Turning the Firm into a Marketplace
It’s always seemed odd that most of us agree, with gusto, that markets alone induce efficiency and constant innovation; but we then turn around and ignore them within the firm. As consultant Hal Carroll puts it in “Perestroika in the American Corporation” (Organizational Dynamics magazine), the “modern American corporation is an anomaly. Competing in a capitalist, market-driven economy, it functions internally like a centrally managed, Marxist economy.”
There is no longer any excuse for this contradiction. We can’t afford inefficient staff services. But even efficient ones miss the point: Such areas as accounting or purchasing are increasingly a prime source of competitive advantage or disadvantage, and demand as much imagination as does research and development.
After all, “staff service” activities now absorb most employees, even among manufacturers. Yet it sometimes feels as if we aren’t really managing this portion of the payroll for strategic advantage. For example, any pharmaceutical company worth its salt will go all out to recruit the world’s best biochemists. But we normally don’t think of pursuing “world’s best” when it comes to purchasing, information systems, training. This is a mistake in an era dominated by “intangibles” that often flow from just such activities. If, for instance, blinding speed and distribution excellence are paramount (as many say), then isn’t it just as important to have matchless logisticians as peerless scientists?
The best answer for inducing innovation in these neglected areas is to turn the firm into a marketplace, with virtually every service up for bid. Insist that providers of staff services test their mettle by peddling to outsiders as well as insiders, and that they view a large part of their job as the creation of new, proprietary services. And encourage line departments to bypass ineffective staff units and go to the market to procure peerless services. Carroll calls this creating a “limited free market within the controlled economy of the enterprise. Departments and subdepartments are, in effect, miniature enterprises buying services and selling services to other departments.”
Reconsider the “middle manager’s manifesto” I offered last week. If middle managers get market-minded as I proposed, the firm as a whole will be the major beneficiary. I urge top management to charge its middle management/ specialist staff ranks with putting their activities on a commercial footing. To get the ball rolling, have each staff manager submit, within a month, a two-year “privatization plan”—based on something like the nine points outlined last week.
Such a program can be introduced piecemeal or across the board. Experience suggests that the closer to across the board, the better. It won’t be easy. Sorting out the accounting tops the priority list. Pinning accurate costs to internal service activities has proven elusive, though new information-technology tools and revised accounting theories are beginning to address the problem. Training is also essential; after all, you are demanding that career “staffers” act as entrepreneurs. Beyond that, incentives can help immeasurably—fat bonuses for those who take a shine to the new way, generous early retirement schemes for those who run from such market discipline.
Adopting this concept may fundamentally alter corporate strategy. In the emerging information age, your most valuable products are likely to come from the unsung processes developed and overseen by support staffs.
Consider General Motors. Financial services, originally created as a fringe benefit for its auto customers, have become the most profitable part of the firm. Likewise, the byproducts of American Airlines’ reservation system have at times earned more profit than the passenger-movement business; AMR (American’s parent) recently acknowledged as much by forming AMR Information Services, marketed to the likes of Hyatt and Marriott. DuPont, now a leader in environmental affairs, is selling its waste clean-up expertise (learned at home)—and expects to have a $1-billion environmental consulting business by 2000. Smaller outfits have joined the fray, too: Given his company’s renown for customer service, grocer Stew Leonard recently started Stew Leonard’s University, for profit. The Connecticut dairyman now trains the likes of Chase Manhattan’s bankers!
Summing it up, University of Southern California Professor Bill Davidson insists that the “information exhaust”—information and processes lying dormant within the firm—increasingly will be the major source of future growth and profits. At the very least, all processes, and process managers, should be measured against the best (most efficient, clever) anywhere. All middle managers/staff experts should be unmistakably tasked with developing matchless “products” in their areas of responsibility. Vigorously pursuing these objectives—which will only occur if a real marketplace is quickly created—is your best bet for turning untapped staff creativity into a wellspring for sweeping, new strategies.
In the end, the self-serving middle manager’s survival manifesto may well turn out to be a corporate survival manifesto.
(c) 1991 TPG Communications.
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