Chapter 7: The Signs of Aging n

MOHANDAS K. GANDHI, on things that will destroy us:

Politics without principle,

Pleasure without conscience,

Wealth without work,

Knowledge without character,

Business without morality,

Science without humanity,

Worship without sacrifice.

If an organization is slipping out of Prime, the symptoms won't show up on its financial reports. Financial analyses and reports are analogous to blood or urine tests. By the time something shows up in those tests, it's already a problem and time to be looking for curative treatments. Like medical tests, financial statements discover disease when abnormal symptoms appear, and we can only hope that we have caught the problems before they have reached pathological status. We should do better than that. We want to discover the signs of deterioration when there is still the chance to do some preventative treatment.

When people age, the first symptoms aren't apparent in their actions or bodies. Aging starts in the mind with changes in attitude and goals.

DIAGRAMA

Figure 7-1: Degrees of Prime

Organizations age the same way. When an organization starts to slip out of Prime, when it is at the advanced stages of Late Prime, the first symptoms start appearing in its culture.

Prime is the intermediate stage between growing and aging. It is the end of the beginning and the beginning of the end. There are two ranges of Prime-rising Prime and waning Prime. There is no single optimal point. Organizations should recognize the signs that signal the waning stages of Prime. Awareness permits them to take measures that will retard aging and rejuvenate them while they are still in Prime. They need never leave Prime.

The following table compares the subtle differences between growing and aging organizations.

Comparing Growing to Aging

Growing Companies	Aging Companies
Personal success stems from taking risk.	Personal success stems from avoiding risk.
Expectations exceed results.	Results exceed expectations.
The organization is cash poor.	The organization is cash rich.
The organization emphasizes function over form.	The organization emphasizes form over function.
People focus on why and what to do.	People focus on how to do and who did it.
People are kept for their contributions to the organization despite their personalities.	People are kept for their personalities despite their lack of contributions to the organization.
Everything is permitted, unless expressly forbidden.	Everything is forbidden, unless expressly permitted.
Problems are seen as opportunities.	Opportunities are seen as problems.
The marketing and sales departments have political power.	The accounting, finance, and legal departments have political power.
People on the line call the shots.	Corporate staff calls the shots.
Responsibility is not matched with authority.	Authority is not matched with responsibility.
Management drives the organization.	The organization drives management.
Management drives the momentum.	Management rides the inertia.
Change in leadership can lead to change in organizational behavior.	To change organizational behavior, it's necessary to change the system.
The organization needs consultants.	The organization needs "insultants."
The organization is sales-oriented.	The organization is profit-obsessed.
The organization exists to create value.	Political gamesmanship governs decision-making.

To discover whether an organization is aging, pay attention to those changes while they are still subtle. Later, once the organization has aged, the signs are not at all subtle.

In Late Prime, the signs of those changes occur one at a time, as intermittent events that don't concern anyone. They are rare, infrequent, and only mildly irritating, but they are signs nevertheless. It's time to do something, and I will introduce what needs to be done in a later chapter. For now, let's juxtapose those changes as two extreme changes. By seeing how they differ as extremes it should be easier to notice them when they are much milder.

1. From Risk Taking to Risk Avoidance

We are all in favor of progress, providing we can have it without change.

-Morrie Brickman, King Features

During Infancy, the cost of risk appears quite small. There is little to lose. During Go-Go, founders, arrogant because of their companies' fast growth, simply disregard risk. Go-Go management grows accustomed to intermittent feast and famine. People aren't especially upset if some adventures yield poor results. They are confident that other unanticipated successes will compensate. Go-Go organizations are characterized by a high level of permissiveness. People ask and receive forgiveness for mistakes they have already made.

Prime organizations enjoy a climate of repetitive success. Management, which is self-controlled, perceives even bad results as successes because it could not have done better and the company has a realistic plan to overcome the situation. And that is what rea ly counts. In Prime, management doesn't analyze failure strictly in terms of results. Had performance been as good as possible? The concern is with the process as well as the results. A failure-not having performed at peak-is unusual. Each failure gets analyzed, studied, and corrected. People are aggressive but simultaneously cautious.

As the company grows, there is more to lose. The numbers become bigger, and the stakeholders more aggressive. The number of interested parties has also increased. Risk is becoming an issue. "You can't be hung for what you don't do," is an expression I once heard. Why take the risks? To succeed in a Bureaucracy, you are not expected to do something. People even joke about it.

"I don't know why they fired Joseph," a bureaucrat says. "He didn't do anything!"

Or, here is another one:

"What is your brother doing now? I heard he wanted that job with the government."

"Nothing," is the reply. "He got the job!" Growing companies give. Aging companies take. When you are young you are expected to be idealistic and aspire to change the world. As we age we conserve energy and worry not how to change the world but how to survive it. Thus risk avoidance comes with aging, conserving energy, rather than risk taking, which can be afforded when energy is abundant.

When things stop growing, they begin to die.

-Charles Gow

Energy declines with aging because more and more goes to internal marketing-the struggle to keep the disintegrating pieces together. As energy goes inside, less is available for the outside, and, thus, there is less willingness to take risk.

When a company is in rising Prime, such caution is a desirable counter to the aggressiveness of late Go-Go. As an organization passes the point that marks the peak of Prime, it works to balance risk avoidance with risk taking. In waning Prime, risk avoidance overtakes risk taking.

With success, people become satisfied and content to depend on the momentum created in the past. Their attitude becomes, "if it ain't broke, don't fix it." Now that the organization has plenty to lose, people don't want to disturb the smooth sailing, and they begin to perceive the costs of risk as being too high.

As caution becomes a dominant pattern, and risk avoidance overtakes risk taking, a company's culture changes.

2. From Expectations Exceed Results to Results Exceed Expectations

During Infancy, management can tell you how well the company did in a year-only after that year has ended. Its people have difficulty predicting their future. Managerial behavior is now-oriented. Neither the past nor the future is immediately relevant. Management might have a dream about the distant future, but it is vague at best. Infant organizations react to immediate pressures, and their results are still meager. By definition, their expectations for the future exceed the current results. This phenomenon of expectations exceeding results continues into Go-Go, which in its arrogance, frequently expects the unachievable.

In the Go-Go organization, there is experimentation. Go-Gos over-stretch. Management attempts to budget and plan, but it won't really honor those budgets. Go-Gos are often still planning their budgets several months into the fiscal year. When they compare actual results with the budget, the variance can be quite significant. The deviations can be even staggering-as much as 200 to 300 per- cent above or below budget. Go-Gos are not under control, and their expectations are not reflections of results based on experience. Even when results are under budget, arrogant Go-Gos don't correct the budget. They believe that the results will catch up. Their plans seem to assume there will be miracles. When the state of Israel was established and its chances of survival were questionable, David Ben Gurion, the founding Prime Minister, was asked if he relied on miracles. He answered, "We do not rely, we plan on miracles." Go-Gos believe more than they think. They expect and aim for more and more. They are by and large unhappy with the results, no matter how good the results are. Their horizon moves as they advance.

During Adolescence, the organization begins to learn how to regulate itself. By Prime, it achieves control. A Prime organization can have the Go-Go's growth results, and it can predict and achieve those results. A Prime company can tell you its plans and accomplish them with only minor deviations.

In order to achieve repetitive predictability during Adolescence, organizations learn to formalize budget systems, reward achievement, and punish deviation. The Go-Go culture of quasi-anarchy welcomes the necessary discipline. But what is functional and desired at one stage of the lifecycle becomes increasingly dysfunctional and undesirable at later stages of the lifecycle.

Because Infancy and Go-Go established that more is always better, Adolescent organizations don't afford equal treatment to deviations above and below budget. If actual sales exceed budget, people are rewarded-no matter how large the deviation.

If sales fall below the expected, people are punished-no matter how small the deviation. This unequal and often inequitable system of reward and punishment introduces order and predictability to the organization, exorcising it from daydreaming and making budgets based on wishful thinking. The organization has ambitions-remnants of its Go- Go culture-but its ambitions are gaining discipline as it comes of age.

What impacts behavior is not the process and purpose of bud- geting, but, instead, the system of rewards. If negative deviations get punished and positive get rewarded, it doesn't take much to predict what people will do. Everyone will focus on minimizing undesirable deviations from the budget, aiming to maximize the deviations that earn rewards.

One way to minimize undesirable deviations and maximize rewards is to reduce expectations. During the budget process, people set goals that they are sure they can exceed, or at least achieve. To account for any uncertainty, they aim low. When this behavior first starts, it functions to counterbalance the culture of Go-Go's wishful thinking. After Prime, however, such behavior is dysfunctional, causing organizational aging.

In Infant and Go-Go organizations, people get rewards for what they do, regardless of how they do it. No one has fully fixed the how, anyway. Budgets are rare. Bonuses are based on actual results, functioning much like sales commissions.

When companies base their reward systems on how people meet their goals, behavior changes. The reward system increasingly rewards the how, rather than the what. There are rewards for how well people beat the budget. The lower the target, the better the chances of beating it and reaping the payoff. Eventually, the system rewards people who successfully lie about how much they cannot do. To ensure that they never end up below budget, people aim low.

As a matter of fact, subordinates at any level aim low because they know their superiors at any level will bargain to raise the target. A group dynamic of mutual deception develops. Superiors bargain to raise goals for the budget because they expect their subordinates to aim artificially low, and subordinates aim low because they know their superiors are going to raise the goals anyway. The budget that finally gains approval reflects neither the real capabilities of the organization nor the real opportunities of the marketplace. It merely reflects the trust or mistrust among the levels of the organizational hierarchy.

Consider the man who wanted to be sure his horse would win every race it ran. He entered the horse only in mule races. The horse did win-for awhile, until it started to behave like a mule.

There is no long-term winning unless you're willing to take the risk of short-term losing.

There is now a new fad: benchmarking. Organizations work to meet or exceed the best-known results of comparable organizations. Because a company focuses on an externally established standard, it bypasses the process of mutual deception. Still, I wonder about the long-term side effects. Although it is too early to know, I do have my suspicions. Would I point to the best student in my son's class and pressure my son to match that kid's grades, or else? Would I contin- uously compare my son to that kid and admonish my son for not being so good? I doubt that I will ever do that, but that is the process of benchmarking. What, I ask, is wrong with the old-fashioned, sim- ple system of doing one's best and sharing the spoils? Maybe, because management is unsure about what "best" is, it has to look elsewhere for answers. Or, worse, maybe the managers don't trust each other so they have to negotiate to identify the limits by pushing back and forth.

Benchmarking is excellent as a vehicle for planning, but does it work for rewarding or punishing?

As the company becomes averse to risk, and results exceed expectations, it starts to accumulate cash.

3. From Cash Poor to Cash Rich

A company with expectations that exceed results is always hungry for more cash. Cash fuels growth. Organizations that want to grow always consume more cash than is readily available. Infants and Go- Gas are always short of cash.

In organizations where results exceed expectations, people spend less than they could or should, and cash starts to accumulate. In the advanced stages of aging, we find highly liquid companies with more cash than they can use. They don't have a plan for using it. Such a situation befuddles entrepreneurial Go-Gos, attracting them to attempt a takeover.

4. From Emphasis on Function to Emphasis on Form

The shift of emphasis-from function to form-is a transition that starts in Adolescence with a transition from "more is better" to "better is more." In Adolescence, organizations realize they can become more profitable by doing things right, rather than by doing more things.

They realize they can generate profits by cutting things out rather than by adding things on. Entrepreneurial types-and, by definition, founders of companies are entrepreneurial-make profits by increasing sales. Administrative types make profits by slashing expenses. The entrepreneurial type asks, "What else can we do?"

The administrative type asks, "What less can we do?" Administrative behavior and orientation are functional during Adolescence, when it is time to cool the hyperactivity of Go-Go. Adolescence is the time to trim extra leaves and branches so energy can be directed, rather than diffused. Attention, which has been ded- icated to effectiveness as measured by revenues from customers, turns to efficiency. This sets the focus on form rather than function. Because form is almost nonexistent in the Go-Go organization (it is perceived as unnecessary), the marginal utility of any system-its form-developed during Adolescence is of great benefit.

In Prime, form and function achieve balance. But the relationship of flexibility, function, and form (discipline) is not stable. Form overtakes function although the development of form has a decreas- ing marginal utility. It continues to grow nevertheless. Here, I believe, is how it happens.

Form grows because it feeds itself by itself. How?

Form implies rules of conduct to maximize control and pre- dictability of behavior. Its purpose is to minimize, if not eliminate, deviations from the norm. Since it is inconceivable to control absolutely everything, there are always some deviations; the organization, which is on a control binge, establishes new controls to eliminate those deviations. But that increase in controls creates more opportunities for newer deviations to emerge. The more controls we have, the more we identify deviations of increasingly minute character. Those deviations call for more stringent controls that will identify even more minute deviations, and so on, and so forth, until Kafka applauds.

The organization's emphasis on form affects function. Why? Flexibility suffers when form increases, and in a changing environ- ment, decreasing flexibility implies declining functionality. In the later stages of the lifecycle, only form remains. The tree has died; the stump is still there. People go through the ritual of rain dancing, acting as if it will bring the rain. People continue to go through the motions of budgeting, although they know the numbers are not at all realistic. They behave as if by worshipping the form, they will realize the function. And when that doesn't work, do they stop the rain dance? No. They dance even more furiously. They seem to assume that the reason it did not rain is that the form was insufficient-that they did not dance well enough. The same with Bureaucracy. The controls do not work, and, by definition, they cannot work perfectly because there are always uncontrollable deviations. What do the administrators do? They increase controls. If there is any function, it hides underground-despite form. It is because there are no controls on control that form, for the sake of form keeps growing.

The Blob is continuing to grow. By the Blob I mean the educational bureaucracy, that part of the educa- tional system which does not consist of students, does not consist of teachers, does not consist of principals. It consists of others, many doing a very fine job. But, do we need them all? ... [I]f the number of students in a school district or in a state declines, the Blob still grows. The administrative bureaucracy gets bigger and bigger. And, I can tell you as someone who's in charge of administrative bureaucracy, when it gets bigger and bigger, it gets harder and harder to run, and accountability tends to get lost.

-Education Secretary William Bennet, At a Feb. 10, 1998 NEWS CONFERENCE, Wall Street Journal

Why does form overtake function? Why does it keep growing despite decreasing marginal utility? Because it is emotionally and psychologically easier to enforce form than to perform function. I use the words "enforce" and "perform" on purpose. To enforce means to repeat rituals. It does not require creative energy. It is not accompanied by anxiety, the byproduct of uncertainty, that is always present when we do something new. To perform a function, one must adapt to changing realities. Change creates uncertainty. Uncertainty generates anxiety and demands psychological energy. It's very difficult and exhausting to learn something new. On the other hand, to enforce the already existent, repeating, "No, No, No," you need only stamina and the stubbornness not to give up.

Form is simple. There is no need to think. We have only to repeat what we are used to doing. Over time, form wins over function because it is emotionally less taxing.

As long as some degree of function exists, even illegitimately, form can survive. When no functionality is provided, when form is barren, there will be a breakdown and a rebirth of function, and a new Courtship will take place.

5. From Why and What to How, Who, and Why Now?

During Courtship, everyone talks about why things should be done. What, how, and who are only marginally interesting.

In Infancy, after the organization is born, one hears only what to do. Why gets hardly a mention; it is even bothersome to some people. "Do it now." The management-by-crisis motto, "Ready, Fire, Aim," probably emerged from the culture of an Infant organization. Everyone's focus is on the fires. First extinguish them, then we might worry about how to prevent them and who should prevent them.

Organizations eventually do pay the price of ignoring the how and the who factors. As they outgrow their capabilities, organizations become such messes that they can no longer ignore how and who. First how demands attention. Adolescent organizations spend their time addressing questions of how. They try to establish the what not to do and why not to do it by focusing, for a change, on the how it should be done. When they finally address the who factor, organizations are fully proactive. "Whom do we need to do the job?" And organizations really show maturity when they know, based on experience, whom not to appoint.

Organizations in Prime take time to find what they want, rather than being driven by expediency. They are opportunity-driving, not opportunity-driven.

They know what they want because they know what they do not want. By the same token, they know whom they want because they know whom they do not want. This who orientation is pronounced in Prime organizations. They attend to human resource fac- tors, staffing decisions, and getting the best people money can buy.

Figure 7-2: The Changing Focus

In aging organizations the how is pathological. Rather than concerning themselves with how to achieve what they set out to achieve and why, they pursue how for the sake of how. Period. It is a ritual.

For organizations that have aged considerably, the who factor becomes pathological. They are involved in witch hunts. Everyone is looking for who did it, rather than whom will we need to do it. Rather than looking at what an individual can offer their organizations, they look for the person's misdeeds. The what factor also becomes pathological. The organization is lost, and it asks desperately what should we do to survive. That is not the healthy, proactive, forward-looking, energetic why-driven what of Infancy. The what to do is based on fear, not faith.

Faith dominates growing cultures. Fear dominates aging cultures. In Prime there is a faith and a healthy dose of fear. Andrew Grove, chief executive officer of Intel, a company in Prime, paid homage to that condition in his 1996 book, Only the Paranoid Survive.

In companies that die, the why factor has become pathological. Why should the organization exist? It has no right to.

6. From Contribution to Personality

The increasing emphasis on form at the expense of function affects personnel administration. In the growing stages, what really counts is what people produce or contribute. Even people who are real "skunks" are okay-as long as they make valuable contributions. As form takes over, the how becomes more important than the what. How people behave, talk, dress, and whom they know overshadow the importance of what they do for the organization. This behavior is especially prevalent in large organizations where interdependencies are so complex that-with the exception of sales and manufacturing-it's almost impossible to attribute a specific contribution to any single individual. The higher one is on the organizational echelon, the tougher it is to evaluate his or her personal contribution. In response, the organization focuses on the how, adopting the assumption that the how can predict and assure the existence of the desired what. When the how becomes dysfunctional-rather than producing desired results, it impedes them-there is no functional what or how. All that remains is a who orientation: Who did it? Whose fault is it?

Thus, while growing organizations hire and promote people because of their contributions and despite their personalities, aging organizations hire and promote because of personality and despite the lack of contribution.

In mature companies, particularly those with lax or nonexistent performance and review policies and procedures, advancement is achieved through seniority and connections rather than being based on qualifications or performance.

7. From Asking Forgiveness to Asking Permission

Turtle: I am lucky I am going slowly; I might be going the wrong way.

Because in young companies, form is weak and function dominates ("Did you do it? We don't care how."), what counts is results, results, results. As long as the results are good, it's not difficult to slaughter a few sacred cows. People who tried but failed to achieve good results can ask for forgiveness. When form takes over, how one does anything is far more important than the results. People get repri- manded despite their extraordinary results because they didn't follow the correct procedures-the right form. As a result, nobody dares to take chances. Everyone asks permission if there is any possibility of having to make even the slightest deviation from the norm.

In growing companies, meetings are devoted to criticizing what someone already did. In aging companies, discussion centers on whether something should be done at all. In growing companies, executives might say, "No one said it shouldn't be done. Let's go for it!" In an aging company they say, "No one said we can do it. Why are we jumping the gun?"

More than 30 years ago, I wrote my doctoral dissertation on the effect of decentralization on organizational behavior. My study of industrial democracy in Yugoslavia focused on what happened when the country distanced itself from the Russian model of central plan- ning and moved to a market-oriented economy. Some 25 years later, when the Berlin Wall fell, my topic became a hot subject. I noted that when the country was under the Russian Central Planning System, the prevailing attitude was, "If it is not explicitly permitted, assume it is forbidden. Don't take risks." When Yugoslavia moved to free itself from the Russian Central Planning System, allowing market forces to regulate the economy, the climate changed. People had to take risks if they wanted to thrive. The market economy required a behavior that assumed, "If it is not explicitly forbidden, it is permitted. Let's try it."

It isn't easy to introduce changes into an organizational culture. People are more comfortable assuming that something is forbidden rather than assuming it's permitted. Nobody can hang you for what you don't do, or as the Sephardic saying goes, "In a closed mouth, flies can't get in."

Consider the ensconced bureaucrat who indignantly complains, "I don't know why they fired Smith. He didn't do anything!" He seems to say that doing something is bad and doing nothing is the desired norm. Aging organizations expect inaction, and they reward it. Action makes waves and increases uncertainty. The following somewhat crude joke makes my point:

A person joins a bureaucratic organization. As part of his orientation, personnel directs him to report to an office where he will talk to some of the old timers about the company's motto. When he gets there, he opens the door and discovers a roomful of people submerged up to their lower lips in a swamp of fecal matter. Puzzled, he asks, "What's the company motto?" Straining his ears, he hears a slow, cautious whisper, "Dooooooon't maaaaaaaake waaaaaaves."

Those who make no waves, keep their mouths shut, and accept the status quo, are the people who win rewards and promotions, while those who try to initiate change are rejected because they make waves, and each wave reduces the comfort of others. Once when I was visiting a rather stodgy company, one of its livelier employees confided, somewhat bitterly, "Here, you can tell the inno- vators by the arrows in their backs."

Here's a parable from the early part of this century. Two shoe companies sent salesmen to Africa, instructing them to check out the market there. One informed his company,

"There's no market here. Everyone is barefoot." The other wired headquarters, "Incredible market here. Everyone is barefoot." The first salesman worked for an aging company; the second represented a growing company. The Talmud says: "For a believer, there are no questions. For the skeptic, there are no answers."

Growing companies have believers. Aging companies have skeptics.

Growing companies create new needs. They have vision. Unless proven wrong, they assume they are right. Aging companies exploit-proven needs. They are risk-averse and skeptical, and their attitude is "until it's proven right, assume it's wrong."

8. Are Those Problems or Opportunities?

Entrepreneurial types see no problems, only opportunities. Every problem presents opportunities to do something else or something better. But, when entrepreneurs follow too many opportunities, they create problems. That's why Go-Go companies live in a situation of crisis-by-management, rather than management-by-crisis.

For administrative types who concentrate on how to implement new ideas, every opportunity is a problem. "How in the world are we going to make it work?" More often than not, they decide that if there are any problems of implementation, they are insurmountable.

From Adolescence onward, as administrators take over from the entrepreneurs, more and more opportunities are deemed prob- lems, and those who introduce opportunities are perceived as trouble makers. Naturally, they end up with arrows in their backs. The company is stymied; it doesn't anticipate change, and, eventually, it fails even to react to change. The switch from opportunities to problems is accompanied by a change in the power centers of the organization.

9. From Marketing and Sales to Finance and Legal

The role of marketing and sales is to exploit opportunities, and in the growing stages of the lifecycle, those departments carry the flag. They have the power to determine what product, system, or idea will live or die. Line departments dominate, and in the growing stages, there is no real corporate staff function. In Prime, the role of admin- istrative staff is to plan, control, and provide unifying centripetal forces. The center of power moves to the executive committee, which includes staff and line representation. As the organization moves into the aging stages, the center of power moves further into the staff-finance and legal-departments. Their role is to prevent the132 What Is Going On? company from making mistakes. Their role is to say, "No!" And they do. Line departments keep losing power, and the system becomes increasingly centralized.

10. From line to Staff

This change in authority and power-from line to corporate staff- means that those with no responsibility for results now have authority over those who do have that responsibility. Before, marketing and sales were responsible for producing results, and they had the authority to do so.

The switch in the power center has broad repercussions.

11. Responsibility vs. Authority

In young companies, authority is clear. Responsibility is not. In aging companies, the situation is reversed: Responsibility is clear. Authority is not. I'm sorry to tell you that this is not just a cute game of words.

In a growing company, there is so much to do that everyone pitches in. Responsibilities are fuzzy because everything is frequently changing. It's impossible to draw lines of responsibility. Still, everyone knows that "at the end of the day," the one-and-only has complete authority for and over everything.

Adolescent companies delineate responsibilities and depersonalize authority. Change decelerates after Prime, and responsibilities become increasingly clear. Authority becomes depersonalized and increasingly fuzzy as the organization ages. Aging companies are different from Go-Go or Infant companies where it is clear who has the answers-who has authority. Committees, procedures, and the like make it more and more difficult to identify authority. People are overcome by their sense of disempowerment. They are held respon- sible, but they can do little about their responsibilities.

In Prime, responsibility is clear and authority is not yet fuzzy. People work in the climate of a constitutional republic rather than an absolute monarchy.

Figure 7-3: Authority and Responsibility

16 After Prime, the finance and legal departments gain authority and power, and responsibility remains with sales and marketing. Authority is split from responsibility. Those with authority (staff) don't have responsibility, and those with responsibility (line) lack authority.

Authority without responsibility makes accountability fuzzy. The same holds true for responsibility without authority. Resentful of both aspects of the situation, people don't feel really accountable. Oddly enough, even chief executives of aging companies feel they lack the authority and power to initiate change. There are so many committees and forums for making decisions that many chief executives really cannot lead change. After Prime, fuzziness of authority slows decision-making and swift implementation, eventually leading to organizational paralysis. Organizational paralysis nourishes internal marketing, or infighting, and that diminishes the organization's capability to dedicate itself to effective and efficient competition in the market place.

When authority emigrates beyond the organization, as it does, for example, in governmental bureaucracies, the organization is on the critical list, dying of old age. It's unclear who can and, therefore, should act. If the organization neither takes preemptive action nor reacts, eventually it will become a political liability and die.

The repercussions of those changes affect the organization's sense of control.

DIBUJO

12. Who Is Managing Whom?

One afternoon I was scheduled to make a presentation to a company's top management. The meeting was taking place at a famous retreat, and there were horses for rent. I decided to use the morning to ride up the hill and down the valley. It didn't take long for me to realize that the resort had been renting out this horse for many years. It knew the path by heart. It also knew how long an hour was without knowing how to read a watch. I kicked it to go up the hill. It moved two steps to the right and stopped, swishing its tail back and forth. "Perhaps it prefers the valley to the hill," I thought. Please note that I had already started to negotiate and compromise. So I pressed my heel against its side, signaling it to go left. It went two steps to the left and stopped. Its ears inclined forward, and I got the message. If I wanted to ride, I would have to behave myself andThe Signs of Aging 135 return to the path. Now, who was managing whom? I sat on the horse, looked left and right, and acted as if I was in control. But for the rest of the ride, I tried not to upset "the system."

Many businessmen, looking for a challenge, take on a leader- ship role in a governmental bureaucracy. In their vision, they see themselves galloping up and down the landscape, making a differ- ence, leading a strategic change. Soon they recognize the power structure of the organization and start muddling through-no more than two steps to the right and two steps to the left. On the surface, they act as if they are in control, but underneath they carefully watch each step. They understand that the system is stronger than they are, and if they should disturb too many power centers simultaneously, they would be thrown out.

Think about what happens when political parties get power. When they are in the opposition, seeking power, they are busy mak- ing lots of promises. Maybe they even mean to keep them. Once they gain power, however, they find their promises are very difficult to keep because so many interest groups would be affectedY The governmental bureaucracy-professional public servants-have inertia working in their favor. They won't easily relinquish the vested inter- ests they have established, reinforced, and sanctified over the years.

To gain power and implement change, politicians try to extend their reach by making more political appointments, feeding fuel to the us-versus-them syndrome. Public servants are used to changing riders. They know how to handle them and reign in their impulses. For their part, the politicians resort to offering broad smiles, making lots of promises, and doing only as much as they can.

By the time a company has aged, its administrative systems, policies, precedents, rules, and guidelines dominate behavior. No matter how hard management works to appear in control, the decisions and reward systems of the past are what determine the company's behavior. In a sense, the company itself, rather than any particular person, manages management. The skippers are at the helm, but the engines of their boats have frozen. For as long as anyone listens, they can shout "Left! Left!" or "Right! Right!" (depending on their political convictions), changing direction while making as few waves as possible. They watch the polls, trying to gauge what they can do without losing votes. A friend of mine, a corporate chief executive officer, accepted a major political appointment and moved to Washington. We spoke after he had resigned the position. "Do you know, Ichak, what you get for kicking an elephant in the ass?" he asked. "A sore foot!" he said with a sigh. I'm sorry to report that my own personal experience, working with a number of prime ministers and cabinet level officials, confirms his assessment.

Many people find it difficult to understand how a system could manage itself. Journalists, charged with informing the masses, are unable to explain how a system could be so messed up that it runs itself. So they pick a villain. Similarly, when organizations in the advanced stages of aging run into trouble, they go on witch hunts, finding people to hold responsible and ritualistically firing them. Perhaps they fire the people who had been assigned to oversee the situation. In that sense, attribution is not rootless. Nevertheless, the "responsible" people haven't had control since the company left Prime. Since then, the system has slowly but surely taken over.

Consider the United States. Its Go-Go stage lasted until 1929. As a result of the stock market crash, the government involved itself in "guiding" the economy. Keynesian economics legitimized government intervention; we were into Adolescence. In the 1950s, the country was approaching Prime. Now, the government, which was functional during the Adolescence stage and brought us to Prime, is the source of its current aging. The New Deal, which was a blessing when it was introduced, is today an Old Deal and a curse of entitle- ments and disempowerment.

We need a new economic theory: Not Milton Friedman or Friedrich A. Von Hayek, whose theories, I suggest, fit a Go-Go and not John Maynard Keynes whose theories fit the needs of a Go-Go- to-Adolescence transformation. We need an economic theory that retards decay, rather than promoting development.

13. Momentum or Inertia

Growing companies need to sustain momentum. To keep a racehorse running well, one feeds it, exercises it, and keeps it healthy. A well-maintained horse needs no prodding. It will run and change direction as instructed. But if you want to make an old mule run and change directions on a dime, that's a different story. One needs to train a mule to race like a horse before one can take it to the races. Until it transforms itself into a racing horse, all you can do with a mule is keep it going: You have to capitalize on inertia. In the aging stages of the lifecycle, managers try to capitalize on inertia.

Rather than attempting to change direction, they try to find something good about going "wherever the organization is willing to go." Older organizations, because they lack flexibility, can't focus on effectiveness. In order to shine, management tries to maximize efficiency, worrying less about sales and more about cost reductions.

14. What to Do? Change leadership or Change the System?

Managers of aging organizations typically-and mistakenly- believe that a change in leadership will rejuvenate the company. But, changing the rider won't make a mule into a racehorse. New leader- ship affects results only in the growing stages of the lifecycle. No doubt you've noticed that young children grimace, speak, walk, and even laugh like their closest caregivers. Later, they develop their own styles, and we parents wonder who they are emulating. Likewise, in its youthful stages up to Adolescence, a company's behavior reflects the style of its leader. In Adolescence, organizations emancipate themselves from their founding fathers and mothers. They develop their own identities with new constitutions to which their leaders subject themselves. The organization takes over. That development is fine and desirable because it brings the organization to Prime, where the importance of leadership balances the importance of a depersonalized constitution.

Later, however, the "system" takes over. 19 New leadership will help extricate organizations from the aging phases only if it changes the system, spending time, not racing the mule but converting it into a racehorse. (We will consider how to change organizational cultures in the analytical and prescriptive part of this book.)

In the early 1980s, I worked with the Bank of America. At the time, the media were campaigning for the ouster of the president and chief executive, Sam Armacost. They maintained that because he had not produced immediate results, he should be replaced. I urged further analysis. If you see an old truck standing in the road, what is your first instinct? Would you change drivers? Perhaps the driver is busy under the hood. Only if the driver is doing nothing and the truck is not moving, should you consider getting a different driver. But, if the driver is busy fixing the truck, even if it is not moving, why would you fire him? First check to see how his repairs are progressing. Let's look at the process. Don't make a decision based only on premature results.

Contemporary management theory is preoccupied with man- agement by results and by objectives. Such approaches are appro- priate for the Go-Go stage. Public administration science and recently the humanistic school focus mainly on management by process. Both are legitimate driving forces as long as they are in the right sequence: management for results, for objectives, by process. Who leads whom?

The leaders of growing organizations animate the character of their organizations with their behavior. In aging organizations, culture determines the style of leadership.

The driving and driven forces exchange places. Leaders of growing companies determine their organizations' behavior. The culture of aging organizations dictates the behavior of their leaders. The situation mirrors an expression from the Bible, "P'nei ha'am ke p'nei ha kelev," which means, "The face of the people is like the face of the dog."

If you let your dog walk unleashed, it runs ahead of you and seems to be leading you. Right? But from time to time, it turns to look at your face so it can tell where you are heading. If you change direction, it will run to get ahead of you, but does that mean it's leading?

During the growing stages, people follow their leaders. As the organization ages, the flow of energy changes: Now, the leaders follow the people.

In the growing stages, changing the leadership changes organizational behavior; in aging we must change the behavior of the organization in order to change the leadership. Changing the leadership of an aging company without changing the system is like lifting your hand out of water. It doesn't make much difference to the ocean.

Unless he or she changes the system, a new leader won't make much difference to the system. As of 1998, when the United States was beyond Prime, already in the aging stages of the lifecycle, the president ought to have been spending his political "bank account" on efforts that would change the system rather than solve problems. That way, the next president would have enough power to deal with and solve the problems. A four-year term is too short to solve any of the complex problems that beset a country like United States. During the first year of their terms, presidents accumulate experience. By the third year, they are already thinking and preparing for reelection, and in the fourth year, they are busy running. In sum, a president nets about one year of the first four during which he can take the political risks necessary to deal with serious issues. The pres- ident has better chances of making a difference during a second term. In aging systems, however, witch hunts reduce the probability of reelection, no matter who is president.

When their companies are growing, leaders attract people with their message. In the aging phases, the people choose the leader who reflects what they want. The saying "people deserve the leadership they get" applies to organizations in the aging stages of the lifecycle.

Leadership in aging cultures is the consequence, not the cause, of organizational behavior. To appraise leaders of aging organiza- tions, we must look beyond performance. We must also look to see whether the leadership is initiating cultural changes that, eventually, will bring about desirable results. 23 The systems-organizational structure, rewards, and information-all need to be changed. We must change the truck's mechanism, not only the direction it is tak- ing. In aging organizations adjustments to product line, pricing, and advertising are only superficial treatments. Those are cosmetic changes that may bring temporary relief, but they don't address the roots of the problem: Why were there wrong products, wrong prices, and wrong promotions in the first place? One must treat causes, not symptoms. Who should do that?

15. Internal and External Consultants vs. lnsultants

To deal with causes and not just symptoms means to deal with the organizational guts-authority and responsibility structures, information and reward systems. You have to expect pain when you med- dle with an organization's power centers. You need to get neck-deep in company politics. Consultants give advice on what to do. They pride themselves on the length of their relationships with their clients; they cannot afford to be fired. As a result, they certainly won't look forward to disturbing corporate politics. To keep their accounts, they avoid causing pain.

Consultants who won't risk losing a client are the wrong reme- dy for an aging organization. The best they can do is to relieve some symptoms. An aging organization needs someone who will work to change the power structure. I call such people insultants: They are consultants who can afford to give pain and risk losing the account. It is very difficult for internal agents of change to be insultants. They cannot step knee-deep into organizational politics and preserve any career life expectancy. Being too low on the totem pole, they will be rejected, that is, fired. Outside insultants are best suited to the job.

Such internal consultants as organizational-development specialists can institute change in growing organizations because in those companies people know that the pie is expanding. Turf wars are relatively mild, and the dangers of violating political power cen- ters are not so severe. Furthermore, excitement about the company's successes compensate for the pain. In aging organizations, internal insultants will be rejected or be ineffective.

16. From Sales to Profit Orientation

At each stage of the lifecycle, organizational goals change. The goal of an Infant organization is obvious: Cash! The Infant needs to grow. It needs working capital-milk. The faster it grows, the more cash it needs. Infant companies often sell their products and services at a loss simply to generate cash. However, if they reach Go-Go, they have survived the cash crunch. What do those companies look for once they are in Go-Go? They seek growth, measured in sales and market penetration. Go-Go managers describe how well they are doing in terms of sales: "We sold 35 percent more than last year." In a Go-Go company, more usually applies to sales. In Adolescence, the company focuses on profits. That's when efficiency begins to have importance.

The transition from a focus on sales to a profit orientation is extremely difficult. 24 Both the bonus system and the hiring practices are geared to sales. During Infancy and Go-Go, organizations became addicted to sales. People's performance is pegged to how well they produce sales. Sales growth counts. When the organization begins looking for profits-seeking to work smarter, not harder- that behavior has to change. To change behavior, organizations need to alter their goals and reward systems. They must reconsider their hiring and training practices. And that is easier said than done.

Adolescent organizations must transform their consciousness, focusing their decisions on quality rather than quantity. When form begins to rival function, the two orientations engage in a difficult struggle.

Go-Gos ask me, "How can we have more sales and more profits?"

Figure 7-4: Goals Over the Lifecycle

I tell them, "You must first take time to get organized and systematized. Remember, as Bikram Choudury, a famous yogi, teach- es, "The road to heaven passes through hell." To realize its dream, a Go-Go organization must first endure and survive the pain of Adolescence.

Because, in Prime companies, function and form and quantity and quality have equal weight, their organizational goals are both sales and profits.

They can increase both sales and profits. As companies leave Prime, profit goals gain more importance than sales goals.

This, then, illustrates the shifting importance of goals:

• Growing stages: sales > profits

• Prime stages: sales

• Aging stages: sales < profits profits

17. From Customers to Capital

In Courtship, there are several groups of stakeholders who will benefit from the establishment of the organization, but their interests are not yet taken into account. Only founders' self-interests count. From Infancy on, one by one, stakeholders' interests are expressed and addressed until, finally, when the company reaches Prime, all interests are fully integrated and balanced. Since integration is not a steady state, as a company ages, one by one, the interest groups lose their power until only their "shadows" remain. That's what we know as politics.

For the Infant organization, cash reigns supreme. In Go-Go, the company is the founder's personal sandbox, and the customers are the kings. In Adolescence, the company along with its own managerial class becomes the client, and it starts to protect its own interests, frequently against the interests of owners and even customers. In Prime, the human factor emerges as a stakeholder and is coalesced and balanced with all other interests. The interests of top and middle management, capital, labor, and present and future customers are optimized. As the ability to adapt to change declines in the aging stages, customers become less and less important. The personal goals of management also lose importance because, instead of being the driving forces, they are driven forces. In advanced age, the goal is personal survival, and people start to jump ship. In excessively bureaucratic organizations, political survival is the goal. That means outside interest groups dominate the decision-making process, and the interests of the parties comprising the organization are no longer relevant.

That process results in goal displacement: Deterministic and constraint goals exchange places.

18. From Cash to Politics

Deterministic goals are those goals we want to maximize; constraint goals are those conditions we don't want to violate. Serving the market was a deterministic goal in Infancy and Go-Go, while profit was a constraint goal. Dividends were viewed more as payments on a bond-the minimum that had to be paid to the owners in order to keep them from withdrawing financial support. Dividends were not the owners' goals. The owners were looking for stock appreciation, not fast yields. Their goal was to maximize sales while keeping prof- its at the minimum acceptable level.

Figure 7-5:

In Adolescent organizations, when profits become a measure of significance and more sales do not necessarily produce more profits, sales are the constraint goal and profits the deterministic goal.

Goal displacement does not come easily. In Adolescence, although profits should be the primary goal, the sales orientation still dominates the culture. Companies become addicted to the sales ori- entation in Infancy and Go-Go. Back then, more was better. Thus in Adolescent companies, it's hard to know whether profit goals are deterministic or constraint goals. Managers oscillate between focusing on profits and pushing for sales. They want more of each. When, because of their location on the lifecycle, they cannot achieve those incompatible goals, they get annoyed and frustrated with each other.

Prime companies seek and achieve growth in both sales and profits, and for them, both goals are deterministic. The constraint goals-what they should not do-derive from their expansion strategies.

From Prime on, as organizations age, profitability tends to become the deterministic goal, while sales becomes the constraint goal. Instead of satisfying client needs, management learns to make money through interpretive accounting and by responding to the short-run expectations of the stock market. Because profits- measured in earnings per share-are the goal, the investment com- munity takes over the client's position. In companies that are privately-held, the owners become the demanding, rather than the giving, factor. It is now the organization's turn to feed, rather than be fed.

This development sequence is a universal phenomenon. The growing stages are characterized by giving. Prime is a stage of being. And an aging company is absorbed in taking. As people age, they grow more and more egocentric—stingy, demanding, and complaining. What is happening? As the system ages, maintenance requires higher levels of energy just to keep functioning. As the system falls apart, it needs more and more energy to achieve internal cohesion.

As people see their end approaching, they become protective: They egocentrically hoard time, money, and anything else they can. Likewise, as organizations age, they take more and give less. They invest less in the future, milking the cash cow to squeeze out what- ever is there.

As a company ages, its managers act as if it exists in the marketplace mainly to produce profits. They cut services-advertising, promotions, and research and development-in order to maximize those profits. In the process, they also eliminate the factors that stim- ulate flexibility and enterpreneurship.27 Since the organizational cli- mate encourages short-term profitability, those who promote that goal enhance their standing in the company's political power bank. There are fewer people fighting to have resources allocated for change that can promise only long-term results, and the cultural cli- mate has no interest in long-term yields. People who activate change step on too many toes. The others label them insensitive and accuse them of not being team players. For their efforts they find them- selves politically isolated and functionally insulated. Eventually, they stop trying, quit, or get fired.

With aging, the system shortens its horizon; it becomes short- term oriented.

Figure 7-6: Deterministic vs. Constraint Goals Over the Lifecycle

When the organization ages, it is milking time. Owners rush to extract a return on their investment. They want the shortest payback they can get. As a result, they consume not just the fat, but the flesh as well. As they downsize, they often sacrifice what's left of the remaining vitality.

When the company reaches the advanced stage of aging, the stage I have named Salem City, the witch hunts start, and the goals change once again. Now everyone focuses on individual-not organizational-survival. People no longer strive for dividends, return on investment, or sales. They worry about who will survive and who will get fired. They are like senile, old men who no longer feel commit- ment even to their own wives. They are concerned only about their personal peace of mind and health. In aging organizations, politics devour most of the managerial energy.

In Bureaucracy, there is blissful silence. By that time, the organization is under a proctorship, and there is nothing to fight for. In order to survive or be promoted, one only need go through the motions. As long as people behave by the book, they have nothing to worry about. If you lie low, make no waves, and neither offend nor threaten-as long as you avoid confrontations-you might even become the chief administrator. Your primary goal is to be a political asset, not a liability.

Lifecycle Stage	Deterministic Goal	Constraint Goal
Infancy	Cash	Quality of the founder's personal life
Go-Go	Sales measured in market share and profits	None-if the founder can get away with it. He is testing the limits.
Adolescence	Profits	Sales in dollars
Prime	Profits and sales	Strategic Decisions
Fall	Protection of the status quo	Not to make waves
Aristocracy	Return on investment	Sales in unit terms
Early Bureaucracy	Personal survival	Political Goals
Bureaucracy	Political Power	Political constraints

Let us now describe the manifestations of aging and what hap- pens at every stage of an aging organization.