I consult, write, and speak on running better technology businesses (tech firms and IT captives) and the things that make it possible: good governance behaviors (activist investing in IT), what matters most (results, not effort), how we organize (restructure from the technologically abstract to the business concrete), how we execute and manage (replacing industrial with professional), how we plan (debunking the myth of control), and how we pay the bills (capital-intensive financing and budgeting in an agile world). I am increasingly interested in robustness over optimization.

Friday, August 30, 2013

Conflict, Part II

The founder's optimism far exceeded his customer's interest. His aggressive expansion vapourized the cash he raised to start up the business. His options were to sell or liquidate.

The firm that bought them was a multi-line company of online advertising & e-commerce driven businesses. The new owners set about trying to make their new acquisition profitable. They looked for revenue synergies by cross-selling to existing accounts. They also reduced costs by closing the acquired company's office, integrating people into corporate reporting structures, consolidating overhead functions, and standardizing procedures with those of the parent company. By the time they were done, they had laid off more than half the staff. They also released the old management team, installing a salesperson from the acquired company as the Division Manager. He'd never run a business before, but the parent company expected that operations would sort themselves out, leaving the DM to develop a sales and client services team and concentrate on revenue.

The changes dragged on for months, leaving people confused and demoralized. Knowledge was fragmented and splintered. There was no one person who knew the business from end-to-end. Business knowledge existed in pockets and occasionally contradicted. There was business-partner-specific code and processes which people simply had no detailed knowledge of. The product administrator defaulted into the role of product manager. The few salespeople who survived the purge burrowed into long-standing customers as account managers.

To boost morale, and to discourage remaining employees from leaving, the parent company showered them with praise, promotions, pay, bonuses and benefits. Comp (including salary and stay bonuses) shot up by as much as 50%. Management also gave them the option to work from home, and set no expectation for in-office hours.

* * *

It didn't take long for the remaining staff to realize that their knowledge of the business gave them power. There was nobody with enough detailed business knowledge to challenge the new product manager: anything he said was treated as gospel truth. The e-commerce software was a mess: only somebody familiar with the code could make sense of it. The processes behind the business existed in the heads of a handful of people who worked independently of each other; processes from corporate were simply ignored.

The experience of having had their employer acquired, their co-workers canned, and foreign processes imposed on them, only to emerge as having "won the lottery" of compensation, benefits, title, independence, job security and power made the few surviving employees more than a little neurotic. Each jealously guarded the contextual knowledge they had. None would step outside the strict definition of what they understood their job requirements to be, even in situations where it was clear they were the only person with the business knowledge, client contacts or code familiarity to solve a problem. Knowledge sharing exercises were canceled due to last minute "customer emergencies". Account managers controlled and outright blocked access to customers. The DM made high drama when one of the legacy employees "rescued" a situation created by a corporate transplant, publicly hailing their efforts and creativity with code and client, while privately suggesting that the parent company people simply weren't competent.

People brought in from the parent company to work with this division took one of two paths. Senior employees quietly opted out of making any significant involvement: it was a lot easier work with those divisions of the company they were familiar with than to fight with entrenched legacy employees. Junior employees had no such luxury and soldiered on, trying to make the best of it. Although they learned little bits of the business every day, their long, steep learning curve on a blind journey of discovery made them prone to errors. Unfortunately, by continuing to give it their best shot, the juniors were complicit in reinforcing the narrative spun by the legacy staff; their senior staff, having self-selected out, offered them no reinforcement.

* * *

Two years after the acquisition, sales were a bit better and costs a bit lower, but they were nowhere near their profitability and cash flow goals. The company president couldn't understand why the acquired business still wasn't integrated with the rest of the company. He had faith in corporate staff, but despite their reassurances they still seemed a long way off from integrating the business. The legacy people intimated that the new people just weren't up to scratch, while the DM told him the legacy people were the only reason that business was still functioning.

But everybody reassured the president that they were committed to the company's goals.

* * *

Conflict arises when interests collide. The intensity of the conflict is a function of the degree to which people are committed to their objectives as opposed to a common or group objective.

This chart, adapted by Gareth Morgan from the work of K.W. Thomas, shows the intersection of the degree to which people pursue their goals versus group goals.

The Micro Level: Individual's Goals versus Organizational Goals

This is easy to understand at a micro level. For example, suppose a lead developer has had a vacation scheduled for a long time, but a business critical project this developer is working on is in trouble and the project manager believes it is the wrong time for the dev lead to be out of the office on vacation. How the actors deal with this conflict falls into one of five categories. They may avoid the confrontation, deferring any decision, waiting to see if the situation changes. For example, the project situation may improve to a point that the manager may not have to ask the lead to postpone vacation. They may become competitive with each other: the manager might call on an executive to reinforce how critical the project is to the dev lead, while the employee might make subtle threats to transfer or quit if his vacation is cancelled. They may completely accommodate the project goal, with the employee volunteering to defer vacation for the greater good. They may try to reach a compromise where the employee shortens the duration of the vacation. Or they may try to collaborate on a solution, where the employee takes the vacation but agrees to schedule a time each day for the team to reach out, and to participate in some team meetings.

Obviously, situations influence behaviours: a person might be passive about working late nights but very insistent about taking a vacation. And in any conflict, the actors may take multiple tacts through resolution: each party may start with avoidance to see how the situation develops, while one gradually shifts to a competitive posture and the other calls for accommodation.

The Macro Level: Collections of Individual's Goals versus Organizational Goals

At a macro level, this model helps us recognize general behaviour patterns within an organization. Consider our case study. For a group of employees, the thrill of a start-up quickly changed to the fear of a retrenchment. That retrenchment created feelings of powerlessness while rupturing any trust they might have extend the new owners. In the aftermath, however, power shifts from the acquirer to the acquired: the buyer is beholden to the contextual knowledge held by the remaining employees, and telegraphs that dependency by showering those who remain with compensation and titles. The acquirer has created a toxic sociological cocktail within the acquired business. Because of the retrenchment, each person will be looking out for themselves. Because of the cutbacks, business knowledge is fragmented and each person is deeply entrenched into a fragment. Because of the rabid awarding of titles and pay, people have personal interests to defend (e.g., they would not command these salaries elsewhere, nor would they have these titles in similar firms). Because of the asymmetry in contextual knowledge - none held by the acquirer, all held by the acquired - the acquirer is at the mercy of the acquired, meaning the acquired have the power to place their own agendas first.

This creates a business stalemate. No one person knows the business from end-to-end. Each person defends their power position by inflating the value of their contextual knowledge and resisting attempts to share, dilute or obsolete it. Any new person brought into this business will subsequently be thwarted from learning it because of the extremes to which people will guard the information they possess. Management will be reduced to one of two states per the model: avoidance, or compromise. In our case study, the senior corporate employees choosing to stay away from this business are avoiding conflict. To them, it's more hassle than it's worth, the hassle being the constant need for compromise: whenever a corporate goal needs to be met, the parent company management has to negotiate for participation and responsibility from each person, and micro-manage each to verify that personal preferences and priorities don't impair or impede a group goal. Achievable corporate goals will be very, very modest compared with the effort expended.

Managing Through Stalemate

We can understand managing through this stalemate in light of the unitarist and pluralist philosophies presented in Part I of this series. As mentioned above, a unitarist philosophy in the presence of so many entrenched, individual interests will at best result in compromise. Group goals compete with individual goals; it is only through formal authority that the unitarist can press an agenda forward. But in our case study, that authority is limited by management's captivity at the hands of its own people. The result is compromise and, in our case study, chronic underperformance of the business in question.

But a pluralist will be similarly frustrated. The pluralist will expect people will want to collaborate to accommodate the greatest number of individual goals and needs while pursuing the organization's goals. But in our case study, people are already empowered and power shifts among actors depending on the situation (leaving the manager to constantly chase rather than lead), while individual interests are competing in such a way that stymies facilitation of a group outcome. Collaboration requires individual agendas to be out in the open and accepted by all members. When they are not, there is a fundamental lack of trust. In this case, there are many hidden agendas: people protecting titles and compensation, for example. Collaboration will not come naturally and, as it is a threat to the status quo, may not be coachable in the situation. All the process and facilitation in the world will not overcome institutionalized neuroses. Facilitation will devolve into interrogation to obtain facts and, at best, reach a compromise among competing interests.

The conflict model above helps us to recognize this as a behavioural problem, not a process or organizational structure problem. A patient manager, whether unitarist or pluralist, can break the stalemate by rebuilding the culture. She can do this by changing incentives so that legacy people aren't rewarded for preserving a perverted status quo, but instead rewarded for group goals. This removes barriers to change. She can also bring in new people to reconstruct the business knowledge by engaging with clients and developing new software and services, gradually strangling and replacing legacy assets. This both captures and deprecstes contextual familiarity, simultaneously rebuilding both the business and the culture from the outside-in. If successfully executed, these activities will break the stalemate. However, the prevailing organizational culture after the change - accommodating, collaborating, competing, avoiding or compromising - will still reflect the fundamental philosophy of the leader.

A Portrait of Disconnected Leadership

It takes a long time to change organizational behaviours, and longer still to see tangible results. It's difficult, if not impossible, to measure behaviour change. Committing to this kind of change requires executive understanding of businesses as social systems and executive commitment to a future state defined by behaviour patterns. In our case study, if the executives in the buying firm don't recognize the sociological toxicity they created through their business decisions, they're not likely to understand the need to reform the business completely. Nor will they likely be willing to make the investment.

This exposes a third way we can apply this model: how do different actors perceive the organization? In our case study, we have a leadership disconnect: the executive is unaware of the presence of individual agendas which are crowding out the group goal. He shows characteristics of a unitarist leader, unaware of how management fostered this situation, denying the relevancy or existence of individual agendas relative to group goals, and thinking about his under-performing division as an execution problem. This means he assumes the organization is in the "accommodating" quadrant of the matrix. Yet the presence of so many individual agendas being vigorously pursued puts the business squarely in the "competing" quadrant. The executive interprets this as an execution problem, when it is a sociological one.

Which brings us back to the subject of conflict. If conflict is the medium through which an organization maintains relevancy and currency, the prevailing organizational pathology is an indicator of its survival capability. A willingness to acknowledge and integrate multiple agendas, needs and goals makes for a turbulent organization, but one that constantly changes, innovates and evolves. Denial or suppression creates extremes: an "every person for themselves" competitive free-for-all that slowly erodes an organization with internal strife, or an organization that experiences a stable trajectory - possibly for a long period - that decays suddenly owing to its inability to impose its will forever. Organizations that avoid conflict or are constantly compromising with themselves are organizations adrift.

Not all conflict is healthy, but conflict is inevitable. The leader who chooses to embrace and harness conflict will have a dynamic, vibrant organization. The leader who chooses to suppress, ignore or avoid conflict will run the organization into the ground.

Choose wisely.