Chapter 9: The Final Decay: Salem City, Bureaucracy, And Death

Salem City Companies in Salem City exhibit the following characteristic behavior:

• People focus on who caused the problems, rather than on what to do about them. Problems get personalized.

• Rather than dealing with the organization's problems, people are involved in interpersonal conflicts, backstabbing, and in discrediting each other.

• Paranoia freezes the organization.

• Internal turf wars absorb everyone, and nobody has time to deal with the needs of external customers.

The Witch Hunt

If an Aristocracy prolongs its complacency with the status quo, its artificial repairs-unjustifiable price hikes, for example-eventually have negative effects. Demand becomes inelastic, revenues decline, and market share steadily contracts. Watching in horror, manage- ment's mutual admiration society dissolves. The good-old-buddy days of the Aristocracy are gone, and the witch hunt begins.

• Figure 9-1: Salem City

Everyone is busy trying to find out who caused the disaster. With blades drawn, it's backstabbing time in the boardroom. Like primitive tribes afflicted by extended drought or famine, there's a rush to appease the gods. The organization needs a sacrifice: the fairest maiden, the finest warrior, the cream of the crop. Whom does it sacrifice? Management sacrifices its most valuable and scarcest trea- sure-the last vestiges of creativity. The company fires the head of marketing, explaining, "We're in the wrong market with the wrong products." The corporate strategist and the engineering chief are the next to find themselves out on the street. Management dismisses them, saying, "Our strategy does not work. Our products, technolo- gy, and advertising are obsolete."

The people who get fired as if they were causing the problems don't feel they are responsible for the company's situation. The mar- keting head has often said that the company ought to change its direction. The strategist has most likely developed an ulcer worrying about the lack of organizational direction. Privately, they com- plained, urged, begged, and threatened, but it was like pushing wet spaghetti up a hill. Those who seek to reform their Aristocratic orga- nizations from within, do so at the risk of their careers. The organization ends up forcing them out whether or not their efforts were effective. Eventually, the creative employees-those the organization needs most for survival-leave, become useless and discouraged, or get fired.

Dibujo

One factor distinguishes the Aristocratic organization from Salem City: managerial paranoia. In the Aristocratic organization, silence precedes the storm. People smile. They are friendly, handling one another with kid gloves. In Salem City, when the bad results are inescapable and undeniable, managers start fighting each other. No gloves. Bare knuckles. They initiate a ritual of human sacrifice. Someone must take the blame. Someone must be the sacrificial lamb. Annually or even every few quarters, someone takes the blame for the company's bad condition and gets fired. There is a joke that one hears in companies in trouble. A new chief executive is hired to replace the head of a troubled company. In transferring the task, the exiting executive tells his replacement that in the drawer are three numbered envelopes. Should the new chief encounter a major problem, he should open one envelope at a time. The incoming executive remembers the advice, and, not long after, the first crisis did arrive. The new chief executive opened the first envelope. It said, "Blame everything on one of your vice presidents." Soon, the second disaster struck. He opened the second envelope. It said: "Blame this on another vice president or the unions." Not much later, the third crisis arose, and he opened the last envelope. The instructions started, "Get three envelopes ... " Because nobody really knows who will be the next sacrificial lamb, everyone is enveloped in paranoia-even the chief executive officer, who is scared of his board. Everyone watches everyone else with suspicion. Cover-your-ass strategy dominates behavior.

The poisonous atmosphere encourages the circulation of outrageously farfetched rumors. If, for instance, the sales manager announces a discount, the other executives don't interpret it in rational terms by referring to competitive conditions. Instead, they attribute the move to the sales manager's Machiavellian strategy to discredit the marketing department and expose the incompetence of the marketing vice president.

The paranoia accentuates and accelerates the decline. Managers fight each other, spending most of their time building cliques and coalitions that are constantly changing. They expend their creative energies in a fight for personal survival. Individual security, they know, depends on eliminating and discrediting internal "competition." Organizational performance continues its relentless decline, and the paranoia intensifies. Talented people, objects of fear and distrust, either get fired or leave. This cycle of vicious behavior continues until the company ends up bankrupt or becomes a full-fledged Bureaucracy, subsidized by the government.

Bureaucracy: The Clinically Sustained Life

Subsidization or nationalization can extend the company's life. Although it should be dead, the company is kept alive artificially, introducing a third Z, connoting birth, on its lifecycle curve. The first Z appeared after Courtship: The organization was born by taking risk. The second Z occurred after Go-Go, when, emancipated from founding parents and entering Adolescence, the company is born a second time. This third Z is a new birth: The company should have died, but with an artificial life-support system, it is getting a continuance on its life.

Figure 9-2: Bureaucracy

What kinds of people remain in such a protective environment? Administrators! Entrepreneurs come and go; administrators accumulate. Since the administrators have only to administer, the company is a full-blown Bureaucracy, focusing only on rules and policies. It shows no interest in improving results by satisfying customer needs.

In the Bureaucratic stage, companies are incapable of generating sufficient resources on their own. They justify their existence by the simple fact that they are of interest to another entity willing to support it: the politicians. The organization requires artificial life-support systems to fend off death. Where does it come from? Political decision.

What is the Bureaucratic organization like? What is the artificial support system like?

The Bureaucratic organization:

• has many systems, but they serve little functional purpose;

• disassociates from its environment, focusing on itself;

• has no sense of control; and

• forces its customers to develop elaborate approaches in order to bypass or break through system roadblocks.

A manager told me this joke about a man who went to Paris, wanting to find the best jewelry store in town. He asked his friend for advice. The friend told him, "Go to Rue La Michele, 25. I've heard that is the best place." So the fellow agreed and headed out for Rue La Michele, 25, where he was greeted at the door by a valet dressed in a red uniform with golden epaulets and shiny buttons. The valet tipped his hat and asked, "May I help you, sir?"

"I'd like to buy some jewelry."

"Left door," the red-uniformed valet instructed.

He entered the left door, and another valet, this one dressed in blue, asked, "Are you looking for men's or ladies' jewelry?"

"Ladies'," he replied, and he was ushered down the right corridor where yet another valet, dressed in purple, asked if he preferred gold or silver.

"Gold," he answered.

"Take the corridor to your right, please." Subsequently, he encountered three other valets who asked him his preference on several other things, and pointed him from one to the other in the proper direction. Finally, the last valet asked if he wanted diamonds or rubies.

"Rubies."

"Left door, please." He opened the door and found himself in the street. Frustrated, he went back to his hotel and sought his friend.

"How was it?" the friend asked.

"I didn't get to buy anything, but, boy, do they have a system!" Bureaucratic organizations accomplish very little of any value. They are like broken records, endlessly repeating the same phrases. Ask a question, and the answer will most likely be, "Wait." Or, "Someone will inform you soon." There is rarely a real or a prompt answer. Bureaucratic managers are among the nicest people you'll ever meet. In public, they couldn't be more agreeable, but they do lit- tle if anything, and usually little ever happens. With no inclination to change and no teamwork, everyone's day is filled with systems, forms, procedures, and rules.

One of Bureaucracy's most distinctive characteristics is its worship of the written word.

The response to a client's request or even another executive's suggestion is almost always, "Write me a memo." But writing to a Bureaucratic organization is usually a waste of time, paper, and stamps. Everything ends up getting filed. When it was nearly too late, one of my clients discovered that his company had filed a letter in which the writer had threatened to sue unless his complaint was expedited. A clerk had stamped the letter "received on" and filed it. Asked why the letter had gone unanswered, the file clerk explained that it lacked certain required information.

Bureaucratic companies are disintegrated. Nobody in the Bureaucracy knows everything that should be done. Everyone has a small piece of the necessary information, and it's up to the client to put it all together. New employees don't know salary policies; sales-people don't know marketing strategy; marketing people don't know the strategic plan; finance doesn't know what sales to anticipate; production has no idea how well products are selling; and the customer doesn't know where to get effective attention. The customer service department often consists of a switchboard operator whose job it is to listen, record complaints, and answer them with a stan- dard, routine letter: "We regret any inconvenience, but we will do our best to ... "Mostly they respond to clients' efforts for satisfaction by demanding yet another document. Bureaucracies do not ask in advance for everything they will require. Rather than show its entire hand, a Bureaucratic organization shows only one card at a time.

Disassociation

People of a certain age remember their youth as if it were yesterday, but they easily forget what they ate for breakfast. Bureaucratic organizations are similar. People know all the rules, but they can't remember why they exist. If you ask why they do things in a certain way, managers in a Bureaucracy will likely tell you, "I don't know why," or more commonly, "Because it's a corporate policy."

Bureaucracy runs on ritual, not reason.

Like an older person who avoids disruption and cannot endure the grandchildren for more than a few hours, Bureaucracies resent outside interruptions so much that they aggressively create obstructions to outside interference. Customers are considered distractions. They work to isolate themselves from the environment, connecting to the external world through very narrow channels. Perhaps they allow only one incoming telephone line or they keep their customer service departments open for only a few hours a day. They keep peo- ple standing in lines, only to tell them where they must next report.

Lack of Sense of Control

What causes that disassociation? Why are Bureaucracies incapable of action? Executives feel they cannot do or accomplish much, but they know they must perform rituals as if they were accomplishing something. In order to make things happen, one needs the coopera- tion of others, a near impossibility in a Bureaucracy. A single execu- tive cannot mobilize people across organizational lines. Rituals must substitute for action. Meetings take place. Minutes are taken. Papers get filed. There is plenty of voting, and debates rage but one sees lit- tle, if any, action.

Bypass System

To get results from such an organization, a client must do the leg- work. It seems as if the organization's nervous system has broken down. The left hand does not know what the right hand is doing. One department rejects what another one requests. The client is puzzled, frustrated, and lost.

How do older people function when their organs, one by one, stop working efficiently? Their families put them in a protective environment-a hospital-where the experts connect them to machines that bypass the ineffective organs. Similarly, businesses that need to work with a Bureaucracy usually have special departments, fully staffed to provide bypass systems. Such departments go by different names. Some organizations forthrightly call them their government-relations offices. In others, they are disguised as public relations. When these departments become experts on the inner workings of a particular government agency, they divide responsibil-Thr Final Decay: Salem City, Bureaucracy, and Death 178 ities. Mr. A works with undersecretary Y; Ms. B works with bureau director Z. Because it is highly likely that Y and Z will not always agree or know how to work together, A and B decide what they want, and they help Y and Z reach the "right" decisions.

Following a lecture I gave in India, a company president came up to me and said, "You Americans talk about marketing strategies. That is irrelevant to us. What is crucial to our success is understand- ing the government's inner workings. Government policies on licensing, pricing, import quotas, and labor relations can make or break us. To know how to manipulate government rulings and regulations is far more important to our success than even the most successful marketing strategy. If a company can make the government machin- ery work in its favor, it gains the critical competitive edge. Those who have to develop know-how about the government and its working relationships, have to develop connections. Because that is so difficult, they are competitively disadvantaged. Government bureaucracy is my best ally. It is my best barrier against competition-better than any market positioning that you are talking about."

The health of full-fledged Bureaucracies is very delicate. Although they appear to be dangerous monsters, it may be relatively easy to destroy them. Many are rotten to the core, teetering on the brink of bankruptcy. Any sudden change could ruin them. Bureaucracies forced to reorganize quickly do not often survive the effort. A new computer may throw a Bureaucratic system into a spin. Since they get their financial resources from politicians, they survive as long as they are political assets. When they become political liabilities, and the funds are withdrawn, they collapse promptly.

Because bureaucracies rely on laws that provide them with a monopoly on services and allocation of funds generated by taxation, heads of bureaucracies spend more time in halls of government and with politicians than they spend on the line, where customers are served. They have to watch the source of their funds, and that is not customer satisfaction. They depend on the satisfaction of politicians. What annoys politicians the most is negative press. So, heads of bureaucracies are careful to assure that there is no negative press about their agencies. Ask people in a bureaucratic organization, "Who is your client?" The answers: a state or federal agency that either supervises its performance or allocates its budget; the newspapers; other media; the unions; or other Bureaucracies on which it depends for data. Lost on an endless list of stakeholders are the real customers who need to be served.

When the law changes, when the monopoly is lost, when the share of taxes stop coming in, when the Bureaucracy is privatized, the organization confronts a crisis with lights flashing and sirens wailing.

Bureaucracies have no client orientation or sensitivity to client needs. They lack cost accounting or other information about cost-value relationships. There are no performance appraisals based on results achieved in the marketplace. There are no sales efforts because in a monopoly, there was no need to sell. There is no mar- keting research, no service, and no product development. There is nothing that resembles business structure or culture. It is as if someone took a manufacturing plant-a part of a business organization- and overnight established it as a stand-alone business organization that should survive in a competitive environment: It has no sales, no marketing, no economic analysis-nothing to enable it to make or implement decisions of a competitive nature.

I have consulted in privatization efforts in Eastern Europe and in the commercialization of a privatized company in Mexico. Such efforts are akin to taking a burn victim through intensive care and multiple skin grafts. A single treatment won't help. Such efforts require successive treatments, each creating and nurturing another missing entrepreneurial piece. It is not enough to train managers in accounting so that they know what profits are all about. It isn't enough to develop a stock market so that they understand how equity grows. Nor is it enough to train them in marketing theory and practice. To deliver business-based decisions, privatized bureaucra- cies need to develop entrepreneurial capabilities, anchored in a business-like structure.

Bureaucratic organizations-if they are allowed to operate isolated from the external environment-may survive a protracted coma. Monopolies and government agencies-quarantined from competitive pressure-endure indefinitely. Because, for example, no one dares eliminate an agency that provides employment, some Bureaucratic agencies live very expensive, artificially prolonged lives, evading real death for years.

Years ago, in Brazil, Mexico, and Israel, I encountered an interesting phenomenon. People would report to their governmentThr Final Decay: Salem City, Bureaucracy, and Death 181 offices every morning, drape their coats over their chairs, and make their desks look busy. Then they would take off for their moonlight- ing jobs. In the evening, they returned and gathered their things as if they had just finished working, and at the end of every month, they came by to collect their checks.

How can that happen? Where is management? Management might be doing the same thing. That can happen when government's purpose is not to function for the marketplace, but to provide employment and a payroll. The political bribe is financed either by taxes or by the government, which prints the money that feeds the bureaucracies and keeps them alive.

Death

Organizational death is defined as lack of resources to reward members of the organization for working. The organization is dead when no one is willing to show up at work: There is no reason to. Death occurs when no one remains committed to the organization. If there is no viable political commitment to support a languishing industry or a company, death can occur before bureaucratization. When poltiical interests keep it alive, a Bureaucracy's death can be prolonged indefinitely. If it had to depend on its disgruntled clients, the Bureaucracy would be long gone.

Figure 9-3:

DIBUJO

How to Decide Where a Company Is on the Lifecycle Curve

You are as young as your faith, as old as your doubt; as young as your confidence, as old as your fear; as young as your hope, as old as your despair.

- Douglas MacArthur

Years ago, a friend of mine invited me to measure the age of my heart. I thought that sounded strange. My body and my heart were born at the same time. Wouldn't they be the same age? I learned something new. My friend had a computerized exercise bicycle. He attached a small device to my fingertip, explaining that it would measure my heartbeat. Then he punched my chronological age into the computer. After I had pedaled strenuously for about 20 minutes, the computer informed me how old my heart was.

That's when I realized that all the parts of our bodies do not age at a single rate. Even if I had been born 40 years earlier, my heart could have been older or younger than the hearts of other 40-year- old people. Similarly, some units that comprise organizations age faster than others. An accounting department, for example, can progress from Infancy to Aristocracy in 24 hours, while healthy mar- keting departments seem to remain in a perpetual Go-Go stage.

As you read about the various stages of the lifecycle, you will find yourself trying to associate them with your own organization and other organizations you know. Don't try to place an organization at a single stage in the lifecycle. Different units of each organization can be at different places. Where the organization is overall is analogous to where a person is behaviorally with respect to his or her age. We have to generalize. We have to examine how each organization as a whole behaves most of the time.

You will find there is a distribution within a distribution. For instance, if an organization is in healthy Adolescence, it sometimes exhibits the characteristics of a Go-Go and sometimes those of a

Figure 9-4: Location on the Lifecycledia

Prime. Most of the time, however, most of its behavior is that of an Adolescent. That is normal.

What complicates the diagnosis of where an organization is on the lifecycle is that in times of stress, organizations retreat behaviorally to the previous stage of the lifecycle. When an organization, in its collective consciousness, feels confident in itself, it evidences signs of the next phase. This phenomenon, however, helps me analyze whether the organization is advancing or retreating in its development. In the abnormal stages, organizations evidence no signs of moving in desirable directions on the lifecycle. Companies seem to be stuck. When they try to get unstuck, they regress to the previous stage. It is as if they confuse forward with reverse. They retreat to behavior they recognize-behavior that feels comfortable to them. That is usually behavior that, in the past, was successful. It got them to where they are now. They are chronically preoccupied with problems of the present, or worse, of the previous stage. In pathological situations, there is no forward movement whatsoever. The situation is only deteriorating.

The behavior of a healthy organization is normally distributed along the bell-shaped curve of the lifecycle. Some of the time, it behaves as if it were in its previous position in the lifecycle, and some of its behavior reflects the next position. Most behavior, however, is a manifestation of its main position on the curve. If it is healthy, the standard deviation in its behavior is small.

Figure 9-5: Unhealthy Lifecycle

Figure 9-6: Healthy Lifecycle of One Organization

Careful. A Prime could be confused with an unhealthy organization because a Prime organization comprises parts in different stages of the lifecycle. It has some parts that are in Courtship; it has Infant units as well as Go-Gos that get financed by Aristocratic units, and so forth. (See the therapeutic parts of this book for further elaboration.)

An unhealthy lifecycle doesn't have units on different stages. It has the same unit behaving differently at different times: At one point, it acts like Go-Go; and under duress it reverts to Infancy and sometimes it freezes into, would you believe, Bureaucracy. It seems to be suffering from a multiple-personality disorder. A healthy Prime, on the other hand, is an extended family, and its many members act in appropriately different ways but in concert. (See Chapter 17: Treating Organizations on the Typical Path.)

In diagnosing organizations, there is another important point to understand. The abnormal stages of growing organizations resemble the abnormal stages of aging. For example, there is Aristocracy in the founder's or family trap. That complicates the diagnosis. In such cases one sees a mixture of the two behaviors. In the Aristocracy of a family trap, one will see all the signs of Aristocracy as well as the signs of the founder's trap. It will be a slow-moving, unresponsive organization, dominated by a family member who behaves like a founder when the real founder has been dead for years. Although its power structure looks like a Go-Go, it behaves like an Aristocracy.

Figure 9-7: Abnormal Locations

This ends the descriptive part of this book. So that we will understand how to bring an organization to Prime-by balanced growth in its growing stages or by revitalizing it if it has started to age-we now proceed to analyze why organizations behave the way they do.