Note: This is the fourth part of a longer series on how social media is affecting management. You can find the earlier posts – The future of (knowledge) work, Knowledge Workers in the British Raj and The north-south divide – and subsequent issues – World of Warcraft in the workplace and Problems and the people who solve them – elsewhere on this blog.
Whom do you work for? For many people it’s not the company who’s logo is on their uniform, nor is it the organization who’s brand adorns the building they work in. You might be a gate attendant, hired by a local contractor as the airline doesn’t have the time or resources to maintain a payroll in every port in which it operates. You might be a consultant working full time on an organization’s change program, destined to leave once the engagement if finished. Or you might be a free agent, working across multiple businesses at once (as I do), bringing a distinct and valuable skill set to the executives you work with as they solve some of the knottiest problems confronting their business. For many people, the organization they work for is no longer the same one which cuts their a paycheck.
Companies find themselves caught between the conflicting needs of working smarter while keeping costs down. Creating a competitive edge means finding the high-value skills required to out think the competition, and they’re willing to pay a premium for the privilege. At the same time, an increasingly competitive market is pushing revenues down, creating a financial void that will most likely consume the margins and mid level management of many organizations. The best solution to this problem, and possibly the only solution, is to set aside the goal of exclusively owning every skill the business needs, and instead focus on fractional or collective ownership pulled from a broader community of partners.
Deconstructing the studios after the golden age
During the golden years of Hollywood, from the late 1920s through to the 1950s, the film studios built huge, vertically integrated empires that controlled every facet of production. Everything from actors, sound stages and camera operators through marketing, distribution and the cinemas themselves were under the same tent. However, this high degree of control didn’t ensure success, and the years after then second world war saw increased competition from foreign films, the decline of cinema audiences, and attacks on the studio structure by government agencies, all which contributed to dropping revenues. By the early 1960s the studios were half what they had been during the glory days, thousands of formerly flourishing theaters had closed forever, and the industry was forced to find a new industry model.
The first blow came in 1948 after a long antitrust investigation when, in what became known as the Paramount decision, the U.S. court ruled for the divorce of production and exhibition, and the elimination of unfair booking practices. In a single stroke the studios were forced to divest themselves of roughly 1,400 cinemas and split their companies in two; one division handling production and distribution, the other grappling with the declining theatre business.
The antitrust investigation, however, was not the only problem the studios faced. Patronage had begun to decrease in the years after the second world war, a trend that was soon accelerating as suburbanization saw people cashing in their war bonds and buying homes in the suburbs. This changed the pattern of film demand, draining audiences from the first-run houses in town centers which showed high margin prestige pictures, as they were now too far from home for many people to bother with. Hollywood fought back, trying to tempt viewers first with color pictures, and later 3D and CinemaScope (though both of these proved too expensive to deploy at scale), until the industry finally settled on Panavision’s anamorphic color image as their tool of choice, but it was only in the late sixties when suburban malls and multi-screen multiplexes became common that the studios recovered some of their former audiences.
Throughout this transition period the studios had refused to sell their back catalogue to the television stations. The first feature film shown on U.S. television came from abroad, as U.K. studios such as Ealing and Rank, unable to break into the domestic U.S. theatrical exhibition market released their product to television stations desperate for longer format productions. It was only in 1954, when eccentric billionaire Howard Hughes sold RKO’s library to television, that film studios’ resolve buckled as the millions of dollars were made on the deal impressed even the most cynical boss. By 1955 the studios had plunged head long into producing films specifically for television.
Moving into television, however, was not enough to prop up the studios’ sagging finances. Their response was to shed their in-house production departments: the talent that had been kept on the books during the golden era had proved to be too expensive, and the studios began contracting independent producers as required to make features. Suddenly the grand marques of the golden age, such as MGM and Warner Brothers, found themselves competing on an equal footing with the smaller, theater-less studios, like Columbia or Universal.
The television age proved to be an era of transition; the old studio system was supplanted by a more flexible model build around independent production. The grand marques struggled to attract hit films from independent producers, their losses pushing balance sheets deeply into the red. The lack of a large, rigid, vertically integrated studio structure which had been disadvantageous to the smaller, theater-less studios such as Columbia in the 1930s, proved to be the way to make millions in the new Hollywood system. The more fluid business environment which emerged with the television age favored a more fluid style of business. The successful studios focused on their core business – finding successful stories – knitting together special purpose vehicles from a community of partners to support production and distribution as needed, and then populating these vehicles from a network of free agents and specialist service providers to carry out the real work of creating and delivering the film. This approach was confirmed by Universal, which had been only marginally profitable during the golden age of the, however the company’s success after it was sold in 1952 to Decca Records resulted in it being bought by MCA talent agency and becoming a Hollywood powerhouse of television production.
Responsible, Accountable, Consulted, Informed
Work has changed dramatically in the last few decades. Much like the studios in Hollywood, pressure on margins and timeframes is forcing companies to reevaluate which work they do themselves, and which they farm out to a growing ecosystem of suppliers and partners. Although it won’t be called outsourcing, companies in industries as diverse as automotive, banking, retail, and real estate are responding to the new recession mentality by focusing on their core competencies and value-add, driving them to consolidate, rationalize and externalize supporting functions to save money or free up management time, allowing them to focus on more pressing issues.
Capabilities close to the heart of business are increasingly being moved into the hands of external providers. A growing ecosystem of partners is delivering everything from go-to-market strategies through product development to manufacturing and fulfillment. WalMart, for example, recently handed responsibility for all of its in-store marketing programs to a third-party specialist. The monolithic businesses we previously worked for are starting to fragment, converting themselves into swarms of cooperating entities.
Companies have always relied, to some extent, on others to do some of their work for them: Phoenician merchants bought their ships from Phoenician shipbuilders, the railroad robber-barons of the 1800s bought their steel from Bethlehem (among others), and even Henry Ford, who was so intent on vertical integration that he tried to found a self governing city (Fordlândia) to grow his own rubber, paid other firms to construct the buildings required to house his company’s factories. What is different today is that companies have moved from buying goods and services from others, to passing responsibility for core business activities to external organizations. Marketing, sales, manufacturing, even the management and operation of a company’s end-to-end business processes are now up for grabs.
But what are the limits of this drive to externalize? It can be educational to sit for a moment, and consider which day-to-day roles your business really needs to own, the people who must be on the payroll, rather than those folk you would like to have on the payroll. These are the roles where the person filling them needs to be held to account, and potentially end up in jail if they don’t meet their responsibilities, responsibilities which you cannot pass to an external party.
Take the CFO for example (or the finance director, or equivalent in your geography). A CFO is the one those interesting roles that most public companies cannot do without. There’s a range of government and market regulations – regulations with quite strict penalties – which typically fall under the responsibility of the CFO. Recent legislation in passed response to the Enron disaster and global financial crisis, such as the Sarbanes–Oxley Act in the U.S.A., has dramatically increased the scope of these regulations, along with the penalties. A company executive needs to attest that the company has met these regulations, and there might be a term in jail if they are later found out to have been less than completely honest.
It’s hard to see how a part time or outsourced CFO could be made to work for a mid to large sized company. Government and market regulation often (if not always) requires that a natural person provide the attestation. There’s a simple reason behind this: they want to be able to seriously punish whomever provides the attestation if they try to mislead the government. Fines don’t work, as they’ll simply be factored into the price on the contact. (Some enterprising organization might even manage to ensure against such a fine, given half a chance.) What does work is throwing someone – the individual who signed on the dotted line – into jail. From the point of view of the individual, even if the regulation did allow for a part time employee or someone from outside the business to attest, it would be a brave person indeed who signed without balancing the associated risk with the trust and intimate knowledge that you can only get from working from inside as a full time employee.
Companies require a CFO (or equivalent) as they need someone who can be held accountable. A common piece of consultantware used to sort out organizational problems is a RACI matrix: standing for Responsible, Accountable, Consulted and Informed. While many people many be responsible for carrying out the work required (or want to be consulted or informed on what will be done), in a smoothly running business or project there will only be one person held accountable for each deliverable or task required. If more than one person is held accountable then we open the door to finger pointing and excuses. The government understands this, which is why they require an individual, a natural person, to sign-off, and go to jail if they get it wrong.
These days if an outsourcing arrangement goes wrong, you will be held accountable by the business owners, regulators or the market itself, as it’s not just a bad batch of bottle tops that can be rejected, but one of your core business activities or assets will be missing in action, quite possibly bringing the entire enterprise to a halt. Boeing’s 787 Dreamliner, for example, is billions of dollars over budget and is already roughly three years late, with failed outsourcing arrangements taking much of the blame. Boeing was even forced during late 2009 to step in and take over the underperforming fuselage manufacturing plant of Vought Aircraft Industries, spending approximately one billion in cash and credit, after the plant and contributed to years of delays.
We can’t just pass off responsibility for a core business capability without some mechanism for holding suppliers accountable. Without the ability to throw an individual in jail, we’re reduced to crafting incentives and penalties (which is why Microsoft’s board cut Steve Ballmer’s bonus in half in 2010, in response to his inability to improve Microsoft’s position in the mobile phone industry), and this means aligning their incentives (and penalties) with our own, treating the hand-off as a delegation of authority rather than the procurement of a good or service.
The shift from buying materials to delegating capabilities has opened up new possibilities for the organizations, the early adopters, who are willing to experiment with it. They’re reconfiguring their departments, much like the film studios, focusing on knitting together the capabilities, services and materials their business needs, ensuring clear lines of accountability from their own organization’s business drivers down into the incentives (and disincentives) reified in each supplier’s contract.
Rather than having a large team focused internally, intent on optimizing internal assets and processes, this new breed of company has flatter and smaller departments (sometimes with tiny teams, well down into the single digits) who are focused externally. They’re identifying the suppliers required and lining up accountabilities to suit, or they’re working directly with customers to solve their problems. The executives accountable for the organization’s performance look up and out, plotting where the next step should be, providing the team at the frontline with guidance, but otherwise leaving the team to their own devices when solving the problems confronting them. While around these new, leaner organizations a new community of suppliers is also evolving.
The old consultancies and outsourcers, organizations more concerned with operational flex and selling doomed transformation programs, are being forced to align their offerings with their customers’ business models, taking responsibility and accountability for one or more of the customer’s cost-driven business activities. This might range from in-store marketing (as with the WalMart example) or staffing the gates at an airport, through category management to supporting the business’s end-to-end business process. The capabilities they provide will, in turn, be organized in a similar fashion to their clients, with small, flat teams containing an executive holding accountability for delivery, while also leading a team focused on the work at the coal face.
And in the middle of this we find the free agents, the skilled knowledge workers, that neither the clients nor the suppliers can afford to have on staff full time. Much like the more experienced and valuable staff in the movie industry – the independent producers, writers, directors and actors who create the blockbusters – they’ll migrate between engagements, often working with multiple clients at once, having grown out of a specific technical discipline to adopt a more general perspective on the industry, becoming sun-shaped people. Their unique world view will draw together the threads of an engagement, taking it from the mundane and making it into something special.
This model creates lighter and more agile organizations, organizations which are not burdened by the huge payrolls or massive investments associated with vertically integrated organizations. The old bureaucracies will have been blown apart, their baroque structures replaced with a network of smaller and more dynamic units. Whom you work for will be less import that what you work on and how you approach this work, and your career will be in your own hands.
Continued in World of Warcraft in the workplace.
1. Sarbanes-Oxley Art described at Wikipedia.↑
2. We could use of the many variants of the approach, such as RASCI, RACI-VS, CAIRO, or DACI, but RACI will suffice in this instance.↑
3. Don Reisinger, (2010), Mobile woes slice Ballmer’s bonus in half, CNET↑
4. Consulting doesn’t work. We need to reinvent it. @ PEG↑
5. North-south divide @ PEG↑
6. The sun-shaped individual @ PEG↑