Who Really Matters: The Core Group Theory of Power, Privilege, and Success

Part 1

The

Reality of

Organizations

C H A P T E R   1

The Customer

Comes Eighth

Back in the early 1980s, when writing mission statements was just an infant management fad, a division of the Exxon Oil Company held an employee conference to announce their new core values. Enshrined as number one on the list was this simple sentence: The customer comes first.

That night, the division executives met for dinner, and after a few drinks, a brash young rising star named Monty proposed a toast. I just want you to know, he said, "that the customer does not come first. Then Monty named the president of the division. He comes first. He named the European president. He comes second. And the North American president. He comes third. The Far Eastern president comes fourth. And so on for the fifth, sixth, and seventh senior executives of that division, all of whom were in the room. The customer, concluded Monty, comes eighth."

Said the Exxon retiree who told me this story: There was an agonized silence for about ten seconds. I thought Monty would get fired on the spot. Then one of the top people smiled, and the place fell apart in hysterical laughter. It was the first truth spoken all day.

The customer comes first is one of the three great lies of the modern corporation. The other two are: We make our decisions on behalf of our shareholders and Employees are our most important asset. Government agencies have their own equivalent lies: We are here to serve the public interest. Nonprofits, associations, and labor unions have theirs: Above all else, we represent the needs of our members.

Of course, if organizations were really set up on behalf of these interests, then they would do a better job, by and large, in serving them. When organizations fail, people tend to assume that their leaders are inept, overwhelmed, or corrupt. But suppose instead that all organizations are doing precisely what they’re supposed to be doing. What, then, is their objective? Judging not from their rhetoric, but from their actual behavior and accomplishments, what purpose are most organizations seeking to fulfill?

This book is an effort to answer that question. It starts with the premise that, in every company, agency, institution, and enterprise, there is some Core Group of key people—the people who really matter. Every organization is continually acting to fulfill the perceived needs and priorities of its Core Group. It’s sometimes hard to see this, because the nature and makeup of that Core Group varies from workplace to workplace, and so do the mission statements and other espoused purposes that get voiced to the rest of the world. But everything that the organization might do—meeting customer needs, creating wealth, delivering products or services, fulfilling promises, developing the talents of employees, fostering innovation, establishing a secure workplace, making a better world, and, oh yes, returning investment to shareholders—comes second. Or maybe eighth. What comes first, in every organization, is keeping the Core Group satisfied.

Core Group dynamics explain why some corporations spend years scrambling frugally for profit, and then squander it on ill-advised mergers, disproportionate pay for their senior executives, or hidden and improper deals. Core Group dynamics also explain why some government agencies block efforts to reform themselves, even when their reputation and potential survival depends on reform. And why some nonprofit organizations persevere against enormous odds to fulfill their idealistic missions, while complacently dismissing potential partnerships that might genuinely help them. Indeed, every organization seems to have its own forms of Core Group–related folly or corruption.

It’s because of Core Group dynamics that a depressing number of business corporations have evolved into organizations with one primary purpose: To extract wealth from all constituents (not just the shareholders, but the employees, customers, and neighbors as well) and give it essentially to the children and grandchildren of some of its senior executives. And yet Core Groups are not inherently bad or dysfunctional. Indeed, they represent probably the best hope we have for ennobling humanity—at least in a world like ours, in which organizations have the lion’s share of power, capital, and influence. An organization’s Core Group is the source of its energy, drive, and direction. Without an energetic and effective Core Group, all efforts to spark creativity and enthusiasm sputter out.

If you work in an organization, then all this may be second nature to you, so obvious and taken for granted that it barely even registers as important. But when you take a step back, the significance for all of us, even those who don’t work in organizations, is unavoidable. We live in a civilization composed of organizations. Indeed, in industrialized countries, the organizational birthrate exceeds the human birthrate. Even though organizations are continually merging, swallowing each other up, or dwindling into inactivity, there are more organizations each year than there were the year before.

People have always used organizations to amplify human power. Individuals didn’t build pyramids or cathedrals; tribal and feudal organizations did. But since the industrial revolution, and in the past 150 years in particular, organizations have become powerful in unprecedented ways. They are faster than they have ever been, operating with the perpetual acceleration of computers and wireless communication. They are interconnected through vast global webs of trade and distribution, webs that (among other things) make most human beings virtually dependent on organizations for food, shelter, and transportation. They are pervasive; there are almost no sustainable ways of making a living without organizations, and organizations dominate the political system, instead of paying fealty to it.

It’s as if some giant invisible species suddenly invaded the Earth around 1850, reshaping civilization in its image, obviously here to stay—and yet almost nobody seems to see it clearly. Nobody really knows how it works, or even what it does. Some people go to business school to master these new creatures, and end up being mastered by them.

The left protests against globalization, capitalism, big corporations, and Wall Street; the right excoriates big government, corrupt labor, or liberal media. But when you strip away the rhetoric, both sides seem to be driven by the same basic dynamic. They feel excluded from, rejected by, opposed to, and trampled on by the Core Groups of organizations associated with the other side.

If we are going to act effectively in a society of organizations, we need a theory that helps us see organizations clearly, as they are. We need to observe this new species in its natural habitat, to track its behavior, and to study its relationships with predators and prey. Only then can we ask: Why does it operate this way? And what, if anything, could be different? Only then can we learn to use organizations, instead of feeling like we are being used by them. Only then can we move organizations away from being simply the property and tools of the few, and develop their potential for the rest of us. Only then can we form real relationships with the members of this new species, as employees, neighbors, cocreators, participants, leaders, and even lovers of organizations.

In short, if we want to not just live within society, but establish ourselves as leaders and creators, then we have to understand the dynamics of the Core Group.

The root of the word core is the Latin cor, or heart, and the Core Group is the genuine heart of an organization. Management writer Arie de Geus, in his book The Living Company, calls the Core Group the we of the organization—the central proprietors of its interests. They usually include most, but not all, of the people at the top of the organization chart. Plus others. The Core Group members are the center of the organization’s informal networks, and symbolic representatives of the organization’s direction. Maybe they got into the Core Group because of their position, their rank, or their ability to hire and fire others; maybe because they control a key bottleneck, or belong to a particular influential subculture. Maybe their personal charisma or integrity got them in. In the end, it probably doesn’t matter that much how they got in. What matters is that they matter.

The Core Group won’t be named in any formal organization chart, contract, or constitution. It exists in people’s hearts and minds. Its power is derived not from authority, but from legitimacy. Its influence is not always conscious, or even visibly apparent, but it is always present in the implementation of actual decisions. It is the fundamental aspect of organizational culture that makes visitors to a workplace scratch their heads sometimes: "What are those people thinking?"

It is impossible to imagine an organization without a Core Group. And if you could imagine one, why would you want to create it? Start-ups need entrepreneurial Core Groups who put themselves at risk for the company’s future. (People start organizations in the first place precisely because they want to be in a Core Group, if only to see what it would be like. I should know; I cofounded a consulting firm largely for that reason.) Large, well-run companies need a Core Group of senior leaders who can permanently merge their identities with that of the organization. Government agencies and nonprofits need Core Groups that can take a visible stand on behalf of the organization’s principles. Even the most hierarchically strict organizations, like military units, depend on their Core Groups to maintain, among other things, the level of mutual respect that soldiers need to operate above and beyond the limits of their orders.

As we’ll see throughout this book, there is always an implicit, somewhat unconscious bargain of mutual commitment in organizations: The people of the organization agree to make decisions on behalf of the Core Group, while the Core Group members agree to dedicate themselves as leaders to the organization’s ultimate best interests. When it works, the result of this arrangement is greatness. Indeed, behind every great achievement, there is almost certainly a great organization (even when it seems like the achievement is that of a single individual). And behind every great organization there is certainly a great Core Group.

Great or miserable or in-between, the Core Group sets the organization’s direction. The organization goes wherever its people perceive that the Core Group needs and wants to go. The organization becomes whatever its people perceive that the Core Group needs and wants it to become. If a goal is perceived as irrelevant to the Core Group, then it will not be reached, no matter how worthy it is, how ardently it is advocated, or even how stringently it is mandated by law or regulation. (At most, the organization will pretend to pursue it, grudgingly complying with the rules.) If a goal is perceived as close to the heart of the Core Group, then the organization will get there, come hell or high water. Moreover, just as every coherent human group comes to embody a set of values, ideas, and attitudes, the Core Group nearly always becomes an unconscious microcosm of the whole. If Core Group members think or act in a particular manner, or with particular attitudes, those percolate throughout the hierarchy. If Core Group members are cold to each other and to employees, then the whole enterprise becomes like a frozen wasteland. If the Core Group somehow warms up, then a little Santa’s Workshop begins to develop amidst the tundra.

Thus, if you want to know what an organization stands for, start by exploring the characteristics and principles of its Core Group. If you want to invest in a company, look not just at its business prospects and trading history, but at the quality and reliability of its Core Group. If you want to lead an organization to great new things, start by fostering the kind of environment in which a great new Core Group can emerge. If you need to change or influence an organization, you can’t do it unless you understand which aspects of the Core Group are open to change, in what ways, and by whom. Finally, if you remain unaware of the nature of an organization’s particular Core Group, then that organization will be opaque, ungovernable, and dangerous to you—even if you are ostensibly the person in charge. You may go through your career, for instance, thinking that the customer comes first, acting as if that premise were true, and wondering why you never seem to get the rewards and recognition you think you deserve.

The Core Group theory emerged from watching organizations at play. Trained as a journalist, in 1979, I began covering Silicon Valley and the emerging precursors to the Internet for the counterculture publication that Stewart Brand had founded, the Whole Earth Catalog. Every once in a while, a corporation invited some of us Whole Earthers to advise them on the prospects for these strange new technologies. At one such meeting in 1982, some senior executives of the Atari Corporation asked for advice on the potential value of their new product, a home computer. I remember walking out still puzzled by two questions: Why would this buttoned-down organization (which Atari had become after its purchase by Time-Warner) want advice from Whole-Earth-Catalog-style hippies? And why wouldn’t these leading-edge technology executives already know their own business? (Now, of course, I know the answer to both questions; this company, which had ejected its technology-savvy founder and been acquired by Time-Warner, had a new Core Group in place that was in over its head.)

By 1985, when Atari had already entered its inevitable decline, I had grown bored with writing about technology. Behind every technology story, after all, was a much more interesting business story, and behind every business story was a much more interesting story about management culture. I drifted to writing about advertising and then management, covering the quality movement and other business fashions of the late 1980s. This in turn led to a consulting job helping an MIT lecturer named Peter Senge develop a book about systems thinking in organizations—a book which ultimately became the 1990 best-seller The Fifth Discipline. Around the same time, I spent six years researching and writing my own book, The Age of Heretics, about the social movement to change large corporations from within.

As part of these and other endeavors—cocreating several Fifth Discipline follow-up Fieldbooks, writing regularly on Culture and Change for the business magazine strategy+business, working part-time as a management consultant, helping develop a series of organizational oral histories called learning histories at Massachusetts Institute of Technology, and conducting a course on the future at New York University’s Interactive Telecommunications Program—I have interviewed more than a thousand people in depth, from a wide variety of organizations, about their aspirations, experiences, and frustrations in the workplace. The Core Group theory sums up the common threads I’ve perceived in all of those conversations. It also reflects a series of in-depth conversations conducted during the past five years with leading organizational thinkers and thoughtful organizational participants about the Core Group concept and its implications.

In the rest of the chapters of this book, I hope to articulate who really matters in a way that transcends both cynicism and naiveté, charting the boundaries and influence of the Core Group and discovering the most effective ways to manage it, live with it, and influence organizations for the better.

Several chapters will focus on the topics that come to mind when people think of hierarchy and authority: Power (especially in Chapter 9, Power and Legitimacy), Privilege (which is discriminatory by nature because it’s a kind of love, with all the hope and abuse that this implies; see Chapter 4, A Very Special Kind of Love), and organizational or business Success (which is intimately linked with the distinctive knowledge of the Core Group, as discussed in Chapter 7, A Core Group Way of Knowledge).

I’ll feel that this book is successful if it helps some readers through the thickets of Core Group–dominated office politics and if it inspires a few CEOs or senior managers to rethink their organizational practices. If the role of Core Groups is as prevalent and significant as I think it is, then perhaps this book can help spark new forms of dialogue about the nature of corporate governance and the role of Core Groups and organizations in society at large.

Most of all, I’d love to see this book help bring some great Core Groups into being. There’s a great deal at stake: the profitability and health of the organizations around us, and the life, liberty, and pursuit of happiness of the rest of us who must live with them.

C H A P T E R   2

How Organizations

Think

For more than a year, the new consulting firm had been planning its divestiture, and it was finally time to cut loose. Formerly a division of a much larger high-tech corporation, it would now be free, for example, to pursue contracts with its former competitors. The board was still working out the details of separation on a December evening in the mid-1990s, when the top 350 people gathered together in a Boston hotel ballroom to launch their bold adventure. Marianne, the CEO, made a forty-minute valedictory speech in which she thanked all the people who had helped engineer the shift; then Brad, a gifted Texas storyteller and human resources executive, recounted the tribulations that had occurred along the way.

In the back of the room, with a half-smile on his face, stood Lothar, the director of research. He was young, only in his mid-30s, and he had been one of the few skeptics about the divestiture. But once its inevitability became clear, he had signed on wholeheartedly. To be sure, he had ducked out of the organizing work of the new enterprise, cheerfully explaining that there were plenty of other people who could handle those tasks. They need me to focus on research in the meantime, so that as soon as we’re set up, we can show clients that we know what we’re doing. He felt confident about his place in the new company; after all, he had been at the center of the old division. Whenever there had been a major change, one thought on everyone’s mind had been: What will Lothar think of this? The company continually acted as if it had his best interests at heart and was continually watching out for him.

Now, however, as Lothar listened to the valedictories, his smile faded and his back stiffened. For neither Marianne nor Brad, both of whom considered him a friend, mentioned his name in any part of their recitals. When they were finished, amidst the applause and the serving of dessert, Lothar silently slipped out a side door and went home.

Lothar is a close friend of mine as well, and I happened to be at that dinner. With another colleague, I went up to Marianne and Brad and confronted them: What about Lothar? Their faces fell. They hadn’t even realized the omission. They had completely forgotten about him.

During the next few months, most of the influential people in the organization continued to treat Lothar with friendship and respect. They met him for lunch; they went on ski trips together; they asked his advice. But his status had changed. He did not get the job he had been promised, managing research for the new organization. Worse still, he was told about this only at the last possible moment, which meant that (in order to keep his benefits), he had to scramble back to the old parent company to take any job they would give him.

Once, it would have been a priority for the consulting firm to make sure he had whatever he needed; now, he discovered he could not rely on anyone whom he had trusted. It was almost as if the organization itself was a sentient creature, a creature with a mind of its own. And this creature was rejecting him.

Seeing Lothar’s story unfold was one of the experiences that propelled me to write this book, but I have also conducted dozens of interviews over the years with other people enmeshed in similarly inexplicable dynamics. Some have been cast adrift. Others, including the developers of many corporate skunk works, see their brilliant ideas and strategies ignored. Some are senior executives who put forth a bold new move, expecting it to cascade down the hierarchy as usual, but discover that while the organization is loyal to them, it has no interest in the changes they have in mind.

Is the organization actually sentient? Is it thinking for itself? It doesn’t matter. The organization is, in effect, making a collective choice, and all of us who work there, even if we disagree, are as independent as neurons in a larger brain.

To make sense of this, we need to understand how organizations act and think. The basic building block of organizational action isn’t the job, the team, the project, the process, the share, or even the dollar: It’s the decision. Organizations are essentially the sum of all the decisions made in them over time. Some decisions, made at the top of the hierarchy, are visible and obviously influential. They have an immense pull on the direction of the whole system. The decision to close a plant or start a new product line affects many other decisions at many levels. But even a decision to change an order of paper clips from Staples to a local stationer (or vice versa) may help chart the course of the organization’s future in some small but significant way. Put all these decisions together and you end up with a coordinated movement, evolving into its own emergent form.

Writer Kevin Kelly calls this phenomenon a hive mind, and he associates it with a form of computer game called Cinematrix. Invented by Loren Carpenter at Lucasfilm in the mid-1980s, it gives an entire audience shared control of a cursor on the screen. As it happens, I was a member of one of the early audiences for this technology in 1984. We played a large-screen version of a computer game called BallBlazer, a kind of virtual one-on-one soccer. The object was to use your electronic paddle to propel the ball (a dot of light) past the end zone of the other team. Half the audience controlled one electronic paddle; the other half controlled the other paddle. Everybody had a joystick at their seat. The paddles moved according to the aggregate pull of everyone connected to them. If you moved your joystick, you would see your team’s paddle echo your motion—but only if enough people moved it in the same direction along with you. If people moved the paddle in different directions, their efforts canceled each other out.

Before long, a kind of two-way feedback manifested itself. The crowd didn’t just move the paddle; the paddle also moved the crowd. Each of us, as individuals, found ourselves becoming attuned to the paddle’s direction, and we acted accordingly. The easiest and most natural thing to do was to move our own joysticks along with the paddle; to ape it with our own gesture and feel the instinctive pleasure that comes from operating in tune with the crowd. If we felt contrary, we could move the joystick in a different direction and enjoy the moral righteousness of seeing our contributions virtually ignored. And those of us who were truly gifted at the game could get out on the cutting edge of the paddle’s movement, a little bit ahead of the crowd. We could be the first to see the direction the ball was going and the first to turn the paddle to meet it. That gave us the satisfaction of recognizing the hive mind taking shape behind our own mind and following.

That’s what organizational decision-making is like.

People in organizations make hundreds of thousands of decisions each day, for a variety of motives, usually without knowing exactly how the results will turn out. Sometimes we make decisions for intrinsic reasons—because we want something. Sometimes we make the decisions we think we are supposed to make. Sometimes we are guided