You don't admit to it in public, you don't always talk about it in private, but it's there. Always. It affects the way you feel, work, live, your family, and your colleagues - even your organisation's profits. Gerard Egan has named it...
When was the last time your company had a formal meeting on internal company politics? What, never? Of course not. The politics of the workplace, while it exists to various degrees of virulence in almost every company and institution, takes place 'off camera', as it were, in the shadows. Even very rational entities such as rules have a shadow side. Often enough, when workers such as air traffic controllers want to express their displeasure to management, they 'work to rule'. Working to rule can soon bring an institution to its knees. This tells us something about the 'rationality' of the rules in the first place. Because all companies and institutions are both delightfully and infuriatingly human, they have a shadow side. The time has come to explore and manage the economics of the shadow side.
It consists of all those things that substantially and consistently affect the productivity and quality of the working life of a business, for better or for worse, but which are not found on organisational charts, in company manuals, or in the discussions that take place in formal meetings. However, shadow-side realities are often freely discussed in the institution's office corridors, canteens, rest rooms, and on the shop floor.
Companies don't publish organisational charts that include a political power rating for each of the players in the boxes. Personnel manuals do not have rules governing political manoeuvring. The senior team does not meet to discuss organisational politics. While many managers will admit off-camera that the company has its share of office politics, most will deny that they engage in political behaviour. They are more likely to confide that their units have been the victims of office politics and that the ultimate victim is the business itself.
The shadow-side activities of the business then have two distinct characteristics. They are outside ordinary management processes because they are covert, informal, or even undiscussable; and they are economically significant, that is they add value or, very often, add direct or indirect costs, including lost-opportunity costs, that escape ordinary accounting procedures. In other words, although these activities are elusive, they need to be tracked down and managed because of their potentially enormous economic consequences.
Some managers will see the shadow side as soft-side stuff, which can be easily dismissed. However, in discussing the future of his business the CEO of an international, $6-billion firm said to me, 'The soft side is the hard side for us in two ways. First, since we have an engineering mentality, it is hard for us to think about, much less manage, so-called soft realities. Second, my best bet is that hard results will come from managing the soft side well.' Shadow-side activities or the 'arational-alities' of the organisation constitute the ultimate soft-side reality. But managers should take the soft side seriously only if it is tied to the business in terms of tangible economic benefits.
Some shadow-side activities add value rather than cost. In one company the star salesman quietly but consistently broke some of the rules in the company manual. For instance, he went home early when he had important domestic tasks to do, he routinely booked hotel rooms that were a bit more expensive than was allowed, and he moonlighted as a consultant to a non-competitor. His immediate boss and a couple of senior managers knew of these indiscretions, but they never brought them up, even among themselves. The economics of this undiscussed arrangement were good. They also realised that some of the salesman's co-workers knew about some of his little games and envied his ability to get away with them. But in the eyes of management, co-worker grousing was, on balance, less important than his sales results. This arrangement went on for years, was never discussed with him, and was never brought up in any formal meeting.
But too many things in the shadows are quite expensive. It is time to evaluate them in terms of pounds and pence.
- What is the cost of incompetent and oppressive managers? Company after company gives them no feedback and leaves them in place.
- What is the cost of a self-serving deal secretly made by the heads of two different departments? Both relatively innocent and more ominous deals are made sometimes without a word being spoken.
- What is the cost of a performance management and appraisal system that everyone tries to avoid or work around? The vast majority are like that.
- What is the cost of a covert business-limiting cultural norm? Ask IBM. Ask General Motors. Companies and institutions are filled with such norms.
In each of these cases, and in dozens of others, the costs are undetermined but high. In a world in which re-engineering, downsizing, and cost containment are the order of the day, it is time to re-engineer the arationalities of the business. Since most companies do not think systematically about managing the shadow side, doing so does not currently provide a competitive edge.
Things are changing fast. IBM has fallen, in part because it failed to see that it had a covert culture it could not afford, one that blinded it to the realities of the marketplace. AT and T is becoming an international powerhouse - ask British Telecom and Sprint - in part by rooting out the company-limiting covert norms of its culture and substituting overt norms that serve the business. It has been steadily changing 'the way we do things here' with bottom-line payoff. AT and T's chief executive, Robert Allen, has not turned up his nose at such soft-side rubbish. He knows his economics too well.
The first thing managers need, if they are to manage shadow-side realities, is some kind of framework to organise their thinking about them. Here are six interrelated categories.
Michael Dixon, writing in the pages of the Financial Times, has popularised this term. It refers to common mistakes that many, if not most, companies make, recognise, and then repeat. Contrary to popular opinion, neither individuals nor institutions routinely learn from their mistakes. Organisational stupidities are found in every facet of the business.
For example, companies formulate strategies, even excellent strategies, and then consistently fail to provide the kind of strategic management system needed to drive them into the guts of the company. The result? Strategy floats like cream on the top of a liqueur. It drives little. There is a double cost here: the wasted cost of formulating the strategy; and the lost-opportunity cost of an unimplemented or poorly implemented strategy. The administrator of one hospital I worked with had a drawer full of unimplemented plans.
One company after another blindly pursues restructuring - an organisational intervention - when the real problems lie with the business, the poorly formed and executed strategies, the wrong set of products, poor service, ineffective marketing, and the like. A new structure will never rescue a lousy strategy or an inept marketing programme.
When Barber Conable took over the reins of the World Bank from Bill Claussen, he, like all new chief executives, wanted to put his mark on the institution. Predictably, he initiated a massive restructuring effort that severely affected the quality of working life when, according to many of the Bank's friends and foes, what was needed was an in-depth review and reformulation of its mandate and strategy.
Restructuring is, for any organisation, a very costly process to undertake. I often ask the managers of institutions hell-bent on restructuring, 'How will this make the business better?' I often get the answer, 'Gee, that's a good question.' It's the only question. When someone does not make the restructuring-for-the-sake-of-restructuring mistake, it is news. In early July of this year, Louis Gerstner, the new CEO of IBM, announced that he would not restructure the firm's massive sales force. Despite the fact that he had cited it as a key to the company's ills, he was going to try to make the current structure work for business reasons. Immediate radical restructuring, he said, would pose a danger to customer loyalty. This does not mean that a radical restructuring won't take place down the line. It should take place at a time and in a way that serves the company's business. Will it? Let's see.
Most companies choose people to be managers because they are good at something else. They are good accountants, good engineers, good lathe operators, good whatever. Then they give them little or no training in distinct managerial skills. Would you like to be operated on by someone who was chosen to be a brain surgeon because he or she showed excellence in the maintenance department?
Learning from the mistakes of others is much less costly than learning from one's own. A kind of reverse engineering of benchmarking is needed. Identify the worst practices and avoid them. One senior manager in the retailing business said to me, 'It's amazing how much money you can make by stopping doing the wrong things.'
Given the turbulent climate and complexity in which most businesses and institutions operate, the rational tasks of the manager are daunting enough. Shadow-side realities make the manager's job geometrically messier. The average manager's day is quite chaotic and looks little like the planning, organising, staffing, directing, and controlling sequence found in textbooks. As one writer put it, the new role of the manager is more about making sense out of chaos rather than ensuring control. There are a few sources of the shadow-side complexities that contribute to overall messiness.
If you look at a company's charts or read its manuals, everything seems tightly coupled with everything else. Strategy drives operations and the organisation serves the business. In reality organisations are often loosely coupled, even sloppy. In one US city there were two school systems - one government run, the other privately run. The private system was about one-third the size of the government system. The former had a central administrative office of some 38 members to provide staff services for its schools. The latter had a central administrative office of some 3,800 members. By every criterion the private schools were more effective than the government schools. The organisation in the government system, beset with politics and self-serving agendas, was focusing mainly on itself and was very loosely connected with the mandate of the school system to help students learn, grow, and develop.
Companies officially publicly endorse rules, regulations, and standards. But inevitably covert arrangements arise without official endorsement and often contravene or take precedence over formal rules, regulations, and policies. These uncondoned arrangements can either enhance or limit the productivity of the system. They can actually can help many managers to do their jobs better.
One manager fudged the budget a bit to hire a work-design consultant. Since hiring consultants was not allowed, it had to be called something else in the books. In hiring the consultant, the manager assumed that she would be worth much more than she was going to be paid and his arithmetic corroborated his assumption. The whole process added value - but was 'illegal'.
On the other hand, many managers fudge the budget to conceal their incompetence.
A CEO once said to me, 'We have a good structure.' He was wrong. The structure, I learned, was much too bureaucratic and the business thrived in spite of it. The reason? A set of informal networks had evolved that cut through the bureaucracy of the formal structure. David Krackhardt and Jeffrey Hanson, writing in the Harvard Business Review, see the formal structure as the skeleton of the company, while informal networks constitute the central nervous system. Like other shadow-side phenomena, informal networks can be two-edged swords. While they can be used to cut across functions and divisions to get things done quickly, they can also be used to sabotage plans and oppose change. It is the manager's job, then, to identify and map these links and help them serve company-enhancing goals. For instance, if speed-to-market is critical for a company, then in many companies making use of informal networks is an economic necessity.
The Idiosyncrasies of Individuals
What is the cost of employee theft? We think we know. What about the cost of paedophilia among the clergy? We're finding out. Much of the literature on organisations ignores the vagaries of the human condition - which is a bottomless pit of shadow-side realities and therefore a potential source of great economic gain. There are company-enhancing and company-limiting idiosyncracies. Many are two-edged swords that add value only if managed carefully.
Take this thing called entrepreneurial flair, called 'intrapreneurial' in some larger organisations. While often prized, it is seldom a part of an employee's job description - perhaps because it can have a dark side. On the assumption that the recent British Airways 'dirty tricks' were not condoned by higher authorities, it would seem that some rogue operators within the company decided to take competitive matters in their own hands. Disregarding both legal and ethical principles, it would seem, they found ways of filching passengers from Virgin. The economics of such idiosyncratic, shadow-side behaviour have been very poor for the world's favourite airline and it seems that they might get worse.
Contrast this with the intrapreneurial behaviour of a manager at Federal Express. A bad snow storm knocked down telephone lines atop a local mountain and made it impossible for the small-package delivery company to serve its customers. The telephone company said that the lines would be out for a couple of days.
Unable to make it up to the top in his four-wheel drive vehicle, the Federal Express man doubled back, drove into the local airport, hired a helicopter, got dropped into a snow bank on top of the mountain, and restored the telephone service - all without checking things out with either his boss or the phone company. Whereas in many companies he would have been fired for exceeding his spending authority, he received a bonus.
What are the economics of the boss's ego? The boss's ego - whether it is the big boss or any of the lesser bosses within the organisation - often remains outside ordinary management processes, but it can add great value or great cost to the business. Recently the board of BP decided that the big boss's ego was too expensive and they let him go. In 1992, RH Macy and Co, a 136-year-old US retailer, filed for bankruptcy. A rational analysis of this case would show that the company, like many others in the frenzied '80s, courted excessive expansion and took on more debt than it could afford. A shadow-side analysis, reviewed extensively in the business press, indicts the ego of its chairman and chief executive. For years his ego certainly contributed to his merchandising brilliance and entre-preneurial flair. These added great value to the company. But ego also drove him to try to establish an empire overseen by a family dynasty. At this point his ego proved to be very expensive. The trouble is - who can sit down with the boss and help him do a balanced economic analysis of his or her ego?
Effective managers and supervisors understand the vagaries of people and know when to intervene and confront, when to encourage and reward, when to coach and counsel, and when to leave things alone - all without becoming psychologists. While this is only common sense - or perhaps extraordinary sense - few companies make sure that their managers and supervisors have and use these capabilities. The fact that they don't, constitutes a major organisational stupidity that has woeful economic consequences.
Vagaries of the Social System
Organisations do not just have divisions, functions, departments, units, and teams. They also have in-groups, out-groups, and social conspiracies and arrangements. That is, each organisation and each unit within larger organisations is a social system with all the vagaries of social relationships. Team is a rational term, while clique is a shadow-side reality. Effective managers both build teams and manage cliques. Information sharing is a rational term. Rumours, gossip, and grapevine are shadow-side realities.
Consider the following example. I was talking to a glum-looking senior manager of an international development institution. When asked what was wrong, he replied that he was having trouble with JB, one of his subordinates. When I heard the story about JB - the manager's version, of course - I said, 'Why don't you fire her?' 'I can't,' was his reply. Taking a rational approach, I pointed out to him that current institution rules, regulations, and policies certainly allowed him to fire her, with some room to spare.
'You don't understand,' he said. 'There are two reasons why I can't fire her, and you haven't touched on either.' He went on to explain that the institution had recently become very touchy about women's issues. After all, his institution had been a key participant in the UN-sponsored 'decade of the woman' which was just coming to an end. What he was saying was that the institution as a society was becoming more and more concerned about the place of women both within itself and in the world. Therefore, firing a woman, even an incompetent and difficult one, was not easy in the current social climate.
'More important,' he continued, 'she's a member of the X mafia' (X referring to a particular nationality). Since over 100 different nationalities were represented in the institution, he could have mentioned any of the other national mafias. She happened to belong to the X mafia. 'What makes the X mafia so sacred?' I asked. He went on to say that X was no more powerful or sacred than the A, B, or C mafias, but that he had to do a lot of work with a director who was also a member of the X mafia. 'If I were to fire her, this could well sour my relationship with him, though he would never admit it. I need him as an ally over the next year or so to make sure that two projects move forward. I can't afford to take the risk.' It is not uncommon for the members of a sub-society to protect their own. The fact that these mafias were sub-societies within a large institution did not change that social rule. He ended by saying, 'I'll have to find ways of walling her off so that she does not cause any harm. It's not my biggest problem. I'm just very annoyed with her today.' He was managing the shadow side at the service of the institution.
In many companies family dynamics play a critical role. In the US some 80% of firms are family businesses. This has an upside and a downside. When family members are committed both to one another and to the business, this can contribute greatly to a team spirit and to high-quality customer service. While all families have their squabbles, savvy families learn how to leave them for the most part at home. On the other hand, you don't have to spend much time within many family businesses to find the dark side.
In case after case dysfunctional family dynamics spill over into the business often with disastrous financial consequences. The organisation is political if any of the following conditions prevail: there are players who enjoy the use of power; both individuals and organisational units vie for scarce resources; stakeholders protect their territory; and players with different ideologies and values want theirs to prevail. Since these conditions prevail in all institutions, the issue is not whether the organisation is political or not but how virulent politics are and whether they enhance or limit the institution's productivity.
There are two kinds of politics - the politics of self-interest and positive politics. The former can be quite costly, while the latter can add great value. We all know what the politics of self-interest are. John wants Jessica in his department and will pull whatever strings he has to get what he wants, even if the common good of the company suffers.
The notion of positive politics is newer. The starting point for positive politics is what a sponsor sees as an institution-enhancing agenda. In one large computer manufacturer a vice president proposed entering a partnership in one product line with a rival company. The debate that ensued brought out a lot of issues such as outmoded products and poor internal service, issues that had remained in the shadows for years. In the end the senior management team agreed to pursue the partnership over the howls of those whose empires would be diminished.
The new CEO of one company took a novel approach to turf bashing at the first meeting of his management council. He had them sit in a predetermined order at a round table. In front of each was a title plate indicating the function he headed. After emphasising the importance of inter-unit teamwork and how important it was for everyone at that table to take a general management rather than a head-of-unit view of the business, he asked each to pass the title plate in front of him to his right. In one stroke each of these executives headed a different function. The cost of each learning a new business or function, he reasoned, would be much less than the cost of challenging each of the empires they had created.
When open debate on key issues is bypassed and covert, self-serving deals are struck, the company and its shareholders are too often hit economically. US car manufacturers in the face of Japanese competition belatedly realised that they simply could not afford the politics of turf protection.
In the blink of an eye, as it were, cross-functional teams swept away empires that had lasted years. This hardly eliminated the politics of self-interest, but it did reset the political game. The politics of self-interest will never be eliminated, but they can be managed.
Companies and institutions have both overt and covert beliefs, values, and norms that influence both business and organisational behaviour. The covert set can be quite dysfunctional and costly. Culture - the assumptions, beliefs, values, and norms that drive 'the way we do things here' - is the largest and most controlling of the systems because it affects not only overt organisational behaviour but also shadow-side behaviour. For instance, it dictates how crazy or idiosyncratic people can be. My best bet is that the culture of IBM is still less tolerant of individual idiosyncrasies than the culture of, say, some start-up computer firm making IBM clones.
Culture lays down norms for the social system. In one institution you had to be an engineer to rise to the top. There was no published rule, of course, it was just the way things were. In one bank you could never be made an officer of the company if you wore polyester clothes. Culture tells us what kind of politics are allowed and just how members of an organisation are allowed to play the political game. In one large British company self-interest agendas were the name of the game: 'If this does not help me and my career, why should I do it?' It goes without saying that this culture of self-interest added enormous costs. All of this changed when this industry went into convulsions because of deregulation, global competition, and a recession.
In many companies flawed beliefs interact with questionable values to produce dysfunctional norms that drive value-subtracting behaviour. In one company, the belief-value-norm-behaviour process looked like this:
- Belief. 'In the eyes of our bosses, we are only as good as the results we produce today. Yesterday's results are forgotten. Tomorrow's are not here yet.'
- Value. Getting ahead. The place was filled with professionals who wanted to be on the fast track.
- Norms. 'Be flashy. Produce short-term results. Fudge the figures a bit. Find out what's on your boss's immediate agenda and help him do that.'
And that's the way it was - a deadly combination, introducing, as it did, a short-term mentality that stood in the way of the longer-term pursuit of strategy. There was also a cut-throat atmosphere which pervaded the entire organisation. Both the social and business economics were poor.
While there has been a great deal of writing about and discussion of culture, too little attention has been paid to the positive and negative economics of culture.
Consider the following conversation. I once said to a client, 'You have a very expensive culture.' 'What do you mean?' he asked, obviously intrigued. 'Well,' I said, 'let me give you a few examples. Your company is very good at analysis. However, if something needs to be analysed two different ways, you do it three ways and are looking for the fourth. There is a culture of perfectionism around here that is costly and does not add value.' A hint of a frown spread across his face. 'Another culture-driven set of behaviours is found in the way you go about approving projects. Your vice-presidents are deeply involved in developing projects and presenting them to the decision-making committee. One told me that his group had done eight dry runs for one presentation and more were scheduled. They had developed 45 slides for the presentation, but had over 200 in reserve so that every possible question could be answered. This is a very expensive process that adds little value.' The norms which drive this kind of behaviour included 'Beware of committing career-interrupting mistakes' and 'Find out what in your boss's mind in order to tailor your choice of projects and their presentation.' 'Hmm,' he replied. 'What you should do', I continued, 'is let me explore the culture, put dollar amounts on culture-generated waste, suggest ways of reducing the waste, and pay me a small percentage of actual savings. I'd say that 5% would make both of us very happy.' 'I'll think about it,' he replied, and that's the last discussion we had about culture.
Managing the shadow side
A student who worked in City Hall once said to me during a course on managing the shadow side, 'Now that I have lost my shadow-side innocence, what do I do about all of this?' What indeed? The answer does not lie in a set of magic tools. Rather it is a question of raising consciousness among managers with respect to shadow-side activities and both amplifying and fine-tuning some generic skills that managers should have in the first place but often, through no fault of their own, do not have.
Managing demands more than technical competence. It demands 'street smarts.' Managers cannot manage what they don't know. Naivete is disastrous. On the other hand, growing awareness of shadow-side realities can promote cynicism. A cynic, unfortunately, is someone who has given up but has not yet shut up. Naivete and cynicism are different sides of the same coin. Streetwise realism is a different coin. Ferreting out shadow-side issues is not part of the manager's job description. The best do so instinctively. The shadow-side framework outlined above is a consciousness-raising tool. While managers should not use it to engage in paranoid witch-hunts, they can use it to become adept at routinely identifying shadow-side trouble spots.
Once identified, shadow-side realities need to be subjected to economic analysis. Managers underuse economic analyses. While they routinely scrutinise the economics of, say, new-product development, they seldom if ever scrutinise their own daily activities to determine which add value and which don't. While it is more foreign to do a cost/benefit analysis of soft-side realities, it can be done and often with a great deal of precision. For instance, the lost-opportunity costs of the covert cultural norms, 'Do not take risks here,' can be determined. In one chemical company plagued by this norm, the opportunity for a major acquisition was lost because of the conservatism of the analysts and the hesitancies of the senior team. The rival that made the acquisition surged ahead in terms of both market share and profitability. And for years a 'we lost our one big chance' mentality bedevilled the company.
Many managers are not as assertive as they might be, especially with respect to shadow-side issues. Even when they are vaguely aware of arrangements in the shadows, they leave them alone, including them among 'those things that are better left unsaid'. The new chairman of one formerly staid British company took one look and said to himself, 'This place is run like a gentlemen's club.' Then he did a clean sweep and the company today is very profitable. While some hidden agendas stay in 'deep cover', others are not that hidden. They are merely unchallenged.
Tact keeps assertiveness from becoming aggression. Since many shadow-side issues are sensitive, a certain delicacy is useful. The manager who has to deal with someone engaging in self-serving politics does not have an easy task. Effective managers know what to bring into the light and what to leave in the shadows. Since some covert arrangements add value to the business while others add cost, managers might well look the other way in the case of the former and deal with the latter case by case through a cost/benefit analysis. The question is: should Pandora's Box be opened or not?
In one company, the vice president of human resources met with me off site. He said that this meeting was completely off-the-record. He then shared with me his serious concerns about the integrity of the chief executive. He needed a sounding board. Since the chief executive would be moving on in a year's time, was it worth the effort to challenge what he was doing? Would such a course of action blow up in his face and in the end do even more harm to the company? He was struggling with the economics of managing the shadow side.
At the end of the meeting he reiterated its off-the-record nature. 'We never had this meeting and we did not talk about these issues,' he said. 'If you ever mention it, I will deny it and you will never do any more work for this company or its subsidiaries.' In his mind not only was this issue undiscussable, but its undiscussability was undiscussable.
Where do managers get the communication skills everyone says they need? How many senior managers have you met who are really good at listening? Well, these same, often non-existent communication skills are needed to manage the shadow side. What communication skills does the streetwise manager need? The ability to appreciate and learn from another's point of view; the ability to give both corrective and confirmative feedback; the ability to challenge others forcefully but tactfully and even have them like it; the ability to engage in problem-solving dialogue and innovation-focused debate; and conflict management and negotiation skills. We don't really require managers to have these skills, but many shadow-side issues will not be managed without them.
The ability to use technology and the latest managerial techniques makes managers smart. The ability to understand and deal creatively with the arationalities that permeate every corner of the business makes managers wise. Give me the smart-wise manager any day. Some managers feel that the shadow side should be left alone. The ills we know, they reason, are more acceptable than those that are hidden in the shadows. However, this is unfair both to the business and its shareholders. The issue is not whether to address shadow-side realities but how to do so.