The soul of a new company.

HAMMER, Michael. (1995). Beyond reengineering, Chapter 10. New York: HarperBusiness.

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A CORPORATION is more than a collection of processes, more than a set of products and services, even more than an associ­ation of people at work. It is also a human society, and like all societies, it nourishes particular forms of culture—”corporate cultures.” We’re all familiar with this notion. Every company has its own language, its own version of its history (its myths), and its own heroes and villains (its legends>, both historical and contemporary. The whole flourishing tangle serves to confirm old-timers and to induct newcomers in the corpora­tion’s distinctive identity and its particular norms of behavior. In myriad ways, formal and informal, it tells them what is okay—and what is not.

 

Despite their many differences, there are great similarities across most contemporary corporate cultures. Certain themes resonate almost everywhere: avoiding blame and responsibil­ity, treating co-workers as competitors, feeling entitled, and not feeling intense and committed. This commonality is hardly surprising. After all, most of today’s corporations were born and raised in the same business environment, subject to the same pressures and issues. And because nurture definitely dominates nature in the business world, most companies, fac­ing a common context, developed a common culture.

 

The key feature of the environment in which most contem­porary organizations carne of age is that, by and large, for the last two hundred years demand exceeded supply. It would be an exaggeration to say that corporate growth in this era was purely demographic—a simple matter of the growing numbers and purchasing power of consumers—but it wouldn’t be much of one. On the whole, from the last quarter of the eigh­teenth century to the last quarter of the twentieth century, producers have consistently had the upper hand over con­sumers. Except during downturns in the business cycle, there were always more people—or companies—who wanted to buy than there were goods or services to satisfy them. Whether it was automobiles, telephone service, or soft drinks, the dominant concern for the modern corporation has been to keep up with apparently insatiable demand.

 

This demand shaped the world’s business environment and shaped virtually everything about corporate cultures. The cor­porate way to success was not to innovate—that was the job of the entrepreneur—but to harness an earlier innovation and to ramp it up in scale in order to meet demand that could safely be assumed to be waiting. The primary goal was not making mistakes. With a market waiting to be taken, bril­liance and innovation were unnecessary; caution and plodding could be counted on to carry the day. So why take risks? The highest values were those of planning, control, and disci­pline—the values needed to capitalize on a ready market.

 

This business context fostered company cultures that were strangely at odds with America’s independent and democratic spirit. You might suppose that nothing could go more against the American grain than having to make a career, or at least a living, in organizations that were at once paternalistic, control­ling, and bureaucratic. Here was a hat trick, if there ever was one, against personal freedom! Yet so it was for everyone except those lucky few who scrambled their way through bureaucratic warrens and up the hierarchical pole. Most every­one else, workers and managers alike, found life in the indus­trial era corporation stifling and disheartening. Inventiveness was frustrated by protocol and work rules. Ambition expressed itself more in politics than in productivity. Craftsmanship was a thing of the past, and creativity a thing of the future—for after­ hours.

 

If you believe (as many people do) that work, what you do in life as a producer of goods and services for your fellow man, is the decisive constituent of your identity and self­ worth, then work in the culture of an industrial era corpora­tion could be—could still be—very bad for you. For two hun­dred years the primary demand on the employee was to work hard, obey the boss or shop steward, follow the rules, and keep your nose clean (and down). This may have been “ratio­nal,” at least from the point of view of the company. A demo­graphically growing market sponsors a task-centered organi­zation, which in turn fosters work that’s routine and simple. If each individual works hard and obediently at his or her task, the organization will succeed. Diligence is ah that’s called for. But “rational” though it may have been, this culture had dev­astating effects on the spirits and psyches of many who had to work in it.

 

If work in an industrial era company culture was bad for you, why did people put up with it for so many years? The answer is obvious—security. Even Americans were never so in love with freedom, independence, and risk. --Were never, in a word, so entrepreneurial—that they would blithely brush aside the value of employment security. To oversimplify (but again not by much): At the heart of the old company culture was a deal—obedience and diligence in exchange for security. The deal was not always arrived at simply: Many workers had to unionize and strike to get real security (not to mention higher pay); management had to supervise and bureaucratize to get the other side of the bargain. But the deal was there, and it held for the better part of the modern era.

 

No longer. An historic chain reaction is under way—enormous change in the business environment forcing deep changes in company cultures—and the cumulative effect is a deal-breaker. The rise of the demanding customer is the cru­cial precipitating factor in the chain reaction that is doing in the security for obedience and diligence deal. Corporate man­agers once had but one master in the business environment— their investors. Now they have two, investors and customers. Debating their relative power over the fate of an enterprise is like asking which is more important, food or shelter. You must have both. But from a decision-making point of view there’s no question about which of these masters comes first. It is the customer: Acquire and satisfy customers and you’ll attract and satisfy investors.

 

When the customer comes first in the environment, some­thing has to adjust in the company culture. The customer cares nothing for our management structure, our strategic plan, our financial structure—or for the culture that revered these artifacts. The customer is interested in one thing only: results, the value we deliver to him or her. This is of course the genesis of the process-centered organization. A customer focus forces an emphasis on results, hence on the processes that produce results, hence on developing an organizational structure that centers on processes—and on fashioning a cul­ture that supports them.

 

The effect of the modern customer on the security for obe­dience and diligence deal has been slow in corning, but it can be felt already. Hands are what employees used to be called, and as hands they were treated. Their every motion, down to the tiniest twitch of muscle, was commanded by the managerial brain. To be sure, the hands were also well cared for, pro­tected by union and other contracts. They were also protected by a carefully cultivated ignorance of the marketplace, and more or less shielded from its vicissitudes. These hands knew their place and they kept it. They willingly exchanged their hearts—and perhaps their souls—for a contract and guaran­teed wage increase.

 

But now with the ascendancy of the customer, both aspects of this treatment—the commands and the protection—have become disastrous. When a customer calls the tune, everyone in a company must dance. But this means letting go of com­mands. No system that depends on segregating wisdom and decision-making into a managerial class can possibly offer the speed and agility customers demand. It also means letting go of metaphors like “hands.” Processes require whole human beings possessed of hands, heads, and hearts to perform them.

 

If commands have to go, so do protections. In the new regime managers do not decide the fate of employees—customers do. The company does not close plants or lay off workers—customers do, by their actions or inactions. Samuel Gompers might plausibly throw his slogan of “More!” in the face of a monopolist or oligopolist. His antagonists controlled their markets and their customers; if they wished, they could give employees a bigger cut of their pie. Now it verges on the comical to read screeds against “giant and powerful multina­tional corporations.” The corporations I know are closer to “pitiful helpless giants,” all running scared of their customers. Supermarkets dictate delivery terms to mighty consumer goods manufacturers; pharmaceutical companies must yield to the cost containment demands of managed care providers; large borrowers go around the banks rather than to them; long-distance carriers watch helplessly as subscribers switch allegiances overnight. Companies are afraid that customers will desert for an established competitor, that they will trans­fer their allegiances to an aggressive start-up, that they will demand more for less. When the customer comes first, the company and its employees must perforce come second. Our needs must be subordinated to those of the people for whom we are creating value.

 

Like it or not, security, stability, and continuity are out because there simply isn’t anyone on the scene who can provide them. The company can’t because the customer won’t. Companies are not cold or cruel or heartless. They are merely running as fast as they can to keep up with demanding and unforgiving customers. The people who work in them will have to do the same. It’s not that no one cares about you; it’s just that there is nothing anyone can do about it.

 

But the new regime also offers compensation for the with­drawal of the power of command (from managers) and the withdrawal of protection from customers and the market (from all employees). It offers freedom and personal growth. The essence of the new deal in the process-centered organiza­tion is an exchange—initiative for opportunity. The company offers its employees the opportunity—and often the educational means—to achieve personal success. In return, the employee promises the company to exercise initiative in cre­ating value for customers and thereby profits for the com­pany.

 

Obedience and diligence are now irrelevant. Following orders is no guarantee of success. Working hard at the wrong thing is no virtue. When customers are kings, mere hard work—work without understanding, flexibility, and enthusi­asm—leads nowhere. Work must be smart, appropriately tar­geted, and adapted to the particular circumstances of the process and the customer. Imagination, flexibility, and com­mitment to results are what’s needed. If the results aren’t achieved, you can no longer claim, “But I did what I was told and I worked very hard.” It doesn’t matter. You are account­able for results, not for effort.

 

Without protection there is no reason to obey, and with obedience goes its cousin, loyalty. “Loyalty to company” as a cultural artifact is replaced by “commitment to business suc­cess.” The quasi-feudal assumption of the “organization man “—that putting the interests of the company first was dis­pensation from further responsibility and guaranteed personal success—is now ridiculous. Without results, without business success, loyalty is an empty gesture. Since it no longer guaran­tees success for the organization, it can no longer guarantee success for the individual. Loyalty and hard work are by themselves quaint relics, about as important to contemporary business success as the ability to make a perfect dry martini. Indeed, organizations must now urge employees to put loyalty to the customer over loyalty to the company—because that is the only way the company will thrive.

 

In a task-centered organization “satisfactory performance” was all that could be expected from employees, and it was all that was truly needed. Fragmented processes so homogenized individual work that outstanding personal performance would inevitably be bleached out in the wash. The final result was only as good as the worst link in the chain that produced it. In such a context, making a strong effort was likely to be a waste. So why bother? It was far more important to avoid mistakes than to excel. This is not the case in process-centered organizations. High-performing process performers can pro­duce a high-performance result. Adequacy no longer suffices. Excellence is required.

 

These shifts in norms are under way in a great many com­panies. They represent a radical transformation of the culture of modern organizations, the nexus of values that drives behavior. A few, such as GTE, have even made them explicit. At GTE a passive worker’s role has given way to an active one. “Compliance and support”—following orders—has been replaced by “decisiveness.” Each individual worker now has the responsibility to do whatever it takes to assure successful process outcome. Instead of “flexibility to move or retrain,” in which the employee agrees to accept what the company mandates for him, GTE now expects “flexibility to learn and relearn.” It is now the employee’s responsibility to take an active role in his or her own future, career, and skills develop­ment. I am the object of your training, but the actor in my own learning. Instead of promising “a lifetime of work,” the employee must now commit to a “readiness to change.”

 

Similar changes are also under way in GTE’s commitments to its employees. No longer is the company the “head,” the employee the “hand.” The employee is now assumed to be a mature, capable, self-reliant adult. The company does not promise to take care of the employee—which is just as well, since such a promise would be a false and empty one. “Taking care of one’s employees” implies a degree of control over one ‘s environment—that one can really shelter people from external forces and their impacts. This promise may have been realistic once but is laughable now. Instead of protection the company owes its people opportunity: the chance to do well, to succeed, to grow in one’s career.

 

At GTE this means that “paternalistic management” gives way to “candid leadership.” These words are well chosen. The company no longer “manages” its people; the term reeks of passivity, of victimization, of abdication of personal responsibility. Leadership, by contrast, provides people with the vision, motivation, and context they need in order to suc­ceed. But it demands action and responsibility on everyone’s part.

 

Real leadership must be candid. Truth telling was not an important value in the traditional organization. “Hands” had to be told only what they should do; telling them more might confuse or paralyze them, and was certainly a waste of time. But it is immoral to deceive human beings (and difficult to deceive educated ones). If people are to make the best decisions for themselves, they must be given as much information as possible. It is not enough for me to stop pulling your strings, I must be sure that you can pull them yourself.

 

Thus, “on the job training” now gives way to “information about the business.” GTE may or may not be able to offer employees continued employment, but it does owe them full information about what the business needs so they can make their own assessments of their prospects and plan accordingly.

 

No longer can “promotion from within” be taken for granted. In a world of change and unpredictability, who can say what talents the company will need and where they will be found? The company can no longer promise that new opportunities will go first to existing employees, for they may not have the capabilities needed to discharge them. Instead, GTE now promises “opportunity for development,” with opportunity again being the critical word. We’ll promise you a chance, but that’s all we can promise.

 

Instead of “training and retraining”—once again a model in which the employee is the object of external forces—the new deal is “a training climate and the offer of training.” Should a GTE employee leave the company, he or she should be able to do so a more capable and knowledgeable individual than on arrival.

 

But there’s a proviso to this: provided he or she takes advantage of the opportunity. Process professionals must coldly appraise every employment situation for the opportuni­ties it offers for personal development as well as for its imme­diate compensation. “Candidly, you have people understand that there is less likelihood they’ll remain with one company over their career,” says Bruce Carswell, GTE’s recently retired senior vice president of human resources. Whether they’re at GTE for five years or thirty depends on their continuing self­ development. Gone is the notion that “somehow the company has the obligation to develop you.” In any case, Carswell urged GTE employees to “look for the opportunities to broaden your professional portfolio while you’re with us.

 

That will be an asset for you whether you stay here or go somewhere else.”

 

Not everything at GTE is changing. Employees are still expected to exhibit “ethical and honest behavior,” and the company must continue to offer “fair and respectful treat­ment” and a “safe and healthy workplace.” But the differ­ences far outweigh the continuities. GTE is operating in a new way, and it feels like a very different place. The company’s culture—its very soul—has been transformed.

 

Whether these changes are good or bad is a value judgment that must be made by every individual. Some will consider the new regime to be liberating and empowering. They will see it as conveying dignity and autonomy to every employee by eliminating the controlling and confusing network of rules that have confined most people in their work lives. Others will see it as a harsh and cruel new world, a Darwinian jungle where only the fittest survive—and that only temporarily.

 

I prefer to simply call it realistic. For too long the large organization provided a fantasy environment in which people pretended that there was such a thing as security. By working hard and following the rules the uncertainties of the outside world could be kept at bay. The organization provided a buffer against reality, a comfortable zone of predictability and stability. So long as demand exceeded supply and customers were docile and subservient, the fantasy could continue. No more. Large corporations now do not dominate their land­scapes—controlling their customers and securely deciding their own futures—any more than start ups do. The large company and its employees must get used to the environment and lifestyle to which their entrepreneurial cousins adapted long ago—an environment of uncertainty and anxiety, but also of exhilarating freedom. It may not be to everyone’s lik­ing, but there is no going back.

 

In effect, the qualitative difference between large companies and small ones, between young companies and established ones, between those who create markets and those who control them, is gone. It has been replaced by a mere quantitative dif­ference. Large businesses are no longer very different from small ones; to paraphrase Hemingway’s comment to Fitzgerald, they simply have more people. And if a large corporation is, in effect, becoming more like a small company, then everyone who works in it must start acting and thinking like an owner of a small company. Our new role model is no longer the corporate manager but the entrepreneur. No one needs to tell the small company owner of the need to stay close to the customer, to remain flexible, to reduce non-value-adding overhead, to respond quickly to new situations. He or she sees with absolute clarity the connection between business performance and per­sonal success and future prospects. The small businessperson will do whatever it takes to succeed, knowing that the past is no indicator of the future, that the luxury of coasting does not exist, that there is no guarantee of future employment, and that success at one thing means nothing without success at every­thing else.

 

This holistic perspective, this visceral connection with the marketplace and the consequences of one’s own actions, is now required of every single employee. A refrain that I hear daily is that everyone must think and behave like an owner. This is not achieved merely through equity participation, ownership of some shares in the company. Though that is helpful, the feedback it provides is often too deferred to mat­ter. It is through tying everyone’s compensation to the performance of their process and to the company as a whole—as was described in chapter 4—that people’s attitudes are recen­tered.

 

Even this is not enough. One of the most important emerging themes in business today is broad-based business educa­tion and understanding. If everyone is to think and act like an owner, then everyone must have an owner’s perspective on the business. They must understand the company as a whole, not just one small part of it. They must appreciate the factors dri­ving the industry. They must know the issues shaping the competitive marketplace. Companies are finding that this requires a major commitment to business education for the workforce. Truck drivers must understand the economics of the distribution process so they can explain to small cus­tomers why they pay more for products than big customers. Customer service representatives must know how customers use their products so they can act as an aftermarket sales force. Factory workers must understand the origins and desti­nations of the products they are making.

 

Such knowledge is not of theoretical value. Understanding shapes attitudes and attitudes shape behavior—and change in behavior is ultimately what process centering is all about. Broad-based business education is an unprecedented under­taking for most companies, and it will not come for free. A typical number I hear is that companies are increasing their education budgets by a factor of four or five for this new era.

 

The need for such education is obvious to anyone willing to ask some simple questions. When I visit companies, I like to ask rank and file and middle managers alike the following:

 

Who are this company’s five most important customers? How is your industry changing? What are the crucial issues the company must address if it is to succeed in the next five years? By and large, I get blank stares in response. Such issues aren’t seen as the concern of the purchasing department, the ship­ping group, or customer service. Such “business” questions have until now been left only to the most senior executives. Now they must be everyone’s concern. Businesses need busi­nesspeople, not functionaries, and they must educate their people to that end.

 

The culture of a process-centered organization must also encourage people to accept the inevitability of tension and even conflict. I’m not referring to the old political infighting and back-stabbing, the turf protection and empire building, of corporate Byzantiums. Rather, I refer to the conflict that inevitably arises when independent people must work together to achieve multiple objectives in an environment of flux; ambiguity, and scarce resources.

 

As we said in chapter 8, it is possible to fashion various mechanisms for coping with conflict. But better yet would be for the organization to fashion a culture that appreciates the creative power of conflict and seeks to harness it. Common objectives, mutual respect, and a true team spirit help shape a context in which conflict is recognized as a sign of vital life, not an aberration or a symptom of organizational breakdown.

 

A tolerance for risk is another aspect of the process­ centered organization that runs counter to traditional corporate cultures. Ann Dronen of Commerce Clearing House articulates the new requisite attitude when she stresses the need to con­stantly encourage people to take more risks and “put their butts on the line.” Dronen acknowledges that the residue of the old school’s fear of making mistakes—reflective of a deeper assumption that that was the only way to get fired—is hard to eliminate entirely. The key to success in eradicating risk-averse behavior is for management to send out a clear signal that “we aren’t going to condemn people for taking gambles, as long as their intentions were good and the effort was there.” Bruce Marlow of Progressive Insurance concurs. “We never punish people for failure. We only punish sloppy execution and the failure to recognize reality.”

 

Bob Lehmann, a senior project manager for AT&T, remem­bers a second-level plant manager “breathing down your throat in the old days, and every time there was a mistake, he’d yell and scream.” Unsurprisingly, in such environments people would go to great lengths to avoid admitting the exis­tence of problems or taking responsibility for them. Now, by contrast, surfacing a problem does not diminish respect for the person grappling with it, “and there hasn’t been any retri­bution.”

 

Deborah Smithart, Brinker International’s executive vice president and CFO, makes the same point about the correla­tion between higher confidence, increased responsibility, and a more mature attitude toward miscalculations. “In the past managers had enough layers above them that they just kept kicking it up until somebody else approved it. Now, you really don’t have that luxury. But making decisions means you have an environment where some mistakes occur. Making a mis­take used to mean you were fired or ostracized. Today it’s more like if you don’t see a person making mistakes, they’re probably not pushing hard enough to look for new opportuni­ties. ”Process-centered companies must remember the coun­terintuitive dictum that winners make more mistakes than losers—because winners, striving for great gains, occasionally take missteps, while losers never do because they never try.

 

How do all these new cultural elements look when they’re brought together? For that, let’s look at GPU Generation Corporation (Genco), a medium-sized electric power producer that operates plants in New Jersey and Pennsylvania. Their previously regulated and monopolistic industry is now in the throes of deregulation, and the company is converting to a process-centered structure to enable it to keep up. A cross sec­tion of people from across the company have worked together to articulate the kinds of attitudes and philosophies that everyone will need to share it the company is to make it. The following are some excerpts from their work:

 

 

“In the GPU Generation Corporation our only measure of success is to find out who our primary paying customers are (or will be,), find out what they want, and give it to them at a better overall value than anyone else.”

 

 

“Nothing we do is more important than creating the best value for our customers. No other work matters at all.”

 

“Serving and creating value for the customer means that each member of the firm must be treated as a professional who, whenever possible. is in charge of the whole job, not just pieces of it. Stop checking with the boss. You know what’s best and you have an obligation to serve your customer and not keep asking for permission. If you need assistance, ask for it.”

 

“To be effective, you must have both freedom and autonomy while at the same time acting professionally.”

 

“If we are successful at becoming truly focused on creating value for our customers, we shouldn’t need bosses in the tradi­tional sense at all. We will already know what to do. We will need only to be kept informed and coached so we can be even more effective at what we do.”

 

 

“Nobody hands us anything. We work for what we have, every day. We can’t stand for anyone who does not want to contribute to our team.”

 

This is not theory, this is reality. The process-centered orga­nization is characterized by responsibility, autonomy, risk, and uncertainty. It may not be a gentle environment, but it is a very human one. Gone are the artificial rigidities and disci­plines of the conventional corporation. In its place is a world full of the messiness, challenges, and disappointments that characterize the real world of real human beings.