Philosophies

At the end of this section, which describes IBM at the peak of its powers - and vision, I have taken the opportunity to bring together some of the fundamental lessons which characterized IBM at the time. On the other hand, Tom Watson Jr's own book - developed from the McKinsey Foundation Lectures he gave at Columbia University - adds his personal touch. This was published in 1963 (by McGraw Hill) and thus does not cover the later developments. It does, however, definitively cover those up to that time; and also gives a very good flavor of the depth of the beliefs which also held through the time of Cary and Opel. I would strongly recommend borrowing a copy to read.

I have again grouped my own version as a number of 'Philosophies' - though this time with the suffix 'II' (to clearly show they relate to the second period of IBM's development) - because what links them (and gives them their strength) is, once more, their philosophical nature. Tom Watson Jr. though much the same[i] " Consider any great organization ‑ one that has lasted over the years ‑ and I think you will find it owes its resiliency, not to its form of organization or administrative skills, but to the power of what we call beliefs and the appeal these beliefs have for its people."

The first category of 'Philosophies I' has already been described in this book, as part of the legacy of Thomas Watson Sr. It was later also described, albeit in slightly different terms, by the exponents of Human Resource Strategy (HRS) approaches. On the other hand, I am not aware that the second category - to be described in this chapter - has been explored to any great extent by any academics; though once again Peters and Waterman hinted at some aspects of it. These later philosophies, the legacy in this case of Tom Watson Jr., revolve very idiosyncratically (even for a Western organization) around the 'anarchy' of individualism that IBM promoted as an antidote to its emerging bureaucratic tendencies; albeit overlaid on some 'paternalism' that most probably accrued to the first category inherited from his father. It was no accident that in its early days IBM was clearly a paternalistic organization, nor is it that Japanese corporations also frequently expect their employees to subjugate their own personalities to the needs of the group. The 'holistic' aspect of described by HRS in general, and by Theory Z works in particular, works powerfully in both directions.

IBM's antidote to these tendencies was, historically, led by Tom Watson Jr and his immediate successors; and was developed after MITI's promotion of IBM's virtues (and is accordingly not incorporated in Japanese practices). As far as I am aware this category was unique to IBM, and it is what makes the IBM of that time - at the peak of its success - such a valuable model; particularly for Western managers, and particularly in the context of the developing cellular organic organizational structures.

Advanced Philosophies II:

Extended Training, particularly for top management ('institutionalized nepotism')

This second category is rather more sophisticated, and even more subtle than the first category; with which I ended the first section of the book. In addition to making the first category culturally acceptable to Western society (which has long since moved away from an acceptance of paternalism in the raw), this category is needed to counter the predations of the fully-fledged bureaucracy which infects many modern corporations.

Cellular Organic Structures…the essence is the creation of the environment in which these 'cell like' structures of 'cellular organic' organization (which is a developing feature of the Information Revolution) can flourish. Advanced Philosophies II encourage the autonomy of these small structures (at the most basic level that of the individual; hence the importance of individualism). At the same time they sustain the structures, particularly in terms of information flow. In terms of 'cellular organic structures' themselves, the requirement is in the first instance to understand how the organization can be fragmented (on a matrix in which the horizontal links are stronger than the vertical; the exact reverse of what is still the normal) to produce self-sufficient 'cells', which can integrate independently; to run their operations in a completely flexible, dynamically changing manner (to meet changed conditions).
#12.2
This has often been seen to be a form of matrix structure, but it is now, in some key respects, better seen to be related to 'networking' which an increasing number of academics see as the more prevalent of organizational form now emerging.

To a degree it also reflects a change in society. For instance, the Taylor Nelson Report for the UK National Economic Development Office described three stages of human development which had surfaced in the 'VALS' lifestyles work of Arnold Mitchell[ii]; the agricultural era, producing 'sustenance‑driven values'; the industrial era with 'outer‑directed values'; and the post-industrial (or post-modernist) era of 'inner‑directed values'. Even by the 1980s, when this report was published, in the UK 36% of the population already came into the latter category (compared with 47% in Holland and 34% in Sweden; but, interestingly, only 19% in the US and a mere 10% in Japan). Economic growth was no longer the priority for this group; the quality of life was. Networks of small, overlapping, cells would come to dominate the structures of their society Individual freedom and responsibility would be paramount. The conclusion of the social scientists involved was that these 'New People' would bring a much faster pace of change; and would develop the use of information technology three to five times as fast as the 'industrial era' workers. With much of the decade which followed bedeviled with recessions, these trends were somewhat delayed. Even so, in the more stable economy of the 2000s (for Europe if not the US), these are, I believe, the individuals who will most successfully implement 'Philosophies I' in general, and the second category (of 'Advanced Philosophies I') in particular;

Strong Beliefs in Individualism…once more the foundation for these is the development of strong beliefs, in this case in terms of the need for individualism as a fundamental aspect of the business. Such beliefs must, though, be very firmly held, by the people who matter most in this context; the board of management.
#12.3
One aspect of post-modernism recognized by sociologists rather than management theorists is indeed empowerment of the individual.

To be effective, this commitment must be made obvious, public, to those who matter most in the more general context; all the employees. The commitment has, then, to be published and publicized. IBM has issued a number of such documents, ranging from Tom Watson Jr's own original book through to a range of reports for its employees. Because it is so unexpected, the work force needs to be convinced that the company really believes in individualism. The departmental manager, as much as senior management, will also need to apply it to the cells for which he or she is responsible.

Certainly Tom Watson Jr spent a fair proportion of his time preaching the virtues of individualism, the 'wild duck' story, to his flock. In the process he was almost totally misunderstood, and dismissed, by the outside world; which mattered little, since the important audience was within IBM (and, at the time, that did listen). It has to be noted, however, that his successors in the 1980s and 1990s (Opel and Akers) appeared to have forgotten this message.

Personnel Processes to Guarantee Individualism …to be effective, the beliefs in individual empowerment need to be backed up by Personnel procedures which guarantee the position of the individual. #12.4
This would be an almost revolutionary development in most organizations.

In IBM a number of these already existed from T J Watson's time. The 'Speak‑Up' process, which allowed individuals to complain anonymously, was perhaps the most widely used. Although the 'Open‑Door' was held in less high esteem, it was still a communication channel of final resort; and it did impose important disciplines on management.

Also as described earlier, the key process, though, was the bi‑annual Opinion Survey. This reported how well the programmes were progressing. It was the most potent constraint on management at all levels, and it most clearly demonstrated to employees the sincerity of intentions. Arranging to conduct an Opinion Survey is so simple as to be almost trivial. The hard part is the implementation; for the management must take the results seriously (and act, publicly, to address any problems). Even so I would recommend it as the most important, and immediate, first step for any company; even the discipline of addressing the results is by itself a major step in the right direction.

The critical requirement is a recognition that the organization needs to put real 'teeth' into its Personnel processes. In line with the major implication arising from the adoption of HRS, this implies an upgrading of the Personnel Department from its more usual lowly position. Most important, though, in this context it requires senior management to decide exactly how they can guarantee that all employees have the necessary (confidential) access to that senior management in order to highlight any breaches of the basic beliefs.

Single Status …a pre‑requisite for a successful corporate pursuit of individualism is a clear policy of 'Single Status'; otherwise individualism just becomes another description of the various classes of citizenship.
#12.5
In recent years, with legislation enacted across many aspects of employment, this is one philosophy which has teeth.

Even in the 1980s, however, IBM's position, both in theory and in practice, was unequivocally in support of Single Status (though it didn't go as far as the Japanese practice of all staff wearing identical uniforms).

Single Status also allows links to be generated quite naturally between different levels of the organizational 'matrix'. In IBM it was quite natural for a fairly junior member of staff to talk as an equal with a senior manager; where their expertise justified it. This is a rather different approach to that of the Japanese, where strict deference to seniority is observed; and is circumvented only by the practice of having the most junior participant prepare the recommendation ‑ so that his contribution, and inventiveness, cannot be ignored.

In IBM the functioning of 'single status' was significantly enhanced by the policy of divorcing status (represented by the 'level' system) from its more usual links to management position (which in turn usually means that status, the 'hen‑pecking' order, is very visible and often intrusive). In IBM the essentially confidential nature of the system reduced the worst excesses of the status battles that bedevil so many other companies.

Recruitment of the Highest Caliber Individuals…I believe that this, perhaps above all the other factors, was probably the key to IBM's strength; as it is for any company.
#12.6
This is widely recognized, though much less widely practiced. In particular, it is claimed (not least by Bill Gates) to be the key to Microsoft's ongoing success.

It is well nigh impossible to fail if you have a collection of such high caliber individuals as IBM had then invested in; though, of course, IBM almost uniquely did later also achieve that failure - not least, however, by divesting itself of the highest caliber individuals which it had previously so carefully recruited!

Although it may seem self‑evident that you should recruit the highest caliber of staff, the fact is that most companies have become acclimatized to accepting second best. It might be argued that not all companies can attract the cream, but in practice there is a considerable element of matching talents to jobs; the cream a company is looking for may not be the same cream that Microsoft is monopolizing. The job for any employer is to select, and develop, these talents.

Of course it is much easier to recruit if you already have the philosophies in place. The IBM experience showed that employees were then attracted by them (particularly job interest and security), frequently as much as by the financial arguments normally considered paramount; though IBM did then, in any case, pay at least an attractive 'market rate' (but for better than average talent; so it usually still got a bargain). Much the same is now true of Microsoft.

As much as anything it is the sheer high caliber of the individual employees that underwrites the 'Philosophies'. These employees simply would not accept anything less, and would rapidly vote with their feet if any of the principles were endangered - as, in practice, those in IBM eventually did in the 1990s - but IBM was once well aware of this, a factor which helped keep it on the straight and narrow (until it finally, and spectacularly, lost its footing!).

An 'anarchy', which in some respects was what IBM had become by the end of the 1970s, places a great deal of responsibility on the individual. The caliber of the individual is thus a basic factor in determining exactly how successful such an anarchy will be.

Extended Training…the basic investment in 'people' is usually the most productive investment of all.
#12.7
The principle of this is widely accepted, under the mantra of 'Life-Long-Learning (LLL); but is rarely implemented.

Training and retraining was something that consumed a large amount of IBM resource (perhaps well in excess of 5% of its manpower resource at the time of its peak success). But the result was that change could be made endemic without causing chaos. It is a pre‑requisite for the first category (Theory Z) philosophies, but IBM later went far beyond this and committed significant resources to ensure the personal development of each individual; which was quite understandable when the importance of the performance (and capability) of each individual is appreciated, in the context of the overall 'anarchy'. A crucial element of the A & C process was planning each individual's personal development in general, and training in particular; resulting in a specific, documented, plan for the next year.

Such training, and in particular retraining, is often neglected by companies. It may be seen as a luxury; where key staff are needed to fight today's 'fires'. This overlooks the fact that its existing staff are usually a company's greatest investment; and development of this resource to fulfil its long term potential is a very sensible, and highly profitable, investment. It is not something that can, however, be run as a low priority sideline. Education in IBM was then staffed by some of its best people, and it was resourced accordingly. When I was a manager in its education department, my own budget for business training alone approached £250,000 a year to be spent outside IBM (say £500,000 for the two year programme overall). But the 'GSD' field force (more than 200 of whose managers and sales professionals went through the programme) was later responsible for bringing in revenue worth up to £1 billion per annum; so even to recover the cost in the first year the productivity increase needed to be only 0.1%!

Etched in stone at the entrance to IBM's education center in Endicott, New York, from the time of Thomas Watson Sr., were the words 'There is no saturation point in education'. IBM meant this; it spent $600 million backing this belief in 1984 alone (as it reached its peak success).

Executive Education…a specialized form of training, officially titled the 'Executive Resources Program' which applied to only a very few individuals, was very important to IBM's earlier success (and by its failure in the later case of John Akers, to its downfall). It was delivered to the top management high flyers (on their way to Armonk). I have described this as 'institutionalized nepotism' since it duplicated the process that happened to the two Watson heirs, and thus represented the positive side of nepotism. The candidates were identified very early, when they were relatively junior managers (typically when they had reached branch manager level; that is second level management). They were then very carefully groomed for stardom; a process that may have taken more than a decade. In this time they were inserted into a series of jobs that expanded their skills and knowledge. At the same time, though, they were protected against the risks of management failure (their 'guardian angel' would soon pull them out of any tricky situations). This avoided the major problem with conventional management progression, that of the 'multiple filter'; where a senior manager is required to be successful at each level before he or she is promoted to the next (so that a top level manager has to combine all the talents of the jobs below him; and in practice his least well developed talents are precisely those needed for his ultimate position!). IBM senior management did not have to succeed at all levels, so that the emphasis could be put on succeeding at the one level that mattered; which seems to me to put the priorities in the right order. Whatever the theoretical merits, the practical merit was that - before John Akers - the senior managers at Armonk were immensely capable and confident. Such was their personal command, and security, that there was no challenge to their authority; and they could get on with running IBM as it should have been run (rather than indulging in the prolonged political battles that enliven the top management suites of so many other companies).

Executive Education…the education for potential CEOs is the most important of all. Unfortunately, it is rarely provided in anything but name alone.
#12.8
The MBA is supposed to provide this for senior managers in general, and does so at a very basic level (which needs to be significantly supplemented for CEOs), but most so-called Executive Education (even that run by reputable institutions) is typically so brief, and necessarily superficial, as to be almost worthless.

The later failure of this system, in the shapes of John Opel and especially John Akers, illustrated the shortcomings of what had previously been an admirable process. John Opel should have represented its greatest achievement (after the two Watson sons). He went through the process at its most rigorous; being exposed to almost every part of IBM. The net result seems to have been an unparalleled awareness of all the details of IBM - unfortunately coupled with remarkably little understanding of how it integrated overall! He has to be forgiven, however, since managers in most organizations, let alone in one as culturally myopic as IBM, rarely understand what are their organization's core competences. As a result, unfortunately as it turned out, he had the confidence to put into practice his own mistaken solutions - paradoxically all the ones he learned as part of his MBA at Harvard rather than from his IBM training - worse still, to problems which didn't really exist!

The failure in the case of John Akers seems to be that he didn't go through the system, in any rigorous manner, at all. Possibly because he was identified relatively late in his career, possibly because his first major step when he finally made it was seemingly so successful, the later steps in the process seem to have been missing or were skimped. The net result was that he was clearly under-prepared for the challenges which were to face him.

Maximal Delegation…all the management text‑books stress delegation; but in IBM it was not just theory it was an unavoidable fact of life. The best solution is for the manager to view themselves as a resource to support those working for them.
#12.9
This would be seen as a radical approach by all but the very best managers!

In IBM it was partly forced by the pressure of work (another advantage of deliberately under‑resourcing manpower). In part it was encouraged by loading managers with communication work (so that they were best seen as providing support to their subordinates). In part it was enshrined in various documented procedures. In the main, though, it was a result of filling even the lowest levels with such high caliber personnel; who very vocally demanded delegation rather than have it thrust upon them. This was often, for the departmental manager, a difficult step.

The Inverted Pyramid…my advice has always been to try and imagine the conventional management structure turned upside down. In this view the manager is a resource to be used to support his subordinates. The question he or she then needs to ask is not (as usual) what they can do for him, but what he or she can do for them, to make them more effective.
#12.10
This turns on its head conventional management theory!

The Japanese system approaches the problem from a different direction, by having recommendations drafted by the most junior staff; thus ensuring they are actively involved in any planning process. At the same time, though, the Japanese 'section' does assume significant delegated powers. These are described by Ezra F Vogel as "The lowly section, within its sphere, does not await executive orders but takes initiatives. It identifies problems, gathers information, consults with relevant parts of the company, call issues to the attention of higher officials and draws up documents.....Good decisions emerge not from brilliant presentations of alternatives but from section people discussing all aspects of the questions over and over with all the most knowledgeable people....Section people take great pride in their work because of their initiatives and because they have a chance to develop their leadership and carry great weight within the company on matters relating to their sphere. Consequently, the morale of young workers in their thirties tends to be very high". This description would also be almost as applicable of the 'teams' within IBM at the time of its great success.

Planned Constraints on Management …it sometimes seemed as if IBM deliberately set out to cripple its first line managers; producing a job that was recognized to be the toughest in IBM. It forced them to delegate.
#12.11
This would be seen as weird by most managers, but it worked.

This was initially by the measures listed above, but then it sucked them into never‑ending cycles of meetings, which meant that they could not be a constant presence in their department; again forcing delegation. This process was disrupted when Lou Gerstner clamped down on meetings; though it isn't clear whether this was a (mistaken) move to reduce wasted management time, or one to make a very obvious gesture to imprint his own personality.

For the lowest ranks of management even status was no refuge, for the anonymous 'level' system, which operated independently of management responsibility, ensured that few junior managers could 'pull rank'.

In any case the system proceeded to systematically undermine their hierarchical position with the personnel processes of the A & C (where they had to obtain agreement from their subordinates), backed up by the Speak‑Up and Open‑Door programs to handle complaints. Most insidious of all was the Opinion Survey, whose 'rating' many managers dreaded.

One can almost pity the management under this kind of pressure. But it did ensure that - before the problems of the 1990s (and especially before Gerstner introduced more normal management practices) they tended to run close knit teams rather than hierarchical empires. It allowed the individuals at the lowest levels to maximize their contributions, and managers to get on with the real job; of managing. Most important of all, it clearly worked; IBM didn't - at that time - have any problems persuading its people to take on the onerous role of junior manager!

Encouragement of Dissent…Tom Watson's support of 'anarchy' reached its peak in the encouragement of dissent.
#12.12
This must be one of the most revolutionary management practices ever, and certainly is not preached by any serious management theorist!

There were many deliberately planned opportunities for this to occur in IBM. Important decisions often required a 'sign off' process that rivaled the Japanese 'ringi' system. It might have appeared bureaucratic but it ensured that all the functions, and people, involved were actually required to sign their commitment to the decision. The numbers of signatures might have been as high as twenty or thirty (somewhat lower, though, than the 50+ in the typical 'ringi' approval used by the Japanese). The pay‑off for IBM (and the Japanese) was that, while negotiations might have been more extended, the implementation was much smoother and faster; simply because every person involved had already agreed his or her personal commitment; and the implementation phase is typically far longer - so the overall savings in time may be significant.

In this process it was possible for anyone to disagree, even the most junior. As a very junior member of IBM I did once stop a major project, albeit very temporarily, by being the only one to disagree (when the whole negotiating process had to start over again). Even the language in IBM encouraged dissent. You did not have to disagree (a very negative sounding approach), instead you could merely 'non‑concur' (a much more positive sounding activity)! Indeed the right of non‑concurrence was formally enshrined in IBM's procedures, until it was banned informally by Akers and formally by Gerstner. It may sound trivial but it really did contribute to a climate where the participants could speak their mind, without being accused of the sin of 'being negative'; and, of course, was typically at its most productive within the department.

Paul Carroll (in 'Big Blues') placed some emphasis on this process being an important weakness. In his view any individual might non-concur and ('almost gratuitously', as he put it) stop the whole process - and, in particular, delay the launch of new products. This was, I think, to fundamentally misunderstand the process. The psychological pressure in IBM were always to deliver the goods (the 'new product', say) as soon as possible. It was rare indeed for any individual to go against this pressure but - if one felt strongly enough (and you had to feel very strongly to go against the team view) then this - non-concurrence - procedure enabled you to do so. It was, though, very much the exception.

Of course the real encouragement for 'dissent' was in the philosophy of the 'wild duck', which eventually entered into the mass culture within IBM; underwriting its continued implementation until it, too, was overwhelmed by the sheer scale of IBM's problems. Perhaps, though, it was always less obvious to senior management for, it has to be admitted, Buck Rodgers gave it just one throw‑away mention in his book.

In the Japanese system, where 'interdependence' (as opposed to the Western ideal of independence) is highly valued (and change is achieved gradually; a favorite saying from the Tao being 'It is well to persist like water' slowly wearing away the rock), overt dissent is clearly not encouraged. Instead there is an acceptance of ambiguity (there are reportedly 19 different ways of saying 'no' in Japanese, and in Zen the concept of 'empty' is replaced by 'full of nothing'), which in effect extent allows a similar degree of freedom in action for individuals and 'sections' (the shop‑floor groups).

The effect of all the above 'anarchic' IBM conventions was to thrust most of the work down to the lowest level, and then allow the (very high caliber) staff at that level to get on with it, relatively unsupervised.

Horizontal Communications…to match this with the requisite information provision and co-ordination, however, requires a horizontal communications network of great sophistication and subtlety. The normal vertically oriented structure simply cannot cope.
#12.13
With the advent of electronic networks this has been forced upon Western organizations, whether they liked it or not.

In IBM, up to the 1980s, this was largely a cultural process. The culture encouraged contacts across departmental boundaries (indeed it barely recognized any boundaries), and the informal grapevine was sophisticated in the extreme. As a result the individuals had a very good, but largely informal. perspective of what was happening throughout IBM. This network of contacts was encouraged by the non‑specialized career paths, and frequent moves, which ensured that individuals normally already had excellent contacts in a number of other departments (the Japanese career process produces the same invaluable benefit). This process was also enhanced in IBM by the regular mixing of personnel on the various training courses. It reached its peak, in particular, in the use of 'task forces' (recruited from a range of different departments) to focus on the key issues. These teams had access to a very wide range of IBM experience and skills.

Some of the Japanese corporations have adopted a different approach. Under the guidance of Kenichi Ohmae (the head of McKinsey's Japanese subsidiary) they have developed the concept of 'samurais'. To quote him "The answer I came up with involved the formation within the corporation of a group of young 'samurais' who would play a dual role. On the one hand they would function as real strategists, giving free rein to their imagination and entrepreneurial flair in order to come up with bold and innovative strategies. On the other they would serve as staff analysts, testing out, digesting and assigning priorities to the ideas and providing staff assistance to line managers in implementing the approved strategies. This 'samurai' concept has since been adopted in several Japanese firms with great success".

He goes on to say "Such a solution would not fit the circumstances of the typical American and European company".

There was no direct parallel in IBM, but there was a related approach. Those high‑flyers on the extended management training ('Executive Resources') program (particularly those on their way to the dizzy heights of Armonk) spent a critical part of their time as AA's (Administrative Assistants) to senior management. As with the 'samurais' these AA's were partly used (as their title suggests) to provide staff assistance to their management. But at the same time they did contribute to the development of strategy; which did to a limited extent parallel the 'samurai' concept, and also added considerably to the amount of experience they had when they eventually took on a more direct responsibility for strategy.

The 'meeting' was, above all, the cornerstone of IBM's activities; at least, that is, until Lou Gerstner in effect dismantled IBM's meeting culture. Before that point, and especially at the peak of its success, members of staff often spent between a quarter and a half of their time in face to face meetings, with a large part of this comprising formal meetings (with up to 20 participants). This was a lower rate than that of IBM management, but was higher than in most other organizations at that time. Such meetings were usually well run (a really poorly run meeting was such a rarity that news of it traveled fast on the grapevine). In any case, having passed though the salesforce, most of the participants had been specially trained in communications skills. Ouchi stresses the need for interpersonal skills training as part of 'Theory Z'; and IBM already trained all its personnel to a high standard, and some (in the key market areas) to a superb standard (which rubbed off on everyone else; the presentation was often the standard by which individuals were, perhaps unfairly, judged). The effective use of visual aids, usually overhead projected 'foils' (acetates or slides in the terminology used by the outside world) was excellent - though later Lou Gerstner actually banned their use - and meetings were normally well (but informally) chaired; and were generally enjoyable to the participants, an important secondary factor where they were so prevalent.

Once again, Paul Carroll was critical of IBM's addiction to meetings. In this case he seems to have been influenced by Microsoft - who (with a very different culture) found the addiction very strange indeed; and maybe Gerstner's decision was influenced by the same opinions (at the time of his arrival everyone was in awe of Bill Gates!).

In addition to these earlier 'cultural' factors, even by the early 1980s, IBM's own telephone networks gave its staff unrestricted access to any other IBM'er anywhere in the world (even to executive management who then usually answered their own phones!). A look into a typical IBM office of that time would, therefore, probably have revealed up to half of the individuals (who were not at meetings) on the phone; horizontal communications was the basis of IBM's work!

This voice network was, in the 1980s, complemented by a data network. Almost all IBM'ers - as well as temporary staff - had access to their own terminal (a seemingly unnecessary luxury, but in practice a near essential one if you are to encourage the maximal use of horizontal communications as a natural part of all activities). Like the telephone, this terminal connected to any other IBM'er anywhere in the world. It also provided instant, and invaluable, access to departmental and company databases. But its key role in IBM (as it was, a decade or more later in the second half of the 1990s, for other companies) was as a horizontal communications device across the whole organization; not just within one department. As most of us have since found, with our increasing dependence on emails, it cut down the amount of telephone traffic (and the very frustrating queuing, where the target was very likely already on the phone to someone else!) and at the same time it documented the 'conversations' so that there could be no confusion. What is more, it propagated information; it became just as easy to copy all the people involved (instantaneously) as it was to contact one.

As so many organizations now have introduced such data networks on the large scale, the first requirement is, accordingly, that they understand the social and organizational implications as well as the purely technical. The second, and most important, is that they appreciate that this new technology offers the opportunity to move more rapidly (more rapidly than the 10‑15 years timescale otherwise involved) to a 'Theory Z' company, and then (quite probably simultaneously) to use most of the 'Philosophies'. It is a unique opportunity which should not be overlooked in the excitement of the technical challenges.

Institutionalization of Change…this was Frank Cary's great contribution. It is simple to implement, but dangerous if the groundwork (in essence most of the other 'Philosophies') has not been soundly based. Quite simply it requires that the whole organization is changed, from top to bottom, no less frequently than every two years.
#12.14
Most management theory would see this as unproductive in the extreme.

Although Armonk might have argued otherwise, I believe that the form of the new organization was almost incidental. The IBM organizational matrix was already a jelly‑like amoeba that almost instantly adapted to new patterns; matching the structure to the real needs of the business. A rigid, hierarchical organization would, however, be destroyed by the stresses this sort of change would induce. On the other hand, even IBM itself was damaged by John Akers later misuse of the process. He pushed through, just as rapidly, fundamental changes. The organization coped with these internally, but was no longer able to match them to the outside world as effectively as it had the lesser changes initiated by Frank Cary. As a result, IBM drifted into a series of ever increasing mismatches between it and its environment!

Such change does have the great virtue of breaking down any bureaucratic tendencies. It shakes up the whole structure, takes out 'logjams' (and those managers who have reached their, 'Peter Principle', level of incompetence) and allows a new organization to emerge which best matches the new needs. It is the ultimate 'lubricant' in 'anarchic' social engineering. It is, however, a process few companies other than IBM could yet handle; and, as we have seen, even IBM lost control of it eventually.

Despite the deliberate implementation of the policy, and its clear benefits to the business, Armonk appeared to become somewhat sensitive about its personnel implications. Buck Rodgers took almost a page in his book to explain that it was not really true (at least in the most literal sense requiring house moves by families); he was clearly very sensitive to the 'I've Been Moved' joke!

Regular reorganization is also one element of the 'breaking old habits' pillar underpinning successful companies suggested by Peters and Waterman (the other two pillars, incidentally, being 'Stability' and 'Entrepreneurship'). In addition it is (in relation to a 'growth culture') heavily stressed by Abbeglen and Stalk; "The competitive behavior of kaisha has been shaped by a key factor in the Japanese environment; the historically unprecedented rate of growth and change in the Japanese economy. The requirement to keep pace with change ‑ in a context of intense domestic competition ‑ has been a principal driving force behind corporate strategies".

The importance of growth, almost as a pre-requisite for the various philosophies I have described, must not be underestimated. In my last book I made the point that: "Growth (and the resulting change) has long been an essential part of IBM's business practices; as it has been of the Japanese corporations, Growth has allowed IBM to escape from problems that would have crippled other companies. Abbeglen and Stalk, commenting on the Japanese corporations, state that 'If the kaisha are to escape their troubles they must grow out of them and moreover bring about that growth through internal resources an internal development....The cost of failure is high ' These comments could just as well apply to IBM; and should be borne in mind when following the IBM model." Once again, it was a comment that foreshadowed IBM's later problems. As we will see in the next section, a major contributor to IBM's demise was its inability to handle the problems caused by its lack of growth in the second half of the 1980s.

The second leg, 'Philosophies II', thus takes the process of management into new regions, and is particularly relevant to the environment creating, and in turn being created by, the Information Revolution. It has the added virtue, for Western companies, that it simultaneously makes the first leg (Theory Z) more palatable to their, more individualistic, cultures.

Amitai Etzioni, of Columbia University, asserts that a holistic based network comprises an effective means of control, but one that is incompatible with modern industrial specialization; that is, for normal Western business practices. 'Philosophies II' allow this incompatibility to be overcome.

Unions

I have not mentioned the role of trade or craft unions, not because they have in recent years become an unfashionable topic, but quite simply because for the whole of its life they were virtually non‑existent in IBM. With IBM operating its own version of 'Philosophies', their role was so diminished as to be negligible. It must be recognized, however, that many other companies will have to take them into account. Ouchi, quite correctly, gives high priority to their involvement. 'Philosophies II' should, however, also be the ideal solution for unions; if they are truly concerned to further their members' interests. On the other hand it has to be, realistically, assumed that they will be suspicious of such overtures. In addition their role will change (and may appear to decrease). No longer can they expect to negotiate blanket wages (the ultimate virility test for a trade union negotiator); for it is likely, under the complexity of 'Philosophies II', that there will be no such thing as a standard wage. Instead they will have a particularly valuable role as the independent guarantors of the individual's rights. Even though employees generally trusted IBM (before the disastrous events of the 1990s), there was a detectable degree of diffidence about using some of the personnel processes. Even in IBM, therefore, it is arguable that the independence of a union view would have better guaranteed these processes (which would have been as much in IBM's interest as that of the individual); this was particularly true of the Open‑Door process, which could often be viewed (somewhat suspiciously) as management ganging up on the lone individual making the complaint. One suspects that by the mid 1990s, under the new 'harsh' regime, this diffidence will have turned into irreversible paranoia!

Unions, despite their apparent fall from grace since the 1980s, should have an important, and very positive, role to play in improving their members' futures. My own contacts with shop stewards prior to IBM indicated that this is an opportunity that they should relish. In my experience they far more often bent my ear about the poor business decisions I was making (and were often more perceptive, and certainly less blinkered, than my management team who were usually too immersed in the problems) than they ever did about their members' working conditions. The one limitation is that still to a degree imposed by the narrow viewpoints forced on members of craft unions (and this may be one reason why IBM was so nervous of any union presence). It is the breakdown of these, by the emergence of company unions ('enterprise unions'), that is one great strength of the Japanese system The challenge, thus, is still for unions to tap their members' goodwill, and harness it to the development of 'Philosophies II'.

I have concentrated on the 'Philosophical' aspects, because these, I believe, represent the driving forces which will shape the successful companies through the turn of the century. There is, though, an organizational aspect which parallels these:

Cellular Organic Structures

In a somewhat simplistic sense, apart from small entrepreneurial companies, Theory X is by definition based on a hierarchy (with a unidirectional flow of instructions from the top down). Indeed the 'pyramid' (a hierarchy) is what most of the population would still think of when asked what a management structure looks like; some 70% of our management students report that their organizations still follow this model (and, at least on paper, that is exactly what even IBM looked like to the outside world). Charles B Handy describes it as 'functional' organization, and chooses the Greek temple (with its columns) as the visual analogy; but the principle is the same.

This is moderated somewhat in Theory Y, where there is a two way flow (management starts to listen to its workers). Typically, though, even with Theory Y the emphasis is on the efficient flow of instructions from the top to the bottom of the 'pyramid' (these instructions, it is now recognized, need to be persuasive rather than coercive).

Neither theory, however, seeks to topple the pyramid. This is unfortunate, for although the pyramidal hierarchy was developed as the correct solution to controlling the physical work in the dark satanic mills of the Industrial Revolution (where the previous anarchic rural organization could not match the pace of the machines) civilization has now moved on, and its organizational requirements have correspondingly changed. I would suggest that it is now suitably symbolic that the pyramid has stood for more than four millennia as the symbol of formalized death!

Although it might be difficult to conceive of a society more ritualized than the Japanese, I believe that Theory Z is broadly paralleled by an organizational structure that in effect has more of a matrix form; though in this case with the horizontal contacts being informal, rather than the formalized contradictions of personnel reporting to more than one superior demanded by classical matrix theories. Communications are channeled horizontally as well as vertically. Even in somewhat limited form this is already a great strength of the Japanese corporations, who often profess no formal structure at all. It was certainly a great strength of IBM in its earlier days, where 'data' moving through the informal horizontal communications networks often outweighed that being received from the formal vertical one.

On the other hand, Charles B Handy, along with other commentators, believed that such non‑functional forms of organization may be inherently unstable; "But although beloved of many theorists and idealists, task cultures appear to be extremely difficult to manage well, particularly when surrounded by other cultures. Perhaps it is that organizations have more experience with management of steady‑state activities, perhaps that, when it comes down to hard reality, people are more role‑oriented, more fond of the steady‑state than they are prepared to admit". I believe IBM showed that such forms of organization may now be generally applicable.

The second leg that advances 'Philosophies II' has, however, taken such 'task' based organization one step further; to what I called (in my first book) 'cellular organic'.

Cellular Organic Structures…the most important difference from its predecessors, such as the matrix structure, is that this form is constantly changing. The organizational 'cells' grow, change their function, develop links to other cells, and die; in a manner that can best be described as organic. The cells, which may be individuals but are usually small groups (the 'teams' of team organization), have their own self‑defined identity. This is clearly influenced by outside events as the superior organization (for example Armonk) reallocates roles or even splits groups; but the final shape of the cell (its detailed role and relationships) is determined by the cell (the group or team) itself.
#12.15
Management theory does expect hierarchical structures to be overtaken by new forms. One of these is the matrix, but the latest version (paralleling the emergence of electronic communications) is 'networks'. This has some of the free-form, almost anarchic, qualities of cellular organic; but does not have the same level of independent decision-making authority.

Its links to other cells are directly analogous to the nervous system of the living body. They may appear random (and in the cellular organic structure often change over time). They retrieve and disseminate the information that is now almost the sole business function of the cell. Which 'neurons' are activated (and hence which 'contacts' are used to provide the information) is under the control of the cell itself and is (again the analogy of the nervous system holds up) richly complex.

Cultural DNA…finally the key instructions that control the workings of the cell, that 'program' its activities, are not typically received directly from outside. They are contained in the equivalent of a living cell's DNA. In the cellular organic structure the behavior of the cell is above all determined by the 'culture' (derived from the beliefs and philosophies).
#12.16
This aspect of 'networking' has yet to be explored by the theorists.

I have frequently referred to the 'anarchy' within IBM, but this should not be taken too literally. It was the 'anarchy' of the growing, living cell (in the biological analogy the original 'pluripotential' cell is shaped by its DNA to become the differentiated cell with a specific role).

In IBM, though, all cells always remained, at least partially, 'pluripotential'. They could change, without outside instructions, to respond to changes in the external or internal environment. This was most noticeable in the biannual reorganizations, when the cellular structure adapted to its new role in a matter of a few weeks (or even days); to the extent that the change often went unnoticed by the outside world.

More subtly, though, the culture (the 'DNA') programmed the cell to optimize its performance. By default, within the welter of changes, IBM could not say exactly what the cell's detailed role was (titles in IBM were often so strange as to appear to be in a foreign language; and were usually no clear guide to a group's role) but it simply required the group to seek out and fill that optimal role closest to their 'brief'.

This was also the type of structure forecast by the Taylor Nelson Report, commissioned by the government in the UK. It specifically it reported that networks of small overlapping cells would come to dominate the structure of society.

ICT Structures…thus, as the age of Information Communications Technology (ICT) has had an increasing impact on organizations (even before it moved on to the more general concept of the Information Society), it is likely that - especially in response to the rapidly developing horizontal (peer to peer) communications this will encourage - there will be a growing degree of fragmentation into 'self-managed' groups. To cope with the increasing pace of change, these groups will themselves need to constantly shift their form; and two thirds of our management students believe that this form (probably in the first instance as networking rather than the more sophisticated cellular organic) will be how their organizations will work in 2020..

These will then become the (organic) cells of the new structures. They will have a much more independent, and shifting, relationship with the rest of the organization - or at least with the other cells within it.

Summary…'Philosophies II' may be derived from HRS approaches to management, but it develops far beyond these to the individualistic, anarchic and cell‑like structures which will probably become the shape of society in the next century. In keeping with this 'anarchy', though, it is ill‑defined. It has no hard edged theories, but only philosophies and beliefs that guide the individuals as they work out their own, dynamically changing, compact with the world around them. The role of management will be to provide the framework and resources, the culture medium, for these amoeba‑like colonies to grow and change; leading to a more organically structured society.

Paradoxically, if the Taylor Nelson Report is correct, the Japanese (who took to 'Theory Z' so successfully, if unknowingly) are the least likely to be able to take advantage of 'Philosophies II'; though one should never underestimate the ability of MITI to change Japanese corporate life!

I will, however, end once more with the quote, from Tom Watson Jr, which for me encapsulates much of what was important about the very successful IBM of his times; "I firmly believe that any organization, in order to survive and achieve success, must have a sound set of beliefs on which it premises all its policies and actions".

[i] Watson, Thomas J Jr. (1963), A Business and its Beliefs, McGraw Hill, p 5

[ii] Mitchell, A (1983) The Nine American Lifestyles, Macmillan