Contrary to popular belief, the communist model is not yet dead. It is actually
deeply embedded in the much-admired Western corporate model, although it
is coming under increasing attack.
Corporate communism? Unthinkable? Well, not really. Most corporations and
government agencies actually follow the communist central-planning model
more than the competitive-enterprise model of true capitalism. Free-market
competition usually stops at the corporate gates. Inside, a central authority
typically allocates resources and rewards, not market forces or competitive
efficiency.
If the free-enterprise model were fully operational inside the corporation,
then the various internal service functions like personnel departments,
purchasing, legal services, information technology, security and all the
others would operate on a self-paying basis. They would have to compete
with one another and, ultimately, with the outside world for their livelihood.
Their line-management customers, not their executive patrons, would be the
ones who decided the terms on which they would do business.
Instead, most internal service departments get their operating budgets by
some version of guesswork and favoritism. Very few can identify a causal
relationship linking their activities, costs and benefits to the organization.
This is why many training departments, for example, are chronically underfunded
and underutilized.
I predict that this communist system will become one of the casualties of
the fundamental restructuring that is going on in Western business organizations.
It is happening already and it will intensify.
The concept of the internal service enterprise, or the self-funding service
unit, gains appeal as large organizations struggle to redeploy knowledge
and technology for greater competitive advantage. Recently, The Conference
Board hosted a conference devoted to "shared corporate services."
Most of the discussions, unfortunately, focused only on centralizing the
support services, not on subjecting them to an internal market discipline.
Many of our client organizations are bringing the enterprise model inside
their business by requiring internal service providers to direct-price their
services to their internal customers. Many of them allow line managers to
seek services from outside providers when they believe they can get a better
deal for their money.
Two years ago, the Australian federal government reorganized a 12,000-person
services department into a commercially funded enterprise structure. Not
only do most of its units have to compete with outside suppliers for government
business, but they also are expected to earn a net profit. They can also
sell their services to customers outside the government. The Australian
Attorney General's department takes the same approach. This internal enterprise,
or "interprise" scheme, promises certain obvious advantages. We
have seen firsthand the dramatic change in attitudes among managers and
employees when they realize their livelihood is tied to their ability to
make themselves useful to the organization. Bureaucratic fiefdoms quickly
turn into miniature businesses.
The interprise approach forces everyone involved to think more clearly about
the value premise behind each type of internal service. What is the ultimate
value of the service to the line manager, and does the service create that
value more effectively than other options? Provider and customer alike focus
more on the quality of the service, and the provider comes under constant
pressure for improvement.
The competitive pressure, or the threat of it, forces service providers
to develop a free-market mentality in place of the old communist sense of
entitlement. We have trained many managers to use customer research methods
such as focus groups, surveys and customer-value modeling to develop performance
models they can use to manage their enterprises. Customer value-based business
planning is a logical next step in deciding how to manage and deploy resources.
As we move more fully into the post-industrial era, the traditional boundary
lines around the corporation continue to dissolve. Enterprise service deployment
is similar to outsourcing in that both are flexible alternatives for restructuring
and redeploying resources for best effect.
This last stage in the demise of the corporate communist model may be frightening
and unnerving to some, but from all indications, it will be an important
option as executives face the challenges of the new business environment.
About the author
Karl Albrecht is chairman of Karl Albrecht International, which implements
his concepts through a consulting firm, a seminar firm and a publishing
company. Albrecht consults and lectures worldwide.
© 1995 Karl Albrecht. For reprint permission, telephone (619) 622-4884
or fax (619) 622-4885.