It struck me, after pointing out that Citi’s going from 13 levels of management to 8 was just following the emergent natural hierarchy and so just cutting non-value adding positions, that I never really said why companies get in this mess. If these positions can NEVER add value no matter who is in them, why do companies create them?
Probably the most common is when someone can’t be fired but also can’t cut it where it matters.
I’m reminded of a comment I saw on a subreddit a couple years ago. The original post was about Carl Icahn’s story of firing 12 floors of useless NYC headquarters overhead in his first company, and made it more profitable. (I’ll provide my summary at the bottom if you’re not familiar with it.)
After a long thread on whether this could happen, one redditer chimed in with a personal story:
We grew pretty fast so our [Chief Marketing Officer] was a friend of the owner. Quickly needed a real CMO so he created a department to keep her on as an exec. Something like brand compliance. Well then you need people under her too. It’s an avalanche of incompetence.
enjoytheshow
There’s a person a boss likes, but who isn’t as competent as the others. Rather than fire them, they get moved off to somewhere “unimportant”, someplace outside the core of the business. In this firm, Marketing was a must-have that had to be executed properly. But “brand compliance” was somewhere out of the core, not that important. This could have been IT, Safety, Learning & Development, DE&I, HR, or even … (gasp!) my own field of risk management. It’s not that all of us outside the core are incompetent, but that executives see it as a place where they will do no harm.
The boss may also bring on someone competent but less politically adept or connected to “shore them up”. Someone who has to do the actual work but at any time can be completely overridden by the incompetent “friend”.
Here’s the reality: you can’t keep people who can’t do the work. They will destroy the work. They are never “shored up” because they lack the capacity to do the work at that level. Instead, they either create a useless bureacracy, with endless reports and meetings that produce nothing (see below) or “grow” the group down from the level they’re incompentent at to the level they’re not. Regardless, it becomes a place where political connections, not productivity, is what gets rewarded.
What’s even more appalling is that all these people think that they are doing great work. Like the headquarters staff in Icahn’s story, they are busy all the time. They have stacks of “output”. They just don’t ever do anything of value, because the executive can’t conceptualize the work at the right level. They’re doing a lot of actions but never actually doing the work.
Worse, they become the trusted “experts” because they are the only ones who can understand the labyrinthine solution they created, which is both too complex and overly simple at the same time. The actual experts in your firm get chased away. (If you want to know the root of most massive safety violations, here’s your sign.)
And once you allow it in one place in your firm, the rot will start spreading. This “unimportant” group will create bureacracy that will crush your core’s agility. In risk management, this is often endless reporting and “box checking” or completely destructive waterfall processes where you must know what you will be doing for two years.
Retired CEO Jos Wintermans (Rogers Cable, Sodisco-Howden, LifeLabs) once told me that you have to be ruthless in evaluating people’s performance and moving people out of roles they can’t do. If it sounds cruel, then you aren’t the hordes of minorities who can do the work but are denied opportunity because someone knows the boss.
Oh, and if you’re wondering how you can last when your boss is this person, be a yes-man until you find a new job.
Carl Icahn fires 12 floors, and productivity improves
Stop me if you’ve heard me tell this before about how Carl Icahn fired 12 floors of useless NYC headquarters overhead in his first company, and made it more profitable. It’s Carl’s first acquisition, and he bought a railcar company for some money laying about; say, $500 million in heavily leveraged funds. He figures, “I’m Carl Icahn! Even as a youngster! I can understand what they do!” So, he heads to headquarters in NYC and meets with the top brass for a couple of days. At the end of which he had no idea what they actually did. He heads to the Operations plant, deep in the Midwest (‘natch) where they can clearly explain what they do, but have no idea what headquarters do, either. But they demand reports, lots of reports, and the Ops head has fulltime staff dedicated to giving them what they demand.
Carl brings in an Ivy League business prof and his minions to detail what is going on in the headquarters. They create a massive binder with lots of colored graphs (very expensive back in the day) that is measured in kilos. “Yeah,” Carl says, “but what do they do?” And the Ivy League professor, being the genius PhD that he was and clearly seeing that Carl was a ruthless operator who was Destined For Bigger Things and therefore a potential source for a future gravy train, says, “Carl, I think you’re a nice guy, so I’m going to shoot it to you straight: we have no idea what they actuall do, either.”
Fast foward a few weeks and the headquarters’ lease was coming up for renewal. Carl said “nah, I’ll pass”, closed up the NYC office, laid off 12 floors of people, and moved everything to the Midwest, where zero new people were hired, and productivity went up.
Every one of these useless staffers thought that they were productive. They could point to the many reports that they created, the meetings they held, the late hours. They were necessary!
They were producing something. It just wasn’t anything of value to the firm. Their reports, labored over so hard by them, didn’t advance the firm.