Before I started to run my own business as IT consultant and Interim Manager five years ago, I worked for many years in international high-tech conglomerates. These kind of companies are often structured in so called „matrix organizations“ comprising Corporate Headquarters, Business Units and Regional Units.
In all of the matrix organizations, I had the pleasure to work for, I was confronted with conflicts and selfish behavior of managers and employees, which in most cases had significant negative impact on the overall performance of the respective companies. As a young idealistic professional this caused some headache to me and I asked myself numerous times, why these irrational things constantly happen.
When I started my career in the field sales&service organization of a company in the telecommunications industry, the service was set up as a profit center as part of a reorganization. From the management’s point of view, this meant an upgrading and the expectation was that service managers and employees would be even more motivated, as their salaries would now be significantly influenced by sales and profits from the service business. However, this reorganization led to fierce controversy and disputes between sales and service, as sales staff were subsequently convinced that the costs for the installation and commissioning of telecommunications systems were artificially increased by the service employees, while service managers accused sales staff of unnecessarily providing services to customers without charging adequate remuneration. The endless discussions poisoned the internal cooperation between the two units and led to many unpleasant discussions (even in front of customers).
In several of my following jobs I had to cope with tensions and conflicts between Corporate Headquarters and Business Units or Regional Units. The Corporate Headquarters were usually regarded by Business Units and Regional Units as escapist hydrocephalus only producing cost and useless bureaucratic regulations without any business value. And the Business Units and Regional Units usually were regarded by the Corporate Headquarters as a bunch of mavericks who intentionally did not comply with rules and regulations and reinvented the wheel numerous times because they all suffered under the „not invented here“ syndrome. Basically, these tensions and conflicts were about power and the question of who determines the direction of the company.
A third example I personally experienced were tensions and conflicts between Business Units and Regional Units around transfer pricing under appreciated involvement of the Corporate Tax Department. The main issue in this conflict was whether the main profits were reported in the business units or in the regional units, and who was able to shine with particularly good figures on this basis.
Sounds familiar? In fact, I strongly believe that you find these kind of patterns in most companies on this planet – at least in the large ones.
In the 1980s, the British/American organizational theorist and management consultant Peter Scott-Morgan invented techniques that have since been widely applied to reveal how complex social systems behave and how associated systemic risks evolve.
Scott-Morgan was born in London, UK, and educated at King’s College School and The Imperial College of Science, Technology and Medicine where he gained the first Ph.D. granted by a robotics faculty in the UK. He subsequently joined the international management consulting firm Arthur D. Little. Building on the approach he had used for his Ph.D. research (explained as „applying the rigor of ‚hard‘ sciences like cybernetics, systems thinking and complexity theory to ’soft‘ sciences like sociology, economics, and political science“) Scott-Morgan devised a methodology that his company later described as „turning conventional interviewing technique on its head“ in order to uncover the logic behind the (often hidden) true behavior of organizations and society.
From the early 1990s, Arthur D. Little was publishing articles about the successful application of Scott-Morgan’s techniques. Former colleagues have named two of these early examples as Philips Consumer Electronics and the Argentinian national oil company Yacimientos Petrolíferos Fiscales (YPF). The former-head of Process Review at British Petroleum (BP) has published that in 1992 his corporation’s „search for best practice in the consulting world led to my meeting Peter Scott-Morgan and learning of his insights into understanding – and changing – the Unwritten Rules of the Game.“ He then describes how BP tested, and became convinced of, the validity of Scott-Morgan’s technique and went on to apply it in several major operating centers.
In 1994, having by then moved to Cambridge, Massachusetts, and having successfully applied his technique in a wide variety of companies throughout North America, Europe, the Asia Pacific region, and Latin America, Scott-Morgan published a bestselling book on his concepts entitled „The Unwritten Rules of the Game“ (short abstract see: http://www.adlittle.com/en/insights/books/unwritten-rules-game).
This book was at that time really an eye-opener for me, since it provided the missing link between the official (in most cases reasonable) rules and regulations of a company (including organization, Key Performance Indicators and related Incentive Systems) and the irrational behavior of some managers and employees.
My key takeaways from the book sound at the first glance quite banal, however I strongly believe they are still very valid and important:
- Organizations consist of individual human characters and as executive manager you have to understand the ambitions, worries and fears of the individual human characters reporting to you, if you want to successfully develop your company.
- If second line managers are only focussed on the development of their own career and neither able nor willing to cooperate for the sake of the entire company’s success, take them out of their job rather sooner than later.
- Be aware that official rules and regulations always have (positive and negative) side-effects – particularly if they affect the reputation, promotion or payment of your managers and employees.
- The same applies to statements of executive managers in public. A statement such as „matrix conflicts only occur, if I have the wrong managers in place“ will definitely not stop matrix conflicts between Business Units and Regional Units but most likely lead to subliminal disputes which can paralyze the cooperation within your organization.
- The worst thing you can do as an executive manager is introducing a complex organization with (partially) competing or even contradictory goals for your Business Units and Regional Units. Keep the organization as simple as possible. Most of your staff members are not able to cope with complex rules and regulations anyway and the likelihood of undesired side-effects increases with the complexity of the organization and its rule sets.
To underline the last key takeaway I would like to close this article with a quotation from Phil Schiller, Apple’s Senior Vice President of worldwide marketing and one of Steve Jobs’s closest friends and confidantes.
In course of an interview with „The Times of India“, which was published on April 1, 2017 (http://timesofindia.indiatimes.com/business/india-business/india-has-grown-dramatically-for-apple-says-philip-schiller/articleshow/57954599.cms) Phil Schiller was asked the following question: „Apple’s fortunes sank in 1997, the year you rejoined the firm. How did Jobs and his team including you think about resurrecting a company, that was nearly out of business?“
Phil Schiller’s response was: „Apple was almost out of business. Steve tried to bring together a bunch of us to save the company and it seemed an impossible task at that time. One of the great things Steve did and taught us all was how to stay focused, how to make tough choices and to say no to a lot of things that were going on and that were good but were diluting resources and we needed to all come together and just make a few great things that could help save Apple at the time. We had to first get back to doing things that mattered. One of the things he did that’s fascinating to me organizationally is he reorganized Apple in a way like a startup. Apple was then divisionalized, like most large corporations are, and in order to pull everyone together, he got rid of that division structure. And no one ever imagined Apple could grow to become a large company maintaining that functional structure like a startup.“
Finally, I would like to draw your attention to an important quote from Gruenert&Whitaker: „The culture of any organization is significantly shaped by the worst behavior the leader is willing to tolerate“:
Think about this sentence for a moment and reflect it on the reality in your company.
The German version of this blog published on April 11, 2017 under the headline „Die heimlichen Spielregeln“ can be found here: https://kubraconsult.blog/2018/05/16/die-heimlichen-spielregeln/.
If you are interested in the topic „Corporate culture as a prerequisite for digital transformation of companies and societies“, you may take a look at my following five blogs:
- „How to successfully change a corporate culture“ published on June 10, 2017: https://kubraconsult.blog/2017/06/10/how-to-successfully-change-a-corporate-culture/
- „The-socio-economic consequences of digitalization“ published on March 17, 2017: https://kubraconsult.blog/2017/03/17/the-socio-economic-consequences-of-digitalization/
- „What tomorrow’s digital champions can learn from Apple, Google, Amazon, Facebook & Co.“ published on April 28, 2017: https://kubraconsult.blog/2017/04/28/what-tomorrows-digital-champions-can-learn-from-apple-google-amazon-facebook-co/
- „Digital business models and platform economy“ published on November 4, 2017: https://kubraconsult.blog/2017/11/04/digital-business-models-and-platform-economy/
- „Digitalization Strategy for countries (using Germany as an example)“ published on February 21, 2018: https://kubraconsult.blog/2018/02/21/digitalization-strategy-for-countries-using-germany-as-an-example/