The better result

This question never goes away. People wrestle with it. They win and lose fortunes according to how they handle it.

I came upon it many years ago. When I dealt with the head offices of two drug store chains. They were similar-sized companies. They owned roughly the same number of stores. Their stores competed with each other. Each company boasted it ran the better business. Each kept close tabs on the other.

Here is how they differed: One gave real power to its store managers. And to the supervisors who were responsible for clusters of stores and travelled to them every day. When situations arose, the managers decided how to handle them. When opportunities arose - they knew it was their call as to whether to take advantage of them. Head office set the policies. The managers and supervisors worked within the policies. But the policies allowed them a lot of leeway, in which to use their judgement.

Often the people in the field made decisions first. And informed head office second.

The other chain operated on an opposite philosophy. It was proud that head office controlled everything that happened at the stores.

It paid its managers and supervisors less. It allowed them to make precious few decisions. When I visited head office I often heard calls from stores asking permission for simple things. Head office people decided if a store should have its parking lot plowed a second time on a snowy day. They decided whether to move the toy display five feet nearer the... you get the idea. I wouldn’t be surprised if store managers had to ask head office if they could turn up thermostats.

I wondered which philosopy worked better. Well, the chain that micromanaged from head office grew at half the rate the other chain did. In fact, it eventually sold out to the chain that had vested its managers with more power.

Years later I saw the same phenomenon with companies that owned radio and tv stations. One prided itself on giving so much power to its station managers. Folks in the industry said its station managers could go so far as to buy and construct a new tower. And after the fact, send a memo to head office to inform. An exaggeration, but not by much. In fact, head office was home to a mere handful of executives.

Other chains had armies of execs at head office. Every station had to confer with the head office engineer. And the head office sales execs. And the head office programming execs. And the head office human resources people. In other words “You may be manager of the station. But we do the managing.”

The first company was Cap Cities. It grew so profitable it was able to buy out the much larger ABC. Its CEO, Tom Murphy, prided himself on hiring “the smartest people” and giving them the power. “We told them we would be highly decentralized and give them lots of responsibility.”

Murphy’s Cap Cities bought ABC for $3.5 billion. Ten years later he sold to Disney for nearly $20 billion.

These days some investment firms are doing the opposite of Cap Cities. The opposite of the more successful drug chain. They are taking responsibilities - and pay - away from their office managers. They transfer the power to armies of nit pickers and bean counters at head office. They require their office managers to consult on the tiniest of matters.

Something tells me they will not do as well as competitors who hire the smartest people and give them more responsibility at the branch level. This is where the action takes place. This is where the clients come, make money, complain, make demands, make smart and stupid moves. Smart people on the spot will make better decisions than bean counters a thousand miles away.

Countless business people chew over this question. Do we control all from head office? Or do we hire smart people, pay them well and give them responsibility in the field?

Governments must answer the same question. Do we try to run schools from Washington? From the state capital? Or do we allow local school boards to make more decisions? Do we micro-manage a war from the Pentagon? Or do we let our generals in the field make more decisions?

The question never goes away. My suspicions are that the decentralizers - more often - come up with the better answer. And the better results.

From Tom ... as in Morgan.

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