This article discusses how to effectuate a high-output, strong-hierarchy structure in an othrewise flat hierarchy / agile culture during the time in a crisis.
Part 1: The modern military-industrial complex – Managing and enforcing high predictable output in loosely coupled systems during crisis
This part explains what we can learn from how the military industrial complex is organized in a capitalist economy as it shows how enforcing hierarchy in a crisis works in the context of otherwise loosely coupled systems.
The military system works as follows:
- The military industrial complex operates as a loosely coupled system. Every defense relevant industry player organizes itself as a corporation and single entity operating in normal market conditions. Corporations have to fully operate as such entities on a stand alone basis during normal times. That is what makes the structure different from the central state systems we had in the communist systems of the 19th century where the complex was organized as a permanently rigid and hierarchical system.
- This loosely coupledness is broken on the individual level at the CxO level. The complex consistently and permanently monitors, develops and coordinates decision makers of these organizations by forming interest groups with financial and other benefits to the individuals. Typical structures is access to political parties, lobbies/interest groups, NGOs, Boards. This part is relevant to establish a common ground and world view among the leadership of these organizations, give them a feeling of being part of an in-group and making them understand that their social status and the economic rent distributed to them is tied closely to their loyalty to the interest group. This is the foundation of coercive power over individual decision making in the war scenario. The dependency on the lifestyle and benefits of their positions tied to the interest groups and the ability to exclude them and ban them from them is what makes them loyal and compliant to the interest of e.g. the state, the industrial complex and interest groups.
- Just having leaders under control doesn’t ensure smooth operation of the operational foundation of the industry complex in crisis. It only ensures that top-down communication and enforcement of a hierarchical control structure can be put in place. Armies that have not been in training and actual combat for a while tend to be non-operational when things start to heat up. This is why manouvers and planned attack scenarios are part of every military exercise. In the military industrial world, this “manouer”-based training is enforced by centralizing and cordination R&D and operational initiatives within the complex. DARPA is one such instance that by providing funding to critical R&D projects to a chosen set of execution-capable corporations forces them to collaborate and join forces on intensive projects among corporations in the complex.
- Then, finally, when there is a war, the loosely coupled mechanism is torn down and replaced with a clear chain of command and the entire industrial complex starts to operate as a single organization with ability of high output. Due to the training via (3.) and the interest alignment control in (2.), you do not need to privatize and re-consolidate chains of commands. You merely align interests by coercing the leaderships of the organizations into complying with the mission.
Part 2: Private Equity – Incentive structures at work
Next step to understand is how to increase levels of output and exhaustion in a business system without losing loyalty, motivation and without losing operational effectiveness in the face of potential internal political intensity. The most effective system in incentive alignment and high output/performance enforcement is found in the banking and private equity industry. So why not learn from it.
How does this system work?
The recruitment system is designed to attract highest capability individuals that submit to high pressure, high exhaustion and low quality of life working conditions. This is done by offering high compensation for entry level analysts and giving them a very steep income trajectory when they succeed. In practice, you recruit by base salary in the top 5% percentile. That gets them in. And offering 50-100% bonus structures which are far beyond the market norm gets them to stay in the office and compete with other competitive individuals. On top, you offer a steep career progression potential (80k (30% bonus) analyst, 120k (100%) associate, 180k (180%) VP, 300k (300%) managing director). keeps people working up to 16 hours a day by fear of missing out on bonus or career.
So this system makes them give everything they have in levels of energy and coping with exhaustion, gives them focused on delivering value to their superiors, and – last, but not least – gets the workers stay in very long during weekdays and weekends and ultimately lose their social life and contacts. This has the very nice benefit that they look for social life internally within the organization. And stay in longer. This alone makes workers dependend on work success for their self-image. As the overall level within the organization to satisfy a wider set of needs is low, and time spent outside the orgainzation is low, the workers become susceptible to using material status and their spending habits become part of their self-image and happyness. This increases the overall dependency on their compensation for happyness and increases the pressure to stay performing. Because loss of income and social status based on consumption of luxury goods takes an existential level. Organizations use this to drive the dependency of their worker bees. All they are left to do is wash out the lower performing individuals.
And because lower performing individuals are weeded out, everybody is learning to be cut-throat and highly competitive.
That scenario is basically a permanent war state if you compare it to the military complex example. So it is the highest output state you get.
Part 3: Managing a crisis in the agile organization.
When you adopt these two frameworks to a company that wants to stay agile and loosely coupled, but high functioning in crisis situations, you have the following problem to solve and options to get there:
In crisis, You need to install hiearchy and a working system of delegation for obtaining very high output while keeping management focus away from the complexity of converting many losely coupled employees to hard working crisis workers.
You will exhaust your system by doing it. And managing this exhaustion is one challenge. Managing politics when forming a spontaneous hierarchy and providing means pf stabilizing the system against politics is another challenge.
To manage exhaustion, you need capability and incentive. Capability : for this you need to select people that are networked in the company well and have the skill to manage the complexity of their responsibility and win support without coercion. Any coercion is bad for long term motivation. If you chose resources that fear failure or will fail, they will break under the pressure and will not deliver. If somebody isnt respected or cannot gain support by charme and leadership, he wont stay effective after incentives vanish and he might become brutally coercive under his authority and lose the entire team under him despite the incentive. So capability requires ability for the role played, soft skills to lead and self confidence in suceeding and willingness to take responsibility.
For exhaustion you have incentive:
You demand exhaustion levels of work: 16+ hours a day and working on weekends. This means trouble with family, sleep deprivation, reduced social life and stress/exhaustion. Nobody does that for free and nobody in a non-exhaustion industry will do it forever. You can push people to do it if the level of stress is clearly not permanent, and if you compensate for it by offering „career making or breaking“ situations (if you fail, you fail forever, if you suceed, you get promoted or get higher pay) and you can offer bonus structures (15-80% base in this year if going along and succeeding. I can tell you from experience that the potential to double your money keeps the most lazy employee work his ass off and endure pressure and bad culture and he will not consider leaving if he believes this is non permanent) So that is a motivator for all participants.
The same mechanism works on politics:
The motivator is strong enough to kill any defect or sabotage of the hierarchy. Even if you place the secretary or cleaning woman on the top level of the hierarchy and give it a shot to become permanent member of higher hierarchy, the next in line star employee will swallow it if the bonus is high enough, the future salary increase is worth it, etc.
But this hierarchy only works if
1) the cleaning woman in fact is able to fill the responsibility of her role and if it can deliver if all under it deliver.
And 2) the performance is definitely enforced top down. If level 3 can manipulate level 2 and get performance increaee by talking to level 1 instead of level 2, level 3 will sabotage level 2 and politic around person 2. so hierarchy only works if level 2 decides the fate of level 3 to get full coercive and directive power for level 2 over 3.
Summarizing: one method of achieving highest level of output and an ability to measure skills in our organization to deliver impactful results is to discuss high levels of special bonuses this year, based on performance, tie it with a title or a permanent increase in base salary, and build a hierarchy of talented employees to execute. Even if someone feels overstepped in hierarchy, you can coerce into following if the new supervisor if this one is deciding fate and the chance of getting a huge bonus and salary increase later is fair and believable. Of course you completely lose this employee if you don‘t deliver on bonus and compensation increase after the exhaustive period or he is failing to get the bonus because the supervisor failed to deliver.
By using this structure, you reduce oversight over employees and you can delegate tasks and steer where it is relevant and delegate complexity where it doesnt require attention. You can increase factor output by increasing 1) output per hour and 2) hours per day and 3) days per week spent working. (Of course nobody will work weekends if the supervisor is not spending his weekend) At our current culture you could potentially double output per employee.
Also, you can stress test the talent base regarding who is really willing and looking forward to more responsibility, who can deliver on this new responsibility and do so under high pressure to perform, and who is able to lead a team to high output under his oversight and who can coordinate and negotiate with his hierarchy peers to further his and company interests.
So you can also measure hierarchy level performance.
And last but not least, if you track hours (eg by an observant employee), and understand output, you get a clear view on who underperformed (those that suddenly increased output by 80% but only worked 20% more hours were slacking off). Those that don’t deliver anything in time despite clearly communicated need and order to do so probably aren’t interested in the success of the company and only want maximum pay for minimum contribution. Those are never a good fit for any company. And they lead as bad examples and lower motivation of others who are more motivated. And worst case they use their energy and boredom to manipulate their peers and play politics. Never good.
Thanks for reading.