Russell Ackoff – U.S. Navy two-day training in Thinking… — Transcript

Okay, we have the signal to go ahead. Technology is caught up. Job rotation was widely adopted in American industry with significant results. Obviously, a person doing one thing repetitively day after day gets greatly relieved when he shifts to something else.

else but the obvious eventually occurred if you get eight boring jobs to do it will just take you eight times as long to get bored but then you are eventually born and the same thing happens again so that

But the obvious eventually occurred: if you get eight boring jobs to do, it will just take you eight times as long to get bored. But then you are eventually bored, and the same thing happens again. So that in job rotation, they got quicker increases in productivity. In general, the increases weren't as high and they didn't last as long, again emphasizing the fact that there's no permanent solution apparently to this problem, that you have to be prepared with a set of alternatives.

of alternatives now the next conceptual step was the first really radical step which occurred that began to involve systemic thinking it was the recognition that the problem arose out of the nature of work that work had been designed for machines

Now, the next conceptual step was the first really radical step, which occurred that began to involve systemic thinking. It was the recognition that the problem arose out of the nature of work, that work had been designed for machines and given to people to do. People began to ask the incredibly simple question that nobody had thought of before: what would work look like if it were designed for a human being as opposed to a machine? Would it be the simplest task you could possibly think of?

possibly think of the answer was no it would be the most complicated task a person could do that's moving exactly the opposite direction putting tasks together to get a job that's as complex as a person can handle that was called work enrichment

The answer was no. It would be the most complicated task a person could do, that's moving exactly the opposite direction, putting tasks together to get a job that's as complex as a person can handle. That was called work enrichment, which became the third major move. When this hit 10 to 15 years ago, there was great excitement. For example, the Motorola plant in the Southwest and the Sun Belt, which produced walkie-talkies called the Pageboy, just tore out the plant, the inside of the plant entirely, and rearranged it.

the plant entirely and rearranged it every employee in the plant had a workstation all the parts required to make a walkie-talkie were brought to that station and the individual employee made the total walkie-talkie the whole thing he packaged it put a card in it with his

Every employee in the plant had a workstation. All the parts required to make a walkie-talkie were brought to that station, and the individual employee made the total walkie-talkie, the whole thing. He packaged it, put a card in it with his name and phone number, and said to the customer, "If you have any complaints, please call me directly." Wrapped it up and sent it out. Motorola claimed between a 30 to 60 percent increase in the output per worker per day.

now this kind of thing began to happen all over now if you're building a skyscraper you don't get one man and have them assemble it of course the principle of work enrichment was to give the individual the largest single

Now, this kind of thing began to happen all over. Now, if you're building a skyscraper, you don't get one man and have him assemble it. Of course, the principle of work enrichment was to give the individual the largest single task that he could accommodate to. That didn't mean it was necessarily the whole job. He might not assemble an automobile, but he might do an entire sub-assembly alone.

making a television set from beginning there uh a lot of appliances began to be made this way fairly complicated subassembly it's a lot more interesting but how long can you go assembling a television set before you get bored well

Okay, now what happened with work enrichment? Well, we suddenly have people making a television set from beginning to end. A lot of appliances began to be made this way, fairly complicated subassemblies. It's a lot more interesting, but how long can you go assembling a television set before you get bored?

further and eventually leveled off and then became prosaic productivity started to get down next idea is perfectly obvious why don't we combine job rotation and work enrichment so you get a person doing a real complicated job and then before he gets

Well, a lot longer than you can by soldering two pieces of wire together, but eventually you're going to get bored doing that, and that's exactly what happened. It took longer to get bored. In the meantime, productivity tended to go up further and eventually leveled off and then became prosaic. Productivity started to go down.

or a radio to a tv set without training so now the next step which became involved was the requirement if you're going to rotate enriched jobs you must bring in career planning and education and training as an integral part of the work plan

Next idea is perfectly obvious: why don't we combine job rotation and work enrichment? So you get a person doing a real complicated job, and then before he gets bored, you move him to another one. But the trouble is that when you've got enriched work, it requires a lot of training before a person can do it. I can't shift you from making a television set to a refrigerator without training, or a radio to a TV set without training.

times just about two weeks ago about the involvement of corporations and education the largest educational in the institution in the united states today outside of the federal government which i'm leaving out is ibm it's much bigger than the

So now the next step which became involved was the requirement: if you're going to rotate enriched jobs, you must bring in career planning and education and training as an integral part of the work plan. So you get combined rotation and enrichment plus personal planning or career planning. Education and training come in as an integral part of the workforce to an incredible extent.

their workforce whether it's the selling workforce the production workforce the materials handling workforce so that education and training are demanded for two reasons one is the rapid rate of change in technology and the other is the rotation of people

I don't know if you saw the article in the New York Times just about two weeks ago about the involvement of corporations in education. The largest educational institution in the United States today outside of the federal government, which I'm leaving out, is IBM. It's much bigger than the University of California. It is bigger in its educational activity than the eight colleges in the Ivy League.

granted is that the unit worker is the person isn't that reductionist thinking what is the largest unit for which we could design work and then what is the largest task we could give to that unit you see the

They're having to engage in education and training because of the complexity of the work and constant technological changes require constant updating of their workforce, whether it's the selling workforce, the production workforce, the materials handling workforce. So education and training are demanded for two reasons: one is the rapid rate of change in technology, and the other is the rotation of people through different tasks.

and this gave rise to a concept called the semi-autonomous work group this is a group which is set up it's given the task as complicated as that group can perform these type these groups will be anywhere from eight to

Well, this can only get you so far too. The next step was the second major radical transformation involving systemic thinking. They said, you know what we're doing is designing work that's enriched for the individual, but we've always taken for granted that the unit worker is the person. Isn't that reductionist thinking? What is the largest unit for which we could design work, and then what is the largest task we could give to that unit?

resource called on by the group when the group wants to after the negotiation of target outputs but the means of production will be left entirely in the hands of the group the organization of the group will be left

You see the difference. In work enrichment, you still take the individual person and say, what's the most complicated task? But in the next step, you say, what's the largest group that I can treat as an entity to which I can assign work?

plant at culmore in which a whole new factory was designed that has no production lines no assembly line in it and yet it makes automobiles it's built like a honeycomb with a set of workstations with groups of eight to

And this gave rise to a concept called the semi-autonomous work group. This is a group which is set up, it's given the task as complicated as that group can perform. These groups will be anywhere from eight to fifteen people, and the understanding is now, combining concepts from work structuring, all we're going to do is negotiate with that group on what we expect to put out. How it does it is the group's business, not ours.

people between groups or the exchange of tasks between groups anything the two groups that agree to that doesn't affect anybody else is fine and calmar is an absolutely unbelievable factory you don't see things rushing down with people in there

Management will be available as a resource, called on by the group when the group wants to, after the negotiation of target outputs, but the means of production will be left entirely in the hands of the group. The organization of the group will be left in their hands as well. That's why it's called autonomous. The reason it is semi-autonomous is they do not set the objectives themselves. The objectives are set in negotiation with management.

more automobiles per person than any conventional ascending plant does it was a radical transformation now the next step brings us up to virtually the present right on top of it you see what the next step is we now got

The famous plant built by Volvo, probably the pioneering one, is the automotive plant at Culmore, in which a whole new factory was designed that has no production lines, no assembly line in it, and yet it makes automobiles. It's built like a honeycomb with a set of workstations with groups of eight to 15 people each, of which do a very complicated sub-assembly.

and when we ask that question what we're saying is why can't the worker have a say in all decisions which affect him within the system and that raises the issue of participation which is the frontier that we're on right now

How they organize within the group is entirely up to them. They can rotate jobs, enrich jobs, anything they want to do inside those groups. They can negotiate the exchange of people between groups or the exchange of tasks between groups. Anything the two groups agree to that doesn't affect anybody else is fine.

communication across are three different things and a system which does one thing well will not necessarily do the other too well i had an interesting experience along these lines a number of years ago i urged the ceo of a major corporation

And Culmore is an absolutely unbelievable factory. You don't see things rushing down with people in there operating like Charlie Chaplin. It's an extremely relaxed atmosphere in which you can talk in a normal conversational tone. It's the only automotive factory I've ever seen like that. People are clean and beautiful uniforms, friendly and engaged in conversations with each other.

year which he spoke to every employee of the company 35 000 of them there would be a meeting that would last at least two hours in which you'd come in with short sleeves and no tie if for each shift in the plan it was a

They turn out a third more automobiles per person than any conventional assembly plant does. It was a radical transformation. Now, the next step brings us up to virtually the present, right on top of it. You see what the next step is? We now got the worker in there designing his own work within this group, subject to certain constraints of objectives.

well received a lot of praise for his spending his time doing that kind of thing and it showed in increased productivity i got a call from him one day the day after a major strike had been called on

Why can't we have him have some say about the output as well as the means, the ends as well as the means? And when we ask that question, what we're saying is, why can't the worker have a say in all decisions which affect him within the system? An

national strike on me on an issue that was never raised in any of those meetings how do you explain that how would you explain that i said because you've organized those meetings to enable you to communicate to the worker not to enable the worker to

communicate to you he said what do you mean i throw the floor open for a discussion i said their expectation of what you expect from that very different than what would happen if you asked them to organize a meeting in

which you were in the audience if you want to know what they think you let them organize the meeting don't you don't organize it for it well he later organized meetings that way where the workers call a meeting and

invite whatever management they want and i can tell you those are entirely different meetings than a meeting the manager calls to communicate to the workers in the university the meetings we call of our students to communicate to them are entirely

different than the meetings the students call to communicate to us so we begin to learn that communication has multiple dimensions and in a sense this meeting has certain communication objectives that we'll talk about as we get ready for tomorrow

now communication is the weakest form of participation the next highest form is consultation in consultation the essential element is that a person in a position of responsibility asks for the opinion and advice of those who will be affected by the decision he

has to make he's not found in any way to follow it but what normally will occur is after having gotten the advice if he doesn't follow it he will explain why he didn't this presumably will educate the person

to provide him with advice if it fails we'll educate the person who didn't take the advice but consulting is exactly what it says you consult with somebody you don't give them the responsibility for making the decision that still stays with the

person who had the responsibility originally there's been an increased amount of consultation as we begin to realize that increasingly we have managers supervising people who know more about what they're doing than the manager does there are very few corporate executives

for example will go into a computer programmer and tell them how to program a program most managers don't know enough about computers to tell a programmer how to do his work and therefore the programmer can tell the manager a hell of a lot more about

how that job ought to be done and what equipment ought to be had and how it ought to be organized than the manager can and so it's been natural to increase consultation as the special knowledge and skills of subordinates

have increased and have gradually exceeded that knowledge and skill of the manager that doesn't mean the manager doesn't know things they don't know but he doesn't know things which he needs to know in order to supervise them effectively

and therefore he can't supervise him unless he consults with them let me give you a very simple example uh about two years ago we started a project at alcoa tennessee which is the largest installation in the alcoa system

it's a flat rolling uh operation in which there's a big smelter and two flat rolling mills that employ 4 200 people and about 15 smaller supporting plants it's a huge installation it's also a very old one without going into detail of the changes

that occurred of this kind i just want to tell you about one incident we started a system uh relating the consultation with workers after the first meeting in the pot room which is one of the critical rooms in the rolling mill

a critical area in the planet two workers did something in 15 minutes which saves the pro the company over two and a half million dollars a year and what they did was this the aluminum comes off the end of a rolling mill in

the big coil it can be up to five feet high and it will weigh a tremendous amount now it normally comes off the end of the line and it's located standing up it's just a cylinder you know wrapped around located on the

floor until a forklift truck comes over picks it up and takes it over to the storage area every once in a while for one reason or another the forklift truck that gets delayed and what happens is i got a lineup of

these cylinders here and i have no room to put the new cylinder coming off the end of the the mill so i have to move the cylinders that are already there well how do you move a heavy coil of aluminum how would you do

it over here no no you know you just want to move it about uh six seven inches so you get another coil you know a foot you put your foot against the bottom you grab a hole at the top you pull it

down so it's on its edge and you roll it i mean it's the way you do a carpet you know a short carpet or anything like that roll the paper now unfortunately when you do that what happens to the edge of the aluminum

the outer roll and in perhaps one or two wines crimps the edge from the weight now the customer is buying 60 inches of aluminum not 59.5 inches so 20 percent of those rolls were returned to the company and that cost the company about two and

a half million bucks a year now what these two workers did when consultation began is they went out to the shipping room and got heavy felted paper which is used to wrap the aluminum when the ship put down four layers on the

floor that's all it did and now when you rolled aluminum over four layers of paper it didn't crimp the edge i went down to see those two guys and i said you know that's a marvelous thing you did and they were very proud

i said how long have you known about that they said about 15 years he said well how come he never said anything about it he said because those bastards thought they knew everything and we weren't going to spoil their

impression of themselves last week was the first time they ever asked us a question so we told him he said maybe they'll think twice from here on okay that's a reflection of what happens in consultation the dignity and self-respect is

tremendously increased when people are consulted in this way the final step and that's the one we're going to really focus on here is something called code termination this is where the employee is given a voice in making the decision he's a

participant in the decision making not merely a consultant nor is he merely communicated with about the decision he has a voice a vote in the process now this has gone through an evolution too but what i'm going to show you

is a design of a completely participative organization it's a very radical concept but it solves a dilemma which has plagued organizational theorists for years it's interesting to observe that we are a country dedicated and committed to the concept of democracy right

at least all americans claim this unfortunately we don't have a very clear idea what democracy is we know a lot about what it isn't but we don't have a very good idea about what it is now the central idea of democracy is not

voting hell the soviets vote all the time but we say that's different yes sure is but it's not different because the vote the essential property of a democracy is this [Applause] nobody has control over others unless the others collectively have

control over them it's a circularity of control there is no ultimate authority in the democracy that was demonstrated when nixon was put out of office by the people that he was administering circular it's not linear now a problem arises in industry

in industry you've got a complex task like building a building or an automobile or ship one person can't build a ship so you have to divide the labor when you take labor and divide it up you need coordination

and if you get enough coordinators then you need a coordinator of the coordinators and therefore what we recognize for a very long time is that you can only organize work hierarchically into a hierarchy in society our value is with democracy

how the hell can you produce a democratic hierarchy well we saw no way of doing it we had to go one way or the other so what do we do we organize establishes like the military like industry-like schools

hierarchically and say the hell with democracy the fact is that the institutions within democracies are organized exactly the way a fascist state is they are autocratic institutions operating within a democracy and that may not have bothered the conscience of the many people but it

sure bothers the organizational theorists wouldn't it be great if we could have democratic organizations within a democracy how can you do it without destroying hierarchy and if you destroy hierarchy and destroy productivity you have to maintain hierarchy how can you get a democratic hierarchy

well we didn't see any way we said it was impossible that's a dilemma remember what i said about at the limits a problem you can't solve within the prevailing view of the world that's exactly right here we couldn't

solve this until we made a break with the fundamental assumption we were making and the assumption is incredibly simple suppose i took six of you the six of you at that table and said i would like u6 to go off next door

and redesign the organization has seen that okay uh now i've arranged in advance there's a table and chairs in there but no paper no pencils no nothing in the room only a table and chairs okay and now you go in there and you start

i'll bet you it won't take two minutes before you come out and ask for something what will you ask for paper pencil or a chart or a blackboard why because it's in cape we are absolutely incapable of talking about

organizational structure without having a surface on which to draw first thing you gotta do is start to draw boxes right [Music] okay so we start to draw the boxes and label it now there's an important thing about a

piece of paper it has only two dimensions up and down and across and therefore all discussion of organizations is two-dimensional up and down is the flow of authority and across is the division of responsibility so we got responsibility

on the horizontal dimension and authority on the vertical dimension and there's our concept of organization now can you think of any good reason why an organization has to be two-dimensional the fact is there isn't any the reason that they are is because we

insist on representing them on a piece of paper but give up the piece of paper and go to a third dimension and you can build an organization that's a democratic hierarchy like that now having said that i want to show you

that it can be done and i have to do it on a flat piece of paper so i'm going to have to cheat you're going to have to bring an additional dimension in by the use of color okay

let's start by taking a very simple hierarchical organization i'm going to start with a very elementary one thanks three levels we'll have three units at each level and we may as well give these names so we can talk about them

to preserve the concept of hierarchy we're going to call him number one and to designate for reporting relationships i'll call him 1.1 1.2 and 1.3 okay and these three are 1.1.1 and 1.1.2 and 1.1.3 of course the organization goes on but i

only need this part to show them okay there's a very elementary organization now we got workers in here and let's keep it simple these are managers without staff we got the workers down here who are part of these units

okay now if i'm talking about a company there are companies that are organized in three levels the university is this is university this is college and this is department it's exactly the way a university is constructed with one big difference

every educational institution every corporation has something called the board right top of the organization there's a board which is the ultimate authority the number one man is normally the ceo the chief executive officer and chairman of the board

okay so he's a member of this board and then there are a number of outsiders who serve on that board as well now there's an interesting thing about boards in the corporate world i don't know of any aspect of a

corporation which has not been called in the question for its effectiveness except the board i don't know of a single authority that has ever raised the possibility of eliminating the corporate board it's a good thing that doesn't mean that every board is a

good thing but the concept the idea of a board is absolutely essential it's recognized to be valuable to a corporation if it isn't it's because they put stupid people on it but the idea there's nothing wrong with the board

now i want to raise a conjecture if the board is such a marvelous idea for the ceo why isn't it a very good idea for every manager so let's start by giving every manager a board now we're going to have two questions

who will be on each board and what will the boards do well let's not worry about what they do initially let's talk about who will deal with them and let's focus on this middle manager for the moment and see how we might handle head

clearly if he's got a board he better be a member of it would be ridiculous if he weren't because then how would the board communicate to him so he's got to be a member of his board right equally clear his boss should be a

member of the board why well his boss has some authority over and if the authority of the boss and the authority of the board come into conflict you've got a problem so we can solve that by making the boss a member

of the board so we'll bring this boss moving forward that much is obvious now incorporating the concept of participation the next step is we take every person who reports directly to this manager which in this case are these three

and they will be members of the board as well so this is the board of 1.1 who's on it 1.1 is superior and is immediate subordinates every board except the top and bottom we'll talk about separately will consist of the manager whose board

it is his immediate superior the man he reports to and all those who report directly to him now let's just take a look at a couple of the consequences for this if we look at this manager for a moment

now he's on his own board but he's also on his boss's board isn't he because his boss's board will contain all of his boss's immediate subordinates right so he is also on his boss's board but he's also on the board of each of

his immediate subordinates he is on each of these three boards so every manager except the one at the top and the bottom will be on boards at three levels his own level his boss's board and the boards of his

immediate subordinates i know you're starting to worry about when he's going to get his work done but we'll cover that later we'll deal with that all right now here's your second midterm examination let's take a big organization like the

navy not three levels in other words it's just a slice out of it this keeps going up and keeps going now each manager participates in boards of three levels how many different levels of management does he interact with

directly because that guy sits over there right and the boss is bored he's got his boss and his boss's boss two levels above him plus all the people on his own level right in a subordinates board he's got what

subordinate and a subordinate subordinates so every manager is interacting directly with all the managers at his level the two levels above right and the two levels below now take the highest man in that okay his boss's boss right

so this guy is interacting with his boss's boss how many levels above that is his boss's boss interacting with two and therefore this guy has access through this interaction up four levels and down four levels in the organization

this will be important when we look at what the functions of these things are the point to see first is the amount of interaction [Music] vertically through the organization that these boards make possible the second thing to observe

is that in every board you have all the people at the level below that board interacting so each board makes possible the interactions at a level below it because all these people are on that board and it makes it possible

to look at the interactions of this board with four levels up and four levels down because of the people involved now what do you do about the top and bottom let me take the bottom first this concept was originally developed about

15 years ago it did not start a landslide the first company to use it in the united states was a meatpacking company in the midwest it turned out it was a company in fact with three levels the bottom level was the shop

supervisors and these supervisors had an average of 35 people reporting to now when we created the board what we wanted to do was give everybody an opportunity to send it on the board to use the democratic principle the problem is if you put these 35 on

the board plus the manager plus his bush you got 37 people on the board and you can't get a board with 37 people in the work in fact we know what the maximum number of people is that you can get on an

effective board we found this out in a very curious way experimentally we've known for years that about the maximum size of an effective group is eight people we didn't know why you can get up to ten you'll notice your

groups are designed essentially so that they're 10. but when you get up over 10 you start to run into real trouble you have any idea why well it was a psychologist that told us why although he didn't know he was doing

it george miller a professor of psychology at harvard wrote one of the most interesting articles i've ever read about 20 years ago and had the best title of any article i've ever seen it was called on the magic of number seven plus or minus two

is that a marvelous title you gotta wonder what it's about what it was about was this miller asked how many different things can you think of at the same time how many distinct things can you hold in your mind simultaneously

he conducted experiments to answer that question he found out the average number is seven the superior person can take nine the inferior person can only take five all right take the average seven now i want to create a group that's

highly interactive social psychologist will tell you that you can only interact with people that you treat as individuals right how many people can you simultaneously treat simultaneously treat as individuals for the average person at seven seven plus yourself is what

eight so ideally on the average nobody ought to have more than seven people reporting to him because that's the maximum number he can deal with and treat as the state now if you're a manager of a region from

mcdonald's where every mcdonald's store is exactly the same you don't have this constraint because there's no point of thinking them individually it's only where each one is doing something different therefore what we would like to have is a board of

no more than 10 up here so we said okay way we'll do it is as follows we'll get these workers to elect six representatives there will be six of them on the board the manager in this boss that will give

us an eight-man board and we did that within a month all six of the worker representatives who have been elected resigned can you guess why well they were very open about it they said the managers treated us as though

we're dogs and the workers treat us as though we're managers we're caught in no man's land we don't know what the hell we are we just assume we back with the boys this is all nonsense anyhow and then we realize what a terrible

mistake we had made so we went back to the drawing board this was just about the time the concept of the semi-autonomous workroom so what the manager said the trouble is these work groups are too big we want to

break them up into four groups of eight each approximately instead of 35 you have groups of eight or nine each oh my god you're going to multiply the number of managers by three you're going to have four managers for every one

we said no we're going to have zero managers for everyone he said we don't understand we said we're not going to have managers for these groups if these are assembly autonomous work groups then they will elect their own leaders

and that leader will be first level of management now the first level of management in your sense will have eight groups reporting to them but eight groups is 64 people right so you reduce the number of managers by

half while this was installed now look what happens every employee is a member of his boss's board okay the boss is and the boss is boss and that's been going for over 10 years now without any problem at all

because that's a meaningful board now what happens at the top well that varies by the size of the organization there have been a lot of variations there are two basic concepts clearly the boss is on the top and the second level

is on the top four ideally if you're talking about the navy for example the navy is not the ultimate there's something above it pentagon or secretary of defense or whatever it is he ought to be on the board

as well also any external stakeholders who are critical to the organization that can be true in any level board in a decentralized corporation where these are divisions they will frequently bring outsiders in because they can contribute to the decision making that

goes on at the board so this board is the intersection of the organization with its environment and it has to be designed to provide a view down into the organization and out into the environment okay okay that's composition now what do the

boards do well let's take a look five functions and when i say this is what they do this is what they ought to do ideally in the hundreds of companies that are now using this in one form or another there are no

two of them that are exactly alike and i'll show you how it's been installed in some of the variations i'll give you the ideal version now one thing these boards do is set policies they are policy making bodies

but they do not make decisions these are not managing committees they are policy making boards what's the difference what's the difference between a decision and a policy policy is a rule for making decisions but not a decision for example

corporation says we will only promote from within that's a rule it's not a decision when you promote somebody that's a decision the manager continues to make the decisions who to hire who to fire what to pay them but the rules that he abides by the

legislation is made by the boards it makes the rules of the gate second thing that moore does it plans it prepares plans in a way that we'll talk about a little bit it's a planning board as well as a

policy making board third function it coordinates the activities of the units below it this board i'm sorry this board here we'll coordinate these dealers now who's the majority of that board the heads of these units right therefore coordination becomes

self-coordination with the participation of two higher levels of management so coordination is a function of the board to make sure that the activity of different units at the same level meshed together well that they interact effectively this is the equal vote or is it a

weighted vote i haven't talked about voting at all yet talk about that in a moment the fourth function is integration coordination is the interaction of units at the same level integration is the interaction of levels at different units at different levels it's the

vertical dimension coordination is the horizontal one i already showed you how at every board you have people who are sitting on two levels higher and two levels below so you've got to view a direct view of five levels of the organization

the rule is that no board can pass a policy or make a plan which is incompatible with a higher level plan or policy hierarchy is preserved but suppose this board up here stupidly enacts a policy which is great for them

it does help for me down here what can i do about it well i got a guy on my board who's participating in that board and so i can raise my point of view at that level furthermore when policies are made

you've got people who have the vision down and the vision up so they can see the impacts and therefore they take the vertical impacts into account you know the administrators in my university absolutely never think at all about the impact of what they do on the

department because there's no way it couldn't be that stupid you know it just has to be neglect not stupidity they just don't think about the effects of what they do down at the departmental level why because there aren't any departmental people up

there but that couldn't happen in here because there would be departmental people there and they're calling to their attention what those impacts are now it's the fifth one that really makes everybody's hair stand on it so i'll warn you about this in advance

it's the one which has been used in the smallest percentage of the case all these four are very commonly in these boards it's the fifth one that makes most people say well i won't do it if i got to do the

fifth one uh if i can do it without that one we'll do it okay the board has a responsibility for evaluating the performance of the manager who reports to it now let's see what that means this board evaluates the performance

of that manager he cannot hold that job without the approval of his board now the board cannot fire him but the board controls the position not the person this board can move him out of that job he can't fire him only his boss

can fire right therefore he can only hold his job if he's got the approval of his boss because his boss can get rid of and the approval of his board but who's the majority of this board his subordinates

therefore in this system no man can hold a position of authority without the approval of those that he exercises authority over and that's what democracy is now it's fascinating to watch how frightened people are of it if that's democracy they say we don't

want to in fact it's quite common i it's been many many times when i present this to corporate executives they say that's communism isn't it fascinating how we now identify democracy with communism and nothing to do with communism

communism has to do with who owns the means of production not how you govern democracy has nothing to do with who owns the means of production you have a democratic communism and an undemocratic communism you can have a democratic capitalism and an

undemocratic capitalism there are entirely different concepts democracy and capitalism have nothing necessarily to connect them it's a separate decision but in this type of an organization everybody is as responsible to the parts of the system he runs as he

is to the larger system which he supplies you see that the board is the instrument for the system's view of the organization okay now let's just take up a couple of the issues that arise with regard to it

how we doing i got to check my schedule here can we break at 12 15 we have 15 minutes let me first take up the obvious question on time when the hell are we getting their work done if the manager's got eight subordinates

that's eight boards plus his own board plus his boss's board is 10 boards now to answer that question i want to tell you a story the chief executive of the company that first employed these sports a man by the way john cry this was the

cry meat packing company which later was bought by another company that company had lost money for 11 consecutive years it was a family-owned business but it was the fourth largest meat packer in the united states in the first year in which they operated

with a circular organization and that's what this is called a circular organization or a democratic hierarchy they made money and a lot of money now it wasn't just because of this that would be foolish conditions were right but they never

would have been able to exploit those conditions with their old organization so old john got very excited he went around all over town bragging about this new organizational structure and what miracles have performed as a result of this he was invited by

the local club of ceos the city in which they operated had such a club to make a presentation that scared the pants off he didn't mind talking about it informally but he didn't want to give a formal talk and

they pressed him and he finally agreed when the condition that the university consultants who would help them do this would be able to be present to handle any questions he couldn't handle they agreed to that well john was really upset about this

thing so he insisted we come and make it put him through some rehearsals and what we had to rehearse is his answer to questions which would come from the floor and we said to him the first question you're going to be asked

john is when you have time to get your work done and so we then primed him for this and sure enough when he made the presentation the first question he was asked was were you going to get your

work done let me tell you what he answered of course he's been programmed for all this he said i'm going to answer you in two ways uh he said i'll explain the difference after i'm done he said first of all how

often does a board meet he says none of our boards meet for more than four hours a month he says some boards meet only once a quarter like the corporate board does but he says let's take the maximum four

hours a month if i'm on 10 boards that's 40 hours a month right he says now if i only worked a 40-hour week and we know that in the united states on the average managers work 57 hours but let

me cut it down to 40. that's 160 hours and therefore the boards would take out no more at the absolute limit and 25 of my time now we say there have been a number of studies done year after year on how managers

spend their time he said what do you think is the largest percentage of time managers have ever been to observed to spend in managing you want to guess that number you're going to be shocked at this one 17

managers do not manage for more than 17 percent of their time the other things may be important and useful but it's not managing they manage only about 17 he said let me take the maximum okay did i add those two together it's 42

i said you see you asked me the wrong question he said the real question is what the hell am i doing with the rest of my time he said now that's the wise guy answering let me give you the real

answer he said when i participate in these boards for whatever the percentage of time is what am i doing he said i am setting policy for my subordinates we are preparing plans we're coordinating the activity below integrating activity vertically through

the organization and i'm evaluating the performance of my subordinates and they're evaluating me what the hell is left that is management he said that's where i do what i'm supposed to do whatever else i'm doing is incidental and supportive

he said the board is an instrument which enables me to manage effectively that was his answer now a few words about how these things have been set up they've been set up every conceivable way i will describe three of them to you

which represent three extremes there's one corporation a very large one where the ceo at the top got very excited about this idea decided to install but we didn't want to put it all the way through the organization that wants

he wanted people to buy into the idea so what he did is he took the eight vice presidents who reported to him and created a board and explained the whole thing to them and set it up now the first question

they said is you know that's fine except for that evaluation we have no power over you he said yes you do and he reached in his pocket and he gave them an undated but signed resignation he said anytime you collectively decide

you don't want me a ceo just hand this in put a date on i took guts and also a great deal of self-assurance in this conference so he set up this board to do all those things at the end of the year

there was a board meeting and he said to them gentlemen he said we've tried this board concept for a year we've got to decide now whether we want to continue this or not do you like it and they looked at it and said are you

crazy it's been marvelous we have learned more in this year about the nature of general management that we ever had before it's great to be able to participate in making decisions that are effective it of course we like it you can't stop it

he said well i don't understand something they said what do you mean he said if it's so good how come you don't have a board what do you think happened in the next month right it took about two years and went right

smack down on the bottom of the organization one same principle we didn't have to force anybody to do it everybody sold themselves on it and it just moved down systematically step by step that's one pattern let me take a second

the ministry of public works in mexico is now the ministry of human settlements and public works but at this time which would have been about middle 1970s was the ministry of public works and it's the largest ministry in the mexican

government the structure is again let me use this figure there's the secretary of public works this is called secretariat obamacast which means secretary of works public there's a secretary who at the time was a man by the name of bracamontes

and three deputy ministers or secretaries the one that's critical here is the one in charge of operations who was a man by the name of felix or in english felix that's his last name under him there are a number of departments and

the head of the third level are called director general all three levels are appointed by the president of mexico there are appointed positions there was a young man in charge of the equipment division by the name of dr carlos moran

and he got excited about this concept of organization his division had 35 000 people in it they bought all the construction equipment used by the government of mexico which is extensive in building roads bridges dams everything you can

think of they operated the equipment they maintained it and so on he set up this kind of an organization here but before he did he went to see his boss felix and explained to him what he wanted to

do and said i'd like you to be a member of my board felix said look that looks like an interesting thing if you want to do it fine but i got more than enough to do so count me up

well moran gave up on that he set up his own board to consider himself in the subordinates but he didn't have a superior one and he set up this way i'm just going to tell you what happened i want to tell you a consequence

four years later a new president came in lopez bertillo replaced that shiveria when echeveria came in he moved everybody at the top three levels of this ministry out and replaced them except two people he kept felix and miranda

now a couple of interesting things immediately happened felix and my god i'm the only deputy minister retained why did he keep me what do you think the answer was it must have something to do with moran what the hell's that guy been doing

so he goes down and see me and he said you better show me what you've been doing because i suspect i was kept because of it and moran explained all this to him and he got very excited felix did

when the other director generals in felix's sub-secretariat were appointed you made damn sure they installed the same system okay now we get two other deputy secretaries appointed they come in what do you think the first question they asked themselves was

why was felix retained and the only thing they can see that's significantly different about him is the way he's got the thing organized so within a short time the things spread throughout the entire organization there it started in the middle worked

across and up the third case and this happened is where you at the very bottom will start and organize itself that way and then if it succeeds as it usually does it will be given the spread horizontally and gradually vertically this will

normally take a lot longer than the top down but it has happened that way as well so the answer to the very critical question that always comes up is where is the best place to start this what's the answer

wherever you are wherever you are you can start it okay let me pause there now we got a few minutes before we break for lunch see if you got any questions about this concept