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Avoiding the Tipping Point

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Anyone who has ever been with a growing company from its early start-up days to any measure of significant size has undoubtedly experienced the tipping point -- when the true team atmosphere was lost to something resembling Dilbert's world. Most people who have lived through this transformation can't point to the exact moment when the change occurred, but sometime between everyone spontaneously sharing a beer for a job well done and canceling the company picnic because of poor participation, they realized that the company morphed from being a lean, mean, entrepreneurial family to a corporate quagmire where infighting, politics, and incompetence abound.

A few very special companies have managed to avoid this phenomenon or even managed to pull themselves out of the corporate muck -- open book management practitioners like Springfield Remanufacturing come to mind -- but I suspect the number of companies with over one hundred employees that hasn't succumbed to the laws of Dilbert is very small indeed.

The reasons companies reach the tipping point of corporate disarray are many: incompetent management, poor organizational design, even the basic fact that when your company reaches above a certain number of people, it becomes almost impossible to foster the unified thinking of a start-up team. But there is a generally unrecognized reason that might point to the actual moment when the change occurs -- the hiring of an outside manager. This is not to suggest that all management hires are bad, but why so many companies think bringing in an outsider, with no knowledge of how the company runs and oftentimes no knowledge of the market in which the company competes, is better for managing employees with longtime company experience defies logic. Not only do the outsider managers have no direct experience, but compared to employees who have given years to the company, they have little or no vested interest in the long-term health of the business. The result is often clueless managers desperately trying to justify their jobs and disgruntled employees who see through their façade. When this happens, you've reached the tipping point -- where team camaraderie is lost to corporate discontent.

If hiring from outside is such a bad idea then where can we find our managers? It's time we recognize that employees who are good enough to help build the company deserve the opportunity to lead it. Many companies feel they need to hire professional managers because managing is different than being a direct contributor. For example, being a director of engineering is a very different job than being an engineer. While this is true, it's often easier and more cost effective to teach management to someone with intimate knowledge of the company than it is to teach the core workings of the company to a supposed manager. I can certainly teach an electrician the basics of management far more quickly than he can teach me how to safely wire a house. Furthermore, since companies invariably have their own managerial style and culture, the outsider manager will not only be lacking in company experience but, because of differences in corporate culture, his supposed general management skills may be a poor fit as well. Instead of recognizing the shortcomings of hiring outside and focusing internally, many firms exacerbate the problem by pigeonholing employees in classes based on the level at which they were originally hired. This de facto caste system destroys internal morale and encourages turnover by effectively telling employees they need to leave the company in order to further their careers.

So who are these managerial fast trackers that we believe are so valuable that we seek them out while ignoring our own insiders? Are they people with long histories of direct experience and proven abilities in their field of work or just MBAs and people who went to schools with higher SAT requirements? More often than not, they are the latter, and their job performance frankly doesn't support their case. According to sociologist Michael Useem, as reported by Thomas Hurka of the University of Calgary, the Chase Manhattan Bank found that 60% of its worst managers had MBAs while 60% of its best managers had only BAs. Consider the records of Hewlett Packard's former and current CEOs. Carly Fiorina was a fast rising executive with stellar educational credentials: BA-Stanford, MBA-Maryland, MS in Management-MIT. Her replacement, Mark Hurd, has a BA from Baylor. Fiorina's career was marked by a meteoric ascendancy through AT&T and Lucent Technologies, two companies now facing difficulties, while Hurd spent 25 years at NCR. Fiorina's tenure at HP was marked by massive layoffs and a merger with Compaq that is now widely considered a mistake, while Hurd's tenure as CEO of NCR resulted in net income increasing nearly five fold. In fact, Hurd's record is not unique to homegrown managers. The list of homegrown non-MBA leaders reads like a management hall of fame: Jack Welch, Steve Jobs, Steven Ballmer, Sam Walton, Michael Dell, Andy Grove, Herb Kelleher. While these are clearly high profile examples from large companies, the reasoning is the same. Nobody can know the company, the people, and the intricacies of the organization better than someone who has spent time developing with the company.

Outsider managers are not the source of all corporate disharmony, and promoting from within won't guarantee your company won't slip into an organizational quagmire, but considering there isn't much evidence supporting the benefits of hiring outsider managers, why not find your leaders internally? At the very least your employees will see they have opportunities to advance and their manager will be one of their own. This fact alone will go a long way toward maintaining the health of the organization.

Many people fail to recognize the intrinsic value of companies. They are a collective where the whole is greater than the sum of its parts, and maintaining that collective worth is where companies find their value. In order to do that, they need managers who understand the unique conditions that make up the organization as a whole. For this, insiders have a huge advantage. An outside management hire at best results in unfamiliarity; at worst they send the company over the tipping point.

Last updated: Jun 1, 2005




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