under intense pressure to produce quick results. They feel the need to be seen to be ‘doing something’, if only to protect their own jobs.
Cost control and revenue growth are obvious twin priorities for any management, but it is oh so much easier and quicker to deliver cost controls than revenue generation. So, top of the list of quick fixes is a major reorganisation involving large-scale job losses or ‘downsizing’ to use a rather passé term i.e. cut the wages and HR overheads bill. This may well be a realistic option in cases of over-staffing and inefficiencies, but not in every case. Regrettably, evidence suggests that many companies almost fall over themselves in a rush to press the cut-and-reorganise button as a sop to real, effective transformation. It creates an illusion of salvation and misleads possibly gullible shareholders and market analysts into believing that firm action has been taken.
Over the past twenty years, I have warned repeatedly about the dangers of ‘salvation models’ in risk management and management generally. Over the past four decades, there has been a litany of ‘miracle’ cures for corporate ills: Management By Objectives, Business Process Re-engineering, Total Systems Intervention, Total Quality Management, cultural re-engineering and so on, none of which has, in the long-term, fulfilled its promise of never-ending success. The classic example of salvation model failure was surely the Peters & Waterman ‘Corporate Excellence’ formula from the 1980s. There was indeed a lot of good stuff in their ‘excellence’ model but the crucial mistake was for organizations to believe that it was a salvation cure-all. It is sobering to reflect that the majority of the ‘excellent’ cases cited by Peters & Waterman had come a cropper within a few short years.

A Case Study

A large and successful engineering company, with global operations and a recognised global brand, appointed a new CEO charged with revitalising the company and ratchetting up investor value. Within short order, he commissioned an organisational review by outside consultants, the results of which suggested a corporate reorganization and the large-scale shedding of jobs. The independent study is always vital to provide some legitimacy for whatever action plan follows. However, there is often a suspicion that consultants are not always as independent as they appear and may even be recommending easy ‘quick fixes’ if they perceive, or have been told, that is what the board is seeking.
The cull of several thousand jobs got underway. However, the majority of those selected for redundancy were mid-level technical managers who were customer-facing and serviced the company’s safety-critical products used by large clients. Many of these individuals had twenty or more years’ service with the company and their expertise was highly prized by clients. They were irreplaceable, at least in the short-term.
Most of the younger technical executives were not sacked. They performed their jobs largely at a desk, had very limited sharp-end experience with client problem-solving, and rarely visited clients. No need, you understand. With modern IT and telecoms, apparently one can always deal with such matters remotely! Being promoted at a young age and not being made redundant created in some of them a false sense of competence and self-worth, while at the same time buying their loyalty to the new CEO. One can only pray that their limited expertise does not result in a client’s safety disaster involving the company’s products, especially if large numbers of people are killed. By then, no doubt, the new CEO will have already moved on leaving yet another new CEO to sort out any mess through yet another cull and reorganisation!
As a footnote to this case, immediately after the redundancy announcements, the CEO set up internal training courses on ‘Motivation in the New Organisation’ which the various swathes of executives were required to attend – including all those who had just been made redundant (sic)! It is hard to imagine a worse example of crass incompetence by a CEO.

Transformation and Motivation

Corporate transformation (a fancy term for ‘change’) has long been high on managerial agendas, linking as it does such topics as strategy, business processes, systems, organisational culture, power relations, HR and many others. It was the subject of my PhD thesis some 20+ years ago, following a fly-on-the-wall study over several years of three large organisations undergoing major change.
One of the things I observed in these cases was that strategic change is rarely delivered well by formulaic programmes that have overly optimistic claims or expectations of success. This supports similar observations by acknowledged ‘change’ experts such as Minztberg (1994).
Similar sobering accounts are found in the Harvard Business Review article (1990) by Beer, Eisenstat and Spector ‘Why change programmes don’t produce change’. My 1998 book Managing Risk, with Prof Ian Glendon, also summarises the contrast between what organisations espouse as their change philosophy and what they actually do. The espoused and enacted strategies are often poles apart.
Part of the explanation for strategic drift lies in the motivations of individuals and groups within an organisation, especially those in positions of authority, decision-making or influence. It is usually taken for granted that a board of directors or a senior management team, for example, possesses a common set of shared motivations as expressed explicitly or implicitly in policy statements, strategic plans and so on. However, this overt expression is usually far from the covert truth. In reality, there are always competing motivations within individuals as well as competing motivations among/between individuals and groups.
For example, why did BP America CEO Tony Hayward and his colleagues gamble that the Deepwater Horizon installation would not explode (as it did in 2010) and therefore safety and environmental considerations could be played down? Was it, despite BP’s corporate policy statements that safety was their number one priority, simply a case of misguided cynical assumptions that a rigorous safety regime, if enacted, would automatically hit BP’s profit margins? If so, such assumptions proved to be disastrously wrong, both for BP’s reputation and its finances – at least $50 billion in compensation and fines alone.
Moreover, whereas corporate interests are always expected to be put first, the sobering reality is that individuals and interest groups are instead likely to put their own undeclared personal motivations and interests first. As noted in Managing Risk (1998), regardless of the type of risk (pure e.g. safety, or speculative e.g. investment), an individual’s decision-making will always involve a large degree of speculative trade-offs to benefit his or her self-image and self-esteem let alone greed. The apparent motivation of the board in the Olympus fraud and corruption case in Japan, for example, centred on avoiding public humiliation for incompetence at the risk of causing a corporate collapse. Most instances of corporate fraud involve motivations of either personal greed (e.g. Enron bosses; Stamford International; Madoff; Adaboli in the UBS fraud) and/or self-aggrandisement (e.g. Leeson in the Barings collapse; Kerviel in the Soc Gen fraud). Political expediency is another motivation for bad decisions or decision-avoidance in governmental organisations (e.g. the Mari disaster).
Personal/career motivations often trounce higher order corporate governance/ethical motivations and may involve an ‘amoral calculator’. In the global brand engineering company case above, did the CEO’s own risk trade-offs and an amoral calculator feature in his Motivation in the New Organisation courses?