Education

Peter Cochrane's Uncommon Sense: Company plagues

Like the biblical plagues, but worse...
Have you noticed an increase in the amount of administrative red tape at more and more companies? So has Peter Cochrane - and it's a bad sign.

When you start a small company it invariably means working long days out of home, garage or a small office. The people involved are often distributed across geographical locations. Eventually they all come together in the real or virtual world to form a reasonably coherent organisation. In the beginning it is clear the founders have a vision, mission and definite market sector they wish to address. As money is raised and trade is established, people are recruited and the company begins to grow.

At first the IT infrastructure, people policies and modes of operation grow ad hoc. But there comes a time when all of this has to be formalised for operational and legal reasons. It becomes necessary to have legal counsel, an accountant and someone to look after personnel and safety affairs.

As these people join the company they are in no doubt that their job is to support the founders and members of the company in their endeavour to create trade, prosperity and deliver value. And so the company continues to grow with various groups and departments assigned specific responsibilities. Before long there are IT and security departments, along with legal, personnel and finance.

Over time these departments gradually lose sight of their true role and take it upon themselves to assume more and more control of the company. Soon the original vision, mission and purpose of the company, as defined by the founders, are lost and subsumed into a sea of administration. At the same time the main board of the company is completely overtaken by members of the legal, accounting and human recourses professions to the point where the bureaucracy of the company overrides all else. Everyone is there to support an administration that has assumed a life of its own - the tail is now definitely wagging the dog.

The company continues to work and prosper for a while, but gradually staggers from growing success to creeping decline. A change of fortune is imperceptibly steady at first, and then accelerates alarmingly. Consultants are called in, reports written, recommendations delivered and the back-to-basics flag is unfurled. Staff layoffs and economy measures follow, along with a raft of training courses of dubious worth. Outsourcing and efficiency drive all decisions and the need to satisfy the customer, along with rapid product development, are invoked to minimal effect. A sell-off or buyout looms - and the rest, as they say, is history.

I've seen this story repeated hundreds of times throughout my career and it now seems to have reached epidemic proportions. With tongue in cheek (slightly) you can safely say that the modern equivalent of the biblical plagues are the plagues of accountants, lawyers, bank managers, venture capitalists, human resource managers and MBAs that we now suffer.

The worst of these are the MBAs. These people leave university pretty well convinced they could run the planet on the basis of attending academic courses and with zero practical experience. Stop - before you reach for the keyboard to write me an angry email, let me explain that I really value all of these people and professions in the right quantities. It is when they come in large numbers that get out of control, or in control, it all goes wrong.

A key outcome to this phenomenon is that just about everyone I meet who has been with a large company 10 to 20 years wants to do one thing and one thing alone - leave at the earliest possible opportunity. They have seen their effectiveness decline rapidly over the past five years, in particular as IT systems have handed more and more data access to the corporate spectators. Another result has been a rapid increase in the demand for more written justifications, analyses of markets, business prospects and performance figures. Bluntly, in many companies the level of unnecessary and non-contributory work effort has become ludicrous, and even laughable, if it were not so serious.

Organisations can now have more administrators than productive staff members. At a country level some democracies see around 25 per cent of their working population employed directly or indirectly by government, and the number of administrators in hospitals is greater than the number of patients. Curiously it would appear that companies with automated plants, and the most advanced societies with huge investments in IT, are in fact the worst offenders. If ever we had an IT dream, this is not it.

I see a day of reckoning on the horizon. Either such grossly inefficient systems will collapse under their own weight or they will slim down real fast. In the meantime, the start-up sector is receiving a boost from a technological and expertise refugee programme - people leaving big companies out of sheer frustration. Only this time around the start-ups that result may well avoid the modern plagues by outsourcing and automating all the functions they need. I see more founders achieving self-funding status rather than opting for venture capital. Their determination is to maintain control and to build super-efficient organisations.

In the Middle Ages, more than 85 per cent of the UK population were engaged in food production and some 30 per cent were decimated by plague. The solution was to isolate outbreaks in communities and embark on sanitation measures.

Today we have less than 85 per cent of the population producing anything and those involved in the 'plagues' account for over 30 per cent. The modern solution? Ineffective companies and organisations will become isolated and die, whilst the sanitation measures will come in the form of new AI programs that increasingly automate the accounting, legal and human resource functions.

Conceived during a frustrating consultancy session with far too many naysayers in attendance. Dictated on UN909 flying Chicago to Denver a week later. Typed by my PA and emailed to me on the London to Ipswich train via a 9.6Kbps GSM link. Final copy despatched from my home via Wi-Fi connection at 2Mbps.

About

Peter Cochrane is an engineer, scientist, entrepreneur, futurist and consultant. He is the former CTO and head of research at BT, with a career in telecoms and IT spanning more than 40 years.