Playing To Win
The Downside of Scaling Strategies
Making Employees Feel Small
In the first piece of this series, Strategy & Scale, I laid out the strategy imperatives that have driven the massive scaling of business over the past half-century and linked it to employee disengagement. In this Playing to Win/Practitioner Insights (PTW/PI) piece, I diagnose what managerial approaches have driven this disengagement in The Downside of Scaling Strategies: Making Employees Feel Small. All previous PTW/PI can be found here.
Making People Feel Small
In the height of the second world war, Prime Minister Churchill weighed in the discussion of rebuilding the Commons Chamber of the UK Parliament Buildings which had fallen to Luftwaffe bombing, with the now-iconic quote: “We shape our buildings, and afterwards our buildings shape us.” And so it has been with modern companies. To deal with the scale they have sought, to satisfy their obsession with control and coordination, America’s companies have shaped themselves so as to make the employees in them feel small. Whether it has happened by way of intent or accident doesn’t matter — it has happened. In contrast to the architects I discussed in the prior piece, most companies haven’t even attempted to achieve intimate monumentality.
As they scale, companies make their people feel small by the way they exploit three managerial devices: standardization, compartmentalization, and subordination.
Standardization
Large modern companies don’t even make token efforts to honor individuality because they feel they need to deploy standardization to achieve consistency, which helps them control and coordinate their organization. Since they employ so many people, they cluster each person within an often-broad class of employees to make the resulting workforce easier to manage.
They simply give up on treating each employee as a unique individual — which they fear would undermine reliability and technocracy. The treatment feels largely the same regardless of your level. At lower levels, you might be one of many Customer Service Representatives or Delivery Truck Drivers. At higher levels, you might be one of many Senior Vice Presidents or Regional Presidents. Regardless, for purposes of interacting with and within your company, you are one of the many your employer defines as being ‘like you.’ All members of your class should be paid the same, have the same benefits, and enjoy the same level of responsibilities, etc.
Moreover, the modern large company uses monetary compensation as the one consistent, fungible good. A dollar is considered to have the same utility for and effect on every employee, even though it is obvious that the value of an incremental dollar is different depending on the individual characteristics of each, such as life stage and personal values. Even flexible benefits are denominated in dollar value to ensure that compensation is as standardized as administratively possible.
The implication is that the individual ‘you’ just doesn’t matter. The fear is far too great that if we allow variation, things will get out of control and (unnamed) bad things will happen. The message to the individual employee is that your individual concerns mean little (if at all) compared to our overwhelming desire and necessity for consistency. Your job classification is more important than you. We aren’t in the business of creating a job that matches you. You must fit into a job description that we have standardized so that many of your colleagues can also fit into it. You are known to our organizational systems as a categorization level — i.e., you are a Band 4, or a Member Technical III — not as an individual.
The overall message of standardization is: “If you haven’t figured it out yet, let me spell it out for you: we are big, and importantly so, and you are small, and too bad if you don’t like the feeling.”
Compartmentalization
Large modern companies see the holistic task of offering their product or service as too complicated to tackle directly in a holistic fashion. Consequently, they split the holistic task down into numerous siloes, the task within each of which is sufficiently narrow to feel manageable and controllable by the company. The silo can be a functional silo, like R&D for the offering, or a geographic silo, like the southeast region, or an offering silo, like the base model, or a component silo, like the wiring harness silo.
It is not as though this lacks sense. Division of labor and specialization are time-honored traditions — all the way from Adam Smith. But past a certain point, it has the effect of making employees become more specialized than it is natural for them to be. Charlie Chaplin’s character in Modern Times, whose job (for those of you who haven’t seen the movie) was to tighten one bolt on each nondescript piece of metal as it sped by him on an assembly line, was a caricature, but there was more than a modicum of truth in the portrayal. Performing one narrow task for one’s entire workday, work week, or year does not lead to a natural feeling of accomplishment, and certainly not to job satisfaction.
It makes employees feel small because they are unable to do anything completely. They feel that their job is to perform their narrow task and then, as the widely used expression indicates, ‘throw it over the wall’ for whomever to do whatever comes next to the fruit of their labor. It could be the next stage in fabrication of the product they were working on, the next step in a decision process to which their analysis contributed, the next geographic region that will do something with the product of their work, etc. They often don’t know what lays on the other side of the wall over which their inputs were thrown to them or the wall over which they throw their finished work.
The overall message of compartmentalization could not be clearer: “The structure is more important than you. You are a tiny cog. We are the all-important giant machine. You must fit into the structure even if you don’t understand it or even if it seems insane to you.”
Subordination
Large modern companies make it clear that the goals of employees must be subordinated to the goals of what are treated as self-evidently more important entities, even if the logic is far from clear or compelling.
For public companies, the most powerful entity is the shareholder base, which is treated as much more important than are employees. “Shareholder base” is an abstract thing and hard for the individual employee to understand. Neither they nor the company even know who these shareholders are at any given time because they change every quarter. Shareholders don’t even have to tell you that they intend to exit. The overwhelming majority of names on your share register — whether Black Rock, Fidelity, or CalPERS — aren’t even the true shareholders but simply intermediary fiduciaries representing shareholders who are hidden behind their veil.
Yet these intermediaries express desires, and ones which they don’t have any need to justify. If they expected you to do better than you are currently performing, even if performance is above normal benchmarks (i.e., your return on equity already exceeds your cost of equity), you must make ritualistic sacrifices to satisfy this higher power. The sacrifice might be minor, for example, a freeze of your salary. But it may be major, for example, your termination. If the shareholders (well, actually their intermediaries) think your company needs a 15% reduction-in-force, your company needs to make up a list of names that adds up to 15% of employees and your name might be on it, because you are just a body that will help the company get to the 15% target.
Similarly, your boss is clearly and unambiguously defined to be more important than you, with control over you. Your boss judges the merit of your performance, determines how much you are paid, and whether you will continue to have a job. An organization chart specifies this for you in no uncertain terms. And for most employees, that organization chart shows them to be far down the hierarchy; one of very many at their level.
The message of subordination is clear: “There are many, many people and entities that are more important than you. When necessary, your interests will be sacrificed for those people and entities.”
Inadvertent Outcome
Large modern companies don’t set out with the explicit goal to make their people feel small. It is collateral damage for what they believe genuinely they must do to maintain coordination and control. But it is a completely false sense of security. The control they seek comes with a steep price: a workforce that can’t do what it would be capable of doing under better circumstances. Thanks to the advantages of scale, it takes a while for the negative effects to manifest. That is why big companies stay big for relatively long periods of time — but then crumble, often spectacularly.
The reasons are often diagnosed as changing technology, or new entrants, or shifting customer needs. But the power of scale plus talented and engaged employees would naturally overcome most if not all those challenges: you would commercialize the new technology first; potential new entrants would pick some other industry to disrupt; you would be on top of shifting customer trends. However, if those employees have been subject to the kind of standardization, compartmentalization, and subordination described, they often are not up to the task — or prevented from accomplishing it. And great companies crumble — by believing that it is meritorious to do the very things that become their undoing.
Practitioner Insights
It is no question that it is a very tricky proposition to achieve strategic success and not cause your employees to feel small and insignificant. Staying small in the modern economy is dangerous. Think of the thousands of small retailers that Walmart and Amazon have crushed. Think of the community banks that have all but disappeared. Think of the tech companies that have been squashed or swallowed up by Microsoft, Google, and Facebook. Sure, some industries are fragmented, and small players not only survive but thrive. But even those industries are delusional if they aren’t looking over their shoulders for the company that figures out how to leverage scale to consolidate their fragmented industries, as Blockbuster did in the video rental business (only to have it done to them by Netflix) and Waste Management did in the garbage collection business.
So, the fundamental strategy challenge is to be capable of pursuing scale but doing it in a human-friendly way. Perhaps counterintuitively, I believe that to do so, a company should not reject standardization, compartmentalization, and subordination. Those are important tools for managing a large-scale company. The key is to repurpose them in a way that supports scale and causes employees to feel they are important individuals in an integrated enterprise. That is the subject of next week’s piece.
