“Corporate relaxation” and the eternal issue of business efficiency
*This is a [zero-AI-text]* Grigory Miloradov, DEXENTRI Consulting (c) 2023
Do you work in an efficient organization?
Or have you worked in an efficient organization before?
The problem of running business by an efficient organization always stays relevant and acute, because efficiency always touches someone’s vital interest and pocket. But strangely enough, very often efficiency evades from the discussion radar replaced by more fashionable and pleasant topics and buzzwords. Owners and managers of business face tremendous waves of disruptive challenges, and they are forced or inclined primarily to think about “where to go and what to create” questions. The strategic areas of focus activity and converting innovation to marketable products are, indeed, crucial for competitivity and success. But not less important is the internal cuisine of business - “how to interact” and “how to do what we do more efficiently”.
Multiple examples of mass lay-offs in large leading tech companies make it vivid that even the most successful and resourceful corporations who can afford the best managerial talent can accumulate inefficiencies inside of them over months and years, burning cash of shareholders in vain. In small and mid-size businesses the situation can be paradoxical – the workforce can be stable at the minimal level, but the business itself stagnates at near-zero profits, without growth or even slowly declining revenues, waiting for the next tsunami to wipe the business out completely and at once. Inside the companies of all sizes, employee frustration and demotivation reign despite all HR efforts of teambuilding, trainings, ping-pong tables and free meals. Internal fight for resources is permanent, voluntarism in resource allocation prevails.
Who does and decides what is very often unclear or illogical, and asking who can demand what from whom becomes nearly insulting. The soft cloud of collective responsibility, which is equal to zero accountability, conveniently covers the specific corporate constellation of internal kingdoms and charismas, until one day it all suddenly explodes, leaving employees on the hook of state’s social payments or at best drowning them for the next years in another company’s frustrating “internal game of thrones”.
Efficiency: forgotten behind the chase for the “next big things”
Efficiency often just gets forgotten in the chase of a “next big buzz-word thing” or market capitalization. If a company is profitable and / or growing, challenging efficiency is sometimes seen as misplaced and undermining the team spirit by misbelief. Having 20% Net Operational Profit (NOP) in the current year looks so charming and convenient, doesn’t it? But maybe the business could have 35% NOP with the same revenue? Or, opposite, maybe it would be wise to get more revenues in a new market by reducing NOP to just 5% for the next two years, or (horror!) even to tolerate -5% Net Operational Loss for the sake of future +25% NOP on much higher revenues? Such discussions are sometimes just too inconvenient for “internal kingdoms” of a corporation. The potentials of giving more to shareholders are easily hidden in joyful complexity of business processes with growing justification of attributes of corporate luxury. Top management deserves good life.
A struggling company with losses and / or declining revenues may start looking closer at efficiency – but often it is already too late, or it is just impossible to find the roots of problems, because everyone points at others, and it is circular, and inter-dependencies of functions are indeed quite complex. So, here a sad complexity of business processes prevents finding the roots and the path from negative to zero and from zero to positive in profits and in revenue growth. Top management washes hands and goes elsewhere, crisis management enters, corporate blood flows, people lose jobs, image worsens, talent evades and avoids, restructuring and M&A are the last hopes.
Even in a startup there might easily be an efficiency problem. The company burns resources trying to move faster on its product roadmap, revenues are yet missing or insufficient, and it is a difficult balance to maintain every day to stay afloat, keep hoping, achieve breakthrough and get traction. What is efficient and what is not? What decisions lead to good progress and what will just increase cash burn rate in vain?
Attempts at the problematic of efficiently organizing internal work are in the last decades mostly linked to adoption of buzz-word management frameworks in product, project, and process management – Agile, Scrum, Kanban, SAFe, Lean, Six Sigma etc. Whereas some implementations are quite successful, it is not a secret that in many companies’ internal bureaucracy and specific corporate culture heritage turned out stronger in practice than all the new frameworks. Frameworks get implemented, but frustration and demotivation remain.
Efficiency continues to be missing in action, and internal “kingdoms” continue fighting for resources, margins still eaten by managerial appetite for luxury business environment. And mass lay-offs and business closures happen despite being lean, agile, scrummy – it never gets safe. Beautiful management concepts lose their magic if their practicing becomes a ritual disconnected from the vary basic question – how does this method decrease our consumption of resources and increase production and capture of value measured in incoming cash?
Like a Cinderella not allowed to dance among the “more worthy and beautiful” relatives, Efficiency often stays forgotten in the backyard behind the fancy management concept buzzwords.
The law of “corporate relaxation”
It seems plausible to assume that any organization, like a living organism – like an animal – has a natural inclination to eat more and do less. Organizations live their life trying to organize themselves in a way that allows consuming as much resources as possible while giving in return as little value as possible. They save internal corporate energy. Somehow it seems to be a kind of law – a law of corporate relaxation, laziness, complacency or “low flame money burning”.
Overcoming this fundamental law is the core management challenge in the pursuit of efficiency. Organizations, as animals, have a different view of what is “efficiency”, contrary to the “official” managers’ view. For an organization as a self-preserving organism, being efficient means consuming more resources and trying to minimize effort. They achieve it by hiding resource consumption and value creation in the “jungles of business process complexity” where externals would struggle to follow and challenge them. Added to that, managers have their private interest to maximize their own consumption, and it may easily become aligned with the organization’s inclination to corporate relaxation.
Strangely, even fierce competition with those dangerous enemies around does not remove corporate relaxation. So strong is the natural drive to happily live the day while eating more and doing less.
The law of corporate relaxation can prevail over the law of the survival of the fittest in business, because in inefficient and distorted markets there are many ways to extend and prolong the enjoyable “survival of the relaxed”.
The bright future: will AI, robots & Co bring more efficiency to businesses?
In the years to come, challenges to efficiency will be even more acute under the impacts of the following factors:
- Continuing impact of globalization, which can accelerate destruction of relaxing corporate organisms by remote foreign competition, shifts work and revenue to other parts of the world, making life more unpleasant faster for the developed countries’ industries.
- Digitalization, and in particular artificial intelligence and robotization, will have tsunami effect on corporate world by completely changing the cost side composition and the shape of the “jungle of business process complexity”. It will become more difficult to maintain previously elaborated balances of resource consumption and value creation, so organizations will try to grow new, adjusted jungles. There will be more robots, more AI-powered processes, and much fewer employees happily eating the hopefully sustained (or in some cases even increased) margins. Relaxation will still prevail.
- Ecological, Social and Governance (ESG) agenda that is being actively promoted in the corporate world will bring new challenges in terms of efficiency. Business owners and shareholders will have to develop additional sharpness of insight to prevent ESG from becoming a misused enhancement of “jungles of business process complexity” where their organizations find new tricks to eat more resources and produce less value (in particular, shareholder value).
- Decentralization, blockchain and DAO (decentralized autonomous organization) are yet to unleash their potentials, but if they do, we will see many organizations without human managers. Will DAOs follow the law of corporate relaxation, programmed into them by the human origin thought?
- Pressures on businesses will mount from the side of governments – taxation, regulation, force-majeure of various higher reasons from sanitary over social unrest to war economy. These factors will increasingly challenge the efficiency of business, as the society and bureaucracy increasingly see companies as the milking cows for trying to maintain the standards of living and to finance necessary infrastructure investments.
But no matter what challenges emerge externally, all in all, business organizations will try to persist in their corporate relaxation. It might be, on the one hand, more and more difficult for them, as disruptive waves hit stronger and stronger. But on the other hand, organizations are cunning beasts, they will learn and adapt and find ways to turn every disruption into just a new way of growing “jungles of complexity” to continue enjoyable floating on any given base of resource consumption.
How can we counter “corporate relaxation” in business organizations?
Business owners and diligent managers who will want to counter the “corporate relaxation” will need tools to impose their – correct and healthy! - view of efficiency, forcing organizations to operate spending less to produce more value.
The big question out of the above considerations –
what management approaches can help to counter “corporate relaxation” in the today’s rapidly changing environment,
to reduce complacency of organizations and to trim them for real efficiency improvement?
Only by (re)establishing Efficiency on the throne among all business concepts companies can ride the waves of innovation, succeed in strategic transformation initiatives, achieve sustainable progress towards noble ecological and social responsibility goals and operate healthily in short-term and mid-term perspective.
Exploring ways and answers to this big question of efficiency will be the topic of my next publications in the nearest time. Share your thoughts with me, your experiences, and ideas, I will be glad to discuss.
*This is a [zero-AI-text]*
Author: Grigory Miloradov. Grigory is Senior Consultant, Partner at DEXENTRI Consulting www.linkedin.com/in/grigorymiloradov