Memorial Day: The Concept of the Corporation Chapter 2

It’s Memorial Day in the United States so there is no Drucker today. I have visiting relatives and spent the day shepherding them through the city. A memorial service with lots of important people and lots and lots of spectators in the morning. A concert in a city park at night.

We saw the management in the morning. Guards and guides and people looking at checklists. We were able walk out of the facility and back to the subway on our own. That may have been a mistake. Most people were being shuttled back and forth under careful watch.

The evening concert was a little more subtle. The evidence was careful stashed behind the stage. We saw a show between the trees and under lights and never thought who was guiding it or who made the plan to set up the equipment or clean up the trash. We enjoyed the night and that was all we considered.




(91)

Tiny Duffy Meetings: The Concept of the Corporation Chapter 2

I like the image or at least the name of Tiny Duffy, who was enforcer for the Huey Long character in Robert Penn Warren’s All the King’s Men. Drucker’s discussion of management meetings suggests how Tiny Duffys work. They listen. They go to management meetings and sit on the edges. They hear the discussion and try to determine what ideas are behind it. I once heard a cast study about a new restarant. The place proving popular and had large crowds on weekend nights. On one night, a waiter asked the manager to step into the kitchen, where she met the entire staff. The staff was demanding a riase or they would quit. The case asked “What do you do?”

The question was misleading. The right answer was not an action but a strategy. “That won’t happen.” Is the right response. “I will know the discontents among the staff and make sure that they never rise to that level.”

Tell your boss it is stupid. The Concept of the Corporation Chapter 2

How do you tell your boss that some policy or decision is stupid? The old joke says “Very carefully.” Drucker argues that large management meetings give junior supervisors a chance to fight back and gives a heart warming example of a policy on foremen that was rolled back. It is a good story and you should look at it if you are reading the book. I do think that it points to a specific issue.

Most managers are more cautious in the presence of their subordinates. It is hard to tell people “no” to their face. It is harder still when you have a lot of them. One of the big questions of management concerns how you get advice from your staff and subordinates and how do you get that advice in a form that is actually useful. A large meeting might be the forum, but it can also be the place where discipline breaks and you are faced with a collected force that carries no useful info and cannot be easily assuaged.

Are we really economists? The Concept of the Corporation Chapter 2

Are we really economists? Do we really look at every factor under our control and try to make the decsion that produces the greatest return? Drucker seems to suggest that we don’t and hence is anticipating Herbert Simon, who argued that we really don’t. According to Simon, we run companies on heuristics, on simple rules that seem to work most of the time. When they don’t, we have long meetings that analyze the problems and devise a new system to coordinate labor and monitor progress. Often this is a practical solution but it can also be quite far form economics. It’s administrative behavior.

Feedback: The Concept of the Corporation Chapter 2

Here is another spot where software is going to change the game. Drucker is now talking about the Sloan meetings, the large conventions that Alfred Sloan held for managers to discuss problems and policies. Why is there a large meeting facility in Milford, Michigan at the GM test facility? It’s a small town in the far eastern corner of Oakland County. But it has direct rail connection to Detroit and to the northern Detroit suburbs. It was a place for GM execs to get to the country and talk.

Drucker talks about the meets in glowing terms, but then he says nothing that Beninger doesn’t say 40 years late in his discussion of managerial feedback. Over 600 GM executives attended these meetings, which must have been most of the senior management.

Companies are bigger. They are less interested in assembling their top execs in one place. There are also more ways of getting and distributing information. I know that large corporate meetings still exist but heavily supplemented by teleconferences and other exchanges of information. IBM used to bring all of its sales staff to Endicott New York every summer. I doubt that that is still the case.

The Euphemism of the Bonus” The Concept of the Corporation Chapter 2

We probably need to change the name of bonuses. Of course “incentive pay” sounds too much like a euphemism. Yet, they are a tool for keeping people in line. The criteria for paying bonuses has to be an objective measure but that measure may be somewhat distant from the market. In the last year, we have seen a lot of bonuses paid by Wall Street firms that have angered the public. The public argues that individuals who may have contributed to the decline of the economy should not get bonuses. While I am not in a position to judge the validity of the bonuses, I can see that the recent rounds were poor political moves. They angered a public that was not predisposed to like such payments.

At the same time, I appreciate that each company may have had internal social reasons to pay bonuses. (See my last post.) Yet, they defended the bonuses on economic grounds and, as Drucker suggests, failed to heed the political issues. A corporation needs to do three things: function internally, provide for the aspirations of the society, and sustain a stable society. The Wall Street bonuses may have only accomplished one of the three.

The bad personnel call: The Concept of the Corporation Chapter 2

Drucker has a lengthy discussion of personnel issues at the executive level but only hints at the real problem. All things are legal for me, says the prophet, but all things are not expedient. In theory, central officers have complete control over divisional executives. However, they hire and fire at their own peril. A bad decision hurts the entire division. A unpopular leader, fired at an inopportune moment sends a shudder through the organization. Am I vulnerable? Do the bosses make completely arbitrary decisions? Need I be worried? In a moment, a difficult employee can be a hero if not handled properly.

I have seen many a bad personnel decision and made several myself. The one problem that will always devastate is a group is the appearance of arbitrariness, the suggestion that you make decisions with no principles at all. I saw one recently. The boss admitted that the employee “didn’t agree with him.” With that admission, the boss may have lost all authority to make such decisions ever again. If you have to make a decision, you have to have a reason or at least be able to defend the decision as good for the group. Of course there are times, rare indeed, when you need to make a firm decision in order to enforce discipline but one should never be seduced into believing that such a tactic is regularly needed.

Politics: The Concept of the Corporation Chapter 2

Is this a political document? Is Drucker writing to convince a certain segment of the country that his view of the corporation is right? Is he trying to thwart the remaining inclinations towards the New Deal. I’ve been impressed with the extent to which the writers in Forbes and Fortune are clearly trying to establish a more open framework for business and to discredit the New Deal reforms. They link government coordination of production to fascism and argue that such processes ultimately destroy all freedom.

Yet Drucker is clearly not a pure capitalist. He is not arguing that the independent structures must maximize their return on investment and do all within their power to do so. They act independently, he argues, and that will bring about the necessary result. Obviously, the companies of 1946 simply cannot do all the analysis that they would need to do to absolutely maximize their returns. This will be the interesting story that unfolds as software develops. Does software help capitalists be capitalists?

Decentral Operations: The Concept of the Corporation Chapter 2

Drucker makes an interesting literary decision. He introduces the benefits that he sees in decentralization in the context of one of his interviews. It moves the discussion away from his opinions and gives it the appearance of being more objective, more analytic. If you look carefully, the benefits tend to be the benefits to central management or the corporation than to individuals. They don’t quite deal with the three categories that Drucker identifies at the start of the book, though I suspect that he will return to those points and try to make the connection between the inner and outer world of the corporation.

The five benefits of having a central manager, articulated by an unidentified central executive, are:

1. The central management gets broad goals for the divisions;
2. Unifies the divisions into a whole and limits their authority;
3. Tracks progress and problems;
4. Relieves divisional directors of certain task (Financial, legal, public relations etc);
5. Offers best advice from central legal, accounting, etc staff.

All of these things can be good things but they can also seem like impositions on division leaders who are anxious to acquire more authority. The complaints can be major or they can be petty – too much red tape, interference by bean counters, and so on.

The Conservative Revolution Redux: The Concept of the Corporation Chapter 2

Drucker clearly likes the idea that GM is a decentralized corporation. For Mr. Sloan [the president of GM] and his associates, the application and further extension of decentralization are the answer to most of the problems of the modern industrial society.” (p46) His opinion recalls the end of his prior book, in which he larges that the American revolution gave the world “new society with values, new beliefs, new powers and a new social integration without social revolution.” (184)

He now has to show that this strategy is able to meet the three sets of goals that he established for a corporation:

1. The ability of the Corporation to survive and function as an independent entity;
2. The ability of the Corporation to fulfill the needs and aspirations of society;
3. The ability of the Corporation to sustain a stable society.

He is writing in 1946, when the memories of 1929 were fresher than they were today. At the same time, many in the country had a more idealized view of the corporation than we do at the moment. The Futurama of the 1939 Worlds Fair projected a beautiful world filled with superhighways and large corporations.

Tale of Two Buildings : The Concept of the Corporation Chapter 2

There is a General Motors Building in both New York City and Detroit. Or at least their once were buildings of the same name in both cities but then GM moved into the Renaissance Center on the Detroit River and the original General Motors Building was renamed Cadillac Place. OF course in 1946, the year of this book, the GM Executive Offices were in 1775 Broadway, now 3 Columbus Circle.

The point is that General Motors had a strong presence in both cities. Detroit was the industrial hub, the home of operations. New York was the financial center, the place where the company raised funds and dealt with the corporate world. The separation mirrored the corporate structure of GM, though the physical locations don’t perfectly map onto the company structure. By 1946, GM had 30 divisions and each was almost a complete company. The corporate office provided certain central services – legal, financing, etc. – that held the group together.

Forces and Balance: The Concept of the Corporation Chapt 2

Drucker’s policy discussion ends quickly here. He barely introduces the topic before he shifts to something else. It suggests the standard critique of Drucker: He asked the right questions but didn’t always provide the right answers.

In reading this chapter, I began to realize that he is anticipating the world of Alfred Chandler, or perhaps more likely Chandler drew from him. Managerial policy favors stability, argued Chandler. When a company develops a professional managerial class, it makes decisions that tend to preserve the positions of those managers. We have seen that problem in many companies. DEC in the 1980s. IBM about the same time. We may be seeing it in Microsoft.

There is “always a latent conflict between the administrators who define efficiency in terms of the perpetuation of the administrative machine and the “doers” who define efficiency in terms of the aims and purposes for which the institution exists,” is Drucker’s response. “ These conflicts are not only inevitable, they are necessary; and no institution could function unless all four trends were equally represented.” I suppose that this is Schumpeterist capitalism. We have the fight so that inefficient organizations die and are replaced by more efficient ones.

Nature of Policy: The Concept of the Corporation Chapt 2

Policy is always a tricky beast. It can ossify an organization but without it, an organization can be chaotic and strive for a dozen different goals. Under the best of circumstances, undisciplined initiatives can cause an organization to lose focus. In the worst case, says Drucker, “there is a real danger that speculation be mistaken for initiative.”

I’m currently working on a policy problem that will likely get plenty of objection from a group of independent units that are running of in an entrepreneurial fashion, each trying their hand at the market. The good side of their work is that they are all exploring different opportunities. The obvious drawback is that they are taxing the centralized staff by each using different techniques to solve related problems.

Back to Goldstine. He’s an academic and places grate faith in expertise. During the second world war, he provided technical expertise to the Army, an expertise that was quite rare. (Mathematical ballistics). Yet, expertise can harm an arganization as those with such knowledge tend to look at the activity from only one point of view. “The premium on expert knowledge,” saith Drucker, “contributes substantially to this danger because it puts emphasis on the “professional view” as does the isolated life which the average managerial employee of the large corporation often leads.”

Yardsticks: The Concept of the Corporation Chapt 2

Software has brought an age of accountability. We can gather lots of information about organizations and use that material to judge the operation of any unit. I have been involved in many such exercises. The problems with this work is two forld. First, you want to establish something that is objective and cannot be easily manipulated. Second, you need to find a measurement that truly fits the overall goal of the organization. The simplest example is sales. The overall goal for the company is profitability. High sales tend to produce more profits. However, sales are usually measured on a short time frame while profit is considered on a longer term. You can easily make short term gains in sales that are detrimental to long-term profit. You can drain the potential customers for the next two years, sell products that require too much support, create backlogs in service and production. The list goes on. Finding good yardsticks is not as easy as it sounds.

Early writers on software – Goldstine for example – felt that software would carry expertise to companies and factories. In some ways, it has fulfilled that promise in the managerial context. We sell canned software to small organizations, which they use without modification, even when the software includes implicit yardsticks or targets.

Independent Command : The Concept of the Corporation Chapt 2

We are wandering away from technology here. Drucker is spending much of this chapter making the case for the special nature of industrial leadership. He notes that small business does not really provide a training ground for mid-level managers. In effect, they don’t have the right kind of experience to move into that kind of position. Leadership in one job does not translate into leadership skills for another kind of position.

I see that time and again in the software world. Skill with technology is not the same as skill with finance. Skill with finance is not the same as skill with politics. With words that presage the recent American presidential campaign, Drucker notes that we do not have a formal training program for presidential leaders. We tend to draw presidents from the ranks of senators and governors. The former, usually, do not have any experience with large-scale independent leadership. The latter have dealt with problems that almost never appear on a national level.

Conservation of Intellectual Energy: The Concept of the Corporation Chapt 2

We know the end of the story, or at least the next chapter, and so some of Drucker’s predictions ring hollow. He clearly has great faith in mass production as a form of industrial organization. “Indeed it may be said that the rate of industrial expansion in this country depends very largely upon our ability to recruit and train a sufficient number of potential leaders in mass production industry,” he argues.

It is a prediction that seems to be based on the idea that the labor pool will be stable, that communities will not engage in a race to the bottom for labor costs, and that international trade will not grow. I suppose that we can forgive him the last misstep. The GATT treated, which starts the modern international trade regime, is being negotiated as he writes this book.

Still, he makes an interesting claim about mass production by stating that it redistributes work from the craftsman to the manager. “Intellectual energy like any other form of energy cannot be eliminated; and what is saved at the bottom must be added at the top,” he claims. If such were the case, then his prediction would have been largely true, subject to dislocations of labor.

WWII Production: The Concept of the Corporation Chapt 2

We are moving through the second chapter of Concept about a page at a time, but it offers many topics for discussion. The biggest, which has bothered me from the start of this project, concerns the connection between 21st industrial life and the second world war. Was our industrial organization complete determined by the forces that shaped the late 1940s? Memories of the 1930s depression, the rise of fascism, the conversion of industry to war work, the desire – strong among business people – to free the corporation from governmental control. It is a question that will not be easily answered until the end of this project.

In the meantime, Drucker is arguing that mass production and the corporate structure that supports such production is the foundation for all modern industry. Mass “production is not a technique but a basic concept of industrial organization that is generally applicable.” he argues here. “Its essence—to repeat what has been said before in different words—is the substitution of co-ordination and organization for individual skill.”

Civil War The Concept of the Corporation Chapt 2

Drucker dashes over the problem of Civil War. He may get to it later.

The problem is common enough. An organization needs a good supply of leaders. You need to have leaders serving in lower positions who can take the top. Each is ambitious. Elbows are thrown. Words are said. The fight begins. How do you stop Civil War without being Richard II, without alienating your subordinates and weakening the organization. Richard (Shakespeare if the reference is not clear.) banishes one contender and punishes another. In the process he starts the process that will lead to his overthrow. He could not control his followers and could not defend himself. The play ends badly, if you have not seen it . There is a speech about a “little, little grave”. That is all that is left for the weak leader.

Identification: The Concept of the Corporation Chapt 2

I’ve seen it many times. We all have. An organization gets a new leader, who is met with great enthusiasm. The employees or members of whatever feel that this leader will correct all the mistakes of the former regime and lead the group to new heights. In six or twelve months, the new leader’s stock has fallen. The staff is grumbling. Everyone feels that nothing has changed. The group is again on the road to perdition.

In this section on leadership, Drucker argues that the leader and the organization, need to solve the problem of identity or espirit de corps. The workers or members need to identify with the organization, with the leader, with the goals of the group. Increasingly, we have attempted to solve this problem with goal alignment exercises, as we have long ago learned that the human mind has an unchanged penchant for criticism. I’m not sure that goal alignment can get at the spiritual connection that Drucker desires. It may be the difference between his age and ours. It may be the difference between his outlook and modern attitudes.

An “ institution must he able to make useful the good and to neutralize or deflect the bad qualities in its members,” he writes, “to be able to dispense with
the superman or the genius, and to organize a systematic and dependable supply of reliable leaders.”

Crying Leaders: The Concept of the Corporation Chapt 2

For my May column in Computer, I wrote about the problems of leadership that Drucker raises here. (You can find it on computer.org/theknownworld or in the IEEE electronic library, if you have access to the later.) I have received more email about it than any of my recent columns, though largely for reasons that were independent of the subject of the column. You have to go back to the one called “Force of Nature”, which I did almost three years ago. It, too, was about leadership and was largely misinterpreted. It dealt with the fact that we don’t do much to prepare technical people for leadership but most of the correspondents wrote me to say that they identified with one or more of the characters in the column.

This last May, I took issue with Akio Toyoda, who gave sad performance as a CEO in a time of difficulty for his company Toyota Motors. His biggest was the fact that he was unable to control his emotions, however his speech was also badly written. If it had been delivered by a more confident individual, it might have worked, but it was not. Though it was probably written by a PR firm, it was filled with basic mischaracterizations of good management and good control in a crisis.

The point in the speech that I attacked was the idea that a good corporation was built on the backs of good people. I argued, as Drucker does, that a good organization can get good work from mediocre people and that only a poor company requires top people to function effectively.

“No institution can possibly survive if it needs geniuses or supermen to manage it,” writes Drucker in this chapter. “It must be organized in such a way as to be able to get along under a leadership composed of average human beings.” Such was my impression of Toyoda’s performance. Either he was a mediocre leader or he was being guided by people who had a mediocre understanding of industrial organization.”

Gadgets: The Concept of the Corporation Chapt 2

Drucker makes an interesting comment about our infatuation with gadgets. We tend to substitute them for organization and relationships. He is thinking about machine tools for assembly lines. We would tend to conceive them as the various forms of computers and aps. In either case, his point has some validity.