Why Organizations Fail

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Engineering The Modern Corporation At GM

In the early 20th century, Frederick Winslow Taylor developed the concept of scientific management. He showed that by breaking down jobs to their component parts, you could optimize any process. Later, Alfred Sloan would apply a similar approach at General Motors, engineering an elaborately designed organization that functioned like a well oiled machine.

Under Sloan, GM became the world’s largest corporation. While strategy was formulated and resources were allocated centrally, individual managers were accountable for their own area of responsibility. They were given tools to accomplish their specific tasks, but ultimately, they were answerable for the performance of their unit.

Unfortunately, as Rana Foroohar pointed out in Time, this reductionist approach fails to take into account that the real world is a thoroughly interconnected place. When a seemingly minor flaw in the ignition system resulted in airbags that did not deploy on impact, as many as 100 people died and the company was disgraced.

Taken individually, the problems didn’t seem severe. The defect in the ignition switch was minor and the airbags worked as they were designed to. It was the interplay between the two systems, which did not fall into any specific purview, that created disaster.

Optimizing Retention At Comcast

The cable business is going through a tough time. As new services like Netflix and Hulu—and more recently Sling TV, HBO Now and Showtime—create viable alternatives to traditional packages, the cable business model is breaking down. Faced with such disruptive forces, any competent manager would take steps to meet the challenge.

And for the most part, cable companies are doing just that. Charter Communications is creating its own cloud based service, Verizon is offering a al carte packages and Comcast has invested in programming and a home security service. Yet those are long-term solutions. To gain the time they need to put those plans into place, they have to retain customers.

Following a rational approach, a viable strategy would be to train and incentivize customer service staff to retain subscribers. By providing them with proven scripts and offering performance based pay, retention rates can be raised and the bleeding can be stemmed. Yet much like at GM, excessive focus on one particular metric ended up creating problems.

When Ryan Block, a tech writer, called Comcast he was subjected to an almost comically desperate customer service representative who made it impossible to cancel his service. Block recorded the call and posted it online, creating a sizeable scandal. The company apologized profusely. Clearly, the episode was not what it had intended.

How Victims Families Fall Through The Cracks

The US government takes the security of its people very seriously. When citizens are taken hostage overseas, the State Department, as well as Special Forces units like Delta Force and Navy SEALS, will go to great lengths to secure their release. In some cases, commando teams are sent in to do so by force.

This is all done at considerable cost. High-level diplomats are taken away from other important tasks. Commandos risk their lives. Yet nobody questions the importance of keeping citizens secure. The one thing the US government will not do is pay ransom, for fear that doing so will only create greater incentives to take Americans hostage.

It’s a reasonable policy but it too has gone awry. With their single minded focus on securing the release of hostages, government agencies often mismanaged their handling of the victims’ families. In some cases, those who sought to pay ransom or negotiate directly with terrorists were threatened with prosecution by the Justice Department.

I lived overseas for fifteen years and had a number of interactions with foreign service officers. I found them highly, dedicated, professional and caring. Our military is renowned as the finest in the world. The prosecutors in the Justice Department are passionate about upholding the law. Unfortunately, no one was strictly accountable to the victims’ families.

The Obama Administration has taken steps to change the situation. We’ll see how it goes.

Evolving Resilience

All of these episodes share striking similarities. In each case, a system encountered a problem that it wasn’t designed for. Each organization was castigated—many would say rightly so—not only for dysfunction, but for callousness, if not malicious intent. And, in each case, the cost of the resulting problems far exceeded what it would have taken to avoid them.

Let’s return to my family’s mini-epidemic. In normal times, bacteria and my family enjoy a happy coexistence. In fact, we have ten times as many bacterial cells as human ones. Some, like the mitochondria which power our bodies, have co-evolved with our cells, while others help us in other ways. However, when bacteria become infected with a virus, their genetic code is altered and our biology treats them as a foreign invader.

What happens after that is utterly inefficient. Our body temperature rises, making us sluggish and unproductive. It produces millions of antibodies—usually far more than needed—to identify the invader and direct T-cells to attack with overwhelming force. The response is massively asymmetrical, inhibiting regular body functions to deal with the problem.

In general our bodies are poorly thought out. I have an appendix that I don’t really need and a limbic system, inherited from reptiles, that goes haywire every now and then. My prostate gland, somewhat foolishly, surrounds my urethra, inviting painful problems to come. If I were designed at any self respecting corporation, surely somebody would have to be fired.

Yet while we are poorly optimized for any particular function, we have evolved splendidly to adapt to challenges that cannot be foreseen or planned for. Although we share the same biology with ancestors who lived thousands of years ago, we perform very different tasks and get along quite well. Ironically, those gene altering viruses have helped us do it all.

The truth is that the real world defies engineering and logic. Perhaps that’s one reason why human life expectancy is roughly 80 years and increasing, while corporate life expectancy is now less than 20 years and shrinking.