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The Org: The Underlying Logic of the Office

The Org: The Underlying Logic of the Office

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by Ray Fisman

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We create organizations because we need to get a job done—something we couldn't do alone—and join them because we're inspired by their missions (and our paycheck). But once we're inside, these organizations rarely feel inspirational. So where did it all go wrong?

In The Org, Ray Fisman and Tim Sullivan explain the tradeoffs that every


We create organizations because we need to get a job done—something we couldn't do alone—and join them because we're inspired by their missions (and our paycheck). But once we're inside, these organizations rarely feel inspirational. So where did it all go wrong?

In The Org, Ray Fisman and Tim Sullivan explain the tradeoffs that every organization faces, arguing that this everyday dysfunction is actually inherent to the very nature of orgs. The Org diagnoses the root causes of that malfunction, beginning with the economic logic of why organizations exist in the first place, then working its way up through the org's structure from the lowly cubicle to the CEO's office.

You'll learn:

  • The purpose of meetings and why they will never go away
  • Why even members of al Qaeda are required to submit travel and expense reports
  • What managers are good for
  • How the army and other orgs balance marching in lockstep with fostering innovation
  • Why the hospital administration—not the heart surgeon—is more likely to save your life
  • Why CEOs often spend more than 80 percent of their time in meetings—and why that's exactly where they should be (and why they get paid so much)

Editorial Reviews

Publishers Weekly
Is corporate life really so bad? Columbia Business School professor Fisman and Harvard Business Review Press editorial director Sullivan have done an analysis of the modern office, and highlight the facets of it that are actually valuable and how they can be used to their best advantage. The authors spend some time considering how things got to be the way they are in the first place, and then dive into the meat of office organizational models that really work, such as the market-research-driven R&D of McDonald’s. Using examples of both traditional and surprising structures—HP, Kayak.com, the Catholic Church, Procter & Gamble, the U.S. Army, BP, the 9/11 Commission—the authors make a strong argument for the importance of good management and even for some of the harder-to-justify elements of office life, such as constantly distracted CEOs and dramatically high executive compensation. They propose that there’s much to be salvaged from our broken office culture; the book is not a defense of current structures, per se, but a levelheaded look at the pros of the Way Things Are Done, and a blueprint to improve it. The playful writing and thoughtful analysis make this an intriguing read for anyone interested in the structure of corporate America. Agent: Jay Mandel, William Morris Endeavor. (Jan.)
Bloomberg Business Week
"A voice of ­reasoned ­analysis amid the airport bookstore barkers . . . breezy and approachable . . . the conclusions and insights presented in THE ORG are ones you can actually use. Less Hollywood blockbuster and more a moody independent film, THE ORG is incisive on how things actually are, while leaving readers to find the answers."
The Wall Street Journal
"An amiable guide, enjoyably wry without being jokey....[A]s an antidote to hokum, the authors' mission to help you "descend into better-informed cynicism"-to find the "least dysfunctional" of all possible dysfunctional orgs-is the kind of literary stock that pays greater dividends."
"Falls well into the required reading for MBAs set. I believe it will be THE required reading on the subject of organisational economics. . . . if you like Downton Abbey, then you are going to appreciate your time with The Org."
Nathaniel Fick
THE ORG is that rare thing: an insightful management book that's also fun to read...Reading it is like listening in as a team of McKinsey consultants spars with Dilbert.
Richard Florida
THE ORG makes the world of work comprehensible to anyone who's been driven to cynicism by the dysfunction of nearly any organization. And with examples from McDonald's to the Methodist Church, it may even make life inside the org a little more fun.
Michael Spence
For many of us who are seeking a framework for understanding the confusing and rapidly evolving patterns of global supply chains and trade, THE ORG provides a wonderfully powerful and clear conceptual lens.
Eduardo Porter - The New York Times
"...a compelling new book....The book offers telling insight on a topic that has ebbed and flowed across the world over the last 30 years, as governments of all stripes have set out to privatize state-owned enterprises and outsource services - what does the private sector do better than government, and what does it do worse?"
From the Publisher
"Compelling. . . . The Org aims to explain why organizations—be they private companies or government agencies—work the way they do."—Eduardo Porter, New York Times

"The authors' mission to help you 'descend into better-informed cynicism'—to find the 'least dysfunctional' of all possible dysfunctional orgs—is the kind of literary stock that pays greater dividends."—Trevor Butterworth, Wall Street Journal

"Wonderfully entertaining."—Marvin Weisbord, Strategy+Business

"A voice of reasoned analysis amid the airport bookstore barkers. . . . Fisman and Sullivan's measured approach is far more valuable; the conclusions and insights presented in The Org are ones you can actually use."—Sam Grobart, Bloomberg BusinessWeek

"Fisman and Sullivan write in a casual, engaging fashion, a style that makes their book an impressively easy read."—Erika Fry, Fortune

Library Journal
This is a tour through the history of modern corporations, as seen through the lens of organizational economics. Fisman (social enterprise, Columbia Univ.) and Sullivan (editor, Harvard Business Sch. Pr.) have combined forces to examine what makes organizations and executives tick and why we should care. They offer many interesting tidbits about corporations and executives, describing, for instance, how Henry Ford doubled the daily wage on his assembly line as a cost-cutting measure, because of its effect on employee retention. That decision, the authors maintain, can be seen as an early precursor of the comprehensive perks offered today at high-tech firms such as Google. Studies on organizational efficiency and corporate culture are cited frequently, with examples ranging from McDonald's Hamburger U. to the drastic change in culture at the FBI since the 9/11 attacks. VERDICT This well-written title is composed mainly of vignettes and anecdotes illustrating why companies do what they do, but doesn't offer much new information. Recommended only for larger business collections.—Susan Hurst, Miami Univ. Libs., Oxford, OH
Kirkus Reviews
An investigation of organizations. A casual read of the news will frequently yield a story or two on a corporation or organization rotting from the inside--malfeasance, bungling product delivery, CEOs taking larger bonuses while pleading for more tax breaks, etc. Many of us are just ordinary Joes who don't understand how office culture can be so toxic; simultaneously, we're often cogs in the machine. Fisman (Social Enterprise/Columbia Business School) and Harvard Business Review Press editorial director Sullivan take this study of "the underlying logic of the office" beyond the common communication breakdown between management and labor, examining the balance of incentive-based rewards with fostering intrinsic motivations. Hewlett-Packard, they find, started with an emphasis on the latter and moved, as the company grew, toward the former. The authors explore a wide variety of organizations, deconstructing, reconstructing and questioning the different structures and their efficacy in fitting together to achieve the larger objective. Without the strict hierarchy provided by the Catholic Church, write the authors, the United Methodist Church is both freed and burdened with a greater flexibility at the local level to meet the tenets in their mission statement. This particular section of the book asks a question directly that is approached less specifically in other places: Does the idea of using incentive pay for pastors increase the number of souls those pastors might save? A mostly intriguing study of business and other organizations and the "trade-offs that [they] face as they grow and evolve."

Product Details

Grand Central Publishing
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The Org

The Underlying Logic of the Office

By Ray Fisman, Tim Sullivan


Copyright © 2013 Tim Sullivan and Ray Fisman
All rights reserved.
ISBN: 978-1-4008-6606-9


The Outsider

Scott Urban leads a monkish existence. A single bed and a small desk sit in one corner of his studio apartment; a pair of old bicycles in another. In the center of his room stands a CNC router, an ungainly piece of woodworking equipment that Scott uses to transform solid blocks of exotic wood into roughhewn eyeglass frames. He finishes the frames by hand, using tools that hang from one wall of his apartment to complete the painstaking process of producing custom-order artisanal eyewear. The apartment, the tools, a Web presence, and Scott himself comprise the totality of his business, Urban Spectacles.

Scott's handiwork doesn't come cheap. When Wired magazine featured his "Roasted Rack of Lamb" specs, the accompanying caption described them as "perfect for the entrepreneur inking a deal with Google." But if you think $1,000 is a hefty price tag for eyeglasses (lenses extra), Scott would argue that you've got the wrong frame of reference. Scott sees himself as a craftsman and artist, a hero in our made-in-China age where low-cost production rules the marketplace for eyewear and everything else. (In a video that was once posted on Scott's website, a voiceover repeats the mantra "When I think about the current state of eyewear, it makes me want to kick something," as Scott kicks ever-larger objects, from a Nerf football up to a wooden chair.)

For Scott, the price comparison isn't with other eyeglass frames. Instead, as with any artisan, he argues that you should consider the value of his craft and think about glasses as functional art. A single pair of glasses can easily take him half a year from conception to completion, and the annual production of Urban Spectacles totals no more than a few dozen pairs.

Scott didn't plan to design and sell high-end frames for a living. He worked construction jobs during summer vacations and learned a bit here and there about machine tools and woodworking. After college, he took a nine-to-five job at a company that organized art fairs, staying up late into the night to complete his own woodworking projects. He made his first pair of specs after shattering his glasses while learning to break-dance (another project). The busted frames were vintage '60s-era plastic, inherited from his father, and he named the wooden replica that he created Dadda. The design is still available in the Urban Spectacles catalogue.

As he started selling his specs at craft fairs and as enthusiasts began spreading the word, Scott spent more and more time with his router, shaping wood, and less and less time organizing art fairs, until, eventually, he didn't work for anyone else at all.

Scott has achieved what remains an unfulfilled ambition for so many—to be able to focus full time on his craft. He can indulge his creative side, even as he struggles to make ends meet. His gallery of artistic oddities includes "beyecycle" specs (from old bike parts), "beergoggles" (from old beer bottles), and an "Elton J. Head" design, with each lens peering out of a piano carved out of ebony, bone, and crystal. Urban Spectacles has appeared on Al Jazeera news and Fashion Week runways in New York and Rio. They've adorned the rotund face of celebrity chef Graham Elliot during the third season of Fox's MasterChef, and they've been featured on the trend-spotting site coolhuntings.com and showcased in design spreads in everything from EyeCare Professional to House Beautiful to the aforementioned Wired piece.

Success. On his own terms and in a gloriously boss-free way. Since leaving his art fair job, Scott has existed in the pristine simplicity of a one-person org. Interns join him during summer break from art school, but he doesn't manage anyone and no one manages him. His customers serve as his bosses, after a fashion, but there's enough demand for his work that Scott can "fire" them if they become troublesome. He leads a flexible and free, if solitary, existence.

Yet all is not well in Scott's organizational and artistic Utopia. As he basks in his combination of organizational minimalism and artistic freedom, he's barely keeping his head above water, financially speaking. If $1,000 seems a lot to spend on glasses, when multiplied by only thirty or forty frames a year, it adds up to a meager annual income, particularly after you've subtracted $10,000 for supplies and another $10,000 to $12,000 for Scott's other "necessities," which he lists as "rent, food, utilities, and beer." He's barely scraping by.

Scott certainly has room to grow. The wait for a pair of his frames speaks to the mismatch between the demand for his products and Scott's ability to satisfy it. That people are willing to wait months for a pair of Urban Spectacles is a good sign that he could either make more or charge more. There's also other evidence that the market—or at least a certain segment of it—is hungry for his work. For instance, Barneys, the upscale department store in New York City, began selling Takahiro Miyashita's quince wood frames for $2,665 a pair shortly after Urban Spectacles made its New York media debut. The specs on display at Barneys are, in Scott's view, a clearly inferior product, a rip-off, in fact, of one of his designs.

Why not make the leap to a bigger org? It's something Scott has thought about over the years. He could produce a line of machine-made, non-custom frames that would come off the shelf at your neighborhood optician, much as Oscar de la Renta sells fifty-dollar sundresses on Amazon while continuing to show intricately embroidered evening gowns at Paris Fashion Week.

There are other good reasons to expand. Without an accounting or packaging or marketing department, Scott ends up dealing with all sorts of administrative tasks he'd like to avoid—the kind of nonsense that artisans who work in large, faceless design shops are spared, even as they have to put up with other organizational nonsense and constraints.

Why choose to stay small? When Scott peers through his Urban Spectacles at corporate America, what does he see that he's so scared of? His fears—many of them well founded—can be best understood if we look at the life and times of another start-up venture that began not in a basement, but in a single-car garage on Addison Avenue in Palo Alto, California. The garage served as the workshop of two guys, Bill and Dave, and now it and the house on Addison are landmarked by the California government as "the birthplace of Silicon Valley."

The Birth and Death of the HP Way

Like Scott, in the beginning Bill and Dave—they christened their company with their surnames, Hewlett and Packard—thrived on the creative and technical challenges of their work. Early custom jobs from the late 1930s and early 1940s included prototypes of a harmonica tuner, and an "exerciser" that used electrical pulses to activate muscle tissue (tested on the "accommodating" wife of the entrepreneur who commissioned the product). And like Scott Urban, in the early days, Bill and Dave did just about everything themselves. The Stanford-trained engineers designed, built, and packaged their products. They also set prices, wrote ad copy, and swept the factory floor. Unlike Scott, however, as demand took off for their first successful product, a radio oscillator, they hired an assistant to help with the sweeping, packaging, and other odd jobs.

At the same time, Bill and Dave shared many of Scott's fears and apprehensions about growing beyond a two-person partnership. From the beginning, they worked to maintain the intimacy and culture of a garage start-up that, in the words of one HP biographer, "could perpetually produce near-miracles of invention, quality, and adaptability." They referred to employees as family and set out to keep management from interfering with "the natural desire of employees to do their jobs well." It was called management by objectives—providing guidelines for what needs to get done and trusting the judgment and wisdom of lower level employees to do the "right" thing.

This management style, later christened the HP Way, focused on the people who made up the company rather than on the products. "The essence of the idea, radical at the time," Peter Burrows wrote in BusinessWeek, "was that employees' brainpower was the company's most important resource." The HP Way included a profit-sharing plan that helped align the employees with the company's goals. That, combined with the fact that friends and employees called the founders by their first names, gave HP a human focus and feel, and it consistently ranked high in any best-place-to-work poll.

Bill and Dave grew their start-up into a corporation that employed a hundred thousand people by 1992. That year, the New York Times reported that "a malaise had settled over the company, in part because of too much bureaucracy." Even under the founders, the HP Way had started to slip and eventually succumbed to the weight of the growing organizational superstructure. It just wasn't (and isn't) possible to run something that size without some checks and balances.

By 2011, HP no longer came close even to its 1992-era self, let alone to the ideal embodied by the HP Way. It had become the eleventh-largest company in America, with more than three hundred thousand employees. Building the HP empire may have required the conscious decision to leave the HP Way behind to deal with the realities of a workforce that could no longer be monitored and motivated by "management by objectives," investors eager for a higher return on their HP shareholdings, and the financial controls needed to keep tabs on a far-flung corporate empire.

To get the employees' view on this shift at HP, you can browse the feedback posted on glassdoor.com, a website that gives insiders a chance to vent anonymously about present and past employers. Average feedback on HP is 2.5 out of 5.0, putting it 18th from the bottom out of 112 computer hardware companies with glassdoor ratings.

The summary reviews of the "most helpful" listings in April 2011 leave no ambiguity about employee sentiment at HP: "Employees treated as numbers." "It's a paycheck but that's about it." "Behind the times that the market wants." "Disappointing." "A toxic environment." The strongest endorsement on the first page of comments is damning in its faint praise: "Ok for new employees not good long term." The details that follow belie everything that Bill, Dave, and the garage on Addison Avenue represented, and speak to the challenges of upholding the HP Way in the Hewlett-Packard of the twenty-first century: "Leaders are not authentic, they don't engender trust." "Complete lack of employee engagement." "Lack of innovation and innovators."

As a Reuters article put it in 2010, "Bill Hewlett and Dave Packard would not be amused."

Despite the loving restoration of the HP garage and continued lip service to the HP Way, today's Hewlett-Packard seems to be all about profits, more or less. These days, employee-friendly practices such as telecommuting, flextime, freedom to pursue independent projects, and airtight job security need to pass the "market test." Do they boost productivity enough to justify their expense? When profits and employees' interests come in conflict, profits win out, as in 2005, when the new CEO handed out thousands of pink slips, to the glee of Wall Street investors. InformationWeek magazine ran an opinion piece called, "In Praise of [HP CEO] Mark Hurd's 9,000 Layoffs" in 2010.

After his investor-cheered downsizing, Hurd resigned when an investigation into a sexual harassment claim revealed inconsistencies in his travel and expense account, sending the stock price tumbling nearly 10 percent. The HP board was widely criticized, even as it struggled to find a successor. When it did, its choice was Leo Apotheker, an outsider who was fired eleven months later after suggesting that HP get out of its core business of producing computer hardware. And the newest HP savior, CEO Meg Whitman, announced another round of layoffs in 2012, this time totaling twenty-seven thousand jobs.

This is what scares the crap out of Scott Urban.

Why Orgs?

If orgs are so terrifying, and not just to Scott, then why do we have them in the first place? It's easy to say "to get more done," but there's so much evidence of malfunction that it's far from obvious that this is the case.

Before we can answer that question, we have to take a brief excursion to beautiful downtown eighteenth-century Edinburgh, capital of Scotland and birthplace of Adam Smith and the idea of the market. Smith's greatest contribution to economics, or at least the one he's best remembered for, was his inspired description of the magic of prices in directing traffic in the apparent chaos of a market economy. He likened prices that govern the market to an "invisible hand" that guides each person to make decisions that lead to the same outcome as would occur if affairs were directed by an all-knowing, all-powerful planner with the best interests of society in mind.

To be concrete about what Adam Smith had in mind with his invisible-hand metaphor, think of your last trip to the grocery store, a decidedly market-based transaction. You wander up and down the aisles placing items in your cart based on a combination of clearly marked prices and what you'd like to eat for dinner. There's relatively little experimentation involved: people try new things from time to time, but mostly this involves shifts among brands, a switch from, say, one make of peanut butter or jelly that's not so different from the old one. Grocery shopping involves little uncertainty over what you're getting and, at least in most countries, no ambiguity over what you'll pay. In markets, prices "decide" how peanut butter, jelly, and everything else gets distributed.

What led Smith to his conclusion was a reckoning of how prices get set in a well-functioning market. Smith talked about pin factories, brewers, and bakers, but let's return to our grocery store. A sixteen-ounce jar of Skippy costs $3.99, and at that price, many thousands of consumers put jars of Skippy in their shopping baskets each day. Skippy is owned by Unilever, a company that is happy to supply the world with peanut butter at this price. (Unilever's profits overall were close to $7 billion in 2009.) The market for peanut butter "clears": there's no excess of peanut butter or dissatisfied consumers in search of more. If the price were higher, Unilever would accumulate unsold jars and would eventually be forced to sell at a discount. If prices were any lower, global peanut butter shortages would spur price increases.

Smith's deeper insight on the invisible hand is that this all works for society's best interest. Suppose that tastes switched to more jelly, less peanut butter. Inventories of unsold peanut butter would build up amid grape jelly shortages. Smucker's would ramp up production, Unilever would downsize, and order would soon be restored with each sandwich containing the new ideal peanut-butter-to-jelly ratio. The magic of the market is that billions of individual decisions work to produce the "right" mix of peanut butter, jelly, and everything else in the economy.

Captivated by these insights, economists occupied themselves with filling in the gaps created by Smith's model of the market. The organization in the meantime remained a black box, with inputs such as glass jars and peanuts going in one end and fully formed consumer products such as peanut butter coming out the other.

This may be in part because what goes on inside organizations seemed so very simple by comparison to the intricacies of the market. In organizations, people, not prices, do the deciding. The one who gets to decide is called the boss. Often, rules "decide"—how much you get paid, whether you need to show up for work at eight or at nine, when to take breaks and for how long. But who sets (and changes) the rules? The boss, of course.

But anyone who has ever experienced the tangled mess of reporting relationships, rules, and exceptions that govern any modern organization may see things a little differently from the economists' black box. A Fortune 500 CEO certainly doesn't have the time to make every little decision himself, so some things are necessarily left to underlings. In fact, the CEO has to decide which decisions will be his, and which will be left to his deputies. They in turn need to decide what gets handed off to lower-level managers, and so on, down the line. Just deciding who decides can become a complicated mess. If, by the time we get down to line workers, there's not much deciding left to be done, that's because there are so many rules governing those line workers' lives. Someone has to make up those rules, which means yet more complicated decisions for one of the bosses. The problem isn't that the inside of the org was (and is) too simple, but rather that it was too complicated for the models that earlier economists used to understand the world.

So, figuring out what it is that any given org should do—how it decides what to make and what to buy—or even why it exists is something that classical economic theory never really confronted. Yet, after 150 years of ignoring the complicated inner life of the org, economics discovered it in the person of a twenty-one-year-old British exchange student on a traveling scholarship to America, where he'd come to look inside the black boxes of Ford, U.S. Steel, and other giants of American industry. Ronald Coase is the person who'll help us answer the question "Why orgs?

Ronald's Big Adventure

Coase was born into the org-less world of economics in 1910 to parents whom he described as, while literate, much more interested in sports than academics. His father was the county lawn bowling champion. Coase himself was more cerebrally inclined. He recalls playing chess games with himself as a child, moving each side in turn. He read widely, borrowing "indiscriminately from the local library." At age eleven, he was taken to see a doctor of phrenology (a pseudoscience already on the wane by 1920), who assessed Coase's intellectual prospects based on the shape of his skull. (Looking at his picture, we see nothing dispositive about the shape of his head.)


Excerpted from The Org by Ray Fisman, Tim Sullivan. Copyright © 2013 Tim Sullivan and Ray Fisman. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Meet the Author

Ray Fisman is the Lambert Family Professor of Social Enterprise and codirector of the Social Enterprise Program at the Columbia Business School. His research has been published in leading economics journals. He is also a regular contributor to Slate. Tim Sullivan is the editorial director of Harvard Business Review Press. His writing has appeared in Harvard Business Review, the Wall Street Journal, Slate, and other popular outlets.

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