In this episode, I talk with Dr. Fred Spier, a retired senior lecturer in big history at the University of Amsterdam, The Netherlands. We discuss his recent book, How the Biosphere Works (2022).
Fred was previously on the podcast back in episode 113 , titled The Future of Humanity. Listeners may also recall that the topic of ‘big history’ was discussed recently in our episode 127. Learn more about Dr. Spier and his work at his website (www.fredspier.com).
In this episode, I am joined by Lindsey Agness, CEO of The Change Corporation (UK). We discuss her book, Change Your Business with NLP.
Connect with Lindsey at TheChangeCorporation.com Email: [email protected]
Charles G. Chandler, Ph.D. — Host of The Age of Organizational Effectiveness podcast
Reference:
Agness, Lindsey. Change Your Business with NLP: Tools to improve your organization’s performance and getresults. Chichester (W. Sussex, UK): Capstone Publishing (A Wiley Company).
In this episode, I discuss a way to think about effectiveness in development projects & programs that could allow international development to deliver on its original promises of development effectiveness. I discuss Albert Hirschman’s ‘hiding hand’ that veils difficulties as well as the creativity available to solve problems as planners engage in the design process. The Goal Model is still prominent in development organizations, although it presents difficulties in actually verifying project effectiveness. Development agencies need to move toward the outcome-focused model (OFM, discussed in episode 025) to become more effective, due to its ability to verify the success of the causal chain. In addition, this offers a new way to improve the effectiveness of development organizations themselves.
In this episode, I welcome Jeff McManus to the podcast, who is the Director of Landscape Services for the University of Mississippi (Ole Miss). We discuss his 2017 book, Growing Weeders into Leaders: Leadership Lessons from the Ground Level, and we explore what it takes to create and maintain a pleasing environment on a college campus. Jeff and his team of professionals have won several national honors for the beauty of the Ole Miss campus, and he joins me from Oxford, Mississippi (USA) via Skype.
[This material first appeared as Episode 073 in July 2017]
Gary Hamel (formerly of the London Business School) has characterized management as the technology of human accomplishment. Management came into its own in the late 1800s and early 1900s, as the USA entered the new century. Among the traditional long-standing factors of production (land, labor, and capital) in the British tradition, management became the fourth, the one that helped make the other three productive.
Today, despite more than a century of management in organizations around the world, there is a growing dissatisfaction with management practice. It seems to have lost its way. The factors of production are at odds with each other, laying competing claims on the proverbial ‘pie.’ Management is gripped in an introspective search for meaning and validity.
In the 1900s, the traditional form of management (sometimes called Management 1.0) seemed rather sure of itself. It was about setting goals and objectives, then directing subordinate staff to achieve them. It was top-down, command and control, and authoritarian in nature. It helped train manual workers in productive ways to do their work. But now, knowledge workers dominate in the workplace, and managers often know less than workers about how to get the work done. Today’s millennial workers want the freedom to do the work in their own way, in short, to be creative. They hunger for organizational goals that are more uplifting than profit or shareholder value.
Meanwhile, other forces are at the gates. There is a steady undertow pulling organizations toward the adoption of the latest data measurement and storage initiatives, with an implied promise that they offer a more ‘scientific’ approach to management. Louis Columbus, writing in Forbes, notes that a recent study found that ‘big data’ adoption rates reached 53% in 2017, up from 17% in 2015 (in the large companies referenced). Telecommunications and financial services companies have been the largest adopters so far, while data warehouse optimization has been the use case most cited, followed by customer/social analysis. The logic of big data is that large data sets can be mined to reveal patterns, associations, and trends, especially relating to human behaviors and their interactions.
But ‘big data’ is only one in a series of measurement initiatives that have entered the management toolbox over the years. Others have gone before, including the Balanced Scorecard, Six Sigma, Total Quality Management (TQM), Objectives and Key Results (OKRs), and Performance Management with Key Performance Indicators (KPIs). Each of these initiatives has its own built-in logic, but in general, they offer quantitative approaches surrounding so-called ‘scientific’ or evidence-based tools. But are they scientific or evidence-based? Do they offer validity in management?
In 1963, William Bruce Cameron noted that “not everything that can be counted counts, and not everything that counts can be counted.” I believe he was right, but too optimistic. Little that can be counted counts, and only that which counts should be counted. There is a clear need to fight the social undertow surrounding measurement initiatives, least organizations are dragged down.
When it comes to goals, a fundamental weakness of Management 1.0 has been that a management team can set their own goals and objectives, then declare success when they are achieved. It makes it easy to game the system. For instance, to say that the goal of an organization is to maximize shareholder value and then use financial engineering tricks to maximize the stock price is self-serving, especially when the bonus compensation of the management team is tied to related measures. It means that an organization may serve the incentives of the management team rather than the needs of customers or other key stakeholders.
For validity in management, it remains very important to thoughtfully select the goals, as well as what will be measured. For instance, if achieving organizational effectiveness was simply about measuring a set of key performance indicators (KPIs), then most organizations would be performing very well today. Unfortunately, not all indicators are created equal, and measurement alone does not verify causal linkages. Organizations often miss the point that before investing in a measurement initiative, strategies need to be well crafted, outcomes and associated indicators properly set, and one or more results chains identified and validated. Only then can a specific indicator be relied upon to provide a short-hand measure of effectiveness that is objectively valid.
This might be a good time to make a distinction between meaning and validity. Sociologists tell us that shared meaning in groups is socially constructed. We, along with our associates, family, and friends, jointly construct the meaning of our everyday existence. In an organization, shared beliefs emerge over time and become part of an organization’s culture, along with a sense of “how we do things around here.” Within a socially constructed view of the world, how can measurement approaches add validity? The short answer is that they probably can’t, except for social groups (largely made up of professionals) that attach shared meaning to quantitative methods.
In society more generally, we see examples of social groups that have been led to attach shared meaning to political views that are not in their best interest, through appeals to their emotions (e.g., political wedge issues such as immigration, abortion, civil rights, gay rights, etc.), or through appeals to symbols of their cultural identify (e.g., the flag, the military, religion, etc.). Because meaning is jointly constructed within a social group, it is hard for individuals to abandon a shared view unless their social group also abandons it. To avoid being deceived by these media tactics, truth or validity must be confirmed by triangulation with independent sources that use different methods. If independent sources agree regarding the resulting conclusions, we can be relatively sure that we have arrived at the truth.
In summary, I want to leave you with four takeaways from today’s discussion:
1) measurement does not provide meaning by itself;
2) meaning is socially constructed through the interaction of group participants;
3) meaning is not the same as validity or truth, and
4) validity and truth are confirmed through triangulation with independent sources that use different methods.
A new philosophy of management that utilizes these principles is Management by Positive Organizational Effectiveness, which I have mentioned before. Under this approach, the goal of every organization is the same, that is, to be effective within its environment, and product and service teams are empowered to consider a key question every day, “How can we serve our environment well today?” Business, government, and nonprofits have the same challenge. It’s a probing question, and the answer may change over time. It’s a question that will be difficult to answer quickly in a bureaucratic, top-down, command-and-control management system. It is best handled by flexible, team-based management focused on the success of individual offerings to the environment by capable teams of knowledge workers. Of course, we are not suspending the principles of accounting, economics, or finance in making such decisions, but these are not necessarily constraints. The approach focuses on staying close to the customer, wandering around, and being passionate about serving.
For more information, grab a copy of my 2017 book, “Become Truly Great: Serve the common good through Management by Positive Organizational Effectiveness.”
Charles G. Chandler, Ph.D.
[the above content first appeared in Episode 091 in May 2018]
References:
Marsen, S. 2008. “The Role of Meaning in Human Thinking.” Journal of Evolution and Technology (17/1), pp. 45-58.
Chandler, C. G. 2017. Become Truly Great: Serve the Common Good through Management by Positive Organizational Effectiveness. Powell, OH: AAE.
You may have heard the term ‘Big History’. It comes from historian David Christian, at Macquarie University in Sydney, Australia. He has a TED talk describing what his team has been up to with Big History, a project that has received some funding from the Gates Foundation. Big History is the story of how life and eventually civilization have emerged on Earth, building upon one another. The story starts with the Big Bang roughly 13.7 billion years ago. The discussion introduces a puzzle. In a universe ruled by the Second Law of Thermodynamics (paraphrased: everything runs down over time), how could the complexity that we see today have come about?
Well, it seems that the universe can produce complexity in spite of the Second Law, but it is very difficult, and it requires special conditions, found only where suitable conditions are present at each stage of the process. Professor Christian calls this the Goldilocks conditions, not too hot, not too cold, just right. Even then, it was necessary to cross eight difficult thresholds to arrive at our present-day reality. It is not clear how much longer this can continue.
But let’s start at the beginning of the Big History story according to the best available evidence. Before the Big Bang, it was completely dark. This was before time and matter existed. Then suddenly, our universe emerged from a single point in space/time about 13.7 billion years ago. That was the first threshold to be crossed, and scientists have little idea why or how it occurred, as they can only see the after-effects.
When our universe first emerged, it was incredibly dense and hot, theoretically no bigger than an atom, yet it began to expand rapidly. Within the first second, the forces of electromagnetism and gravity were unleashed. The universe continued to expand for thousands of years until, after about 380,000 years, it had cooled enough that protons and electrons could combine to form simple atoms. Once this happened, gas clouds were formed, largely made up of hydrogen and helium atoms (the lightest elements in the periodic table).
One of today’s satellites recently peered back into the early universe and took a picture of the cosmic background radiation leftover from the Big Bang. The temperature was close to the same everywhere, but there were minute differences, indicating differences in density in the clouds of early matter. Since gravity is stronger where there is more stuff, compaction of these clouds took place gradually over time where density was highest. Where compaction occurs, temperatures rise. Some 100-200 million years after the Big Bang, the temperature in some parts of the universe exceeded 10 million degrees, where protons began to fuse, and stars were born. This was the second threshold. Today, it is believed that there are some 200-400 billion stars just in our galaxy, the Milky Way (not counting all of the other galaxies out there).
With the presence of stars, the creation of more complex chemical elements became possible. When very large stars age and run out of their lighter elements such as hydrogen, then helium, they collapse upon themselves and create temperatures so hot that they fuse more and more protons together to create heavier elements. Very heavy elements in the periodic table are formed when large aging stars are finally blown apart in a supernova event. If you have a gold ring on your finger, its elements were formed as part of a supernova explosion from a dying star. The creation of these denser chemical elements was the third threshold that was crossed, and they have been gradually scattered into space as a result of many, many supernova explosions.
Some 9.2 billion years after the Big Bang, or about 4.5 billion years ago, our solar system and its planets (including Earth) were formed. When this happened, the fourth threshold had been crossed. Of course, most of the solar system was still inhospitable to the creation of living organisms, being either too hot (near the sun) or too cold (far from the sun). Earth was just about perfect for the creation of life, especially because it had large amounts of water on its surface in the form of oceans. Wet chemistry is important for the creation of life. For instance, oceanic vents, where heat is released from the earth’s mantle, was a good place for complex molecules to form through wet chemistry involving the electromagnetic force. The remarkable thing that occurred was that a template for life was created (the complex DNA molecule), whereupon life began to reproduce itself based on that information. This was the fifth threshold. As life reproduced itself, DNA would occasionally make mistakes. Evolution relies on the fact that some of those mistakes work better in the environment than the original, so DNA appears to learn what works best over time, building greater diversity. Single-celled organizations were all there was at first, but slowly small multicell organisms began to emerge, then many others, large and small over millions of years, including famously the dinosaurs.
About 65 million years ago an asteroid crashed into the Yucatan peninsula (in current-day Mexico), creating conditions akin to a nuclear winter worldwide. That was bad news for the large dinosaurs that were wiped out in short order, but good news for mammals that began to populate the niches that they left behind. Birds, as it turns out, are today’s decedents from the dinosaurs. It was not until about 200 thousand years ago that humans appeared. This was the sixth threshold. Their big brains allowed them to learn in real-time. Through human language, and eventually writing, the human species began to accumulate knowledge and pass it on to its future generations. About 10,000 years ago, farming began, unleashing another energy source needed for the foundation of complex civilizations, crossing the seventh threshold.
Only 500 years ago, humans began to link up globally after voyages of discovery opened major trade routes by sea, and humanity became a single global force manipulating the environment. This was the eighth threshold. Humans are now over 7 billion strong. Fossil fuels, agriculture, the industrial revolution, and a multitude of evolved technologies explain the complexity of civilization that we see around us today. Yet with all this apparent success, there is evidence that the Goldilocks conditions that have allowed our flourishing are rapidly being undermined on this planet. Climate change is a real and present danger due to the current overreliance on fossil fuels, releasing CO2, and producing the greenhouse effect.
That brings us to the question of how this progression will play out in the future. How do we ensure our world will serve future generations? What is the next threshold that we need to cross and what conditions need to be present for it to happen? Well, one way to extend this story (which just happens to be relevant to this podcast) is to focus on the super-organisms that have emerged over the last 200 years to encompass and magnify human activities. I am speaking of organizations (in the forms of business, government, and non-profit entities). Here humans are encased within a large social entity (if only during part of their day), gain an energy source, band together with other like-minded individuals to find purpose and meaning, and accomplish things together that they could not do on their own. A successful organization has access to considerable power and resources over time. It is no wonder that organizations large and small dominate the world around us, and we find them indispensable.
Yet all is not well with the ecosystem of organizations, and the capitalism that drives them. A story is emerging about organizations need to enter a new age, one that we have called The Age of Organizational Effectiveness. There are several threads to the story. One recounts the difficult situation that society finds itself in on multiple fronts, with limited options, and no clear path forward. Another thread is about widespread dissatisfaction with what capitalism has now become.
It is questionable how far current management technology can take us into the future. Current management philosophy revolves largely around the goal model, which forms the basis for management by objectives. This is risky because the approach accepts virtually any goal that management wants to use. This means that arbitrary goals such as profit maximization, shareholder value maximization, or any other arbitrary objective or goal, can be entertained to drive an organization. Bringing in a new C-suite team with a new set of objectives can be a risky proposition. That coupled with the fact that in many public corporations, C-suite executives have been highly incentivized with stock offerings, encourages the use of financial accounting tricks to artificially inflate stock market valuations. This may be good for the C-suite (at least for a short time), but not so good for the firm and its employees in the longer term. It often leads to counterproductive actions at the first sign of financial trouble, such as layoffs, downsizing, and general efforts to do “more with less”. The approach encourages cost reduction approaches and asset sales, which strip productive value from a firm and contribute to employment instability and income inequality inside the firm, reducing the firm’s ability to be productive in the future.
Just as DNA has provided a biological code to replicate and evolve organisms from the distant past to the present, new management theory and practice are needed to provide a template for a reliable future. The single-minded pursuit of profit, shareholder value, or any other arbitrary objective can create instability in an organization’s complex adaptive system, as we have discussed in previous podcast episodes. Furthermore, the market cannot be relied upon to stabilize the economy because we now live in Alfred Chandler’s managerial economy rather than Adam Smith’s free-market economy. For example, the financial debacle of 2006-2008 and beyond in the USA was precipitated by investment banks that were focused on generating financial profits from complex investment vehicles in the housing market, without the vehicles being sufficiently supported by underlying assets on their books — thus increasing market risks and increasing environmental instability over time. To stabilize the planet, we need organizations that serve their environment effectively and cooperate to improve the common good. Today’s discussion highlights, even more, the view that we all need to find a way to live together on Earth, a little blue dot in the vast expanse of space. New-style organizations will be needed to extend ‘Big History’ into the future.
For more information, refer to my recent book: Become Truly Great: Serve the Common Good through Management by Positive Organizational Effectiveness (2017). A link is provided below.
Charles G. Chandler, Ph.D.
[the above content was first published in May 2017 as Episode 066]
Given the significant pressures on firms in the real world, what do we know about the traits, characteristics, or management approaches that help ensure that a firm can and will survive within its environment? Some might think this is a difficult, if not an impossible task, given all of the variables at play. Nonetheless, we will look at three approaches to survival and the mechanisms at play, which can be listed as: (1) survival of the paranoid, (2) survival of the fittest, and (3) survival of the effective.
Survival of the Paranoid
Andy Grove, the former CEO of Intel was the author of a 1996 book entitled, “Only the Paranoid Survive,” which tells about his experiences at Intel. Granted, this is a book written for a mass audience but stay with me for a minute. Formed in 1968, Intel first made memory chips, but moved primarily into microprocessors after 1981, once the IBM personal computer arrived. In thinking about survival, Grove says, “sooner or later something fundamental in your business will change.” He emphasized the concept of strategic inflection points where change and adaptation to the environment can be critical, and where a firm needs to act with conviction once a revised course had been set. Grove listed a number of different directions from which threats can arise, including competition, technology, customers, suppliers, flaws in the business model, and regulation. Any of these could lead to what he called a 10x change.
In Andy Grove’s world, a strong dose of paranoia was a competitive advantage. It was about never being sure what signal to trust, yet all the while surveying the environment for incipient change and trying to separate signal from noise. The fact that Intel was on the forefront for supplying technology to the next generation of computers put the company at risk for costly missteps, due to the large capital infusions needed to build and maintain chip technologies. Every transition was important. If Intel were to lose the leadership position, it would have been very difficult to recover. The company was remarkedly successful and remains an important technology company today. Despite the obvious risks, Intel rode a technology wave and won; however, survival of the paranoid seems unlikely to provide a general model for firm survival going forward.
2. Survival of the Fittest
Sometimes lessons for firm survival are drawn from other disciplines. For instance, the survival of firms over time is sometimes compared to the survival of species in the natural environment. Here, we often see references to Charles Darwin’s work in biology and population ecology in the 1800s, where natural selection was believed to be important for the survival of natural systems. This is commonly referred to as Survival of the Fittest (a term coined by naturalist Herbert Spencer to refer to a species’ reproductive success). Darwin believed that survival is most likely among those species that are best suited to their natural environment. Survival over time in natural systems is primarily about which species are able to successfully pass the most genes on to the next generation.
Darwin’s mechanism of “natural selection” was at the time contrasted with “artificial selection,” which was the process used by breeders of domestic livestock animals (preferentially selecting desirable traits for continuation in the line, while reducing others). In the mid-1800s, the theory of genetics was not well developed. DNA had not been discovered, and electron microscopes were not available to study cell material directly. Darwin developed his theory of evolution based on the observable characteristics of a species, known as its phenotype. Darwin’s theory of natural selection was controversial and did not receive wide acceptance during his own time. It went against the creation story and many other teachings of the Christian church. It was not until the 1930s and 1940s, as Gregor Mendel’s ideas on genetics were combined with Darwin’s views that natural selection experienced something of a resurgence, and the scientific community came to a modern understanding of evolution through natural selection.
There are some similarities, but also considerable differences, between firms living within their chosen environment and organisms living in a natural environment. Perhaps the greatest difference is that organisms live for a relatively short time and pass on their genes through reproduction. Organizations, on the other hand, can theoretically live forever but must capture energy flows and benefit streams to continue their existence. Survival of the fittest provides a way for organizations to think about competition in their environment (often characterized as a ‘Red Ocean’ view of the world), but the mechanisms involved for success in the biological sphere are considerably different than those that firms need to adopt for their own success.
3. Survival of the Effective
Our last approach to firm survival is called “Survival of the Effective,” which comes from my 2017 book, Become Truly Great. From first principles, we know that firms must exchange benefits with their environment to survive and thrive. In a real sense, a firm must serve its environment, else it receives no benefits in return. A firm and its environment form an open system, and there are many different kinds of benefits that can be exchanged. Benefit exchanges with the environment should not be considered casually, however, since a Darwinian-style imperative is at work behind the scenes to enforce a culling of the ineffective. Over time, ineffective firms are marginalized or eliminated in the absence of adequate benefit exchanges with their environment. Effective firms, alternatively, are selectively retained to survive and thrive. Firms that are highly effective for a period (e.g., Apple or Google) can experience rapid growth, and appear to enjoy an effectiveness premium through preferential benefit exchanges with actors in the environment. Effectiveness thus confers a significant advantage when facing many present and future challenges.
While it may be clear that ineffective firms can be marginalized or culled by the environment, there are usually internal early warning signs before this fully plays out. Often, instability arises from inappropriate objectives driving the organization. Consider that the traditional approach to organizing the work internally is for management to set up a particular organizational form (organizational chart), program the units with a series of goals and objectives, then lead and direct the staff to fulfill them. This is the basic idea behind Management by Objectives, and variations thereof, that utilizes the goal model for effectiveness. The problem with this approach is that the goal model will accept almost any goal that management wishes to throw at it, and not all goals have any relation to improvements in effectiveness. It is difficult to know whether the right goal has been specified, and even if the goal is achieved, it may not mean that the organization is effective. Selecting a new executive team with a new set of goals can be a risky strategy with unpredictable results. In 1974, Peter Drucker wrote in response to a rash of reorganizations in large American organizations, “the main causes of instability are changes in the objective task, in the kind of business and institution to be organized. This is at the root of the crisis of organization practice.”
It seems that the more single-minded a firm becomes in focusing on a narrow financial objective (such as maximization of profit or shareholder value) at the expense of everything else, the more likely it is that dysfunction will emerge. The situation can even lead to a national crisis if an entire sector is doing the same thing. For example, the financial debacle of 2006-2008 and beyond in the USA was precipitated by investment banks that were focused on generating financial profits from complex investment vehicles in the housing market, without the vehicles being sufficiently supported by underlying assets on their books — thus increasing market risks and increasing environmental instability over time (eventually leading to a crisis). The rise of instability in organizational systems may explain why the risk of exit for public companies traded in the US now stands at 32 percent over 5 years, compared with the 5 percent risk that they would have faced 50 years ago. For individual public companies, these exits are mostly unintended and are likely associated with managerial failure.
A traditional view of a firm often describes one as a conventional entity focused on specific goals and organized somewhat like a factory to achieve them. When the firm is threatened, it is anticipated that staff will react with one accord to counter the threat. But this model does not work reliably, especially when the environment in which the firm lives is changing rapidly. It would be useful if its employees could react quickly like a flock of birds, each following its wingman in a coordinated turn. Humans don’t seem to be able to execute this maneuver easily. During periods of rapid transition, individuals, and social grouping within the organization can enter a state of uncertainty.
In reality, firms should be viewed as complex adaptive systems (CAS). The CAS perspective is a valuable one for examining firm performance because it reveals hidden patterns that can be found beneath the surface. In the CAS perspective, firms (and their environment) compose complex systems made up of individuals that can act on their own, both internally or externally. These individuals are called agents, and typically include a firm’s management and employees (internal agents), and their customers and other stakeholders (external agents). In such systems, despite efforts at top-down management control, order often emerges from below based on the interaction of the agents with each other, producing observable internal phenomena as a firm’s “culture,” and a general sense of “how we do things around here,” or external customer demand. Complex adaptive systems often react in unpredictable ways. When the system is in crisis and far from equilibrium, individual employees may adapt to a new reality by either cooperating to fix the problem or, alternatively, display a non-cooperative or competitive attitude by rejecting the storyline that management offers.
The complexity theory of organizations rejects the metaphor of firms as well-oiled machines made up of replaceable parts. Instead, a firm’s collection of internal agents has been brought together for a specific period, where they exhibit aspects of self-organization, emergence, and interdependency. During transition periods, so-called ‘attractor’ regimes can emerge. For example, when confronted with a zero-sum game, such as outsourcing some jobs overseas, employees seldom cooperate. On the other hand, the positive-sum game presented by the expansion of a firm into a new segment of the market readily gains employee acceptance.
My favorite approach to management, which I have discussed before on this podcast, is called Management by Positive Organizational Effectiveness (M+OE). It discards the goal model that has is commonly used to gauge effectiveness because it does not provide a way to discriminate between useful and non-useful goals. Within M + OE, by contrast, the goal of every firm is fixed, that is, to be effective within its environment. Firms that consider their goals to be the maximization of profit, shareholder value, or other such goals driven primarily by financial or economic gain are not using M+OE. They are still living in the present age of ‘efficiencyism,’ where improvements in efficiency have been elevated to the prime directive without understanding the assumptions and consequences. Dysfunction is an emergent phenomenon under efficiencyism, due to potential instability within a firm’s complex adaptive systems.
It is likely to be more rewarding and stabilizing over the mid- to long-term to entertain the creation of social capital, psychological capital, spiritual capital, and environmental capital among stakeholders –- thus encouraging the emergence of attractor narratives (e.g., in social media and elsewhere) based on real benefit exchanges. Evolutionary processes operate on the population of organizations, while adaptive pressures act on individual organizations, to enforce “survival of the effective” over time.
Let’s consider a story about social capital building among employees and management. In 2001, in the aftermath of 9/11, the airline industry was reeling. Planes were grounded for three days throughout the country. Once they started to fly again, people were afraid to fly, and passenger traffic dropped precipitously. It wasn’t clear that the domestic airline industry would survive. In the weeks following the event, many airlines laid off employees. Only Southwest Airlines and Alaska Airlines did not, among major US carriers. James F. Parker, who had been CEO of Southwest for only a few months, faced some tough decisions in September 2001. “We just had to make a gut decision based on what we thought was important,” he said. The decision was to give customers refunds if they wanted them, no strings attached. It was a risky policy for the company. If customers flooded the company with requests for refunds, the company could quickly exhaust the cash required to remain solvent. Fortunately, few customers requested a refund; instead, they generally opted for credit on future flights. Some even sent in small amounts of cash to the airline to show their support.
Despite the uncertainty, Southwest went ahead and made a $ 179 million payment to the employee pension fund on time. Employees experienced no layoffs or reductions in pay. In the three years after 9/11, researchers followed the performance of the 10 largest US airlines. It was Southwest and Alaska that recovered most strongly and quickly, and those were the only two that had not resorted to layoffs. Before the event, they had the strongest cash reserves and the lowest debt and engaged in a no-layoff policy. US Airways and United Airlines, who laid off 20-25% of employees and had high debt and relatively low cash positions prior to 9/11, recovered more slowly. Southwest Airlines was the only airline to show a profit in every quarter studied, while US Airways showed a loss in every corresponding quarter. No doubt, strong performance prior to 9/11 was important in building financial reserves, but so were decisions immediately afterward in terms of resisting employee layoffs. Crisis events lay bare the real values of a company and its management. In Southwest’s case, grateful employees went out of their way to make the difference in company performance, while other airlines imposed layoffs. This story highlights the positive aspects of building social capital between management and employees of Southwest, and conversely the destruction of social capital among employees following layoffs at other airlines. Today, Southwest remains one of the strongest airlines in the country.
Examples such as this reflect a broader reality. Consider a September 2014 article entitled “Profits without prosperity” that appeared in the Harvard Business Review. The author notes that the period after World War II until the late 1970s was characterized by a “retain-and-reinvest” approach to resource allocation in major U.S. corporations. During this period, firms tended to retain earnings and reinvest them to increase the firms’ capabilities. The approach served to benefit the employees who had helped make the firms more competitive and provided workers with higher incomes and greater job security. The “retain-and-invest” pattern gave way in the late-1970s to a “downsize-and-distribute” regime where short-term efficiencies were implemented involving layoffs, asset sales, and other cost reduction approaches, followed by the distribution of freed-up cash to financial interests, particularly shareholders.
It is doubtful that history will be kind to the downsize-and-distribute regime. It tends to strip value from a firm and contributes to employment instability and income inequality inside the firm because the firm’s ability to be productive in the future is weakened. It also tends to destroy social capital inside the firm rather than build it.
In summary, the keys to firm survival (what we have been talking about today) can be summarized as follows:
Adopt an objective function where the goal of the firm is to be effective within its environment (using the Survival of the Effective approach);
Adopt a “retain and invest” mentality which builds social capital between employees and management and positions the firm to survive and thrive for the long term;
Become a Truly Great firm. (For more information, grab a copy of my book Become Truly Great at Amazon.com or on Barnes and Noble’s website.)
[The above content originally aired as podcast episode 089, in March 2018]
Charles G. Chandler, Ph.D.
Reference:
Chandler, Charles G. 2017. Become Truly Great: Serve the common good through Management by Positive Organizational Effectiveness. Powell, OH: AAE.
In this episode, I interview Isaac Tolpin, who is a serial entrepreneur and the CEO of ConveYour.com, a micro-learning platform. We cover several topics related to the role of training in organizations. Isaac is a knowledgeable observer in the sector and provides an interesting perspective on several training issues.
[Note: This content first appeared as episode 094 in August 2018, prior to the COVID-19 pandemic]
In this episode, I am joined by Dr. Barry Borgerson, who is the author of The 2Selfs Revolution (2019). Barry is an executive coach who has written extensively on cognition at the executive level.
We discuss his latest book and his approach to saving the world. You can connect with Barry on his website.
Reference:
Borgerson, B. 2019. The 2Selfs Revolution: The necessary transformation to resurrect the greatness of the West.
In this episode, I am joined by Glenda Eoyang, who along with her coauthor (Royce Holladay), wrote the book, Adaptive Action: Leveraging uncertainty in your organization. Glenda is the founding director of the Human Systems Dynamics Institute.
We discuss her book and her approach to organizational uncertainty. You can connect with Glenda at the HSDI website.
