Chapter 33. A World of Fleas and Elephants
Charles Handy
The world of organizations is fast dividing itself into fleas and elephants. The elephants are the large organizations of business and government; the fleas are the technological startups and the new dotcoms. Fleas are the small consultancies and professional firms, the self-employed experts, and the specialty suppliers that service the elephants. On a humbler scale, the fleas include the little businesses that pepper our main streets with restaurants, family-run stores, hairdressing salons, and real estate agencies, not to mention the hundreds of thousands of small not-for-profit organizations as well as all our local schools and churches.
The elephants get all the attention, from academics as well as from the press, but most people have always worked in fleas. The elephants consolidate, but new ideas often come from the fleas. The elephants, particularly those that are multinational and global, matter. They fertilize the world with their ideas and their technology; they amass the piles of resources that are necessary to develop oilfields, build aircrafts, research new drugs, and spread their brands around the world. They apply the advantages of scale and the clout of size to promoting efficiency and to reducing costs to the consumer. To an elephant, in fact, size is crucial. In pursuit of ever greater size, we have, in recent years, seen elephants swallowing elephants, or, as they would no doubt prefer to put it, marrying elephants in what they call "strategic mergers."
Once married or swallowed, the elephants go on a slimming diet, shedding jobs by the thousands in pursuit of efficiency. They are addicted to a productivity formula of 1/2 x 2 x 3, or an objective of having half as many people employed in, say, 5 years' time, working twice as hard and producing three times as much. Fine for the stockholders, no doubt, but not so good for the half that is downloaded. Don't, therefore, look to elephants for new jobs; they have to come from fleas. This is a lesson that America learned long ago, one with which Europe is only slowly coming to terms.
Nor should we look to the elephants for imaginative new ideas. Efficiency is, in many ways, the enemy of creativity. Efficiency abhors waste, is uneasy with experiments that might go wrong, finds nonconformity uncomfortable, and prefers predictability to risk. Elephants prefer to pick up innovations once they have been proved to work. They can then develop them, give them scale and mass, promote them, and deliver them at an acceptable price. The new ideas come from fleas, often from fleas that arrive out of a clear blue sky, from outside the industry altogether, the Amazon.coms of our new world. The trouble is that fleas tend to live on the backs of elephants, not inside their bodies. When elephants buy up the product of a flea to develop it, they will spit out the original flea as soon as they can.
Fleas, therefore, provide the new challenges for leadership at all levels in society. What sort of leadership does a flea organization require, particularly an innovative flea? What are the characteristics of successful flea organizations? Can they, should they, grow into elephants? How can elephants grow fleas, or at least encourage them; tolerate their irritation; and make use of their creativity?
The pressures of a global world, which demands an increased degree of scale, added to an unprecedented pace of innovation requiring constant invention and reinvention, means that every society needs a mixture of both inventive fleas and efficient elephants. The questions above are therefore of some urgency if we are all going to benefit from the new frontiers opened up to us by technology.
The Characteristics of Creative Fleas
At the heart of every flea organization, at least at its beginnings, lies a creative individual. In 1999, the author and his wife, a portrait photographer, conducted a study of 29 such individuals in London, England, individuals whom they called the "new alchemists," meaning that they had created something from nothing, or from the metaphorical equivalent of base metal. The flea organizations that they had created or transformed ranged from businesses of various sorts to arts or community ventures, including a school and a church.[1]
The sample was small and could not therefore be definitive, but it did provide some clues to the nature of these leaders and the organizations that they had created, all of which were successful in their own terms. The one defining and common characteristic was passion. These individuals were passionate about what they were doing, whether they were building new airlines (Richard Branson), new eateries in New York and London (Terence Conran), new theater companies (Declan Donnellan with Cheek by Jowl), Britain's first and only private Anorexic Clinic (Dee Dawson), or Britain's first Healthy Living Center built around a rundown church in the east end of London (Andrew Mawson). If the venture was a business, money was the outcome of success but was not the reason for the passion. Richard Branson says that he turns his frustrations as a customer into businesses to "improve a bit of the world."
This passion for what they did enabled them to endure anything—the long hours necessitated in starting a venture; the failures and mistakes that inevitably occur, and which they speak of as "lessons learned" rather than failures; and even the relative poverty that many experienced until the venture started to develop. The passion was often neither logical nor reasonable. Business plans would have looked wildly optimistic at the beginning, but none of them relied on outside financing at the start. Passion, not reason, provided the driving force. These individuals were mavericks. They were determined to make a difference. That determination fueled their energy. Dedication, difference, and doggedness, therefore, were the hallmarks of the alchemists.
Their passion infected their organizations. By recruiting like-minded enthusiasts, albeit with diverse talents, the leader created a family in his or her own image. These families were "chaordic" to use Dee Hock's description of the mixture of chaos and order that seems to be characteristic of the new fast-moving businesses. Because they were small and like-minded, they could rely on empathy for much of their communication, a sense of "what would Richard (or Lucy) do?" governed their lives. Meetings were frequent, but snappy. One alchemist had his boardroom table made 5 feet high to ensure that all meetings took place standing up. Success was shared either by formal profit-sharing schemes or by joint celebrations in the case of the non-profits. They keep the cores of their organizations tiny in order to reinforce the sense of empathy at the center and to create trust.
In many respects, therefore, they were typical of a family firm—only it was their colleagues who were the family. They were not interested in creating a dynasty or a way of life for their heirs. Their passion was to make a difference to the world as quickly as they could. It was what gave their organizations energy and excitement, the sense of being on a shared voyage of discovery. What was unclear was where the voyage would end. Would they turn into elephants themselves, or would they die when the founder left?
Elephants were all fleas once, just as oaks start from acorns—but not all acorns become oaks and most flea organizations do not develop into elephants. Acorns and fleas both seem subject to nature's law of abundance: There are so many of them that enough survive, even if most fail. In Britain last year, there were almost as many small business failures as there were new startups.
To move from flea to elephant requires a change of style. Infection and empathy are no longer enough when an organization becomes large and geographically dispersed. In most cases the change of style means a change of leader. Jim Clark, the founder of Silicon Graphics, Netscape, and Healtheon, and supreme among business alchemists, could never adjust to running the businesses he created. Michael Lewis, in his book The New New Thing, talks of the "Serious American Executive," who would move in to run the operations that Clark had created, but could not manage.
As often as not, once the new business reaches a significant size, it is bought by an existing elephant who then immediately or in due course gets rid of the pioneering flea leader. The elephant then takes the flea under its wing and introduces the techniques of efficiency, growing the business, but in the process, destroying much of the original excitement.
Can Elephants Harbor Fleas?
It would be better by far if the elephant were able to grow its own fleas. This, however, requires a particular sort of leadership and structure. What is clear is that personality is as important to the leadership of an elephant as it is in a flea. Jack Welch will be remembered as much for the way he expressed the purpose of General Electric in his own behavior and passion as for the strategic choices that he made. Percy Barnevik, when CEO of ARB, managed to infect that huge federal organization with his own enthusiasm and zeal. One CEO of a multinational described his job as a mixture of missionary and teacher, in which he was constantly communicating his message to his people.
Yet, it is not enough for leaders at the top to exhibit passion and enthusiasm for their work. That enthusiasm, that sense of vocation or passion, must be possible right through the organization. That requires space, space for any would-be fleas to express themselves in their work, space to experiment, space to fail, and enough space to correct the failures before too much damage is done or too many people notice. It won't be possible to create those spaces in an excessively tidy organization. Elephants have to be loose-limbed if there is to be room for fleas at all levels.
One answer lies in federalism. Federalism was conceived as a way of combining the independent and the collective, of being both big and small, the same but different. Americans and Germans, Australians and Canadians, Spaniards and Swiss have all got federal constitutions designed to allow independence within a union, but even these do not always see the sense in applying the same principles to their businesses. To the British, federalism is the F-word, a dirty word that implies a loss of control to the center. This serious misunderstanding of the principles of federalism will be a handicap in the future development of both its constitution and its economy.
This is not the place for a detailed discussion of federalism. The principles are spelled out in an article by the writer for the Harvard Business Review, "Balancing Corporate Power: A New Federalist Paper."[2] Suffice it here to say that federalism is a mixture of both centralization and decentralization, centralizing only those things that everyone agrees it would be crazy not to centralize and leaving as much autonomy as is possible to the various states or business groups—the space for fleas.
Federalism is messy and political. There are disputes over the allocation of resources. Information is guarded when it should flow freely. There are boundary disputes, necessary compromises, and competing lines of accountability. To make it work requires an active understanding of twin citizenship—the idea that one can have at least two loyalties, to one's own group and to the larger collective, one can be both a Texan and an American. The lesser loyalty is easy; it is the larger one that requires work, because without it compromise is hard to obtain—why give up on local priorities for the greater good if you have no interest in the greater good? Hence the critical importance of the talk of "vision" and "values," and the necessity for the top leader to accentuate these in his or her own words and actions. Some distribution of the spoils of success from the center to the states also helps to reinforce the idea of a common good.
Properly done, however, federalism allows room for the fleas inside the elephant. ABB tries to restrict the size of its business groups to 50 persons in order to recreate that sense of a small enterprise, personally led and motivated. In a world of hi-tech, hi-touch (to use Naisbit's evocative terms) can easily be neglected. Yet, fleas rely on trust in those with whom they work, and trust needs touch. Technology communicates facts but not feelings. Fleas need both for trust to flourish. Few of us know more than 50 people well enough to gauge their feelings or to know whether or not they can be relied upon. The alchemists instinctively know this, which is one reason they are reluctant to grow too big.
Federalism offers a way forward, but it is neither easy nor tidy. Small wonder, perhaps, that many leaders of elephants shrink from it. There are alternatives. One alternative is to run an internal venture capital bank, backing innovative proposals, either from internal groups or from individuals who want to move outside. Gary Hamel describes one experiment of this type.[3] In London, a young woman called Eva Pascoe was e-commerce director for Arcadia, a fashion retailer. A typical flea, she became irritated by the restrictions of the elephant and decided that she wanted to start her own Internet fashion store, Zoom.com. Arcadia agreed to back her, taking 60 percent of the shares. That way they ensure that they have access not only to any appreciation in the shares, but more importantly, to her innovations.
Some prefer to cultivate their own private flea gardens, a la Xerox Parc. Although the fleas often thrive in such corporate gardens, there is a problem in bringing them or their ideas back into the mainstream. History is littered with examples of good ideas ignored by the same elephants that paid for them to be cultivated. It is simpler, perhaps, to go flea hunting, buying up innovative companies once they have proved themselves, dumping the bad or irritating bits, and keeping the essential intellectual property.