Category Archives: organizations

Designing a Failure: AOL/Time Warner’s 10th Anniversary

Remember “synergy?” AOL Time Warner was designed to save money and make money. But it was not designed to be a true organization.

New York Times: Gerald Levin and Stephen Case in happier times

10 years ago, Time Warner aimed to blast into the 21st century by “synergizing” with America Online. The New York Times has a fabulous retrospective of the merger. In their teaser video, Robert Puttnam, former co-COO of the merged entity tells us:

The thing that makes a merger work is culture. These were two mergers of equals And now you’re trying to put two together and if the cultures aren’t somewhat aligned, you’re going to have problems. And we had big problems.

The article traces in historical detail where the merger’s economic logic went awry, but more importantly where it’s cultural integration went awry. The story provides first-person accounts of key milestones in the negotiations. Key are the recollections of key executives in Time Warner, who had been kept out of the loop until the deal was finalized. They were aghast. Don Logan, the head of Time Inc., said simply “The dumbest idea I had ever heard in my life.”

The entire article is a testament to “the power of the people,” in the sense that senior leaders can make all the change they want, but if they do not enrol the organization, change will never happen . Culture is indeed the wild card in mergers. 45% of executives say their mergers are failures. 45%! That failure rate is astoundingly high, considering that improving success can be as simple as adding sociological inquiry to the pre and post-merger cultures.

I recently completed a sociological study of a merger for the express purposes of designing a new, cohesive, innovative organization. The key lesson I learned in that process is that truth telling about the organization’s true values is difficult but necessary. Cultures try to reproduce themselves, even if it means lying about their true values. Maybe an organization doesn’t actually value diversity. That truth needs to be told.

It was the conflict in values that brought down the merger. As one Time Warner executive told the NY Times:

I knew and I loved Time Warner. I saw it as a company with a vision and a set of values, and I saw AOL in a much less favorable light, much more opportunistic, made up of folks who were really trying to merely exploit the market they were in as opposed to developing something that was enduring, and I was very leery about this deal.

In the case of AOL Time Warner, AOL’s truth was that it set out to make money, not to actually “revolutionize” the media landscape. Telling this truth would have made the AOL culture much more authentic to the Time Warner culture, and may have actually saved the merger.

When Can Innovation and Hierarchy Co-Exist?

Designing an innovative organization doesn’t necessarily mean a “flat” organization. We tend to believe that innovation and hierarchy are antithetical, but in truth, innovation often thrives in hierarchical organizations. Here are the key ingredients to an innovative organization, whether hierarchical or not.

The Internet: A Democratic Utopia We tend to believe that hierarchy kills innovation and creativity. This is particularly true for organizations that design and build technology. The cultural heritage of the Internet is one that implicitly values a utopian vision of anti-authority.

The initial plans for ARPANET explicitly included a commitment to the open architecture concept, with “no global controls at the operations level” (Leiner, 1998). In other words, those that designed the Internet designed it explicitly to have no central authority.

Stickin' it to The Man

This decentralized structure connoted a sense of democratic administration. The hacker ethic has reinforced this implicit belief in democracy. In his 1984 book Hackers, Steven Levy (Levy, 1984) traced how the “laid back” culture of universities, such as Stanford’s Artificial Intelligence lab, spread to other technology start-ups. Technological innovation came to be culturally synonymous with an explicit rejection of hierarchy.

The Innovation World Is Not Flat But this is cultural myth of “democratic” innovation is merely a representation of innovation, and not a necessary ingredient for it. Take, for example, Apple Inc. Apple’s legendary innovative reputation is not contingent on democracy – far from it. Indeed, it appears that Steve Jobs and his senior leadership team have a iron-grip of control over innovation projects. This hierarchical order is ironically represented as democratic, a fact that The Onion happily lampoons in “Apple Employee Fired For Thinking Different.”

The reality is that large organizations in today’s global economy require some form of hierarchical control. This is a requirement of both capitalism and the sheer scope of modern corporate life. Alfred Chandler (1977) showed how the growth of the railroads required detailed project management, making 20th century management both rational and hierarchical. 21st century management must grapple with the same issues of synchronizing the schedules of employees across multiple time zones, and grappling with constant changes in the competitive landscape and the economy. “Democratic” innovation is messy, time consuming, and difficult to manage. For this reason, many companies like Apple have created controlled environments in which innovation can occur.

Innovation Within A Hierarchy If your organization is hierarchical (and in most cases, that will be true), there are features of innovation that can be embedded within this hierarchical system.

Creating Flow Through Non-Time Measurement:

Clocking in at Creativity Inc.

Innovative teams are those that are insulated from time-based metrics of productivity. Working for one hour on a rote task is not equal to working for one hour on a groundbreaking project, yet oftentimes organizations treat these hours as exactly the same.

My research on time in interactive agencies found that time-based metrics frequently interrupt “flow,” making it difficult for designers to work creatively. Organizations that want to optimize creativity must abandon time-based metrics of performance.

Stop Lying About Democracy: rare is it today that an individual truly doubts the need for some form of hierarchy in a profit-seeking company. But pretending that hierarchy doesn’t exist is corrosive. Organizations that continually fail to live up to their democratic ideal must continually tell lies to mask this gap. Over time, this gap renders real democracy meaningless (after all, the Bullshitter cares nothing for the truth).

Ruthlessly Commit To Project Resources and Timelines: many people are familiar with the agile development notion of the “sprint.” A group of people are dedicated exclusively to a software project for a specific, discrete period of time. Their attention is devoted completely to this project and they are enormously productive as a result. Why do innovation project often fail? Simply because individuals are pulled in too many directions or senior leadership changes priorities, seemingly on a whim. If you mean to combat the negative aspects of hierarchy, then you must commit to a project and let nothing get in the way. Individuals must be dedicated. The project length must not be shrunk. And collectively, the organization must stake its reputation on this commitment.

Be Democratic When It Matters: creative people can take direction, even when it infringes on their work. But they must have a say in what infringements are negotiable. The biggest mistake managers can make is assuming that the bounds of hierarchy is understood equally by everyone; they are not. Accept that democratic rule can and should happen, even when it affects timelines. Be unfraid to collectively identify what is negotiable and what is not. Most people do not question the legitimacy of authority, but they do question the legitimacy of lack of debate. In the end, innovation can occur in hierarchical organizations. The democratic ideal provides an aspirational model but don’t be afraid to accept that it is an ideal, at times.

References

Chandler, A. D. (1977). The visible hand : the managerial revolution in American business. Cambridge, Mass.: Belknap Press.

Leiner, B. e. a. (1998, Februrary 20, 1998). A Brief History of the Internet.   Retrieved April 10, 2000, 2000, from http://www.isoc.org/internet/history/brief.html

Levy, S. (1984). Hackers: Heroes of the Computer Revolution. New York: Penguin Group.