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The Model Corporation. Part Two: Shorter and Smaller are Better

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This is the second in a series of articles about a subject you probably have never seen in real life, a great corporation. Does one exist? I know of no corporation that meets the Gold Standard of corporate greatness. That would be a corporation that consistently behaves in a positive manner and consistently produces positive results. We can be sure that no corporations that are "card-carrying members" of the corpocracy are great. They are the very antithesis of greatness.

Why should a model corporation matter and why take six articles on the subject?  Be patient. The sixth and final article in this series will wrap it all up nicely by telling why the first five articles matter one wit and what to do next.

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Not having a real example of a great corporation does not prevent us however from creating a model of one. It would be the mirror image of real corporations. We can create a model relying on three sources. One is our common sense about what a great corporation might look like and do. Another is studies of and our experiences with real corporations over many years that clearly tell us what a great corporation would not look like and do. The third is scattered evidence on pieces of what a model would be such as, for example, evidence from years of this writer's research on how organizational and individual performance should be managed.[1] The purpose of this second article is to start building the model by describing what a great corporation would not look like. It definitely would not look tall and big.

   A Great Corporation would not be Tall or Big

Corporations' organizational structure is invariably that of a hierarchy. The first of its kind was probably built more than two millennia ago when Ch'in, the "First Exalted Emperor, established a hierarchical bureaucracy to control the newly unified China. The corporate version of the hierarchy arose with the beginning of the industrial revolution. The hierarchy is still the norm today even though it makes becoming a great corporation impossible. It remains the norm because it is the perfect place for emperors and imperial CEOs and their managerial classes to accumulate and wield their power over people inside and outside the hierarchy with little or no accountability.

The Hierarchy's False Premises

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Hierarchies are built on six false premises that became hard core beliefs. The first is that workers are lazy, dishonest, incapable, intractable, and untrustworthy and thus need to be assigned the simplest work and be closely supervised. The second, known as the span of control premise, presumes there is a limit to how many people one person can control at the next lower layer, thought to be seven or eight. The third is that business operations require both simplification and specialization of work. Routine work is atomized into repetitive tasks. Non routine work is sorted out and put into specialties. The fourth is that work should be organized into fixed positions with specific duties and tasks. The fifth is that management is first and foremost a managerial class of people rather than a process for managing performance. The last premise is that bigger is better.

These premises made sense to the new industrialists and their advisors during the industrial revolution and so corporations grew tall and big, a trend that was accelerated early in America by relaxing the requirements for the chartering of public corporations. But these premises should never have made sense. Moreover, despite arguable progress in the making of goods and services over the years, these premises in several ways make achieving great performance impossible.  

Hierarchies Have Many Layers Adding No Value

The hierarchy's many layers are "throughputs," not outputs that really matter to the "front line" where product or service meets the customer. People perched on any layer and who cause problems look to other layers for placing blame. Layering creates a chain of command and control, and the commanded and controlled people lose their initiative. Layering requires costly caring and feeding of the managerial class and constipates the business process. Communication gets distorted with just too many mouths and ears on top of each other, made worse when each of their heads has its own separate agenda. Layering thwarts quality improvements in services and products. People are concentrating more on managing their careers up the ladder and lose sight of managing the corporation's performance.

Hierarchies Are Overly Compartmentalized

The false premises lead to excessive compartmentalization such as thousands of occupied positions. They are tiny compartments that effectively imprison potential by narrowly prescribing roles and responsibilities; provide the excuse, "it's not my job;" require a complicated and costly position classification system; and, because management is considered first and foremost a position rather than a process, provide jobs for far too many managers.

Other compartments are the classical corporate silos or functional departments (e.g., procurement, inventory, engineering, manufacturing, etc.), each with its own layering, its own goals, its rivalries and blame games with the other departments, its impossible coordination with the other departments, and its substandard contribution to overall performance.

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Hierarchies are Too Big

Corporations tend to grow too big partly because of the false premise that bigger is better, which in turn is based on several rationales such as the belief that economy of scale lowers costs and raises efficiency and the belief that product and market diversification is more profitable or at least more enduring than is market specialization. Additionally, corporations grow too big because of layering and compartmentalization.

Bigness hampers performance. Bigness, for instance, keeps the corporation from being more agile and innovative. Bigness, however, is good, not bad for corporate members of the corpocracy. Why is that? Two reasons; they thrive on government handouts and thus do not need to perform better; and they can operate illegally with little worry about accountability because of the government's hands-off policies. Indeed, if this corporate welfare and immunity were to cease, so too would today's corporations unless they reformed themselves.[2]

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Retired organizational psychologist.

Author of The Devil's Marriage: Break Up the Corpocracy or Leave Democracy in the Lurch; America's Oldest Professions: Warring and Spying; and Corporate Reckoning Ahead.

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