The Org: The Underlying Logic of the Office [Hardcover]

It is no understatement to say that the business book market is saturated. Most of it is not nearly of the quality that I would comfortably hand or recommend those books to MBA students; which is incredible since MBA students and alumni are invariably the target market for such books. Most of those books steer clear of sensible economic theory and also the use of non-anecdotal evidence which does not help one bit.

But there are books worth recommending and they lie on a frontier. They can be classified along two dimensions. The first is the probability that what is contained in the book is actually correct; which can be high or low. The second is whether the book "makes you think." One dimension does not imply the other. For instance, much of Malcolm Gladwell's writings make you think but have a relatively low probability of actually being correct. Josh Lerner's recent outing on The Architecture of Innovation falls into the opposite camp: it is evidence-based and highly likely to be correct but doesn't put forward a stunning new hypothesis that makes you think. Sometimes one author can provide something in both camps. Tim Harford's The Logic of Life falls into the highly like to be correct camp while his recent book Adapt, falls into the make you think camp. Sometimes a book hits both marks such as Nudge or Thinking, Fast and Slow but they are very rare.

The Org by Ray Fisman and Tim Sullivan falls well into the required reading for MBAs set. Indeed, I believe it will be THE required reading on the subject of organisational economics. It seeks to uncover why organisations are, well, organised the way they are. From reporting structures to CEO perks, from culture to the unintended consequences of incentives, Fisman and Sullivan provide a clear exposition of economic theory and relate it to proper, large data-set evidence on organisational operation. For that reason, it falls squarely into the "highly probably to be correct" camp. Moreover, it does this by framing the theory and evidence around stories that are themselves grounded in highly detailed case studies. There is no cuteness here, just on-point exposition of how offices work.

The trade-off for being rigorous is that you do not get to put forward a speculative hypothesis about the evolution of organisations and the way managers should manage in the future. Instead, there is a resignation to the world. Yes, to be sure, organisations can be annoying but Fisman and Sullivan want you to understand that there is a silver lining to your frustration and in most cases you should just suck it up. That is not an inspiring message but it can make you more comfortable with the status quo. And let's face it, there is nothing more frustrating than some manager trying to re-organise things based on some new fangled and probably wrong managerial theory. In that way, The Org provides the fodder for those who want to ground decisions in evidence and gives them the perspective to push back on debates that might lead to costly excursions.

So I think every MBA student is going to be handed this book and it will become a classic staple of management education. But what about the rest of us? Is this worth reading? The answer is a qualified yes. It is beautifully written and the stories themselves, especially if you are not a teacher of organisational economics, are fresh and should be part of your own knowledge. But in terms of interest my belief is that if you like Downton Abbey, then you are going to appreciate your time with The Org. Now it may seem a stretch to draw a line from a British TV soap opera about 1920s aristocracy to a book on organisational economics but, in fact, both sit on the same foundations. Downton Abbey, at its core, is a rationalisation of a particular -- I guess almost feudal -- organisational form and all the intricacies of the power structure, information flows (including gossip) and response to external pressures that that organisation takes. The Org provides the same picture but just for a more modern set of organisations. They are two sides of the same coin.

This book is oriented around "organizational economics" i.e. how to maximize the effectiveness of a corporation. Rather than explain its concepts in terms of scholarly management theory, authors Ray Fisman and Tim Sullivan take us through a number of anecdotal examples of organizational issues affecting large companies to sole proprietorships and then to non-business entities like police departments, churches, Samoan Island natives, nuclear war game scenarios, and the operations of our intelligence agencies just prior to the 9/11 terror attacks.

The wide-ranging discussion boils down to one terse fact of business life: "Getting the org right is hard."

Fisman and Sullivan cite real-life examples to show us WHY it is so hard to make an organization function well, let alone optimally. Then they challenge us to do some thinking as to how organizations might be improved. Organizational issues are presented such as how to select optimal employees and then motivate and compensate them; how to evaluate and compensate individual vs. team efforts; whether to focus employees broadly or narrowly; and how computer automation and smartphone communications have catalyzed changes to organization structures.

A controversial topic whose discussion I especially enjoyed is the question of whether CEO's are over-paid relative to the value they add to organizations. The authors suggest that we consider the idea that CEO pay is designed "to motivate CEOs to seek out merger opportunities." In other words, the authors theorize that CEO's may be receiving seemingly exorbitant pay as an incentive to "fire" themselves by positioning their companies to be absorbed into larger entities. The authors think this is a positive incentive, but I wonder if it might also be the explanation for what ails too many of our corporations. Mergers and acquisitions are often a sub-optimal way to "grow" a business because they are:

1. Anticompetitive. By taking competition out of the market they allow the consolidated oligarchies to inflate prices beyond that which a competitive market would allow.

2. Destructive of employment. By combining operations of companies mergers and acquisitions improve economies of scale and allow as many as half the employees to be terminated from operations that have become redundant. This is an excellent way to increase profits for the consolidated firm, but it is detrimental to the people who lose their jobs, perhaps never to work again.

3. Destabilizing to the economy by creating "too big to fail" oligarchies. The USA has three automobile companies, two of which just emerged from bankruptcy. Japan has many smaller auto companies that are healthy. When banks were diversified and small their occasional failures did not endanger the entire economy. Then we allowed hundreds of small banks to consolidate into 13 mega-banks that all failed at the same time and threw us into a years' long recession.

4. Destructive of innovation. CEO's are incentivized to goose the stock price so as to maximize the value of the company if it is bought out by a competitor. Goosing the stock price means employing slash-and-burn "cost-cutting" techniques like firing experienced (high-paid) employees who understand the business, lowering product quality by cheapening the bill of material, and engaging in "creative accounting" by exaggerating the book values of assets while obscuring debt. This sort of nonsense wrecked once-great companies like Enron, Arthur Anderson, and Hewlett Packard, and has degraded and devalued many others, including the entire financial industry. The M&A obsession deludes CEO's of acquiring companies into thinking that the surest way to increase profits is by gobbling other companies, gaining their customers while dispensing with their employees. This puts the economy on a downward spiral of creating monopolies that increase prices while decreasing innovation, competition, and employment. This is precisely the opposite of improving productivity by growing the company ORGANICALLY by INNOVATING new and improved goods and services that allow people to improve their standard of living at lower consumer costs.

My conclusion, as distinct from the authors', is that CEO pay should be radically downsized and then re-incentivized toward rewarding them for growing a company the right way by creating new and improved goods and services that people want to buy. Reward the CEO for fostering long-term sustainable growth based on product innovation instead of gussying up a "Potemkin Village" facade of destructive "cost cutting" and phoney accounting gimmicks that appeal to the fast-buck hucksters who play the Schlock Market.

Another controversial passage is:

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Despite the hours logged at the office, or maybe because of them, most employees struggle to make sense of their work lives....office life can seem just too nonsensical to bother. So we descend into cynicism, offering up sarcastic commentary and office jokes that follow a few well-worn premises: clueless managers who have no idea what their direct reports do, failure to communicate objectives, failure to have real objectives, a blatant disregard for data and evidence, perverse incentives and personal fiefdoms, rote behavior in the face of new challenges, meaningless memos sent down from on high, the disconnect between HR proclamations and the experience of the average cubicle dweller. The list, as they say, goes on. It's not that you couldn't make this stuff up, but you don't have to. Ask a friend. Stop a random commuter. Read a strip from Scott Adams's Dilbert, a cartoon built largely on readers' suggestions from their own experiences. Office life is so full of absurdities that our reality provides rich fodder for satirists to return to again and again. But when satire pales in the face of reality, what are we left with? That's the kind of existential question that modern organizations inspire.
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IMO these are the age old complaints that most everybody has had about their employer since the dawn of business, especially if they work in a large company. It is part of human nature to gripe about our bosses. We forget that the boss is a human being too and is subject to the same pressures from his/her superiors as we are from our boss. My father, a middle manager in the 1960s, used to bring home knick knacks poking fun, in a good natured way that surely made the big bosses chuckle, at all the bureaucratic bungling in the conglomerate he worked for. But even with the obligatory griping people of his generation derived satisfaction from their work and took pride in the companies they worked for. They felt as if they were valued employees who contributed to the success of the organizations that employed them.

What REALLY aggrieves people against corporations these days is that the corporation no longer regards them as human beings. They are merely resources to be worked as hard as possible when business is booming, then put out on the street as soon as business declines or if somebody else comes along who'll do their jobs cheaper. Employees have become just another "cost center" that should be thrown out the door like yesterday's potato salad when they have outlived their usefulness. Workers are no longer valued for loyalty to the company or for having minds that add value to the business; they have become just so many sides of beef to be consumed before they spoil.

Businesses make it clear how little they value their employees not only by destroying their employment and revoking their promised benefits like pensions, but humiliating them in little ways. Employees were first removed from offices and shoved into "cube farms." The latest big-company fad has been to remove the cubical walls and herd the employees into "open office" concepts where they are jammed elbow-to-elbow, jabbering in a cacophony of babble and coughing in each other's faces. The office has become a WHITE COLLAR CONCENTRATION CAMP. Management's message is clear: "You 'people' are no more valuable than hamsters and we are going to treat you as such."

The authors imply that this is OK because the CEO's job is to reward stockholder value, not pander to the employees. OK, so why has the stock market gone nowhere but down during the past 15 years? Employees have lost. Consumers have lost. Shareholders have lost. CEO's have raised their pay by 10x during this time. They're the only constituency group that seemingly benefits from corporate activities. That is why folks are p.o.'d against corporations, especially their CEO's.

The authors conclude by imagining "The Future Org." The scenario they leave out is that there might not BE a "future org" that resembles today's privately owned corporations. People might become so fed up with abusive corporate interests that privately owned corporations get morphed into public utilities, as is currently happening in the healthcare industry.

I've only expounded here on a couple of the topics that most interested me. Other readers may find other aspects of organizational management, among the many topics that are covered, that are of more interest to them. I liked this book because it challenges readers to think about management theory for themselves. I sometimes drew different conclusions than Fisman and Sullivan implied by their analyses, but the book most definitely served its purpose by challenging me to think through all aspects of these issues.

I have to admit, I'm just a lowly cubicle dweller who got angry, frustrated and confused all at the same time about the prevalence of dysfunctions in my org, so I hoped to get some inspiration or explanation as to the reason of my daily sufferings with this book.

The book in general is smoothly prosed and made for a pleasant reading. I found a lot of interesting anecdotes, and there were explanations for many facets of organizational phenomenons. But the general flow of the books appears rather superficial and (this may just be my personal feeling), apologetic -- there are so many wrongs and dysfunctions an org can have, but this is already the best in all possible worlds. There was little discussion about what can be done to correct the dysfunctions, or how org can be improved in general.

Quoting from the penultimate chapter of this book, "If there's one message to take away from this book, it's that a glass half full may be the best you can hope for." A rather depressing thought to the interchangeable cogs-and-wheels of the org indeed.