Shareholder, Customer, Employee–The Basic Triad

Chapter 1:

Shareholder, Employee, Customer: The Basic Triad

A company is a multidimensional system capable of growth, expansion, and self-regulation.  A system can be defined as a set of independent but mutually related elements. The different jobs or functions in a company are the “independent elements”; each has its own reason for being; each is done by a different manager, each of whom is expected to act to some extent as an autonomous and independent whole.  “But the mutual relatedness of the job with other jobs in the company is as important a feature of the organization as the content of the job itself.

This mutual relationship corresponds to the structure of the whole, and it must be emphasized because it is frequently ignored when organizations are reviewed.  Structure is a big part of this book, along with process. When managers try to reorganize, they don’t take into account how the parts are related in time or structure.  When organizations charts are drawn up, job descriptions are often ignored.

In addition to job descriptions and organization charts in a company, there are other elements such as budgets, forms, appraisal systems, systems for introducing new products to the company, salary-administration systems, long-range forecasts, management-development systems, goal-setting systems, data-processing systems, and management-information systems.  Very little relevance or connection is made between each element and the rest of the company.

The framework within which reorganization is at present undertaken is one in which analysis, or reduction, alone is known and recognized.  This inadequate framework brings about a violation of harmony, of structure. It appears that problems are often broken down into parts in order to solve them.  However, it reduces the level of the problem and can change the problem entirely.

If we are to have a harmonious and integrated system, we must constantly bear in mind that a company is a whole, a total system.  Nevertheless, it is a composite and multi-dimensional system. The author compares this to baking half a cake. “Let us first of all put in the flour and water and perhaps some currants, and later on we will get around to the eggs and sugar and the rest of the ingredients.  It doesn’t work.

Classical organization theory suggests there is the “company” on the one hand and “change” on the other and that these two are opposed to the other.  It reminds me of the idea I have heard about huge companies like Microsoft and Google, and how they are like huge freight liner ships. When they want to turn and change course, it takes time and they can often miss opportunities, much like IBM missed windows Windows OS and PC’s and Microsoft missed search engines and Google stepped in.  Google missed Facebook, etc.   What will Amazon & Facebook miss?  Ethics?  Big companies have strong hierarchical structuring and acquire inertia and are resistant to change.  On the downside, it inhibits the generation of ideas. It would be nearer the truth to say that an organization should be the orderly expression of change.

An organization changes along three “spatial” dimensions: lateral, horizontal, and vertical.  It’s functions become increasingly more differentiated and complex (the lateral dimension).  New systems, procedures, and understandings bring about new integrations or new orientation, and there is a tendency toward different and new wholes to be created within a company (the horizontal dimension).  The organization also changes in another dimension. As the company grows, higher level ideas are introduced, enabling it to encompass an increasing field of phenomena (the vertical dimension).

Change can happen at many different points within the system.  The emphasis on the vertical dimension or the hierarchic dimension leads to resistance to change.  The results are known as “cataclysmic” change when reorganization takes place. The resistance to change can lead to crisis at which point a new reorganization is needed.  By regarding a company as a dynamic system, the “cataclysmic” change can be replaced by a more “dynamic” approach based on “growth”.

Growth here is compared to expansion.  Big business, Hollywood, etc are trying to get bigger.  He uses the example of a balloon being blown up. It is expanding, not growing.  The capacity of the balloon does not grow, but the capacity is subjected to more and more demands.  Expansion can be seen therefore as using more and more of a given capacity. Growth on the other hand means increasing the capacity of the system as well as the demands that are made upon it.  Partial reorganization of a company would bring expansion or integration. Expansion occurs when the reorganization causes those parts of the organization that are addressed to increase their demands upon the rest of the system (e.g. a new sales drive).  Integration occurs when the reorganization enables parts of the system to interact more easily (for example, a work simplification program). Only total reorganization can bring about growth. Without growth the forces of differentiation and integration – process and structure – become unresolved conflict, causing fragmentation, empire building, and eventually the decline of the company.

We can therefore differentiate three forms of “orderly” change that can occur within a company:

1. The change of integration, which we shall call self-regulation.
2. The change of expansion.
3. The change called growth.

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