Corporate Perestroika

JOHN AKERS, IBM's chief executive officer, has been sounding like another embattled boss - Mikhail Gorbachev. Mr. Akers's demands on IBM's 370,000 employees for better output echo the desperate tone of Gorbachev as the two leaders struggle to save their collapsing empires from a precipitous drop in productivity, while their workers resist new solutions.An ironic similarity exists between the collapse of communism and the decline of large American corporations like General Motors and IBM. Both communist governments and capitalist corporations are failing because they rely on centrally planned, authoritarian, top-down structures that are too cumbersome to manage today's high-tech, global economy. Just as present and former communist countries can solve this problem only by adopting free markets, so, too, leading-edge corporations are moving to market systems - "internal markets" that bring the principles of free enterprise inside large organizations. The trend marks a corporate perestroika for America. This new perspective is badly needed to transform American business from the traditional bureaucratic hierarchy to a new model of organization in which power, initiative, and control originate among ordinary people at the bottom of the corporation. At first thought, the idea of internal markets usually seems fraught with conflict, duplication of effort, and other forms of chaos. But this different logic is exactly what gives the internal market perspective such powerful advantages. It is part of the "paradigm shift" that James Pinkerton, a presidential adviser on domestic policy, has been proposing, and which creative business leaders have been developing long before the notion entered the White House. Economists and organization theorists like Jay Forrester at the Massachusetts Institute of Technology, Warren Bennis at the University of Southern California, and Ray Miles at the University of California, Berkeley, have proposed similar concepts for decades. During the 1980s trends toward flat organizations, decen- tralization, and entrepreneurship began to restructure large corporations. Roughly 1 million middle-management jobs were automated during this period. Now these trends are the basis for a bro ader paradigm that carries the basic idea to its logical conclusion - self-organizing, internal-market economies. When James Rinehart was CEO of Clark Equipment, he transformed the company into a market system almost overnight, letting the new demand for accountability eliminate 400 corporate bureaucrats who were burdening operations with unneces- sary rules - much as apparatchiks dominate the Soviet economy. Joe Gamble jump-started a lumbering Blue Cross/Blue Shield by forming independent subsidiaries that can do business with one another and with outside companies - like the private ventures springing up in the USSR. Esso Canada has even converted the corporate research unit into an autonomous profit-center that sells its services to Esso line units. These units are free to shop around elsewhere, thus breaking the monopoly that R&D support groups often enjoy. The experience of MCI shows how the key to business success today lies in creating a dynamic organizational culture that stresses individual initiative, pockets of responsibility, and other internal-market features. Such examples illustrate the evolution of this dramatically different viewpoint. Nobody claims this is a panacea. Internal markets are messy because they incur the same uncertainty, risk, and other drawbacks of any market system. And leadership is always needed to unify disparate units into a purposeful whole. But the idea seems unavoidable if we hope to master complexity, faster innovation, and permit entrepreneurial freedom - the new imperatives of a global economy. This is how American corporations can compete today. We can't imitate the dedicated conformity of Japanese management, but we can tap the rich lode of individual talent now languishing beneath the bureaucratic layers of our big institutions. The key is to create a different type of organizational model - a market model - that converts the individualism of American culture into a source of creative energy. Imagine a different GM, IBM, or federal government built on these concepts. Rather than rely on the decisions of a chief executive who must then struggle like John Akers to get people to do anything, these large organizations should become market economies in their own right, allowing creative people to explore new ideas and prosper through their accomplishments. That's a vision of America in keeping with our talents and principles.