Arnold Kling  

Management by Re-organization

The Economics of Coming Out of... The Elasticity of Applications...

James Pinkerton pushes an idea to make the Federal government more effective.

[Former Congressman Bob] Walker's idea, which makes it print debut here in TCSDaily, is this: Take the functions of the federal executive branch and turn them all into five "super departments." That is, take the existing unwieldy 15 Cabinet departments -- and umpty-ump independent agencies -- and collapse them into a user-friendly quintet:

* National Security – including Defense, State, the CIA
* Economy & Trade – including Treasury, Commerce, Special Trade Representative
* Justice, Border & Homeland Security
* Energy, Environment, Science & Technology
* Human Resources & Transportation

I spent several years in middle management at Freddie Mac, the shareholder owned Government-sponsored enterprise that helps make the mortgage market. We were quite cynical about re-organizations. As one employee put it, "When they don't know what to do, they re-org." The only constructive use for re-organizations that I ever saw was to use them as cover to get rid of management deadwood.

A re-organization like the Walker plan would create all sorts of uncertainty about where people fit in relative to the hierarchy. Middle managers would spend years jockeying for position, causing effectiveness to suffer. I am convinced that is what happened to the departments that were consolidated into Homeland Security.

I don't think that Bob Walker would solve anything. What Washington needs is Chainsaw Al.

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CATEGORIES: Business Economics

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The author at Knowledge Problem in a related article titled Posner, Kling Cynical About Government Reorganizations writes:
    Michael Giberson At EconLog, Arnold Kling challenges James Pinkerton’s push for reorganization of the federal government into five super-departments. Kling cites a former colleague of his as saying, “When they don't know what to do, they re-org.” Kling... [Tracked on March 31, 2006 9:47 AM]
COMMENTS (12 to date)
KipEsquire writes:

Didn't we just go through this sort of thing with DHS? Are we pleased with the results? See also, "drug czar."

Vincent Clement writes:

I work for a municipality that was subject to a re-org 4-years ago. It was similar to what was suggested by Mr. Pinkerton in that numerous departments were merged into five super-departments. It was top-down approach where changes were made at the managerial level, with little to no changes to front-line staff.

One purpose of that reorg was to reduce the number of managers and save money. Oddly enough, the reorg created four levels of management when there used to be three. About half way through the re-org, the process was halted and the re-org was subject to re-org. I think we have more managers now then before the first re-org, and because of pay-outs, no money has been saved.

T.R. Elliott writes:

Interesting. These are the first quotes that come up when I clicked on the "chainsaw al" reference in this post:

He anointed himself America's best CEO. But Al Dunlap drove Sunbeam into the ground

and this:

''The day-to-day atmosphere at the company has really deteriorated,'' he told the board. ''Al is no longer in touch with the business and what's going on at the company....Al isn't talking to people. He has cut himself off.''

Anyone can take a knife and start cutting off body parts. We need surgeons. Not mindless self-important butchers.

Chris writes:

Creating larger organizational units doesn't make anything more efficient, it just creates more bureaucratic overhead. His suggestion simply doesn't make any sense.

If you want to make government more effective put the decision making process closer to the front line.

Tom O'Neill writes:

The reorganization effort appears to be an attempt to introduce a higher level of accountability -- which is ultimately the root of the problem. Unfortunately, this and all other attempts to introduce management accountability are useless, because the foundational economic incentive for service and efficiency - P&L - is completely missing. Since these agencies derive their funding through taxation, there is no immediate fear of "customer" attrition, or diminishing owner profits, as a result of bad service or inefficiency.

Gee, could the inefficiency have something to do with the fact that "customers" have to pay whether or not they see ex-ante value in the transaction, and have no recourse if services are not rendered?

Robert Schwartz writes:

Deck Chairs. Titanic.

Bob Dobalina writes:

Dunlap. Not Dunlop.

T.R. Elliott writes:

Reorganization isn't the global answer. It could very well make sense in particular circumstances. Adaptive systems restructure themselves periodically, including both the private and public sector.

For those concerned about P&L issues, most people in any large organization--which includes the entire S&P 500--are not worried about P&L. They are worried about their next review. I believe we could achieve more as a society by improving the entire process of performance management of individuals and groups and organizations, whether it be the private or public sector.

It's easy to say privatization will improve performance. Anyone who has watched the private sector slosh between "big is good" to "small is good" back to "big is good" should note that the private sector has often reorganized from big to small and vice-versa because it's the latest thing-to-do.

JohnDewey writes:

"For those concerned about P&L issues, most people in any large organization--which includes the entire S&P 500--are not worried about P&L."

I agree that lower level employees are not as concerned about P&L issues as they should be. But many middle and upper management employees receive large bonuses based on profitability. The ones I've worked with at three different very large corporations were certainly conscious of how their decisions affected the P&L.

IMO, many corporate leaders have focused too much on short term P&L issues and not enough on long term customer service issues. Fred Smith at Fedex was a notable exception among the ones I've worked for.

T.R. Elliott writes:

JohnDewey: I pretty much agree with your observation. And here are a couple more observations.

1. A lot of hacking and chain sawing of corporations has been for the purpose of short term P&L issues, not long term objectives or customer service.

2. Getting employees to consider P&L issues is important. But I've never seen it to make much sense at the lower levels. I've seen exercises in which the company decides every proposed project should have a cost benefit analyis. So we put together the cost benefit analysis. And we all admit that we're making it up. Because there is so much uncertainty, we don't even know. My first ten years of experience at Bolt Beranek and Newman showed a company interested in P&L: it focused on government contracts. You can guarantee P&L if you do cost-plus work. That company barely survived reorganizations, buyouts, restructuring, spin-offs, etc., even though it was a great technology company. My second ten years were at QUALCOMM, which focused on strategy. It's now an S&P 500. My point: I've seen examples of P&L as a point of focus because the people involved aren't able to think strategically. Penny wise, pound foolish as they say.

What I would like to see: a greater public focus on performance, accountability, the development of excellent managers, etc. It may sound simplistic, but the best way to improve any organization is to put good people at the top and create an environment of accomplishment and excellence based upon some form of peer performance reviews. P&L is used for bonuses and the likes, but it's often arbitrary and short-sided.

Brad Hutchings writes:

I agree with Tom that the purpose seems to be to introduce more accountability. Funny coincidence is that I just finished reading _The Five Dysfunctions of a Team_ by Patrick Lencioni. It's a "leadership fable" centering on how a new CEO at a dotcom turns the executives into a cohesive team. Her last action in the story is to pare down the executive team by a couple people to keep it small and nimble.

Clearly, a President with however many cabinet officers he has isn't going to consider them all his core executive team. He has his chief of staff and then a few key cabinet members: Sec State, Sec Defense, Sec Treasury, and AG. Even for a "domestic President" like Clinton, it was hard to not see his Sec Labor and Sec HHS as more than side-show acts.

One advantage I see to Walker's plan is that it should get the 5 cabinet members and the President on the same page. So if the President wants to cut government, he'd have fewer people to get on board with the plan. Sacred cows (like Dept of Education) become subordinate and would have less traction. Same if he wants to dramatically expand, although the organic expansion we've had since FDR worked just fine.

Socialist writes:

Reorganizations are pointless because hierarchies are evil. Down with corporations and down with hierarchies!

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