INC.: What's the most important management lesson for business that you take away from your experience with the Air Force?

CREECH: What we proved at the Tactical Air Command is that some organizational approaches stifle initiative and motivation while others nurture it. In the final analysis, it boils down to productivity, and to improve it, you have to create more drive and enthusiasm -- a turned-on team.In that context, American business has not been well served by the management theories of the 1960s and '70s that taught of the tremendous virtues of consolidation and centralization. It wasn't only the Defense Department that was bitten by that bug. Most of our companies, large and small, have those theories insinuated into their warp and weave to one degree or another.

INC.: How does that manifest itself most commonly?

CREECH: Well, the most common phenomenon is for a manager who has two operations doing similar things to conclude that if he consolidates them, he'll save manpower and some cost. It's a given that it is wise to consolidate wherever possible.

INC.: There is a germ of truth to that, isn't there?

CREECH: There is a germ of truth, but what happens is that managers take it to a ridiculous extreme. I often ask people how they would like it if there were one airline in this country. By the theory of centralization, it would be very efficient. How efficient? Just ask anyone who flies on Aeroflot, the Soviet airline. The problem with consolidation is that, while it can yield some immediate and tangible savings, it has indirect and negative effects on people -- on morale, motivation, enthusiasm, creativity. Additionally, if you consolidated too much, you lose your ability to make meaningful and objective comparisons between similar operations. How efficient is your airline? Well, you'll only know if there are two airlines. And with a little competition thrown in, hopefully the people who work at the airline that is less productive will face up to that fact and face up to the need to try harder.

INC.: A chief executive of a smaller company, listening to you just there, might say, "Oh, that's interesting, General, but you're talking about TWA or General Motors or something on that scale. But I have only 40 people here."

CREECH: In most cases, the urge to consolidate is driven by the urge to centralize, which has nothing to do, really, with bigness. It's an attitude toward management, and it exists in large companies and small ones. The theory of centralization says that there are certain kinds of decisions that have to be made up high, because that's the only place they can be made in an intelligent fashion. And to facilitate that, they like to have lots of rules and regulations and stipulations to govern people's behavior. Meanwhile, all decisions gravitate upward. What I was able to prove at TAC is that, within certain general guidelines and goals, you can give people real authority down below -- give them some breathing room to make their own decisions. Rather than a tight-fisted operation where one person is in charge -- which is what you find in a lot of small companies -- you can have a decentralized organization in which there are many leaders charged with achieving your goals.

INC.: Then the manager says to you, "Look, General, if I decentralize and give authority and responsibility down below, some percentage of those people are going to wind up being inappropriate, and some are going to screw up. There will be customers who are mad and profits that are frittered away and expenses that are going to get out of control and sales that will be lost. It's just inevitable." What do you say? Isn't it true that those things will happen?

CREECH: Some of those things happen the way things are now -- and fewer will happen if you do it the other way. Remember, you're talking about greater productivity, greater loyalty -- conveniently, the centralizers like to forget about that. And even in a decentralized organization, the CEO has to keep track of how well people are doing, so that nobody can make such fantastic mistakes that it dooms the whole corporation. Oh, sure, once you start delegating authority and hold people accountable whom you didn't previously hold accountable, there will be more of an attrition rate. And what is the moral of that? It's that incompetence finds it easy to flourish in centralized organizations, because it's all so communized and homogenized that you cannot sort out the real performers from the nonperformers.

INC.: Can you take decentralization too far?

CREECH: I suppose there will always be some people in any organization who are going to take it too far. And in those cases, you have to guard against the temptation to pull that authority back up and say, "Well, I can't trust any of these folks. I'll handle it all up here." That's a major part of what causes centralization in the first place.

INC.: Are there any other pitfalls to watch out for?

CREECH: Probably the most common is that managers don't give themselves the tools with which to track and view objectively how people are performing below. You need a way to know if the barn's on fire before it's in ashes. And in business, I've found that too many managers are still watching P&Ls or growth curves, which don't necessarily give them good indications of where their systems are breaking down, where productivity is lagging. When the bottom-line numbers finally come in and they are disheartening, managers don't have answers as to why it all happened. And so, again, the instinct is to centralize across the board, to set down regulations, to try to micromanage everything from the top.

INC.: One of the fashionable new ideas is to delegate to an ad hoc team of people from different departments the responsibility for solving a problem or creating a new product line -- all this as a way of getting around some of the problems you've pointed out with a highly centralized organization.

CREECH: Well, the problem with much of that matrix management is that it gives people responsibility without giving them real authority. And without the authority, most people won't really accept that sense of responsibility -- and you really can't blame them.

INC.: Can you be more specific?

CREECH: Well, in most of these situations, you have a basic vertical-management structure that is common to most centralized organizations. You'll have, as an example, a chief engineer, and all the engineers in the company will work under him. And a vice-president for marketing with all the marketing people under him. Suddenly, there is a specific job to be done, a project, and some number of engineers and marketing specialists are assigned to that project, along with people from manufacturing and accounting and whatever. That's matrix management. But who is in charge? You can try to hold everybody on the team accountable, but that's not the way human behavior works. You have to hold a few key people accountable.

INC.: Presumably, you hold the project manager accountable.

CREECH: Well, I have some experience with that. Some years ago, I commanded the Air Force's electronics-systems division in Boston, where we bought about $5 billion worth of electronics each year, ranging from the Airborne Warning and Control System aircraft -- the AWAC -- all the way down to telephones and switchboards. We had lots of projects with lots of corporations. And occasionally, a program would get in deep trouble, and we would send in a team to find out what was wrong. Nine times out of 10, we found that it was a highly centralized and highly matrixed organization in which there was no real sense of accountability or authority. I remember one case in which a major corporation had about 900 employees working on a major program, and there were exactly 9 people who reported to the project manager in a hire-and-fire context. All the rest were assigned to him in a matrix context, and they reported to their functional chieftains -- the chief electrical engineer or the chief computer programmer and so forth. And the project manager ultimately wasn't in charge of any of them. And so what the project manager had to do was form a coalition. Coalitions sometimes work, but they're not long on accountability, because it's too easy in a coalition to point fingers at the other guy.

INC.: So what's the alternative?

CREECH: The answer is to keep an engineering department, for example, to handle some of the housekeeping chores, to worry about whether all the engineers in the organization have the know-how and the background the company needs. But once you form a mission or a task force, you've given the authority to the project manager to evaluate the performance of those engineers, distribute bonuses, assign workload, and even fire somebody.

INC.: There was a time, of course, when matrixing was a hot management idea, just as centralization was hot. How, maybe decentralization is the buzzword. Isn't this just a case of the pendulum swinging back and forth? Wasn't centralization a good idea in its time?

CREECH: I don't think it was ever a terribly good idea, although in certain settings I'd agree that a certain amount of centralization is useful. It's just that it became almost a religion. It was overdone -- and still is grossly overdone.

INC.: And you find that is true in entrepreneurial settings as well as in large corporations?

CREECH: Oh, I find it very common among founders or small groups of founders. They grow their companies to a certain size by operating as one-man bands, controlling authority and making all key decisions, but beyond that they begin to feel very uncomfortable. Founders feel as if they are losing control. And then one of two things happens. Either they consciously or unconsciously make decisions that stifle growth, or they try to use their old management techniques long after they have become ineffective, so the companies reach a point where they can't survive under that kind of stifling centralized management. In my judgment, you can't micromanage a company as small as 100 or 200 people. Long before that, you have to start giving some real authority to the people below you.

INC.: Would it be correct to say that if you don't start that early, you probably will never do it?

CREECH: I learned a long time ago that you have to not let the perfect be the enemy of the good. The fact is that it is never too late to change, because in any organization, there are lots of people just waiting for you to give them some responsibility, some sense of ownership, something they can take personal pride in. And it's amazing how, once you take those first steps, suddenly a thousand flowers bloom, and the organization takes off in ways that nobody could have predicted.