Gorbachev as CEO Roadkill: Lessons for the Modern Corporation from the Soviet Foreign Policy Establishment’s Failure to Manage Complexity

Robert M. Cutler

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Gorbachev as CEO Roadkill: Lessons for the Modern Corporation from the Soviet Foreign Policy Establishment’s Failure to Manage Complexity

[0. Introductory Remarks]

Western specialists on the Soviet Union during the Cold War encountered, without realizing it, many issues under current discussion in management science. Those issues presented themselves as problems in understanding the cognitive aspects and organizational development of the Soviet political system. Indeed, the first major political interpretation of the post-Stalin Soviet system (Meyer, 1965) literally characterized it as “USSR, Inc.,” in order to make the point that it was organized as a large bureaucratic institution. The political disintegration of the USSR can be regarded as a failure by the Soviet system to adapt successfully to demands from increasingly complex international and domestic environments. As such, there is direct relevance to the situation encountered by managers in complex bureaucracies today.

In a nutshell, the organizations in the Soviet foreign policy establishment auto-complexified in response to the increasingly complex global environment. By the time Gorbachev finally accelerated changes in Soviet foreign policy doctrine, the complex multiplica-

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tion of political resources and incentive structures in Soviet society had already made that society effectively part of the global environment external to the Soviet political system. Consequently, the constituent parts of the USSR self-organized their own foreign policies independent of Moscow (Matlock, 1995). In the end, what impeded Soviet foreign policy adaptation was pre-existing doctrinal constraint upon organizational cognition and interest-articulation. People were not allowed to say they saw things that, according to the doctrine, were not permitted to exist; even the ideology could not be modified enough (Remington, 1985). That is why, for example, to discuss the nationalities questions in the late 1980s, it was necessary in the USSR to invent a whole new language with new analytical terms having meanings that the previous rules of discourse did not permit to be recognized. The Soviet system imploded and collapsed due to accumulated structural inertia, under the force of being required to deal with too much cognitive change, and consequent organizational chaos, too fast.

This collapse holds lessons in this collapse for the modern North American corporation. Most prominent among these lessons are strategies for dealing with the tension of stress and its duration. With this in mind, it is easy for an organizational observer to find analogies between the Gorbachev era of Soviet politics on the one hand and, on the other hand: IBM’s failure to exploit the personal computer, American auto manufacturers’ inability to deal with changing markets, Apple’s failure to develop its market niche, Microsoft’s initial response to the Internet, and even the quick demise of “New Coke.” All such analogies are based on the presence of cognitive dissonance between different organizational levels: what management understands as “fact” may mean little to the folk in the field, and vice versa.

The Soviets had some awareness of this cognitive dissonance. Under Khrushchev in the late 1950s, the Party’s Central Committee sent fact-finding propaganda groups into the regions to find out exactly what was happening on the ground (Hoffmann, 1968). At first, these fact-finding missions talked only with the local officials and administrators. Only a few years later, in the early 1960s, did Moscow realize that this was insufficient and sent such groups back out into the field to see what was really happening. When Khrushchev was overthrown in 1964, his successors redirected these developments in organizational feedback and denied scarce political resources to those interesting in “framing” the new information with the help of new ideas. The resulting failure of the central control mechanism of the system, to receive and properly interpret feedback, meant that the system was increasingly fallible and unable to respond to demands emanating from the society at

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large. The latter thus became radically divorced from communications with the “elite,” and this ultimately led to collapse.

The Soviets had some awareness of this cognitive dissonance. Under Khrushchev in the late 1950s, the Party’s Central Committee sent fact-finding propaganda groups into the regions to find out exactly what was happening on the ground (Hoffmann, 1968). At first, these fact-finding missions talked only with the local officials and administrators. Only a few years later, in the early 1960s, did Moscow realize that this was insufficient and sent such groups back out into the field to see what was really happening. When Khrushchev was overthrown in 1964, his successors redirected these developments in organizational feedback and denied scarce political resources to those interesting in “framing” the new information with the help of new ideas. The resulting failure of the central control mechanism of the system, to receive and properly interpret feedback, meant that the system was increasingly fallible and unable to respond to demands emanating from the society at large. The latter thus became radically divorced from communications with the “elite,” and this ultimately led to collapse.

1. Doctrine, Ideology, Strategy, Tactics

A few terms will be critical to the discussion which follows: moving from the abstract to the concrete they are “doctrine,” “ideology,” “strategy,” and “tactics.” Doctrine refers to immutable historical destiny defining the basic actors, their relations, and how these will turn out. Ideology concerns the particular combination and succession of themes of conflict and cooperation. Strategy concerns overarching patterns of conduct animated by those themes. Tactics are situational moves designed to achieve specific and immediate goals, the succession of which forms a strategic pattern. In specific examples of Soviet Marxist-Leninist reference:

1. Doctrine is the immutable teleology dictating how to define the dramatis personae of international politics and plotting the script of their theater. For example, the conflict between the Soviets and the Chinese in the late 1950s and early 1960s was a dispute over doctrine, because it concerned the number and the composition of different “camps” in world politics, and whether the use of nuclear weapons could hasten the victory of world socialism (Zagoria, 1962).
    
2. Ideology consists in the ensemble of idea-elements defining the categories of cognition. It is the vocabulary that expresses eternal doctrinal truths.
    
3. Strategy is the goal-oriented line of action prescribed by ideology. When the categories of ideology concatenate to define what really exists, they limit the set of possible futures because what is inexpressible in their language becomes a priori impossible. Specific conceivable futures imply goal-oriented lines of action to attain them, and each goal-oriented line of action is a strategy.
    
4. Tactics operationalize strategy at the level of actions, intentions to act, and preferences for actions to be taken, with reference to concrete issues in particular policy fields.

An example of the interplay among these levels of cognition is how altered perceptions cause attitudinal change. Take the example of Soviet attitudes towards world politics in general and towards other international actors in particular. By 1970 a large number of Soviet experts on international affairs regarded the European Economic Community (EEC) as an economic “center of imperialism” equal in stature to the United States. A new “three centers” theory of imperialism proposed that, at least economically, Western Europe and Japan had freed themselves from American tutelage and actually competed with Washington for influence within the international capitalist system (e.g., Mel′nikov, 1972). The “three centers” theory was nothing less than a revision of the

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ideology. As such, it had important implications for the strategy of the international communist movement.

If world capitalism had three centers, then socialist revolution might occur in one of them (such as Western Europe) long before it did in another (the United States or Japan). Various strategies could promote to this. For example, the slogans “united front” and “popular front” are drawn from the history of the Communist International between the two world wars. Historical experience links the united front to the image of revolution as cataclysm, a maximalist image in which revolution is foremost a political act and great strides are made through a limited number of earth-shaking changes. By contrast, the popular front strategy emphasized numerous minor tremors in the political landscape and promoted incremental rather than cataclysmic social change. The united-front and popular-front policy tendencies animated an internal Soviet policy dispute in the early 1970s over the proper strategy for West European communist parties, linked to the debate over the “three centers” theory of world capitalism.

For the model of the international environment based on the “three centers” theory, the paramount value was to split Western Europe from the United States, and West European unification could be a means to that end. The Soviets sought to use left-wing influence in national parliaments to prevent the consolidation of a united Western Europe. However, they looked favorably on West European communist participation in a consolidated European Parliament, because under the “three centers” theory this would be a natural concomitant to EEC political integration. That being so, incrementalist Soviet analysts supposed that a West European communist party coming to power in coalition with other parties need not mean the immediate installation of the dictatorship of the proletariat.

The “three centers” theory of world capitalism made it again possible for the communists to consider incremental tactics towards the acquisition of power, and by electoral rather than violent means, in Western Europe. When West European communists renovated their domestic alliance tactics, they supported this new model of the international environment. The united front entailed an exclusionary “three-class alliance” strategy comprising only workers, peasants, and leftwing radicals. The alliance strategy of the popular front was inclusionary “four-class alliance” that also comprised certain strata of the national bourgeoisie (Rasputins, 1980). The codewords “socialism” and “democracy” respectively expressed the united-front and popular-front tendencies. To pursue “socialism” meant accelerating the near-at-hand collapse of capitalism and catalyzing the political revolution that would bring its final downfall. To pursue “democracy” meant emphasizing social change and promoting it gradually, through such measures as ex-

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tended economic planning, nationalized industry, and enhanced workers’ control over economic production (Zaretskii, 1973).

To give but one example: In spring 1974, during the run-up to the French presidential election the Soviets had a value conflict was between continued businesslike relations with a French government dominated by “bourgeois parties” and the political uncertainties that would result from a success of the “Union of the Left” of the socialists and communists (with the communists uncharacteristically in the minority). Yet a status quo conservatism first led them to favor a Gaullist candidate. When the French communists objected to this, the Soviets shifted towards the socialist Mitterrand, whom the communists supported. However, after the first round of the elections eliminated the Gaullist from the run-off, the underlying dynamic of Soviet détente interests in Europe led them to support for the candidate of the “bourgeois parties” Giscard d’Estaing over the lefwing coalition that could have destabilized their delicate European diplomacy (Cutler, 1990). The Soviets made this choice because they believed it increased the chances of realizing their long-range goal to separate Western Europe political from the United States. This was the same reason why they refused to support the revolutionary maximalism of the Portuguese communist leadership in late 1975. However, such incrementalism in Soviet foreign policy failed when unanticipated consequences spilled over into Eastern Europe in the mid-1980s and began to unravel the Soviet bloc.

There are various explanations for the failure of Brezhnevian incrementalism in Europe and Gorbachev’s response to it. For example, consider the “new blood” argument (Etheredge, 1981): “resources are needed to continually hire skilled new people who bring fresh ideas or first-hand knowledge of what other people are doing.” Or consider communication flow theory, according to which “much innovation … is embedded within the changing quality of communication” and “innovation rates are increased by particular patterns of communication and by networks of intra-institutional structures that create and support them” (Etheredge, 1981). For our purposes, what is pertinent is the distinction among what Steinbruner (1974) has called “uncommitted,” “grooved” and “theoretical” thinkers. Clashes among such members of the Soviet foreign policy Establishment created the context for foreign policy making. The differences among them are shown in Table 1 below.

2. The Policy-Making Hierarchy

In the policy making hierarchy, uncommitted thinkers were concentrated in the higher echelons, grooved thinkers in the lower,

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and theoretical thinkers in the middle. The low-level functionaries in the Ministry of Foreign Affairs were grooved policy-makers. The Ministry of Foreign Affairs applied the general foreign policy line to specific circumstances, consulting with different segments of the Central Committee and with specialists from the Academy of Sciences. The chief decision-makers in the country, including the Politburo and the Secretariat, and to some degree the Central Committee departments, were uncommitted policy-makers. Uncommitted thinkers use a more abstract framework and a more extended time frame than grooved thinkers. They deal with a greater range of problems and have a greater scope in which to address individual problems. The institute-based advisors and ministerial consultants were theoretical policy-makers (Eran, 1979; Glassman, 1968; Meissner, 1977; Petrov, 1973; Schapiro, 1975, 1977).

There were three ways in which individual “theoretical-thinking” specialists exerted influence. The first was to air ideas in institutional journals. Journal articles had greater immediacy than lengthy monographs and so carried more influence in policy circles. Ideas could also be aired at roundtables and conferences held in the institutes themselves. Officials from the Ministry of Foreign Affairs, cadres from the Central Committee, leading journalists, and other political observers participated in these exchanges of views (Löwenhardt, 1981). A specialist’s choice between the second and third instruments of influence depended upon the nature of the problem: an analyst could submit either a policy planning report or a situation report. In a policy planning report the Soviet analyst of international affairs did not express a policy preference. He only established the available options in general terms, laying out broad policy alternatives. Very much as in other countries, he could discuss the results he foresaw for each alternative, and the differing situations to which he sees them variously leading. This was frequently a means for expressing a covert policy preference (e.g., Inozemtsev, 1972, analyzed in Legvold, 1974). Situation reports, on the other hand, were submitted on request by specialists at research institutes to one or another Foreign Ministry desk (e.g., Kudriavtsev, 1974, analyzed in Cutler, 1985). Due to the often fast-moving nature of events, they were usually contracted on an ad hoc basis through informal and personal contacts.

3. The Propaganda-Making Hierarchy

The allocation of roles in the propaganda making hierarchy differed from the policy making hierarchy. In particular, theoretical thinkers occupied the highest echelons and uncommitted thinkers occupied the intermediate ones. The “theoretical” think-

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ers were propaganda planners and ideologists, because they worked with highly generalized conceptions within a restricted scope of concern. They established the system’s general propaganda strategy through regular meetings with high-echelon operational propagandists such as the editors-in-chief of the principal newspapers, to whom they issued directives. Some theoretical propaganda makers also constituted a subset of theoretical policy makers.

Directives issued by propaganda planners (“theoretical thinkers” in the propaganda apparatus) were aimed at individuals who had competence over a limited range of tasks, which they executed according to standard operational procedures. These operational personnel, such as low-level media commentators or Tass correspondents stationed overseas, addressed uncomplicated problems that nearly always fell readily into a small number of types, and therefore were “grooved” thinkers. Their scope of responsibility was limited to expressing others’ evaluations, such as may be received via propaganda directives, and to collecting and transmitting raw information for such evaluations. At this level of hierarchy in the information channel, there was the least scope for the expression of independent judgment and evaluation. Staff Correspondents stationed overseas for individual newspapers fell partly into the category of grooved thinkers, because collecting and transmitting raw information is an important part of their duties. Their authority to evaluate this information independently and to communicate those evaluations varied with the individual journalist, depending on his experience and his relations with the editorial board back home in Moscow.

Uncommitted thinkers used a more abstract framework and a more extended time frame than grooved thinkers. They dealt with a greater range of problems and had a greater scope in which to address individual problems. In the policy hierarchy these individuals occupied roles at the highest levels of organizations, but in the propaganda hierarchy they occupied intermediate roles between theoretical and grooved thinkers. The most important uncommitted thinkers occupied middle-ranking roles such as Political Observers, Special Correspondents, and editors of the international section in the newspapers’ own offices. Journalists holding the title of Political Observer and Special Correspondent were able to articulate publicly their more personally held views. As a Soviet sociologist of the Soviet press observed, commentators holding the rank of Political Observer in particular had “the right not only … to evaluate [international] events for which no official position ha[d] yet been established but also, taking the changing situation into account and based on independent analysis …, to bring new nuances into the existing official position” (Popov, 1984). On occasion, therefore, some uncommitted and theoretical propaganda makers also acted as theoretical policy makers or expressed their views.

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4. Normative Considerations

The differences between these policy and propaganda hierarchies are very much like the differences between engineering and marketing in the modern North American corporation. For example, “vaporware” may be perfectly acceptable to the marketing types (either as a means of holding the competition at bay or of “bribing” consumers to hold off the next purchase), but unbackable promises are anathema to the engineers. Still, such a disagreement does not prevent the two groups from using similar lexicons to describe activities. A complex-systems approach to the corporate context allows an observer the tools to ascertain the nuances of such disagreements.

Similarly, a complex-system approach to Soviet foreign policy making provides a nuanced understanding of how the recombination of ideas is conditioned by the relationships among the individuals who carry them. These relationships, in turn, are constrained not only by the norms of the organizations in which those individuals work, but moreover by the differentiation of their roles (set out in Table 1) in the overlapping propaganda-making and policy-making systems. Consider the individual, such as a newspaper’s Special Correspondent, who believes that the model of the international environment implicit in the dominant policy tendency does not to coincide with newly received information. (This occurs in non-crisis situations where the highest political elite are not involved in policy micro-management.) Such a Special Corresponsdent could write an article that expressed an alternative view on the issue, thereby questioning the dominant view and generating either implicitly or explicitly a policy alternative.

Indeed, unexpected international events motivated organizations and people in them to evaluate new information at hand, on the basis of their preferred models of the international environment. Normally, the standard operating procedures of the overlapping policy making and propaganda making organizations resolved spontaneous differences in the line to be taken. Yet although an authoritative decision might resolve the disagreement, the next unexpected international event would bring the overall “definition of the situation” into question again. Decisions on propaganda strategy thus not only expressed consensus about what to tell the people who read newspapers inside and outside the country, but also resolve very real differences of interpretation among press observers. In specific situations it is possible to identify specific journalists who performed this task of resolving such conflicts of interpretation (Cutler, 1982a, 1990). Usually, but not always, these were “theoretical thinkers” in the propaganda-making system who had other roles also in the policy-making system.

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Those whose focus is on organizational structures (Aspaturian, 1966, 1972) would suppose that a difference of opinion between the Party’s Central Committee and the government’s Ministry of Foreign Affairs may have been reflected at some point in a difference between the two principal press organs representing foreign policy views, the Party’s newspaper Pravda and the government’s newspaper Izvestiia. They would, however, normally have tended to be close to one another and to the main line of Soviet foreign policy. Other press organs having a special role reflected institutional positions derived either from political function (e.g., Krasnaia zvezda and the military) or from specialized readership targeting. A complex-system approach would add that Pravda and Izvestiia had specific functions in the propaganda-making system that may have influenced their articulated policy preferences, and that other major press organs could also assume certain systemwide roles under special circumstances (Cutler, 1982, 1985, 1990).

The complex-system approach’s loose concept of an “organization” further implies that differences between such institutions as the Party’s Central Committee and the government’s Ministry of Foreign Affairs were no longer necessarily even the most salient, because the institutions (and the people in them) were no longer “impermeable.” This was especially true at the intersection of the Soviet policy-making and propaganda-making systems in foreign affairs. Since individual career paths were no longer made within a single institution after Stalin, it became easier for people in foreign policy making organizations and people in the propaganda making organizations to coalesce into trans-institutional “tendencies of articulation” (Griffiths, 1971).

A complex-system approach thus allows for the fact that institutional boundaries were more permeable than supposed by those whose focus is on organizational structures. Indeed, the notion of permeable boundaries became the dominant theme in understanding what happened to Gorbachev. They may also be the dominant theme in understanding what is happening in corporations today.

5. Lessons For Complex Organizations Today

In all organizations, organizational learning is affected by the character of the external environment and how it is experienced. The environment is thus can be characterized not only by objectively determined qualities (in particular, the length of a situation’s duration) but also by subjective qualities perceived by the organizational actor (in particular, the amount of tension experienced). The two most salient such characteristics are the duration of the external situation and the tension in the environment it represents.

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The interaction of these two variables represents the degree of stress: short-duration and low-tension situations are lowest in stress, and long-duration and high-tension situations are highest. Cutler’s (1990) study of response to stress by the Soviet foreign policy establishment reveals that:

1. In general the least stressful situations (those characterized by short duration and low tension) engender incremental responses to the environment that are of a mainly tactical nature and concern the relation between tactics and strategy.
2. Long-duration, low-tension situations principally invoke relations between strategy and ideology, leading to the possibility of revision at the ideological level in the medium or long term.
3. Still more stressful situations, typically characterized by short duration and high tension, instantiate relations between doctrine and ideology.
4. The most stressful situations (long duration and high tension) tend to freeze and institutionalize existing relations among all levels in the cognitive hierarchy.

A complex-system approach implies that institutions at varying levels may be as affected and driven by the international environment as by their own domestic political environment. The extent of Soviet institutional subordination to the political system as a whole and to the political elite led to the overall failure of ideology and doctrine to adapt. That failure, in turn, blocked the ability to motivate strategic changes. This failure created the situation where things collapsed, because superrigid institutions at many levels were unable to deal with the sudden unleashing of hyperfluid forces.

Gorbachev’s most striking doctrinal innovations in foreign policy were of a nature that only the supreme political leader could make. Not even Khrushchev was entirely successful in his attempt to do the same, since the ideological constraints on strategy made it very difficult for the ideology itself to be revised on the basis of aggregated tactical lessons translated through strategy. Yet those ideological constraints, particularly the USSR’s image of its role in world history, interfered with the long-run viability of the system as a whole. Thus, self-image can be a brake on environment-driven learning, especially if one sees oneself as being resource-rich, in a position of strength or even invincible.

If we look at the Brezhnev era (between Khrushchev and Gorbachev from roughly the mid-1960s to the mid-1980s), it was not quite that

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case that organizations in the Soviet foreign policy establishment could not say what they thought because of official doctrinal constraint, although this was of course to some extent true. The situation was a bit more nuanced. More precisely, it was the case that those to whom they might articulate these views had incentive structures that made them deaf. The danger came from the “theoretical propaganda-makers” stuck in old ways of thinking and who imposed these upon “uncommitted propaganda-makers” as well as upon the “uncommitted policy-makers” whom they advised. In a corporate environment, the doctrine is often reflected in “corporate culture.” Moreover, “theoretical propaganda-makers” are often themselves also playing roles as “uncommitted policy-makers” when, for example, they are board members inherited from earlier organizational developments within the corporation. These individuals have an established way of doing things which can be anchored in the past as far back as very founding of the organization.

Now consider Apple and its policy of hardware manufacture with no software licenses. This strategy, conceived by the two Steves, was essential in the company’s early days. By maintaining complete control, they minimized the risk of misconceived hardware or software interfering in Apple’s relationship with its customers. But the external market changed; unfortunately, the internal Apple culture did not. The established way of doing things thereby shielded the organization from responding to change in the environment. A potential 30% market share was allowed to fritter to less than 5%. There were those who saw this at Apple: and they were either silenced or drummed out. Apple’s images of self and of environment (i.e., market) were prevented from evolving: much like Soviet foreign policy.

An approach focusing on the production of shared cognitive norms rather than on organizational structure—call it “interactionist”—would suggest that learning in Soviet foreign policy was driven by the international environment, and that this learning manifested in changes in Soviet images of that environment and of other actors in it (Griffiths, 1972, 1991). The complex-system approach goes further, to imply that these predispositions are learned not only on a strategic level, but moreover with respect to specific policy issues on a tactical level. Learning therefore occurs under hierarchical cognitive constraint and must be studied in this hierarchical context (Abelson, 1973; Cutler, 1982a, 1982b, 1990; Peffley and Hurwitz, 1985). An aggregate of things that are learned on the tactical level may “bubble up” to the strategic level; on rare occasions, an aggregate of things learned on the strategic level can bubble up to the ideological level. This occurred in the 1920s, when the first historical precursor of the “popular front” appeared in Soviet ideology under conditions of a high-stress international environment (Degras, 1967). If during the “Star Wars” nuclear-weapon era of the early 1980s, a high-stress environment militated against Soviet foreign policy learning, what facilitated apparent learning at

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the earlier time? The answer seems to lie in the capabilities of Soviet power, and in the leadership’s assessments of those capabilities; for in the earlier period, the Bolshevik position in world politics was precarious. To return to the Apple analogy, when Jobs was in charge and perceived strength, cloning was forbidden (both in the 1980’s and in 1998); when Spinler and Amelio were in charge and perceived weakness, the market was allowed a voice.

We seem justified in concluding that when stress is high, countries and corporations alike learn necessary survival behavior under conditions of institutional weakness relative to the environment, than under conditions of strength. It appears that self-awareness of one’s own resource weakness automatically decreases the tension experienced: one spends less energy trying to rigidify useless or nonexistent internal structures. This in turn facilitates learning on the ideological level, even without excluding bubble-up to the doctrinal level. In practical terms, that means that it becomes permissible to redefine the entire organizational mission. When the organizational actor judges itself to have sufficient resources to withstand “psychological assaults” from the environment, an organization is more likely to attribute its own real failures to aspects of the environment. It may then misallocate those resources in seeking to control that environment rather than in promoting necessary organizational change.

In the Soviet context, domestic reforms in the Russian Empire and the Soviet Union historically tended to follow upon defeats in international politics. The ultimate lesson for governments may be that their countries do not have a function so transcendent in international affairs as to map into null-space their neighbors far and near. Germany required two world wars to learn this lesson, and it seems that Russia is slowly reconciling herself to it after centuries of being the regional hegemon. The consistent overestimation of one’s own resources leads only to over-extension, which in the best case produces defeat and in the worst case disintegrative collapse.

The world of business has unfortunately all too many parallels with this analysis. “Perils of excellence” and the “Icarus paradox” (after Daedalus’s mythological son who used wax to bind feathers to his arms and fly, succeeded but flew too close to the sun, melting the wax so that he plunged into the sea) are a real concern for strategists (Lant and Montgomery, 1987; Miller, 1990; Miller, 1994). Successful “Builders” can become unsuccessful “Imperialists” without noticing it: this was the case with ITT and the unwieldy heterogeneous empire it ruled in the late 1970s.

After lengthy intervals of continued success, firms exhibit increased inertia and insularity and fail to adapt to changing environments. Not only do resources accumulated over time buffer

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the organization from variation in the environment (reducing the perceived need for change), but also the open and eager commitment of powerful leaders to what have been proclaimed to be successful policies, makes challenges by lower ranking members in the organization less likely, even if the latter’s position “in the field” or “at the heart of the action” might uniquely qualify them to offer such a critique.

Consider IBM and the losses it endured early this decade. Despite being the inventor of the personal computer, IBM sat back and allowed others to reinvent that industry, losing control over the direction and pace of technical change. “Big Blue went into denial, channeling its massive resources into bucking the market rather than facing it” (Economist, 6 June 1998, p. 66). Not only did it lose talented people, but the loyal who remained were frustrated and disheartened. The radical transformation required and eventually implemented by Lou Gerstner was in fact an organizational “cultural revolution” (Allaire and Firsirotu, 1985) that revised the assumptions, terminology, and normative aspects of organizational discourse at the highest levels of the cognitive hierarchy (doctrine and ideology). “Products” became “services” and “sales” became “solutions.” The newly empowered Global Services division acts as an efficient intelligence and information gathering mechanism, “out there” with customers and having an incentive structure encouraging brutal honesty when IBM products do not meet its clients’ needs.

6. Coming to Grips with What Cannot Be Grasped

There may be a trade-off between, on the one hand, survivability within established structures and, on the other hand, performance. Maximization of performance may sometimes be impossible under conditions of optimized survivability within a structure of subordination. Anyone who has ever worked for anyone else probably knows this from personal experience. There is no reason why organizational performance should be any different in this respect. Indeed, the more complex any environment becomes, the more likely this may be together with the more frequently the contradictions may appear. The long (i.e. continuous) duration of unpredicted and unfamiliar decisional situations and the experience of high tension in the contemporary business environment, then combine to increase the stress on decision-makers. As pointed out above, all other things being equal, this decreases their ability to learn from the environment against which their very success or failure will be judged. Such a condition today seems characteristic if not fundamental.

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One solution is for organizational adaptation through learning to cease being a mechanism for responding to the environment, and for mergers and acquisition to predominate in an attempt to control the environment. Yet merger and acquisition in the corporate world today are barely survival tools by which corporations and their components are driven: driven, moreover, not necessarily by any internal logic about the environment but by the environment itself unreflectively. Prominent CEOs frequently face, with respect to their subsidiaries, much the same problem Gorbachev faced with the republics. However, if merger-and-acquisition becomes the dominant ideology, then corporate executives become less able to respond optimally to new problems that require solutions other than merger and acquisition. In the history of international politics, the examples of Napoleon and Hitler suggest themselves as analogies.

Consider Lithuania, for example, as a division of another company that was acquired by the “USSR, Inc.,” under Stalin’s stewardship. The military occupation of Lithuania was for Stalin a rational decision. Yet it was after a visit to Lithuania, already self-organizing to take itself out of the Soviet Union, that Gorbachev began talking about “socialist pluralism” and began planning to institute changes in the Party’s rules that legitimized factions and erased its “leading role” from the long-standing doctrine. This would probably have happened in any event, given Gorbachev’s intents for reform; but in the absence of the annexation of the Baltic states nearly a half-century earlier by Stalin, it could well have happened differently, with different results. There is an argument to be made, that Stalin’s annexation of the Baltic states strongly contributed to the ultimate disintegration of the Soviet Union. In political terms, then, Lithuania was a “loss-making center” that should have been divested. But doctrinaire ideologues at corporate headquarters (the Kremlin) enforced a political inertia making such change impossible until it was too late.

Even in the late 1980s, an effective response would not necessarily have entailed the break-up of the Soviet Union. Gorbachev tried “downsizing” the USSR by drafting a new treaty to replace the 1922 agreement that formed the USSR—a “new Union Treaty”—and there were as many as nine republics that would have signed onto it as late as summer 1991. By rejecting the so-called “Shatalin plan” for economic reform, however, Gorbachev denied the leaders of those republics any incentive to stay in a reformed USSR, which he proposed to call the Union of Sovereign States (Matlock, 1995). With no centrally generated rationale for remaining part of the parent organization, these divisions of “USSR, Inc.,” driven by the international envi-

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ronment, including their own electorates (which had become part of the Soviet Union’s international environment while the Kremlin was not looking), spun themselves off. They found the international environment to be extremely receptive to this self-initiated antitrust action.

So much the same logic animates the idea of “spin-offs.” This has been key to the wealth of leveraged buy-outs (LBOs) and to the success of such conglomerates as 3M and Thermo-Electron. These firms encourage the direct addressing of cognitive dissonance between headquarters and the field, while other firms (the old AT&T and the big three car makers come immediately to mind) encourage the disavowal of even the possibility that such dissonance are important. On the one hand, corporate subsidiaries have to have a fair amount of freedom to respond to the environment, both for their own efficiency and to guarantee the survival of the overall system. If that does not happen, then a corps of ideologues can form in the corporate headquarters that has a vested interest in the continuation of a dysfunctional corporate culture. Such a corporate culture is like a “field,” invisible on organizational charts but exerting an influence on perceptions and decisions much as Marxism-Leninism did in the Soviet Union. In the end, either key engineers may leave and began their own spin-off start-up firms, or entire divisions may become unprofitable and subject to hostile takeovers and buyouts: all because the corporate ideologues have exerted such a pull that even a “reformist” CEO like Khrushchev may be unable to escape their influence.

On the other hand, if the subordinate managers are empowered to respond as necessary to their immediate business environment, relatively free of central direction, then there is no guarantee a priori that they will not decentralize themselves out of the system. That is what some of the Soviet republics began doing even in late 1980s, before the entire Soviet system came crashing down after the failed coup attempt in August 1991.

The difficult question for managers at the highest level is how to allow the subsidiaries the freedom to survive and be viable, while at the same time providing them incentives to stay within the overall corporate institution, and yet without imposing upon them constraints that sub-optimize their survivability. Gorbachev tried and failed. Steve Jobs failed and returned. What happens to the reader of this chapter is not merely up to that reader. These days, everyone not only needs all the help they can get but also can get all the help they need. However, only a complex-systems approach can help figure out which of the many answers available is the right one. The CEOs of “USSR, Inc.,” did not learn this soon enough. And you?

[ page 369 ]

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[From p. 352n.: “I wish to thank Michael Lissack and Steve Maguire for detailed comments on an early version of this manuscript. Various stages of this research were supported by the Social Sciences Research Council, New York; the Social Sciences and Humanities Research Council, Ottawa; and the International Research and Exchanges Board, Princeton. This work presented here also draws on 20 years of interviews by the author with participants in the foreign policy-making process of the once and fomer Soviet Union.”]

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Dr. Robert M. Cutler [ website — email ] was educated at MIT and The University of Michigan, where he earned a Ph.D. in Political Science, and has specialized and consulted in the international affairs of Europe, Russia, and Eurasia since the late 1970s. He has held research and teaching positions at major universities in the United States, Canada, France, Switzerland, and Russia, and contributed to leading policy reviews and academic journals as well as the print and electronic mass media in three languages.

 
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