As I was reading about the radical cultural and organizational changes at Cisco (“Revolution in San Jose,” Fast Company, December/January), I found some great insights into my questions about how ’socialist’ our large corporations tend to be.
Regardless of their possible relevance to political-economic theory, the changes at Cisco are fascinating in and of themselves. Cisco was once the largest company in the world before the tech collapse in 2001. They now face an astounding multitude of emerging challenges and opportunities.
Maintaining (or rather regaining) dominance calls for a major strategic move. Cisco couldn’t rest on their core strength in the routers and switches industry; they would eventually become simply a distributer of plain vanilla parts. More positively, given their immense resources and stature, they’re well positioned not merely to innovate but to innovate the process of innovation, which CEO John Chambers has clearly worked very hard to do.
They’ve gone from a ‘cowboy culture’ to a much more collaborative, integrated, horizontal organization. Top executives are now compensated based on company-wide, long term performance, rather than short term performance of individual units. (Is the finance industry paying attention?!) About 20% of executives left because of the changes. The new company isn’t fit for everybody.
The command-and-control structure is largely gone, replaced by a more open collection of ‘boards and councils,’ not to mention the ad hoc networks and teams that informally emerge via the use of social networking tools, e.g. homegrown blogging and video sharing platforms, wikis, and pages where employees list their various competencies (which often otherwise go unnoticed and unused in a closed, command and control, politicized organization), which help them find agents across the organization with special skills and knowledge needed for a project or team.
The ideas that come up in the article present a great contrast to the deficiencies bred into the US-based auto industry, but more importantly, they’re the perfect complement to my recent inquiry into the notion that corporations have become essentially ’socialist’ — or some dangerous hybrid of capitalist swashbuckledom with socialist bureaucracy.
Ellen McGirt, the article’s author, continually returns to the theme of socialism — half-ironically suggesting the new Cisco culture resembles a socialist organization. She makes statements like, ‘The internal economy of the old Cisco was very much market based. Chambers chose to redistribute the wealth.’ I think that is deeply misleading.
The new Cisco ‘internal economy’ is no less market-like. It is a different and more effective kind of market — one based on information and opportunities available to anyone, rather than one with great disparities in knowledge and access that enable relatively few, well-placed individuals to exercise disproportionate leverage and power.
What makes capitalism work so well is that decision making is distributed and dynamic, so inevitable mistakes by necessarily fallible individuals will not bring the whole system down. People are free to buy this-or-that at a price they feel is fair while demanding ever-greater quality, efficiency, and value. In the process, the stuff people don’t want doesn’t get bought and eventually disappears, while the stuff of superior value thrives and becomes cheaper as more resources are invested to produce it more efficiently.
That’s when things become less open, and in some ways, less market-like. Successful companies and individuals can make more with less — success breeds success — as they may use their advantages (greater wealth, economies of scale, more access to the market – and information about the market) to block competitors from accessing resources, information, customers, etc.
Now intervention from the outside to prevent those kinds of blocking strategies would undermine the theoretical ‘freedom’ of that market. But how ‘free’ is that market anyways? Intervention and regulation from the outside prevent the ‘invisible hand’ from optimally distributing goods, services, and resources — but manipulation of information and access by individuals and parties within the system can corrupt the function of the free mark just as much.
As a problem for political economists it’s difficult to get a grasp on much that could be used to make sense of the dilemma. It’s the perennially tricky dilemma of ’freedom to’ vs. ‘freedom from’. I generally lean towards a fairly libertarian principle of non-government-interference — but I’m not confident enough to actually make a case for it.
Fortunately, as I found when reading the Cisco article, when we address this dilemma by focusing our lens on an corporation within a capitalist free market the dilemma appears in a different light. Specifically, we can address the issue in a more measurable and pragmatic way: corporations stand to lose or gain in real, concrete terms; we can actually assess how different kinds of regulation and intervention affect objective outcomes.
Compensating top executives based on company-wide performance rather than more internally competetive factors might seem to undermine the internal market. In fact it does undermine specific aspects of the internal market, but it does so in order to prevent even more important aspects of the internal market from being undermined in even more dangerous ways. Making executives less willing and less able to manipulate information, access, and other resources in their favour ensures that other agents will be free to enter a wider range of the internal economy, which means they will be more likely to move into the position they’re most fit for.
That wouldn’t work in a more hierarchical organization in which everyone is essentially in sales — where instead of different types of jobs, everyone does essentially the same job at a different level — but in a creative organization largely composed of engineering and development types, with diverse backgrounds and interests, they aren’t all competing for the same position or resource.
People want to be challenged and gratified by their work, and the kind of work that is challenging and gratifying differs for everyone — even the same person will find different kinds of work more challenging and gratifying at different times in their life, at different stages of their development.
The fact that employees tend to strive primarily for money and job titles is largely a result of the fact that money and job titles are all they’re allowed to strive for in most organizations. People need to recognize forward progress in their careers to be gratified; they always need something perceivably better than what they already have.
In command and control organizations, people might have a vague sense they’d rather be doing more gratifying and suitable work — they might even think about accepting less money to do it — but there’s nothing concrete to assure themselves and signal to others that there is progress and growth. There must be something distinguishable, concrete, and clear. Money and job titles just happen to be the simplest and easiest ways to provide that.
We all need to believe we’re being compensated fairly for our work — or maybe I should say, compensated fairly for our worth. The employee who is gratified to do what they find challenging and gratified won’t be gratified for very long if other employees who are perceived as less competent keep getting more money and higher positions, so inevitably even the most earnest and humble employee will either join the game or become deeply dissatisfied.
Now if an organization functions in ways that genuine competence and creative accomplishments are concretely recognizeable – therefore signalling real value to oneself and others, therefore gratifying and an effective form of compensation — then the internal economy becomes a market of knowledge, skills, and ideas rather than merely money, titles, and awards.
Of course money will always be essential, and titles and awards will be inevitable, but the problem with them is they are finite, zero sum resources; whereas knowledge, skills, and ideas are non-zero sum resources that are infinitely generative: instead of competing for a limited supply, the more knowledge and skills an employee acquires, the more becomes available for people they work with.
And the production and consumption of knowledge and skills represents a much more truly free market, limited mainly by one’s own willingness to make the necessary investments of time and energy. Whereas an internal economy based on money and titles is largely controlled through a bureaucratic hierarchy, and ultimately by a very small, central elite that decides how to distribute the wealth and power.
Virtually every major corporate failure can be reduced to the fundamental flaw that entire organizations are exposed by the fallibility of a few individuals. GM has relied excessively on directions from the executive suite; their ability to adopt hybrid technology and new consumer concerns was deeply affected by one man’s opinion that global warming is a ”total crock of shit.” Even Steve Jobs has, can, and will make mistakes; Apple’s fate is subject to the mercy of his judgement (not to mention his health).
Even when nobody makes an obvious mistake, the ideas and practices of company founders become institutionalized into the command-and-control structure, closing the market for new knowledge and skills.
We see financial firms fail because agents don’t have the freedom and opportunity to ask questions and seek new information needed to recognize hidden risks and weaknesses. Enron, Bear Stearns, Lehman Brothers, AIG, etc, were all closed to the information they needed to make necessary changes. Anyone who sought or found such information would have risked losing too much in terms of salary, bonuses, and position. Though there may have been cutthroat competition, there was also an underlying comraderie (think of the roots of that word) that didn’t allow for any actions or ideas that might threaten the primacy of the planned system or the great leaders who controlled it.
Likewise, we’ve see high tech companies become former high tech companies because agents didn’t have the freedom and opportunity to cultivate new kinds of skills and expertise (which didn’t exist when the company was originally formed), and therefore fail to adapt to a changing market on the outside.
The irony now is that companies that do manage to finally recognize and react to fundamental changes in the industry (IBM under Lou Gerstner; Cisco), it often occurs under the hammer of a powerful central leader. Of course a degree of command-and-control will almost certainly always be necessary — though it’s worth remembering that a more open organization with more diverse challenges will tend to elevate the most competent to lead into positions of power — and John Chambers, unlike the leadership at GM and those financial companies I mentioned, has always encouraged argument and dissent from diverse voices at Cisco.
I suspect the resolution of this paradox will involve looking into how some individuals manage to cultivate a personal character that resembles an open economy of ideas on a small scale. I discussed this last year in my Origins of Creative Genius essay. The nut of the argument is that some individuals allow greater diversity of ideas and insights to challenge each other. Such an individual is therefore more able to adapt to challenges and opportunities. The relevance here is that such an individual would also be less vulnerable to the bad theories, habits, and assumptions, because ideas are less likely to become absolutely entrenched…
For now, through this lens, rather than having to cope with abstract arguments for or against the unregulated right of a few people to acquire disproportionate power and wealth, we’ve seen evidence that within organizations it is pragmatically profitable to regulate the economy to prevent resources and access from concentrating with a few fortunate individuals.
Whether or not this applies to the more general economy is a discussion for later.
