THE POLITICS OF CAREER DYNAMICS

People enter organizations, and some of them subsequently do better than others, in terms of promotion to -higher-level positions and in terms of informal power and status.² Organizations, whether or not they recognize it, have in place career systems that tend to reward and encourage some activities and skills more generously than others. For instance, as we have seen, in the U.S. automobile industry for much of the 1960s and 1970s, financial and analytical skills were venerated, while knowing something about actually building and selling cars was considered somewhat less valuable. On Wall Street at about the same time, many firms, including E.F. Hutton, were losing their retail focus, chasing after the merger and acquisitions market and creating new, sophisticated financial instruments largely sold to institutions. Sometimes the careers and skills to be rewarded were consciously chosen as part of an organization’s strategy, and sometimes not. It hardly matters, since inevitably and invariably, all organizations have a career system in which some kinds of activities and abilities are more highly rewarded.

Therefore, those who rise to positions of influence and who benefit from this career system have a particular set of skills and have engaged in a particular set of activities—those favored by that system. What happens when a change is needed, when the old ways, the old career system, fail to produce the competencies necessary to cope with changing environmental circumstances? It is not likely that those promoted and rewarded by a particular career system for a specific set of competencies are now going to turn their back on that system—particularly because, except for the person at the very top, these individuals are, in fact, still climbing the organizational ladder. To change the rules is to discredit the very source of their success, and to make their chances of rising any farther unlikely. Even if the person at the top (who, after all, has the least to lose in terms of future promotion possibilities) wants to change, those in the ranks immediately below have nothing to gain and much to lose from changing the criteria for success.

And even if they were not wedded to the past by what put them in their present position, they might not be able to change anyway. Education and experience both enrich and deepen our understanding, but they also leave us with a particular set of blinders. There is an old saying that goes, “Education means you know more and more about less and less,” and the same can be said for experience in an organization. This is the compelling lesson learned by considering Robert McNamara and the other brilliant people in the Kennedy and then Johnson administrations who were so mistaken about Vietnam. They were successful because they had developed a particular form of analytical insight. Not only were they not likely to discredit that ability in favor of some other, of which they possessed less, but they were blinded by their own skills and capabilities to the possibility of another way of decision making.

If this is true, then where does change in organizations come from? Not from the insiders, with their intellectual blinders and their vested interests. Rather, innovation, adaptation, and change almost always come from someone at least partly outside the mainstream. Sometimes the person will be, literally, an outsider, such as John Sculley at Apple, or Ross Johnson at Nabisco. After Standard Brands merged with Nabisco and Ross Johnson became president and chief operating officer of the combined firm, he immediately began to change the company’s culture and its method of operation. Nabisco was a company that was living on its past successes:

Johnson and his Standard Brands people challenged presentations at meetings, questioned how people were spending their time and what was the focus of attention, and imparted a spirit of change:

On occasion the agent of change will be someone just slightly removed from the main power structure such as Donald Petersen at Ford, David Kearns at Xerox, or Robert Stempel, the most recent CEO at General Motors. For instance, it was said of Stempel:

Sometimes, of course, the outsiders are so far outside the mainstream of their organization that the only way they can get their ideas implemented is to leave, either to found their own company or to join another that recognizes their point of view. Thus, for instance, Renn Zaphiropoulos had an idea, while working at Varian, for the development of an electrostatic printer that transformed information from a computer tape into graphical form and made it visible on paper. When Varian was uninterested in the idea, Zaphiropoulos formed Versatec, which Xerox purchased in the late 1970s. The last time I checked, Versatec itself was larger than Varian, the company that had been the home of its founder. Many of the startups in the Silicon Valley, as well as elsewhere, were formed not because their founders were greedy to get rich, but because they could find no other way to get their ideas implemented.

The question, then, is how to incorporate new perspectives and new ideas, which often involve shifting the power distribution in the organization, without so much trauma and turmoil that the organization is destroyed in the process. Power dynamics are critical for organizational adaptation and change. The ideal is to manage the dynamics so that change is produced, without either squelching political processes and thereby destroying the capacity for adaptation, or on the other hand, letting conflict get so out of control that the organization self-destructs. Needless to say, as in most instances in which a balance is required, general rules are not available. We can certainly consider some of the issues and trade-offs, but the application of these ideas is highly contingent on the specific circumstances.

PROBLEMS WITH POWER DYNAMICS

Just as hierarchy and common vision have difficulties associated with them as ways of getting things done, so, too, do power and influence. In considering potential difficulties with power dynamics in organizations, we can come to appreciate more fully how important power is as a source of adaptation, and what the trade-offs may be in inhibiting political processes.

One problem with power dynamics is that it takes time, energy, and effort to engage in attempts at intraorganizational influence, and some see these efforts as a waste of organizational resources. For instance, two economists wrote:

The problems that economists highlight are so-called agency problems in organizational decision making. Some people are empowered to make decisions, but to do so, they must often rely on information supplied by others within the organization. These others may be affected by the decisions that are made, and as a consequence, have an interest in distorting the information they supply so that it favors their interests. Since each party affected by a decision has similar incentives to engage in this political activity, a lot of energy may be spent on politicking, without anything very productive being accomplished.

One way of ameliorating this problem is to reduce the incentives or reasons to engage in political activity. This can be done by dividing organizational rewards more evenly. If there is nothing substantial to be gained from attempts at influence, because everyone fares about the same in any event, the influence attempts should diminish. For instance, it may be efficient to reduce the variation in wages among organizational members; this will lessen influence attempts to affect career outcomes such as promotions and wages. In general, distributing organizational resources (such as capital budgets, additional personnel, and so forth) more equally can be an effective way to reduce influence activities and the time and effort consumed by them.

There is little doubt that influence activities waste time and energy. The struggle for control of Lehman Brothers entailed a string of partner meetings, negotiations over Peterson’s financial settlement, and meetings of the Lehman board of directors. While partners gossiped in the halls, work was not being done. And after Glucksman took over, there was more politicking over the division of the firm’s shares and profits, which entailed more meetings and more informal discussion. This fighting over compensation was intensified by the fact that Glucksman was going to change past practice and also consolidate the rewards. The stakes were substantial. In much the same way,

The problem with the squeaky-wheel system is that the production of the squeaking diverts efforts from other activities, potentially of more benefit to the firm. Indeed, under Fomon, there was so much politicking over succession at all levels that the management system of E.F. Hutton virtually ground to a halt, with adverse consequences for the organization.

The difficulty with more equal allocations as a means to minimize such struggles for influence is that it precludes the possibility of using contingent allocation schemes. An equal distribution of capital budgets across operating divisions will hinder the reallocation of assets to the most productive uses. The allocation of salaries on a more equal basis will gratify those who would otherwise be lower in the salary distribution, but the outstanding performers, who might otherwise have received higher salaries, will be unhappy with the results and may leave the organization in consequence. There may, however, be less extreme examples of rules that can benefit the organization by being readily understood and unambiguously applied. To the extent that organizations can agree on goals and on measures of progress toward goal attainment, influence activities can be reduced. In the absence of this condition, however, influence costs may be a form of “transaction” cost—a cost of governance inherent in making decisions under conditions of uncertainty and heterogeneity.

In determining how much conflict can exist in a healthy organization, we would do well to remember that not all conflict is harmful. Differences of opinion are useful and important for forming judgments that take all available information and points of view into account. The story is told that Alfred Sloan, when he ran General Motors in the 1920s and 1930s, would refuse to make a decision at a meeting if no one could argue a strong case against what was being proposed. He felt that if no one had any objections to what was being decided, it was because they had not thought long and hard enough about the question under consideration. Sloan recognized that all important issues in organizations have multiple dimensions, and he wanted to be sure that all sides of a question had been thoroughly examined before something was decided. Sometimes conflict takes on a personal tone, however, and no longer concerns issues or substance, but rather winning a fight or harming the other person or group. Conflict can be bitter, focused on personalities, and unproductive rather than illuminating. To the extent that power struggles result in destructive conflict, organizations are harmed.

When Robert P. Rittereiser was hired from Merrill Lynch to become president of Hutton, and Fomon’s heir apparent, he brought in his own people to staff the major functions. But he drew these people from numerous organizations, ranging from Salomon Brothers to American Express to Citicorp to Deloitte, Haskins, and Sells, the Big Eight accounting firm. Rittereiser was not a strong leader, and the various people hired had no history with each other, no common perspective, and no shared vision for the firm. Consequently, there was a lot of jockeying for position:

At Xerox, the people at the Palo Alto Research Center were rivals with the people from Scientific Data Systems (SDS), acquired by Xerox to help the firm enter the computer industry:

When people at PARC developed a time-sharing system using a competitor’s computer, SDS was furious and the hostility intensified. Needless to say, this ill-will did not help interunit cooperation or the development of viable products for the computer industry.

Interdepartmental conflict is not inevitable even when there is both interdependence and diversity in perspective. The interdepartmental conflict at Apple was encouraged by the attitude of Steve Jobs toward the other divisions.¹⁰ In Lehman, Peterson’s preoccupation with external relations and his lack of interaction with his partners helped to provoke Glucksman’s resentment and also left the firm prone to internecine conflict. The conflict between the Washington and Cleveland offices of Jones, Day occurred partly because methods of operation in the two offices had never truly meshed. The Washington office had been brought into the firm through a merger, and, initially, had a different name, different compensation, and a different management structure, as well as a different type of legal practice. Little was done to bridge these differences.

In some instances, interdepartmental conflict arose from the particular personal idiosyncracies of the various members and executives. Such conflicts were worse when no efforts were made to manage them constructively and to unite the organization around a common vision and a common set of external threats. In that regard, it is perhaps not surprising that Apple Computer, Lehman Brothers, Xerox, and even Jones, Day all seemed to share two characteristics—a lack of strong, unifying leadership, and a munificent economic environment that did not pose the kind of threat that would motivate people within the firm to work together.

A second problem that can arise if power dynamics are not managed successfully is delay. Power and influence processes take time, and this can result in delays in decisions and actions. I recall doing some executive training for a large grocery store chain. At that time, the organization was filled with internal dissent. One group consisted of the traditional grocery store management and operations people. They saw experience in the stores as critical to success and were interested in making operations a stronger focus of the company. There were finance types who disagreed. The financial community, they argued, viewed the grocery business as a nice, stable cash-generating activity, but one in which margins were low, competition intense, and growth limited. If the firm remained so focused on its core grocery business, it would be ripe for a hostile bid of some kind (a forecast that, in retrospect, turned out to be quite prescient, given the leveraged buyouts and hostile takeovers that have occurred in the industry). The finance people wanted to do lots of strategic analyses and diversify the firm into other businesses, such as pharmacies, nurseries, and other retail businesses that might be located in the same centers as the firm’s grocery stores, as well as the manufacture of food and dairy products. The firm was also divided geographically. It had a very strong presence in California, but operated in other areas of the United States and overseas as well. The various divisions contended with each other for capital funds. The California division claimed that it was supporting the losses and capital expenditures of other parts of the operation, and wanted to keep more of the profits for itself. Other territories argued that they operated in less competitive environments and of- fered the firm the opportunity for growth. The firm had a very strong legal department, which tended to evaluate all potential actions in terms of their impact on antitrust and labor law. And, the real estate division argued that the firm, in fact, enjoyed most of its competitive success from its outstanding real estate locations. Given this strength in the firm, the division thought there should be more activity in shopping center and retail development, to capitalize on the real estate expertise in the organization.

Each point of view had merit, and each point of view was represented by strong advocates in the highest councils of the firm. The problem was that while the debate about what to do went on, and on, and on, lower-level managers were afraid to take almost any action at all. It was at this firm that I first heard the expression, “When the elephants fight, the ants get stepped on.” The ants, indeed, scurried for cover, and didn’t do anything that could be postponed. Decisions on store remodelling were put off, decisions on expansion were made only after long delays, and the organization lost potential locations because it could not decide if, and where, it was going to expand. It was paralyzed by the conflict among the various interests.

As one might guess from this description, the organization did not have a strong president at the time. The president was young, comparatively inexperienced, and had obtained his job in part because his family owned a lot of stock in the company. That made the jockeying for position at the next level down even worse. Lacking a sense of what it was trying to do and a clear vision or strategic intent, the organization lost profits and opportunities for business development, as the fighting continued.

A third problem that can emerge in power dynamics is incomplete analysis. I am not convinced that analysis can resolve all business or organizational decision issues. On the other hand, data and information are often useful and necessary for making informed and intelligent decisions about what to do: As we saw in Chapter 13, power and influence in organizations sometimes cause the development of a pathology in which information is either ignored, or else sought in such a strategic, focused fashion that the process does not produce valid data.

There is perhaps no context that so clearly illustrates the problems of politics and influence supplanting analysis as the purchase and deployment of military goods and services in the United States. Nick Kotz has written a penetrating analysis of the military procurement system in general, and the B-1 bomber in particular¹¹ To get support for the B-1 bomber from Michigan congressmen, the Air Force threatened to close Wurtsmith Air Force Base in northern Michigan. At a luncheon meeting of the Chamber of Commerce in Oscoda, Michigan, Lieutenant General Earl O‘Loughlin, vice commander of the Air Force Logistics Command, warned:

The pressure apparently worked:

The bombers were eventually based at Dyess Air Force Base in Texas, as a reward for John Tower’s intervention and for his support of the Air Force; at McConnell Air Force Base near Wichita, Kansas, because of the influence and intervention of Senator Robert Dole; and at two other bases in the United States that made more sense militarily. The Texas base would require complex refueling of the bombers to reach the Soviet Union. The Kansas base was also not well located strategically, being near a major population center as well as a busy runway used by the Boeing Aircraft Company. Moreover, basing the B-1 bombers at McConnell would cost an extra $40 million, as the base had no facilities for storing nuclear weapons. But after Dole made it clear that his support for both military procurement and Reagan’s tax reform were in jeopardy, McConnell got its B-1s.

The entire history of the B-1 bomber is a history of politics overriding (if not totally submerging) analyses of strategic needs, costs, and alternatives. The bomber was built in spite of, not because of, strategic analysis of its necessity. And the history of the program repeatedly demonstrated the willingness to suppress or forgo analysis to push through a decision based on the power of various interests. Numerous examples from the arena of military procurement illustrate the problems that can arise when analysis is either not done or is ignored.

Yet, these situations, too, involve trade-offs. The strategic, military consequences of bomber siting are, after all, only one of a set of consequences that arise from where and how much the country spends on military weapons systems. Bombers and military procurement provide economic benefits that, in some small communities, constitute virtually the lifeblood of the community. It is possible that the siting of the bombers was the least expensive way to jointly obtain the benefits of military deterrence as well as economic benefit for some communities. The point is that most decisions involve multiple dimensions, and when decisions incorporate dimensions that we believe are irrelevant, we sometimes claim that they are fundamentally flawed. They aren’t flawed—they are just different from what an analysis that optimized along only one dimension might suggest was the right thing to do. As we learned earlier, numbers can be used to show almost anything. It is necessary, however, to have the numbers, even if your response is only to treat them skeptically. Trade-offs invariably need to be made—it is important to know the costs.

The competition among interests and perspectives, which creates challenges for managing political dynamics productively, springs out of exactly those conditions that we learned create power and influence situations in the first place. To remove the role of power—by equalizing distributions of organizational rewards, creating homogeneity in point of view, submerging differences of opinion—has its own costs. Managing power in organizations requires the ability to compromise.

There is one final point about managing political dynamics. A friend at Strategic Decisions Group, a management consulting firm, noted that one difficulty in managing organizations is that there is sometimes confusion about what stage the organization is in, or needs to be in. There are times when the firm needs to make a decision, times when change is required, and times when implementation is needed. The skills required to get something implemented are different from those required to change direction and policy, and both of these situations require skills that are different from those needed to figure out what to do in the first place. One of the critical tasks, then, in managing power dynamics productively, is to figure out what phase the organization ought to be in and how to get it operating effectively in the particular decision and action mode that is required. A second critical task is moving the organization from one stage or phase to another.

Some organizations get stuck in an implementation mode, and never re-evaluate what they are implementing. This was the problem with the Parks Commission under Robert Moses. Some organizations have difficulty in getting things implemented, even in the presence of great technical insights and analysis. Xerox in the 1970s possibly provides an example. Some organizations are great at making decisions using good information, and even skilled at implementing those decisions, but have difficulty in recognizing changed circumstances and in accomplishing fundamental change. Many organizations fit here, but certainly General Motors provides a classic case.

It is important to recognize that the political dynamics, and their potential problems and dysfunctions, differ across the different stages and processes. The types of influence skills necessary to accomplish change are somewhat different than the skills required to motivate great analysis, or to implement something that is basically agreed upon. Sensitivity to the potential problems that arise from power and influence, consideration of the various trade-offs, and an awareness of the stage of the organization’s decision making can help, but certainly cannot guarantee, that we will have the insights necessary to manage these dynamics productively.

POWER AND PERFORMANCE

The potential problems that arise from political processes in organizations make it important to assess the relationship between power and influence processes and performance. Is it the case that in organizations with less power and influence in action, performance is better? Or is the relationship between power and performance more complex and contingent?

I should note at the outset that the most common assumption is that organizational power and influence processes impede performance. Tom Peters borrowed a copy of my earlier book on power.¹⁴ Although he clearly attempted to restrain himself, when it was returned I noticed at several points in the margin the notation, “not in effective organizations.” The conflict and politics described were not evident, he thought, in the most excellent organizations. And he was probably right, which is why many of them were no longer considered to be so excellent in a few years.¹⁵ As Pascale has noted, there is a paradox. On the one hand, there are prescriptions for congruence among organizational systems, staffing, structure, strategy, and so forth. On the other hand, if there is too much congruence, too much complementarity among all of the organizational components, the organization may not be able to change or adapt to new circumstances.¹⁶ This dilemma provoked Pascale to do detailed case studies of Ford, Honda, General Electric, and other large corporations to understand how organizations changed or transformed themselves.

Pascale’s analysis focuses on planned efforts, albeit not always comprehensively planned. There is a sense of people seeing a problem and trying to figure out what to do about it; there is also, on occasion, a sense of luck helping to determine both success and failure. What there is not in this otherwise excellent analysis is any sense of individual or collective motives or interests, which must surely operate to help determine both what is attempted and what is finally implemented.

If fundamental change, including change in strategy, technology, approach to the market, and management of the work force, is not required—if, in other words, the organization’s existing management and culture are successful and will continue to be so for the foreseeable future—then power and influence processes are at once unnecessary and inefficient. This is the situation implicitly assumed by economists and others who approach power and politics from an agency theory perspective. The presumption is that there is some intelligent, well-motivated principal who makes decisions on behalf of the organization. That individual may lack information or analytical capability, which is why he or she must rely on agents—the same agents who may seek to present information strategically to further their own interests or the interests of their units. But the principal himself is presumed to be interested in economic efficiency and organizational wellbeing. The problem is that in the real world, who is a principal and who is an agent is less than perfectly clear, and even chief executive officers often act not in the interests of the organization but in their own interests, to maintain power or control, to build an organization or a building that will serve as their legacy, and so forth. It is not clear that actual organizations possess the dispassionate efficiency maximizer we find in some models of organizations. If decision making is not problematic, in the sense that the motives or interests of the decision maker can be trusted, and if the environment is stable, then political infighting is a waste of time and energy.

Kathleen Eisenhardt and Jay Bourgeois studied eight small, high-tech firms in the microcomputer industry.¹⁷ The largest firm had about 500 employees, the smallest had 50. They studied specific, important decisions concerning strategic direction and product development. They found that there were more politics when decision making was highly centralized in an authoritarian chief executive. They noted that “the more powerful a CEO, the greater the tendency among remaining executives to consolidate power and engage in alliance and insurgency behaviors.”¹⁸ Examining the relationship between politics and performance, they found that “the top management teams of the effective firms avoided politics, whereas the management teams of poor performers tended to use politics.”¹⁹ This was because: 1) politics consumed time and dissipated executive energy; 2) politics restricted the flow of information; and 3) in politically active top-management teams, perceptions about the opinions of others became distorted.

The carefully executed Eisenhardt and Bourgeois study is one of the very few to examine empirically the link between politics and performance in organizations. Consequently, its results should be carefully considered. First, as the authors note, it is possible that in addition to politics causing poor performance, poor performance may produce political behavior. Poor performance is likely to cause executives to feel insecure (and probably rightfully so) about their positions, which may produce more jockeying for position and attempts to avoid blame. Second, in this study, politics and authoritarian management were almost perfectly correlated. Authoritarian management is not likely to be effective in a rapidly changing, technologically complex environment. These were small firms without established market positions, operating in an area in which personal mobility to other firms was easy. It is likely that the authoritarian management style produced higher turnover and less-motivated performance from the technically critical employees. We cannot, then, tell whether the relationship between poor performance and politics is a direct one, or whether it springs indirectly out of the association of politics in this sample with authoritarian management, which is the real cause of the poor performance. But most important, these firms provide a context closest to that assumed in the models of economists. These are small organizations in which the principal is most likely to be the top manager, who probably has a significant ownership position. There is little of the incentive we saw in Hutton or Xerox to maintain power for its own sake; rather the very competitive nature of the environment and the strong equity interest would make the CEO quite likely to take actions in the organization’s best interests. In that context, politics and information distortion work against making the highest-quality decisions. These are competitive, rapidly changing environments in which outcomes are likely to be known fairly quickly.

By contrast, consider the development of a weapons system for national defense, such as the Polaris system. The Polaris has been hailed as one of the most successful and effective of the weapons development programs undertaken in the United States. It had few critics, was considered to be a model of good management practice, and produced a weapons system important to the development of the country’s nuclear deterrent capability. The development of a weapons system is not as readily evaluated in terms of its success or effectiveness as is a microcomputer firm. Sapolsky, who wrote an excellent case study of Polaris, suggested that “absence of criticism . . . can be taken as a mark of success, for it means that no one views the operation of a particular program or organization as inimical to his own interests or goals and that some may even perceive it as beneficial.”²⁰

The success of Polaris was not preordained at the time the program began. The three armed services were competing for a role in strategic offensive missiles, so the program faced “problems of jurisdictional competition and interagency coordination.” ²¹ The question is, what was the role of politics in the performance of the Polaris program? Did it make the program less effective, as in the organizations observed by Eisenhardt and Bourgeois? Was the success of the Polaris program the result of an absence of struggles for power and influence?

Not according to Sapolsky, who concluded that it was the skill in bureaucratic politics of the backers and managers of the Polaris program that largely accounted for its success. Congressional and administrative support was obtained; interservice rivalry was managed; scientific expertise was mustered for the program as needed; and the network of interagency and interorganizational contracting relationships was successfully managed.

Sapolsky noted that even the famed management methods developed for the program, such as PERT charts and critical path analysis, were used largely for window dressing and to garner support. These methods of analysis did not necessarily have any substantive importance for evaluating or managing the program:

A different environment meant that skill in politics was essential for success. And a similar result emerges from Finn Borum’s study of organizational development in a hospital.²⁴ Borum’s study was done as part of an organization development intervention. Eschewing the typical OD approach, which assumes common goals and consensus and which works with the upper strata of the organization, Borum and his colleagues worked with the personnel of a surgical unit to improve its effectiveness—first and foremost, by increasing the power of lower-level personnel. The intervention strategy began with the assumption that nothing would change until those who were suffering under the current system had enough power to force a change. He noted, “The strategy contains a stage in which the weaker party in the conflict improves its position of power vis-à-vis the stronger opponent. This can be accomplished either by strengthening the power base of the weaker party or by weakening the power bases of the stronger party.”²⁵

The problems of the surgical unit included: 1) variations in work load that did not correspond well to variations in staffing patterns; 2) poor relations between the unit (which was comprised of almost all female support personnel) and the (male) surgeons; and 3) a poor organizational climate, characterized by stress and discontent. The consultants’ ef forts focused on building up the power of the unit, so it could enter negotiations with others, particularly the surgeons, to change working arrangements. The intervention was successful. But not only was the surgical unit staff happier at the end, so too were the surgeons, and by most measures, the unit functioned more effectively.

Borum’s study reminds us that problems of performance and effectiveness are problems of power and politics—power imbalances, powerlessness, and the inability of some groups to get their ideas or suggestions taken seriously. These problems are, of course, more likely to occur in a setting, such as a hospital, in which performance outcomes are difficult to assess at the total organizational level and there is not as much competitive pressure and emphasis on short-term results as one finds in the microcomputer firms.

The relationship between politics and performance is, then, a contingent one. Obviously, problems emanating from the dynamics of power interfere with effectiveness, and to the extent that steps are taken to alleviate them, performance will be enhanced. But beyond that, we can say it is probably the case that in larger organizations with more centralized control and institutionalized power, the skills of power and influence are critical to getting change accomplished. In smaller organizations, with owner-managers, with clearly measurable results, and with short feedback cycles, power and influence may get in the way of performance. The critical issue is whether in the absence of political activity the organization will both register and respond to its environment, or whether such activity is an integral part of the process of organizational change.

But, sadly, there are no guarantees. There are no assurances that the power and influence processes, even in a large organization, will result in making the organization effective. All investor-owned electric utilities have faced a vastly changed environment over the past several decades, and in all of them, there has been a rise in the power of law and finance. Few, however, have come to be as dominated by law and finance as Pacific Gas and Electric, as we have seen. PG&E changed its corporate objectives, implemented new financial planning and control systems, and became an organization in which many operating departments were headed by attorneys. Has this change helped PG&E effectively cope with its new environment?

The evidence from a case study is necessarily not going to be definitive, but the data do not support a picture of a vastly more effective corporation. Compare PG&E to Southern California Edison, a company operating in the same state regulatory environment, benefiting from many of the same favorable economic trends and conditions, but never coming to be dominated by attorneys to the same degree. In 1977, Southern California Edison had revenues of $2.06 billion and earnings per share of $1.90. By 1985, revenues had increased to $5.17 billion and earnings per share had grown to $3.26, a gain of 71.6%. In 1977, PG&E had revenues of $3.5 billion and earnings per share of $3.15. PG&E’s revenues also increased dramatically over the period, growing to $8.4 billion by 1985. Its earnings per share, however, decreased to $2.65. I chose this period because the time from 1979 through 1984 was the time during which the lawyers gained substantial control over PG&E—it was a period of transition, and it is interesting to see the consequences of that transition.

Some will say the comparison isn’t fair, and there is some validity to that point of view. One reason for PG&E’s poor financial results is problems with its nuclear power plants. For instance, in 1983, PG&E decided to decommission Unit 3 at the Humboldt Bay Nuclear Power Plant. The state regulatory commission did not allow the company to recover all of its costs, resulting in an accounting loss of $37 million. Also, its problems with Diablo Canyon Nuclear Power Plant were legendary. There was substantial opposition to granting the plant an operating license, and there were numerous delays in putting the plant in service, as well as tremendous cost overruns. Surely one cannot blame the regime of lawyers and finance types for difficulties that arose from an overzealous commitment to the problematic technology of nuclear power, which was made years before they arrived on the scene.

But it is not clear that they are totally blameless. Electric power, and particularly nuclear power, is a very political issue. One of the presumed advantages of attorneys is their ability to operate effectively in a politically charged regulatory environment. In the mid-1980s, staff members of the California Public Utilities Commission (CPUC) indicated that a new view of utility regulation was growing in prominence. This new position argued for more emphasis on the engineering and economic justification for capital investments and operating procedures, and a closer interface with more utility staff to discuss technical, economic, and environmental problems. The CPUC staff members, almost without exception, expressed dissatisfaction with PG&E’s approach, explicitly mentioning that they preferred the relationship they had with Southern California Edison. Does this different perception of the two utilities fully account for their difference in financial problems? I doubt it. But it probably does have some effect on the relative profitability of the two otherwise quite similar companies.

This case indicates that change in large organizations is often the result of a political process, in which power dynamics play a prominent role. But such change does not guarantee a favorable outcome for the organization. Power and politics may be useful and necessary to align the organization with its environmental contingencies, but there are no guarantees that the process will inevitably work out well. Much depends on the distribution of political skills and interests among the various participants. We can say that power dynamics are often useful for organizational adaptation; we can say with much less assurance whether the changes they produce will be beneficial for organizational effectiveness or performance.