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Better Management, not Better Organization Charts

April 12, 2006
Related Topics: Corporate Culture, Change Management, Featured Article
Although billionaire investor Carl Icahn couldn’t get other big investors to go along with his scheme to break up Time Warner, most investors agree the conglomerate’s performance in recent years has been less than stellar.

   Although Sens. Joe Lieberman and Trent Lott may not succeed in their effort to break up the Department of Homeland Security and make the Federal Emergency Management Agency an independent agency, almost everyone agrees the department’s, and FEMA’s, performance during Hurricane Katrina was less than stellar.

   Putting organizations together to increase efficiencies and so-called "synergies," and then pulling them apart again when the efficiencies and synergies don’t materialize, is one of America’s oldest and most venerable management traditions. Both maneuvers create excitement and often make a lot of money for consultants or, in the case of the private sector, investment bankers and lawyers. But they’re usually beside the point.

   When Time Warner and AOL came together in January of 2000, the merger was hailed as stunning and brilliant--the largest deal in history, combining the world’s top Internet service provider with the world’s top media company. When the Department of Homeland Security was created in January of 2003, the consolidation was hailed as historic--the largest government reorganization in 50 years, combining 22 federal agencies into one single mammoth Cabinet agency with 170,000 employees.

   The truth is, organizations usually stay the same whether they’re merged into a bigger one or not. Coordination doesn’t happen just because they’re put together on the same organizational chart. It can take many years--even decades--for organizational cultures to change, for all the systems (recruitment, pay, computer programs) to harmonize, for top executives to sort out all the issues of status and power, for old organizational missions to adapt to being part of larger or different missions. In the meantime, lots can go wrong.

   What happened to the synergies that were supposed to result from the merger of Time Warner and AOL? AOL and Time Warner are still different cultures. What happened to all the efficiencies that were supposed to result from creating the Department of Homeland Security? FEMA and the Secret Service and many of the other agencies shoehorned into Homeland Security are still distinct organizations.

   Former FEMA chief Michael Brown told Congress recently the Department of Homeland Security was so badly managed that when the levees broke in New Orleans, Brown didn’t even bother to phone Michael Chertoff, the secretary of Homeland Security. He phoned the White House instead.

   The question isn’t whether an agency in charge of responding to natural disasters should be combined with agencies responding to terrorism. Or whether a media company should be merged with an Internet company. It doesn’t much matter whether the parts are together or not. The real question is how well the parts are managed.

   FEMA failed New Orleans because it was poorly managed. Homeland Security is failing because it’s poorly managed, and the White House doesn’t win any management prizes, either. Time Warner and AOL need to pay more attention to how their various parts are managed.

   Rearranging boxes on an organization chart is too often a distraction from the hard work of making each of the boxes work better.

Robert Reich, former secretary of labor in the Clinton administration, is professor of public policy at the University of California, Berkeley. This commentary originally appeared on the American Public Media radio program Marketplace.

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