Complex Management Structures Spell Doom

Recently John Chambers, the CEO of CISCO, came out with a memo that discussed failings in the company. Over the last decade or so CISCO (CSCO) has lagged performance of its peers on NASDAQ and recently they haven’t participated much in the broad market rally (down 20% or so in the last 6 months while NASDAQ is up by 16%). I read how the memo was portrayed in the media, but then I found the actual memo here and cite it directly.

You’ve also made it very clear that we must make it simpler to do the work we love to do, and to accelerate the impact we know we are making for our customers… As I’ve said, our strategy is sound. It is aspects of our operational execution that are not. We have been slow to make decisions, we have had surprises where we should not, and we have lost the accountability that has been a hallmark of our ability to execute consistently for our customers and our shareholders. That is unacceptable. And it is exactly what we will attack.

What is interesting to me is that I was just sort of waiting for this to occur. Back in 2009 I read about CISCO’s new team based model here in this WSJ article titled “CISCO CEO John Chambers Big Management Experiment“. From the article:

Now executives work on committees—dubbed councils and boards in Cisco-ese—and the company makes 70% of its decisions collaboratively, up from 10% just two years ago.
The moves have been controversial at Cisco. About 20% of the company’s senior leaders have left since the shift began in 2007—a percentage organizational experts call unusually high. Chambers compares the executives who’ve departed to basketball stars who don’t fit into a team’s system and adds that Cisco is better off without them despite their talent. He says the old Cisco, which relied on a handful of people to oversee new efforts, would never have been able to pursue so many opportunities.
Critics of the new structure say that it adds bureaucracy and strips away accountability. Cisco has lost market share in key product categories recently, and some people who have worked under the new structure draw a line between these losses and the management-by-committee approach.

The core idea of the business enterprise and entrepreneur-ship is all about leadership, accountability and personal responsibility. Businesses aren’t non profit organizations, they aren’t schools, and they aren’t after-school specials. They are serious efforts, with salaries and families and cities on the line, and people need to be given roles and held to the results that they committed to. These aren’t concepts that can be maintained through revolving committees where no one is responsible. Trying isn’t good enough.

And another reason this is doomed…

Chambers says the idea for the new management structure came to him while participating in a collaboration exercise at the 2007 World Economic Forum in Davos, Switzerland. He was on a team with Arianna Huffington, among others, and the group was told to present a vision for life in 2015.

Awesome. Getting ideas for how to run a world-class company from dilettantes in Davos and a blogger, albeit one who was able to turn her re-posted “content” into actual cash through the dying AOL banner (don’t ever underestimate the power of cashing out at the right time).

It is odd that Chambers thought that he was big enough to stand the lifetime of experience on management on its head and go with this ludicrous team concept. Not team in EXECUTION, which is critical, but in RESPONSIBILITY, which is doom. Someone has to stand up and make decisions and take the heat or fall for bad decisions, and you can’t fire everyone in a committee.

This isn’t the first time Chambers has been blinded by faddish ideas. I was with a consulting firm that was a partner with CISCO in the first dot-com boom and at the time CISCO was touting their “fast close” and their ability to rapidly forecast sales and earnings. This occurred right before the markets crashed and they had to write off millions of dollars in unsold inventory, basically proving that their forecasts weren’t worth the paper they were printed on (or the internet space taken up explaining them, since this is now a virtual world).

Cross posted at LITGM

21 thoughts on “Complex Management Structures Spell Doom”

  1. Over the last decade or so, the general level of thinking about *organization design* in businesses seems to have gone considerably down. Rigorous thought about issues of centralization vs decentralization, selection of proper axes of organization, etc has too often been replaced by vague blather about “teams”, without intelligent thought as to how the teams are to be formed, how they are to related to one another, how their performance is to be evaluated and by whom (another team?) etc etc. (A writer in Financial Times–I think it was Lucy Kellaway–observed that a fair amount of b-school content is actually recycled early-hippie thinking–your Davos story fits right into this )

    The effect of all of this is to create decision paralysis and to limit the organization’s collective intelligence…however much the CEO talks about “delayering” and “empowerment”, if he lacks the ability to think coherently about organization architecture then all important decisions will wind up waiting for his personal attention.

  2. Carl,

    This is an excellent post and endemic to the mentality creeping into a lot of schools. Davos isn’t the only source; the B-schools emphasize “teams” to the point of being ridiculous. I quite grad school in part because over half of my work was on teams where at least a couple knuckle-heads brought their pulse and nothing else—and still received the team’s grade [full disclosure, this was a minor reason I quit—competing opportunities].

    It is good that Chambers will admit the error; the trick will be if he can make right the error he picked up in Davos.

    There is too much sloganeering in business and government these days and not enough “DOING.”

    Thanks again!

  3. I think that the more people “think” about organizational design the more doomed we are.

    Look at what happens in crisis – guys like Schwab or Dell or even Brin come back and run the show. You know who is accountable – they are. You know who is demanding results – they are. Then they push this down through the organization and grab people by the throats and weed out those that can’t produce.

    But accountability is different than working together as a team… companies are large teams and it is critical to cooperate, but the buck has to stop somewhere.

  4. @ Carl and J. Scott:

    The only exposure to “B” school thinking I have is through the meetings and memos sent out by the management/CEOs of the various hospitals where I have worked. Doctors and managment don’t often get along (or, at least, tend to disagree on priorities) so I admit I get very confused by what I call “memo” culture. I’m sure my confusion colors my thinking, so factor that in….

    Basically, I’ve been surprised at how faddish management culture seems. It’s like the guys and gals at the top all want to compete with each other and get promoted within their own interhospital-intermeeting world instead of figuring out how best to run their own particular hospital.

    Each hospital is different. Different population, different mission, different employees, different patient base. But they all want to have a template that works the same for every type of situation?

    At least, that is how it seems to me. It’s awfully jargony, modern life is.

    Then again, don’t know a thing about business outside the lectures I get from the business people in my own hospital. And I think we doctors drive them buts. I don’t blame them. Prickly and difficult employees, we are.

    I always thought that a hospital was about providing really good care and having the money to do it (so that you can pay your employess and buy new equipment, etc). But all I hear about is marketing, and LEAN, and green sustainibility, and employee wellness, and how this or that other hospital is opening a new clinic in such and such a suburb – so we need to do that also! Whenever I would ask for some small thing to help me with my practice, it seems their isn’t enough money but there is always money for whatever faddish new scheme we’ve cooked up.

    The other thing I’ve noticed is that hospitals look dirtier than I’m used to wherever I go. Housekeeping the first to be cut back, I suppose. But then, why do we have such fancy new lobbies and flat screen tvs everywhere?

    I don’t know. I’m getting ready to transition out of academia so I suppose you can say I’ve had my fill and am moving on.

    *Sorry for the marginally related rant, but this is the internet you know :)

    – Madhu

  5. nuts not buts.

    That is the second funny typo in two days.

    It’s a Freudian funny slip, though, because I think our meetings go like this:

    Business person: We need to do “X.”

    Doctor du jour: But why?

    Business person: Sigh. Let me explain it again….

    I think the “but why” drives people crazy.

    – Madhu

  6. Doctors and managment don’t often get along (or, at least, tend to disagree on priorities) so I admit I get very confused by what I call “memo” culture. I’m sure my confusion colors my thinking, so factor that in….

    Hospital managers hate doctors. The new trend is for hospitals to buy medical practices for “vertical” integration. Now, the doctors are employees and can be ordered around, or so they think.

    The principle hospital where I practiced for 20 years was doctor owned until about the time I retired. The owners were not on the staff, for the most part and some of them we would not have let on the staff if they had applied. We organized a trauma center that was rated one of the best in the state. The metrics of a good hospital, for our size at the time, were all great. The administration consisted of about ten people.

    About 20 years ago, the hospital was sold to a non-profit chain that is owned by nuns. The number of administrators climbed astronomically. I was on the city Planning Commission when the hospital presented their expansion plans to city. They asked for a special meeting of the commission and thirty people from the hospital showed up. It went on for hours and I finally had to leave. The bureaucracy is astonishing.

    It’s no wonder the non-profit people hate for-profit hospitals. Think of all those jobs !

  7. “Now, the doctors are employees and can be ordered around, or so they think.” – MK

    Doctors are quitting right and left where ever I go. But most teaching hospitals hire a recent grad and stumble on in their own way.

    Too bad, because experienced doctors might have higher salaries and be difficult, but they tend not to get as stressed out and may not order so many tests. Because they’ve seen it before, you see….

    Mostly, the people I know what a little more time to think about their cases. It’s really not about money so much. It’s the bureaucracy and the way it cuts into the time you could devote to patient care.

    – Madhu

    *I’ve got family that are physicians and favor PPACA. They read a lot and are knowledgeable but they don’t challenge the things they read. I’m not sure why they all went left? They started out right but as they have become more successful they have become more progressive.

    I’m the oddball that lives next to a very rough neighborhood and am more skeptical about the use of state power and the utility of social programs. I’m scared of some parts of my neighborhood….it’s changing.


  8. Whenever I litter a comments section with twenty different mispelled comments, it means it’s time to go do that thing I was putting off. Later folks.

    – Madhu

  9. Hospitals would be way harder than an average business to run. In a typical business we don’t have a concept of “professionalism” – we are all just trying to make money. That doesn’t mean that you don’t need to care about customer service and how clean the place is, it just means that it all is in the context of making you more or less profitable.

    A hospital has a “higher purpose” in making people healthier and there are at least viable models for non-profit hospitals; this makes the challenge of running a for-profit hospital that much larger.

    Plus doctors as a whole are more intelligent and independent than the average company employee. They want things done their way and are used to having their opinions heard and respected. If you act that way in the typical corporate world often your career will be short, indeed.

    I was in the world of consulting for a long time and we probably share a lot of the same problems that doctors and medical facilities face. Consulting firms are often the worst run businesses around, because a lot of the theories that they (I) peddle don’t involve “sweating the details” and are high concept. But now this is almost moving on to something that is a separate post entirely…

  10. Re: MK’s and Madhu’s comments.

    In 2006 I had some medical tests done at a specialist facility that was owned by a group of doctors. When I arrived I was greeted by the nurse who would assist the doctor who was doing the tests. They got going within a few minutes of my arrival. I was out of there in a couple of hours.

    Between 2006 and 2010 a local hospital bought out the doctor group.

    In 2010 I came back to have the same tests done by the same doctor. There was now a new waiting room. There was also an entire new layer of bureaucracy, disguised as “customer service”, on top of the old operation. They told me to arrive 1 hour before my scheduled appointment. I did and spent a few minutes at a series of gatekeeper desks where I signed consent forms. When I asked a gatekeeper how long I would have to wait she said any minute. This was apparently a lie as I had to wait almost two more hours for my appointment. I finally got out of there in about four hours, or twice as long as it had taken in 2006. The doctor who did the tests complained about the new management and mentioned that they had doubled prices. A few weeks later I received a QA survey in the mail and spent some time carefully filling it in and sending it back. No one contacted me after that.

  11. One thing to realize about hospitals is that they are like governmental institutions. For various reasons including allergy shots I go a lot to the doctor.

    You need to know people and schmooze them and all the sudden you will receive good service. An alternative campaign is to be a complete ass and demand service like a diva – this might work too.

    But in general as the medical system becomes more and more government-like it is very important to know someone and know how the system works or you are a nobody and can expect to wait a million years for service.

    Get out your old books on Russia to see how it all gets done.

  12. The Wall Street Journal had an excellent front page article about the medical model as a service industry and comparing it to a corporate travel department. One of the things that makes medicine expensive is the infinite attention to detail that is necessary. The example for the travel department was an executive trip to Japan and Taiwan when the travel office employee did not arrange a visa for Taiwan.

    I once had the axillary fat pad of lymph nodes lost on a woman who had a high risk breast cancer. She was 35 and the loss of the nodes was a disaster. I talked to the nurse and scrub tech who had done the case with me. They had labeled the bottle the specimen was put in and had placed it between the patient’s legs as they wheeled her to the Recovery Room. There they placed it on a table for the Pathology Department to pick up. I traced each step and found that the Pathology Department did not have a good system for logging specimens. There was just a small table and the lab sent a tech over every couple of hours to take the specimen bottles away to the lab. No records.

    Of course everybody was denying responsibility but my patient would have to have chemotherapy assuming her nodes were positive and she would not know her prognosis. The OR Director’s response was to suspend the two nurses from the room for two days without pay. That was it. She was nowhere near the problem and the lab finally fixed the bad link in the chain. We never found the nodes.

    That is why administrators hate doctors.

  13. MK…re medical errors, the proprietor of Lean Blog, who used to work in manufacturing and is now mainly focused on healthcare, has written extensively about error-proofing of processes as a better alternative to fault-finding.

  14. If you put engineers in charge they will tend to try to fix problems and to change systems to minimize future problems. If you put lawyers in charge they will tend to try to assign blame and to design rules for determining compensation and punishment. Most of our legislators are lawyers.

  15. Carl said: “I think that the more people “think” about organizational design the more doomed we are.” I know a guy who owns a small software company and they are “self-organized”—the owners have the final say, but experts in each particular area have wide leeway to take risks/make decision.

    I’ve been told the max scalable org size, where org values can be maintained and everyone knows each other is about 150, and this seems right to me. I served on ballistic missile submarines and we had a complement of about 170 worked very well.

  16. J Scott….”I’ve been told the max scalable org size, where org values can be maintained and everyone knows each other is about 150″..yet you can’t make jetliners, or cars, or for that matter submarines, with an organization of 150 people; hence, the overall organization must be subdivided, and the manner in which this is done is critical to the organization’s success and spirit. The functional model (all the engineers together, ditto for all the salespeople, all the lawyers, etc) is rarely effective in a complex business; bureaucracy and functional chauvinism soon stifle things.

    Also, (a software company where) “experts in each particular area have wide leeway to take risks/make decision”…how well this works depends on how “particular area” is defined, and how effectively expertise is linked to accountability. Important decision usually *cross* functional expertise families–for example, the shape of a rear-view mirror for a car apparently has a material effect on efficiency/mpg due to wind resistance. So who is the appropriate “expert” to decide on the mirror design–the aerodynamicist, or the stylist? Their views will likely conflict. So the decision needs to be made by *someone who is accountable for revenue and profitability* for the car being designed.

    BTW, in the video linked at my “Saturday Business Links” post, the GE Appliance guy describes his methodology for new-product development, which involves putting the people working on the project physically in the same (very large) room.

  17. I hear about LEAN all the time in pretty much whatever hospital I am in.

    “We are doing LEAN!” they all say.

    I’ve been hearing about it for years and years but I wonder if it is misunderstood or simply used as a marketing tool. I see that a lot in the meetings we have.

    Apparently, LEAN when practiced in certain environments means lots and lots of meetings which result in some small thing, like, “we no longer printing out a hard copy of our logs and we have saved fifty dollars this month!” Well, that’s not a small thing if you are continually doing it, but we are not and we have always had the ability to examine our processes like that. It just doesn’t happen because muscle is cut first and fat is saved for the very last.

    Possibly because fat is doing the cutting.

    – Madhu

  18. David – most people within an institution don’t care if it is LEAN or if it is LAME. They are not paid more if the system improves via metrics that are important to the physicians or the patients or nurses (I have multiple sclerosis and deal with the system as a patient, too). They are paid to do what higher management wants them to do. And when higher gets it wrong, higher management fail “upwards” to a different hospital system.

    Sorry, but I am very jaded when it comes to hospital management: doctors, nurses, MBA’s, all of it. Doctors drive me nuts too. The culture is sick. Government mandates started the sickness but some of it has to do with the overall culture we are developing here in the States.

    Credentials over results. Theory over results. Connections over results. The oligarchy likes the bureaucracy. BS jobs for BS results.

    : ) I don’t dislike LEAN (it sounds pretty cool to me) but human nature is a b*tch.

    Instapundit linked to the following today:

    blockquote>The strange thing about my utter lack of education in management was that it didn’t seem to matter. As a principal and founding partner of a consulting firm that eventually grew to 600 employees, I interviewed, hired, and worked alongside hundreds of business-school graduates, and the impression I formed of the M.B.A. experience was that it involved taking two years out of your life and going deeply into debt, all for the sake of learning how to keep a straight face while using phrases like “out-of-the-box thinking,” “win-win situation,” and “core competencies.” When it came to picking teammates, I generally held out higher hopes for those individuals who had used their university years to learn about something other than business administration.

    After I left the consulting business, in a reversal of the usual order of things, I decided to check out the management literature. Partly, I wanted to “process” my own experience and find out what I had missed in skipping business school. Partly, I had a lot of time on my hands. As I plowed through tomes on competitive strategy, business process re-engineering, and the like, not once did I catch myself thinking, Damn! If only I had known this sooner! Instead, I found myself thinking things I never thought I’d think, like, I’d rather be reading Heidegger! It was a disturbing experience. It thickened the mystery around the question that had nagged me from the start of my business career: Why does management education exist?

    Again, I think LEAN is very cool but it seems to break up on the rocks of experience in the few instances I’ve encountered it.

    But I’m probably all wrong because my one anecdotal view doesn’t represent the entire picture.

    Once again, typing here when I ought to be typing on another written project….


    – Madhu

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