Barry A.Stein is president and co-founder of Goodmeasure, Inc. The former president of Organization Development Associates, he has taught organizational behaviour and management at Harvard, MIT, and Yale. His most recent book is Quality of Work Life in Action

Corporate America's Little Secret Barry A. Stein he programs, suggestions, and nostrums that have recently been advanced to rescue American industry- ranging from elaborate formulations of a national industrial policy to detailed prescriptions for behavior at the desk or on the factory floor-share the common assumption that our leading business firms are basically sound. All these corporations need is either some organizational fine tuning or an appropriately modified political and economic environment. My own conclusion, reached reluctantly after more than 25 years of consulting in hundreds of (primarily) American blue-chip companies, is different: Most corporations are riddled with massive problems, dysfunctional practices, and counterproductive arrangements. Far from living up to their image as sophisticated and deliberate instruments of collective purpose, they are technological bulls in society's china shop, lurching from one point to another, often out of control, and steered more by sheer momentum and chance encounters with other massive institutions than by design. Walking Dogs James Boswell, the biographer of Samuel Johnson, once accompanied the ever-curious Dr. Johnson to the performance of a celebrated dog that walked on its hind legs. Boswell was disappointed; the dog, he said, didn't walk very well and did not always respond appropriately to its master's instructions. Johnson demurred, "It's not how well the thing is done," he said. "It's that the thing is done at all." Just so with most large firms. Their low productivity should surprise no one. What is remarkable is that they function at all, rather as if one were trying to produce space shuttles in a blacksmith's shop and succeeding-sort of. Some readers may be surprised by this charge; some may even be outraged. However, for most of those who actually work in large firms, I doubt that this is news. In the course of a personal and admittedly imprecise study over the past year or so, I have put the same proposition, often in even stronger words, to more than a thousand employees at all levels in many large corporations. The reaction is usually the same: initial shock, some tittering, a look around the room, and finally wholehearted laughter and delighted head-nodding. I always invite people to disagree; virtually no one ever does. The "little secret" therefore is simply that large corporations, more or less universally, are not very effective. Even the best-so-called "excellent" organizations-are only moderately effective when judged by their capacity to use their resources, especially people. This standard, the utilization of organizational capacity, makes just as much sense as the widely used measure of utilization of manufacturing capacity, although the latter is much easier to measure. And, by this broader standard, large organizations are a rather poor lot. Some evidence for this conclusion comes from experience and reflection. In large organizations people and systems operate much more effectively some of the time than they do most of the time. There must, therefore, exist a large reservoir of potential effectiveness that only occasionally gets tapped. This is such an elementary phenomenon of organizational life that it goes largely unremarked, and very few people ever ask the critical question: Can we operate in general the way we operate on occasion? What accounts for this difference in levels of performance in the first place? Can it be people? Is it the quality of managers? Do some organizations have an extra allotment of bad apples in their barrel? I believe that the quality of people is not the major issue. There certainly are differences among organizations and some have more incompetent or misguided people than others. But, in fact, productivity of most people-as against organizations-is actually quite phenomenal, once we take into account the extraordinary effort and ingenuity with which they manage to do their work despite the apparently endless road blocks, sources of resistance, and just plain interference characteristic of large organizations. As often as not, people are forced at every turn to violate formal policies, disobey instructions, and put themselves at risk to solve the problems they confront. We measure productivity as if people performed on a flat racetrack; in reality it is an obstacle course. Consider, for example, the present widespread fascination with "skunk works" (separate subsidiaries, spin-offs, internal venture capital units, or equivalent devices for developing and launching new products). These are typically rationalized on the basis of one or more of the following arguments: 1. Entrepreneurs are a different breed and can easily be contaminated and neutralized by "business as usual." 2. Competition requires this. If a skunk works isn't available, entrepreneurial people will leave to find an innovative home somewhere else (for example, in a small start-up firm). 3. It is essential not to encumber fledgling ventures with the heavy burden of organizational procedures and policies. This list is striking because these points are an extraordinary and unrecognized indictment of the organizations that advance them. In The Change Masters Rosabeth Moss Kanter has demonstrated how the confining circumstances, procedural burdens, and less-than-desirable policies that characterize most people's jobs hinder everyone, not just entrepreneurs. Most existing organizations almost seem set up to drive enterprising people away. Indeed, if it weren't for a considerable energy barrier-a sort of psychological hump- that people need to cross when switching jobs, turnover would be much higher than it is. The grass on the other side looks even greener if the grass on your side is brown. Organizational Blindspots Why is this problem not more noted? The answer is that, in fact, it is recognized by a great many managers and workers, but these people don't know (and would rather not believe) that their local observations and experiences are characteristic of the entire system. And those who could see the entire system, those at or near the top, do not see the same things at all. The organizational environment of senior management is, in most critical respects, more similar to the environments of top managers in other comparable companies than it is to the rest of their own. Yet, since they believe that what they see and experience adequately represents the rest of their organization, it is difficult for them to believe that their employees live in a qualitatively different world. Therefore, top executives have little recognition of root problems. So they learn to settle for symptomatic treatment with a steady supply of organizational aspirin, and come to believe that nothing else is necessary. This particular failing of top managers is not due to willful disregard of the evidence, it does not result from stupidity, and it is not a matter of the advanced age of most top executives. It could, however, be attributed to several other factors. First, those at the top have little incentive to change the status quo. Second, they have little real information about the organization. Third, they therefore sense neither the need nor the potential for improvement. And fourth, they don't generally know how to make the necessary changes. This is a certain prescription for inaction. These factors are themselves largely symptomatic. The core of the problem is that top managers, like everyone else, are caught in cultural quicksand. Most organizations are based on premises so fundamentally inaccurate that they inevitably produce deeply and inherently flawed structures. (In truth, most organizational structures were not really "designed" at all, though executives frequently act as if they were handed down on stone tablets. Most of them, like Topsy, "jest growed.") These premises could not long continue unless they were so embodied in tradition and conventional practice that they were hardly ever questioned, never mind seriously confronted. This diagnosis is confirmed by the fact that better organizational answers-that is, more accurate and powerful premises-are well known but rarely used in practice. Consider three particularly wrong premises that have captured the minds of many executives: · Wrong Premise One: All organizational outcomes can be traced to the contributions of individuals; rewards can and should be allocated accordingly. Despite extensive and consistent research and experience to the contrary, we remain a society devoted to the proposition that only individuals make a difference. Psychology thus becomes the quintessential American social science. Sociology, which is a far more powerful guide to understanding organizations, is seen as a form of creeping socialism or a matter for uninformed jokes. What a pity that sociology is so easy to do badly. This leads to the blaming of genuine victims, the canonization of accidental heroes, and a systematic incapacity to recognize, much less to take advantage of, the potential to design the powerful social and organizational structures that alone can permit us to achieve our objectives. · Wrong Premise Two: People cannot be trusted; they work only as necessary, are interested mainly in money, and come equipped with fixed capacities, limits, and inclinations. Since the publication of The Human Side of Enterprise in 1960, Douglas McGregor's terms Theory X and Theory Y have been part of the linguistic armament of every manager and managerial aspirant. Yet it takes only the most cursory look to see that our present organizational arrangements are based largely on Theory X (although nearly everyone claims a commitment to Theory Y). For example, reward systems are based in practice on a managerial "cream rises to the top" theory. If people "have it," they'll show it, and the best way to help is to let them fight it out. The unfortunate consequences of this include a staggering underutilization of people's potential and capacity, and a focus on selection and matching of people and jobs (both treated as fixed entities) rather than on development, growth, and change. · Wrong Premise Three: Executives are largely responsible for their organization's successes (and failures). "If we're doing well (poorly), I must be making the right (wrong) decisions." In St. Exupery's classic fable, the Little Prince visits a small planet inhabited by the King of the Universe. The King tells his visitor that he makes everything happen. The Little Prince, duly impressed, asks him to make the sun go backwards. "You don't understand," says the King. 'The secret to being King of the Universe is to know what to ask for." Most executives have not learned this lesson. "Real managers," they think, make many decisions and issue many orders. Frustrated CEO's then wonder why their explicit instructions often fail to be carried out. "Am I in charge here or not?" they ask. The answer, to a generally underrecognized degree, is "No, you're not." In an important sense, no one is in charge. Some things can be done by mandate-for example, buying another company or closing a plant-in part because the tasks are simple and in part because one person in the right position can bring it about ("paper entrepreneurialism," the creation of a facade of value by manipulating instruments of value rather than the substance underlying them, falls into this same category). Other things cannot be mandated-for example, developing new products or changing an organization's character (or culture)-in part because these tasks are complex and in part because many people must necessarily be involved. Organizational effectiveness and productivity languish precisely because they cannot be created by individuals, no matter how highly placed. It is a matter, at root, of the limits of authority. Making Better Assumptions I am not arguing-because it is not true-that these issues are the only important ones, or even that they are the most important ones under all circumstances. I am also not arguing- again because it is not true-that these three "Wrong Premises" are entirely without validity. Clearly, people do count as individuals; they do have limits and they differ in critical respects; and managers d o need to make decisions, many of them authoritative. I am merely arguing that, in the long run, replacing these assumptions with three others will produce significantly better results. · Better Premise One: Organizations are essentially collective instruments whose outcomes mainly reflect joint effort. Individuals do make special contributions to a great degree because the organization encourages and enables it. To borrow a line from Sir Isaac Newton, if some people see farther than others, it may be because they stand on the shoulders of a giant (organization). Correspondingly, when people fail, it may be because they are not allowed access to the organizational shoulders. · Better Premise Two: People are interested in and capable of doing better rather than worse, being more rather than less effective, and increasing their skills, competencies, and knowledge. Far from being fixed instruments, people share a remarkable capacity for growth and development through their whole lives. Social systems in general, and organizations in particular, have much to do with whether or not that potential is recognized, engaged, or realized. Our more effective businesses, and the more effective units in all organizations, are that way because they empower people broadly, provide them with rich and varied opportunities, provide rewards, and systematically coordinate their actions. · Better Premise Three: The key task for managers, particularly senior ones, is to create a system that enables and helps others to act consistently in organizationally appropriate ways. This "enabling" function recognizes that executives ought to be primarily concerned not with solving specific operational problems but with increasing their organization's capacity to act appropriately, to respond to emerging contingencies, and to make good use- present and future-of potential resources. People throughout the organization need enough power-access to tools-to solve their own problems and contribute to larger objectives. In the short run, and at close hand, someone else can "do it" for them. But in the long run, and over time, no one can. This might be called the "Hook and Ladder Principle": The driver who controls the rear wheels of a fire engine is sooner or later going to be critically important; it can't all be done from up front. This is true for three fundamental reasons. One, the greater the organizational distance and the more levels between reality and those making decisions, the greater the distortion and the slower the response. In such cases, results are "a day late and a dollar short." Two, psychological ownership and commitment are lacking. People who watch others "do it" are part of the audience, not the show. Three, it takes practice and opportunity to develop the necessary skills and to sharpen them over time. Addressing the Issues Fortunately, there are ways to address these issues, as some organizations- American as well as Japanese-are doing. The first step is simple to state, difficult to do: understand and accept reality. There is great reluctance to recognize just how fundamentally screwed-up-no other phrase will do-our organizations are. This is a splendid example of what sociologists call "plural ignorance," as in the story of the Emperor's New Clothes. Everyone is aware of the same thing, but because people think it true only for themselves, all pretend otherwise. Refusal to face the deep flaws at the core of organizations deflects attention from the real problems to the symptoms. The second step is for senior management to accept a different orientation about its role and responsibility, and to shift from blaming individuals (including themselves) for problems, or rewarding them for successes. Instead, they must recognize that results, both for better and worse, are often largely reflections of particular organizational structures and characteristics. Only with that perspective can executives address organizational problems as an exercise of leadership rather than an admission of personal failure. The third step is an understanding that most of an organization's major problems are probably not errors, deviations, or mistakes; that is only true for unique or idiosyncratic events. Most problems recur. As managers know only too well, they "solve" problems only to have them pop up again, and again, and again, like children's clown-shaped punching bags. Such problems therefore reflect existing and underlying organizational patterns. We can create the new patterns we want, but only by recognizing and facing up to one central fact: Recurring problems are as much "products" of the organization as are the products the company markets. Both are predictable and logical consequences of the organization's design and character. Fourth, organizations need evidence and examples that demonstrate convincingly the shortfall between present reality and future possibility. One primary source of that evidence is the high level of unusual internal performance I referred to earlier. If we did it once we ought to he able to do it again-and again. As for looking at other organizations for standards of performance, they often either confirm management's assumption that our organization is basically OK or they seem so different that it is difficult to believe the comparisons are relevant. The success of many recent management books (and not a few consulting practices) is due in part to the assertion of a universal standard. Actually, most organizations have perfectly adequate, if not brilliant, strategies. Their main problem is the inability to implement those strategies. Fifth, once accepting the need for change, organizations will require a change strategy that meets at least four criteria: First, it will involve and empower people throughout the organization; second, it will reflect a valid conceptual framework; third, it will be driven by and tied operationally to the organization's critical goals and objectives; and fourth, it will be based on a thorough understanding of the actual situation. We can indeed improve organizational functioning. As it becomes clear that our organizations need fundamental redesign and not simply fine-tuning; as it is recognized that problems are endemic; as executives are seen as not solely to blame; and as it becomes evident that the world our organizations face at present requires an entirely different orientation, the changes necessary become more likely. Executives will come to understand that their role is primarily as creators of organizational capacity-"enablers"- whose own contribution will be visible in the increased utility and value of previously latent organizational resources (a point made well in David Bradford and Allan Cohen's Managing for Excellence). Let's not be afraid to admit that the Emperor often has no clothes. Fortunately, as it turns out, we also know how to make garments of unmatched splendor, to the benefit of both our organizations and our society. How can managers not accept this great opportunity?