Monday, August 4, 2008

Engulf and Devour

Scott's reference to the Times article "Even Giants Can Learn to Think Small" reminded me of Mel Books' Silent Movie, particularly the satirized "Engulf and Devour Corporation." Large corporations have an insatiable desire to gobble up smaller companies in order to acquire creative innovations along with their associated market share. It's a way to drive the earnings and revenue growth demanded by stock holders. The engulf-and-devour approach is seen as a tried-and-true solution compared to the more fundamental challenge of driving organic growth, i.e., growth generated by creative innovations within the established business units. It's clearly a successful approach---many large corporations simply would not achieve their growth targets without it---but is it a sustainable approach? To me it's almost like a sundew that engulfs and devours insects because the soil in which it grows is to poor to sustain it.

As I blogged at the beginning of the year, what isn't measured isn't optimized, so while earnings and revenue are tracked religiously, productivity and social issues, like job satisfaction, are far more difficult to measure. Yet social issues have a significant impact on productivity, which in turn has a major impact on revenue and earnings. As such, they're highly relevant issues to consider carefully. If the established business units aren't generating the growth that's needed, while smaller organizations are generating it in spades, doesn't it seem likely that the acquired companies will quickly degenerate to have the same problems as the ever-growing conglomeration itself? Of course it's well recognized that innovation matters and that it's good to do more with less, but it's not so well recognized the extent to which organizational structure and management attitudes stifles those things. Growth of the organization as a whole often just makes the systemic problems progressively worse. To me it's like the pitcher plant solution: just grow ever larger traps in which to digest larger numbers of victims.

The bane of many large corporations is the self-perpetuating nature of middle management. As smaller companies are devoured, middle management tends to perpetuate itself ever further. It's easy to argue that buying a new company will generate synergies and drive the customer value proposition. After all, synergies and value propositions are very important; you'll hear those buzzwords a lot in large corporations. But often the company being acquired will have things that overlap with the existing business units and in those cases, synergy means being able to eliminate half the combined technical staff. Of course you need a great many highly skilled managers to oversee that process, and naturally those managers themselves never seem to disappear, much like these monoliths left standing while what surrounds them and sustains them erodes away.

Nevertheless, the forces of erosion are unrelenting and eventually the monoliths crumble. Bell Canada's recent elimination of middle management positions representing 2,500 employees, or nearly 6% of its total workforce, for a savings of $300 million, is an excellent example. That's a move you won't see nearly often enough, given that management makes these types of decisions. Yet this is the move that's often most badly needed in a world driven by technical creativity. As the Times article points out, the ability make "significant decisions without first jumping through executive management hoops" opens the door to creativity; there in lies a sustainable future. I can personally attest to "the desire of workers for “noneconomic goals” like freedom, personal satisfaction and fulfillment" being a significant driving force. Sometimes one just needs to have the freedom to soar.

Eclipse thrives to a large extent because it consists of small groups of creative people who are in control of their own direction, and who collaborate effectively as part of the larger Eclipse community. It's exactly what's described in the Times article: a decentralized hierarchy. Individuals should take solace in the fact that that unrelenting incremental forces not only build mountains but also tear them down.

The world is an ever changing place and we're the ones changing it.


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But often the company being acquired will have things that overlap with the existing business units and in those cases, synergy means being able to eliminate half the combined technical staff.

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