The stupidity theory of organizations

This was originally posted on April 30, 2013.

Stupidity in big organizations is not a bug. It’s a feature. So say two scholars, Mats Alvesson of Lund University in Sweden and Andre Spicer of City University in England, in their recent paper, The Stupidity Factor in Organizations.

They say organizations need “functional stupidity,” which is a willful lack of recognition of the incompleteness of knowledge and a willful refusal to question the organization’s goals and policies. This builds confidence and loyalty which helps the organization to function smoothly.

Alvesson and Spicer discuss how managers use vision statements, motivational meetings and corporate culture as “stupidity management” to develop loyalty and suppress critical thinking. They discuss how employees use “stupidity self-management” to suppress doubt and get with the program.

In Herman Wouk’s novel, The Caine Mutiny, a recruit decides that the U.S. Navy is an organization designed by geniuses to be operated by idiots. When in doubt, he asks himself, “What would I do if I were a idiot?” That is a gross exaggeration, but an exaggeration of truth.

Managers want employees who are intelligent enough to carry out orders competently, but not so intelligent that they question the orders. Critical thinking creates friction that prevents the organization from running smoothly. Over time the organization’s tendency is eliminate that friction, and become more disconnected from reality.

You can see this in how Washington officials and journalists understand public policy. They treat the processes of government, such as the 60-vote rule in the Senate or the revolving door between corporate and government employment, as if they were objective and unchangeable facts, like the laws of thermodynamics. They treat actual problems, such as unemployment or global climate change, as if they were matters of personal preference.

The trouble with ignoring reality is that sooner or later it catches up with you. Then crisis generates what Alvesson and Spicer call the “How could I have been so stupid?” syndrome.

Click on A Stupidity Based Theory of Organizations for a PDF of Alvesson’s and Spicer’s paper. If you read it with close attention, I think you will see the dry humor beneath their social science jargon.

Click on Understanding Organizational Stupidity for Dmitry Orlov’s summary of their paper and his comments.

When profits and productivity aren’t enough

Losing Sparta by Esther Kaplan on VQR tells the following story.

A Philips lighting fixtures plant in Sparta, Tenn., was named by Industry Week in 2009 as one of the 10 best factories in the USA.

Workers and managers had worked together to increase output on some lines by 60 percent, lower changeover time between small orders by 90 percent, and reduce defective parts by 95 percent.  As a result the plant generated a good profit.

Yet in 2010 an executive showed up from corporate headquarters in the Netherlands and announced that the plant was closing, and its operations moved to Monterey, Mexico.

To people in Sparta, this didn’t make sense.  Local business leaders did a study that showed that any savings on wages (which generally are no more than 10 to 15 percent of manufacturing costs) would be offset by increased transportation costs of Philips’ markets in the Northeast and Midwest.  They were unable to make contact with anyone in Philips who was willing to listen or who had authority to make the decision.

Esther Kaplan thinks that the decision probably was based not on study of the Sparta plant specifically, but on an overall policy of centralizing manufacturing in low-wage countries.

I know from reporting on business years ago that there are fashions in management.  In one era, the fashion was diversification, so that your business is not dependent on any one market; in another, it was divestment and concentration on core competency.  And I know there are managers who think that willingness to cause human suffering is a sign of realism and tough-mindedness.

I also know from my own experience that when managers tell employees it is necessary to do X in order to keep their operation going, they almost always will do everything humanly possible to achieve X—provided that they think the statement is being made in good faith.

Workers in Sparta did everything management asked of them, but to no avail.  Kaplan wrote that this is the story of American workers as a whole.   Americans by many measures are the most productive workers in the world, and U.S. productivity continues to increase, but this does not keep manufacturing jobs in the USA.

A footnote on disruptive innovation

Buzzwords such as disruptive innovation and creative destruction are popular among managers and officials who are neither innovative nor creative, but merely disruptive and destructive.

The passing scene: Links & comments 6/18/14

A Tale of Torture and Forgiveness by Ariel Dorfman for TomDispatch.

The Chilean-American write Ariel Dorfman described how a British officer was tortured by the Japanese during World War Two, how the officer tracked down his torturer and what happened next.  Anyone who thinks that torture is morally acceptable ought to read this article.

Timothy Geithner Reveals Himself in His New Book by Noam Scheiber for the New Republic.

Does he pass the test? by Paul Krugman for the New York Review of Books.

Treasury Secretary Timothy Geithner wrote in his new memoir that bailing out the banks saved the USA from another Great Depression.  Maybe so and maybe not, but his policy of protecting the banks from prosecution, restructuring or strict regulation has created the conditions for a new and worse financial crash.

What the Theory of “Disputive Innovation”  Gets Wrong by Jill Lepore for The New Yorker.

I think this article is based on a misunderstanding.   Clayton Christensen was not trying to tell business executives how to become disruptive innovators, but warning of the danger of neglecting basic skills and products and of being blindsided by competitors who gain a foothold in the low end of the market.

Chipotle profits by investing in employees

The Chipotle Mexican-style restaurant chain enjoys good profits and good growth, while paying its employees generously and promoting from within.

Its current policy began about nine years ago when founder Steve Ells and then-COO Monty Moran visited the restaurants, and notice that the one that were best-run were all managed by employees who had started as restaurant crew members and worked their way up.

They decided to make that into a system, and reward restaurant managers, not for achieving set targets of holding wages and other costs down, but for mentoring employees and training them to be managers.

Click to enlarge.

Why do so many managers ignore the examples of Chipotle, Costco and other companies and instead grind their employees down instead of building them up?  

I am reminding of a saying Bertrand Russell once made about human nature, When people are mistaken as to what is in their interest, the course they believe to be wise is more harmful to others than the course that really is wise.

Why do so many U.S. workers hate their jobs?

Double click to enlarge.

With workloads increasing, wages and salaries stagnant or worse and the gap between workers and management ever-increasing, it shouldn’t be surprising that a recent Gallup poll finds 70 percent of American workers are unhappy in their jobs.

What is surprising, at least to me, is the reason—not wages, hours or benefits, but the way they are treated by their bosses.  Also surprising is how discontent is spread up and down the economic scale.  Corporate managers and professionals are almost as unhappy as low-level factory and service workers.

Gallup estimated that out of the 100 million Americans with full time jobs, about 30 million are “engaged,” meaning that they are actively trying to do a good job; 50 million are “not engaged,” meaning they are doing what they are asked to do and nothing more; and 20 million are “disengaged,” meaning they are actively hostile and costing their employers money.

As Timothy Egan wrote in the New York Times, it doesn’t cost much to praise good work, provide opportunities for learning and growth and be open to suggestions.  Companies such as Costco that value their employees frequently outperform companies such as Walmart that don’t.  So why don’t they?

I think part of the explanation lies in what a couple of management scholars called “stupidity management.”   The top management in such an organization sets a narrow, usually quantifiable, goal and insists that it not be questioned.  A low-level manager in such an organization is required to push people to achieve unreasonable goals.  Being in that kind of position certainly would not improve my disposition.

Click on Why most Americans hate their jobs (or are just ‘checked out’) for details about Gallup’s findings in The Week.

Click on Checking Out for comment by Timothy Egan in the New York Times.

Click on ON MOTIVATION for comment on Gin and Tacos.

Click on Costco: doing well by acting decently for the benefit of being a good boss.

Click on The stupidity theory of organizations for a possible explanation of why more companies aren’t like Costco.

Hat tips to Eschaton and Balloon Juice.

The worst thing about work: the boss

The infographic is from Inc. magazine for November, 2012.

The stupidity theory of organizations

Stupidity in big organizations is not a bug.  It’s a feature.   So say two scholars, Mats Alvesson of Lund University in Sweden and Andre Spicer of City University in England, in their recent paper, The Stupidity Factor in Organizations.

They say organizations need “functional stupidity,” which is a willful lack of recognition of the incompleteness of knowledge and a willful refusal to question the organization’s goals and policies.  This builds confidence and loyalty which helps the organization to function smoothly.

Alvesson and Spicer discuss how managers use vision statements, motivational meetings and corporate culture as “stupidity management” to develop loyalty and suppress critical thinking.  They discuss how employees use “stupidity self-management” to suppress doubt and get with the program.

In Herman Wouk’s novel, The Caine Mutiny, a recruit decides that the U.S. Navy is an organization designed by geniuses to be operated by idiots.  When in doubt, he asks himself, “What would I do if I were a idiot?”   That is a gross exaggeration, but an exaggeration of truth.

Managers want employees who are intelligent enough to carry out orders competently, but not so intelligent that they question the orders.   Critical thinking creates friction that prevents the organization from running smoothly.  Over time the organization’s tendency is eliminate that friction, and become more disconnected from reality.

You can see this in how Washington officials and journalists understand politics.   They treat the processes of government, such as the 60-vote rule in the Senate or the revolving door between corporate and government employment, as if they were objective and unchangeable facts, like the laws of thermodynamics.  They treat actual problems, such as unemployment or global climate change, as if they were matters of personal preference.

The trouble with ignoring reality is that sooner or later it catches up with you.  Then crisis generates what Alvesson and Spicer call the “How could I have been so stupid?” syndrome.

Click on A Stupidity Based Theory of Organizations for a PDF of Alvesson’s and Spicer’s paper. If you read it with close attention, I think you will see the dry humor beneath their social science jargon.

Click on Understanding Organizational Stupidity for Dmitry Orlov’s summary of their paper and his comments.

How Microsoft lost its way

Microsoft is a once-dominant company in its industry—like Sears Roebuck, like General Motors, like IBM, like Kodak—that is resting on its laurels while competitors forge ahead, Kurt Eichenwald reports in the current issue of Vanity Fair.  Its stock price has barely budged in the past 10 years, while the price of Apple Computer’s stock has increased 10-fold.  Just one Apple product, the i-Phone, brings in more revenue than Windows, Office, Xbox, Bing, Windows Phone and every other Microsoft product put together.  Last week, after Vanity Fair went to press, Microsoft reported its first quarterly loss since it became a public company.

Eichenwald puts the responsibility on Bill Gates’ successor, Steve Ballmer.  He indicts Ballmer for all the usual sins—too much bureaucracy, too much caution, short-term thinking—but he sees the heart of the problem as a management practice called “stack ranking,” which was pioneered by CEO Jack Welch of General Electric.

Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees. … …

“If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review,” said a former software developer.  “It leads to employees focusing on competing with each other rather than competing with other companies.” … …

For that reason, executives said, a lot of Microsoft superstars did everything they could to avoid working alongside other top-notch developers, out of fear that they would be hurt in the rankings.  And the reviews had real-world consequences: those at the top received bonuses and promotions, those at the bottom usually received no cash or were shown the door.

… … As a result, Microsoft employees not only had to do a good job, but also worked hard to make sure their colleagues did not. 

“The behavior this engenders, people do everything they can to stay out of the bottom bucket,” one Microsoft engineer said.  “People responsible for features will openly sabotage other people’s efforts.  One of the most valuable things I learned was to give the appearance of being courteous while withholding just enough information from colleagues to make sure they didn’t get ahead of me in the rankings.”

Worse, because the reviews came every six months, employees and their supervisors—who were also ranked—focused on their short-term performance, rather than on longer efforts to innovate.

“The six-month reviews led to a lot of bad decision-making,” one software designer said.  “People planned their days and their years around the reviews around the review, rather than around products.  You really had to focus on that six-month performance rather than what was right for the company.”

It is as if you had a football team, in which the two best players would get huge bonuses and the worst player would be dropped after the end of the season, regardless of the team’s won-lost record for the season.  How could they even function as a team?  Each individual would focus not on the score, but on making himself look good, and his teammates look bad.

W. Edwards Deming, the father of Total Quality Management, strongly opposed performance reviews and merit ratings.  Rank order is meaningless, he said, because, among any group of people, the differences are usually not statistically significant.  Usually the whole group is doing well, or doing poorly, and it is usually for reasons that group members don’t understand or don’t control.  The key to quality management, he said, is figure out what those reasons are.

It is true, Deming said, that sometimes there are people who are so outstandingly good at what they do that what they do is in a different category from all the rest, and there are other people who are completely unable to do their jobs.  But it always will be obvious who these people are.  It is not worth bothering about differences among people so minor that you have to do an evaluation process to determine what they are.

Deming thought most people have an innate desire to do work they can be proud of, and management’s desire is to show them how.   His ideas were fashionable 30 years ago, but they are in eclipse now.  The prevailing idea now is to sort people into winners and losers,  reward the winners and punish the losers. to be rewarded.  And anybody who, by some definition, is a loser is not worth bothering about or listening to.  The result is a kind of Hunger Games society in which people are too concerned with surviving high-stakes competition to be able to think of whether there is a better way.

Click on Microsoft’s Downfall: Inside the Executive E-mails and Cannibalistic Culture That Felled a Tech Giant for Vanity Fair’s sample of the article and an interesting comment thread.  You have to obtain the magazine to read the whole article.  The article is well worth reading in full.

Click on Stack ranking for an interesting analysis, interesting links and an interesting comment thread on Making Light.

Click on Microsoft reports first quarterly loss as a public company for a report from the Washington Post on Microsoft’s latest financial results.

Click on Deming and the rise and fall of quality for an alternative philosophy of management.

How organizations decline

Double click to enlarge.

This chart is from a review of a book entitled Tribal Leadership, whose subject how to bring an organization from the bottom Stage 1 (“Life Sucks”) to the top Stage 5 (“Life is Great”).  But as I see it, most enterprises go in the opposite direction.  They start at Stage 5 and gradually decline to Stage 1, and the chart is a great illustration of that devolution.

In the case of business, the great entrepreneurial pioneers start out by doing something new and important for the love of it, then figuring out how to make money from it.  After the founders’ generation passes away, the enterprise eventually falls into the hands of people who care only about the money.  If money is your only objective, it is hard to see why you should put the good of the enterprise ahead of your own personal ambition.  That puts the organization in Stage 3 and on the way to Stages 4 and 5.

Ranking of employees for the purpose of reward and punishment, as is done at Microsoft, almost forces the employees to think of themselves first and the enterprise second.  Of course this kind of devolution is not just limited to business.  High-stakes testing in the public schools is another example.

Click on A Step-By-Step Guide to Tribal Culture for the original review on the Emergent by Design web log.

Ten truths of management

1. Think before you act. It’s not your money.
2. All good management is the expression of one great idea.
3. No executive devotes effort to proving himself wrong.
4. Cash in must exceed cash out.
5. All organizations have too little management capability.
6. Either an executive can do his job or he can’t.
7. If sophisticated calculations are required to justify an action,
don’t do it.
8. If you are doing something wrong, you will do it badly.
9. If you are attempting the impossible, you will fail.
10. The easiest way to make money is to stop losing it.

Dukenfield’s Law of Incentive Management

Mark Kleiman, professor of public policy at the UCLA School of Public Affairs and editor of the Journal of Drug Policy Analysis, is a temporary guest-blogger for Ta-Nehisi Coates of The Atlantic Monthly.  He wrote a post on Friday about scandals in which educators were caught falsifying results of tests used to measure school performance and, in the process, came up with a new sociological “law.”

A school superintendent allowing his staff to doctor students’ answers on a set of high-stakes standardized exams has something in common with a corporate CEO holding a bundle of stock options who practices “earnings management” via bogus asset sales.  Each is responding to an intense incentive system by faking success rather than producing it.

One could formulate this as a general principle: any incentive to create a result also creates an incentive to simulate the same result. The corollary is obvious: the greater the incentive, the greater the temptation. Or, as W. C. Fields put it in You Can’t Cheat an Honest Man, “If a thing is worth winning, it’s worth cheating for.” Borrowing Fields’s real name, I propose to call this generalization Dukenfield’s Law of Incentive Management.  Designers of control systems ignore Dukenfield’s Law at their peril, and ours.

A second corollary follows directly from the first: holding the level of audit effort constant and other things equal, the reliability of a measure will decline as the importance attached to it grows. To put the same thing another way: to maintain a given level of reliability, the resources invested in verifying any performance measure need to rise roughly in proportion to the stakes involved

via The Atlantic. (my bold-facing)