Why organizations need a Clark Kent, not a Superman

Here's an excerpt from Ray Fisman and Tim Sullivan's new book, The Org: The Underlying Logic of the Office.

In The Org, Ray Fisman and Tim Sullivan explain the tradeoffs that every organization faces, arguing that this everyday dysfunction is actually inherent to the very nature of orgs. The Org diagnoses the root causes of that malfunction, beginning with the economic logic of why organizations exist in the first place, then working its way up through the org's structure from the lowly cubicle to the CEO's office.

Woven throughout with fascinating case studies-including McDonald's, al Qaeda, the Baltimore City Police Department, Procter and Gamble, the island nation of Samoa, and Google -- The Org reveals why the give-and-take nature of organizations, while infuriating, nonetheless provides the best way to get the job done.

Office reformers are pulled in two directions. They either follow Frederick Taylor (the father of scientific management) and the successive waves of management scientists who thought that with enough overhead cameras, spreadsheets, computing power, and analysis, they could "solve" the organization and its problems. Or they follow the dreamers of the 1970s and '80s, who, inspired by the cybernetic counterculture movement, thought that by getting rid of that same organizational infrastructure, they could free workers to reach their full potential by embracing chaos, complexity, new technology, or all three. The Utopians assume that some combination of office furniture and computer chips, or lack thereof, will magically solve the problems of the org. They won't.

The org is not a problem. It's a solution-but one that comes with some messy realities, such as the continued need for human interaction to gather essential "soft" information; managers overwhelmed by too many spreadsheets and pulled in too many directions; complicated jobs that defy evaluation or incentives; and, sad to say, human nature, which requires red tape and bureaucratic oversight to keep us in line. These are the trade-offs of organizational life.

Ronald Coase's basic insight that started transaction cost economics back in 1937 remains true today. The boundaries of the org are defined by trading off the costs of making things in house versus transacting on the market. It's also still true, supercomputers and IT systems notwithstanding, that the costs of bureaucracy and management eventually go through the roof as organizations expand. Recognizing and understanding such immutable facts behind organizations can help us discern the things that can't or shouldn't be changed, those that can, and the difference between the two.

Another immutable fact of org life is that every change involves costs and benefits. Utopian visionaries seem blind to the costs. That's not how life works.

Solitary heroes, our comic book alter egos such as Batman, Superman, and the Lone Ranger, achieved greatness only by painting outside the lines, free of the org. (Villains, on the other hand, always seem to have henchmen waiting in the wings.) Batman wouldn't have had the time to keep Gotham City safe from evil if he had to spend his days in line at the DMV to register the Batmobile or file paperwork at police headquarters.

Becoming Batman may be the ultimate office fantasy. To shout, "I'm as mad as hell and I'm not going to take it anymore. Screw the paperwork! Forget reporting protocols! I see a job that needs doing for the good of the org, and together, we're going to get it done, damn it!"

While we celebrate the comic book successes of mavericks and freethinkers, they're often a recipe for disaster. As much as a downer it might be, initiative and good intentions need to be kept in line by the rules of the org.

In teaching his students the perils of well-meaning employee initiative, Glenn Carroll, a professor at the Stanford Graduate School of Business, uses a business case study of Digital Equipment Corporation (DEC), which tells of the company's well-meaning but ultimately ill-fated bid for a desperately needed contract.

In 1989, with the world mired in a recession, DEC had cut costs and downsized its payroll. At the same time, it knew that its main business, the mid-market minicomputer, was dying fast, trapped between mainframes and PCs that were quickly squeezing the mini market out of existence. A big win would provide a much-needed contribution to the bottom line, and perhaps, more important, a boost to morale.

Russ Gullotti, a DEC vice president in Enterprise Integration Systems, saw a contract to provide an internal communications network to Kodak as the Big Opportunity. For decades, DEC had provided Kodak with computing equipment. Kodak was now looking for a single company that would manage every aspect of its internal communications, from the sourcing of equipment to the management of its network. It was an opportunity worth tens of millions of dollars, with the potential to transform DEC into a provider of complete IT solutions to corporate clients-a direction in which DEC correctly anticipated the market was headed. If it lost the bid, it wouldn't merely lose out on new work-it expected to lose its current business with Kodak as well.

DEC had a small office in Kodak's hometown of Rochester, New York, to service the account. The Rochester team had no telecommunications experience, and were somewhat disconnected from the DEC headquarters in Maynard, Massachusetts. DEC stood no chance against industry heavyweights such as IBM, AT&T, and Sprint if the job of putting together a proposal were left to the Kodak account team, and the contract was seen as important enough for the company's future that Gullotti, a senior executive at DEC, was appointed godfather of the project.

With just a month to cobble together a bid, going through the standard channels of requisitioning staff time and resources simply wasn't possible. But that only played to DEC's strong suit. The company prided itself on a culture of initiative and innovation, and had a long history of leadership in computing technology. As with other incubators of innovation-HP, 3M, and the like-motivated individuals were encouraged to bring promising projects to life, provided they could get sufficient buy-in from superiors. With the buzz and excitement about the Kodak bid, Gullotti had the go-ahead to pull together whatever resources were needed to put in an aggressive bid on a very short time line.

Gullotti took full advantage of the opportunity. He had an unparalleled network within DEC and tremendous powers of persuasion: People from around the company uprooted their lives and moved to upstate New York to work around the clock, seven days a week. According to one employee involved in the project, "It was like the old DEC-'do what's right.' This was an opportunity to propel DEC into becoming a major telecommunications player. Some people moved to Rochester and gave their all for this project. They just canceled birthdays, anniversaries, canceled their life" for the project's duration. People just told their bosses, "They need us in Rochester."

The effort paid off. Kodak narrowed the field to IBM and DEC, before awarding DEC the contract. Gullotti and his impromptu team were the big winners.

After winning the contract to provide Kodak with a communications network, DEC still needed to hammer out the details on what services, exactly, it would provide. Gullotti had already returned to his life and job back in Maynard, as had the rest of the team that had flown out to Rochester. The task of actually servicing the contract was likely fall to DEC's customer service division, which hadn't been involved in the process up to that point. The customer service people, in Gullotti's words, worked "straight from the book." Their involvement in the original bid for the contract would have been an encumbrance to the "technologists, creative types, mavericks" who had worked so hard, outside the normal chain of command, to put together the winning combination.

As the finance and customer service departments began to review the work they'd have to do to service the contract, these by-the-book, straitlaced creators of red tape discovered a significant financial miscalculation in the contract-and only hours before it was set to be signed. DEC's employees had put forth great effort, with the best of intentions, all to disastrous effect.

Flouting the rules of the org is great for getting things done. But sometimes, without sufficient checks and balances, they turn out not to be the right things. Much-maligned bean counters and compliance personnel exist to make sure this doesn't happen too often, even if it means that, some of the time, not much of anything gets done at all. Innovation and initiative have their place in any organization, but so do coordination and rules. The trick is knowing how much of each.

The dangers of networking in a big organization are clear: lack of accountability, lack of coordination, lack of oversight, lack of a clear definition of jobs and responsibilities-all the things that we have orgs for in the first place.

Sometimes we don't need Superman. Sometimes we need Clark Kent.

From the book THE ORG: The Underlying Logic of the Office. Copyright (c) 2013 by Ray Fisman and Tim Sullivan. Reprinted by permission of Twelve/Hachette Book Group, New York, NY. All rights reserved.