Saturday, April 09, 2011

Complex Management Structures Spell Doom

Recently John Chambers, the CEO of CISCO, came out with a memo that discussed failings in the company. Over the last decade or so CISCO (CSCO) has lagged performance of its peers on NASDAQ and recently they haven't participated much in the broad market rally (down 20% or so in the last 6 months while NASDAQ is up by 16%). I read how the memo was portrayed in the media, but then I found the actual memo here and cite it directly.

You’ve also made it very clear that we must make it simpler to do the work we love to do, and to accelerate the impact we know we are making for our customers... As I’ve said, our strategy is sound. It is aspects of our operational execution that are not. We have been slow to make decisions, we have had surprises where we should not, and we have lost the accountability that has been a hallmark of our ability to execute consistently for our customers and our shareholders. That is unacceptable. And it is exactly what we will attack.

What is interesting to me is that I was just sort of waiting for this to occur. Back in 2009 I read about CISCO's new team based model here in this WSJ article titled "CISCO CEO John Chambers Big Management Experiment". From the article:

Now executives work on committees—dubbed councils and boards in Cisco-ese—and the company makes 70% of its decisions collaboratively, up from 10% just two years ago.

The moves have been controversial at Cisco. About 20% of the company’s senior leaders have left since the shift began in 2007—a percentage organizational experts call unusually high. Chambers compares the executives who’ve departed to basketball stars who don’t fit into a team’s system and adds that Cisco is better of without them despite their talent. He says the old Cisco, which relied on a handful of people to oversee new efforts, would never have been able to pursue so many opportunities.

Critics of the new structure say that it adds bureaucracy and strips away accountability. Cisco has lost market share in key product categories recently, and some people who have worked under the new structure draw a line between these losses and the management-by-committee approach.

The core idea of the business enterprise and entrepreneurial-ship is all about leadership, accountability and personal responsibility. Businesses aren't non profit organizations, they aren't schools, and they aren't after-school specials. They are serious efforts, with salaries and families and cities on the line, and people need to be given roles and held to the results that they committed to. These aren't concepts that can be maintained through revolving committees where no one is responsible. Trying isn't good enough.

And another reason this is doomed...

Chambers says the idea for the new management structure came to him while participating in a collaboration exercise at the 2007 World Economic Forum in Davos, Switzerland. He was on a team with Arianna Huffington, among others, and the group was told to present a vision for life in 2015.

Awesome. Getting ideas for how to run a world-class company from dilettantes in Davos and a blogger, albeit one who was able to turn her re-posted "content" into actual cash through the dying AOL banner (don't ever underestimate the power of cashing out at the right time).

It is odd that Chambers thought that he was big enough to stand the lifetime of experience on management on its head and go with this ludicrous team concept. Not team in EXECUTION, which is critical, but in RESPONSIBILITY, which is doom. Someone has to stand up and make decisions and take the heat or fall for bad decisions, and you can't fire everyone in a committee.

This isn't the first time Chambers has been blinded by faddish ideas. I was with a consulting firm that was a partner with CISCO in the first dot-com boom and at the time CISCO was touting their "fast close" and their ability to rapidly forecast sales and earnings. This occurred right before the markets crashed and they had to write off millions of dollars in unsold inventory, basically proving that their forecasts weren't worth the paper they were printed on (or the internet space taken up explaining them, since this is now a virtual world).

Cross posted at Chicago Boyz


Anonymous said...

Something of an aside:

By any chance, Carl, are you familiar with the company W.L. Gore & Associates, Inc.? (Makers of GORE-TEX [among other things...])

Or, for that matter, the Brazilian company Semco SA, or its CEO Ricardo Semler?

(Just wonderin'...[And also wondering if any management lessons from either [or both] firm might be relevant to this subject...])

Anonymous said...

I worked for an A/E firm, the oldest engineering company in America, run under a style we called "management by bestseller."

We had it all, quality slogans, mission statements, ISO 9000, all of which couldn't save the company from a bean counter CEO.