Friday, September 16, 2005

On Being The Right Size for Disaster-Handling

I'm thinking about Katrina foul-ups -- where I do tentatively think that FEMA did an unnecessarily bad job, and I do tentatively think that WalMart might be a good model for part of FEMA to follow -- and I'm feeling puzzled about the nature of centralization. I don't think that either Arnold Kling or Brad Delong are thinking seriously about WalMart, and I wish they would.

Arnold Kling, in A Challenge for Brad DeLong, claims that

Large organizations...are inherently dehumanizing...and unable to handle sudden new challenges.

Delong replies that

Shouldn't the fact that WalMart finds it more efficient to be a bureaucracy of 1.5 million people--rather than to split itself up into 15,000 companies of a hundred employees each--make Arnold Kling a little hesitant in his declarations that FEMA was bound to foul up this badly no matter what? Serious thoughts about when wants to use market and when one wants to use command-and-large-organizations--and how one then controls command-and-bureaucracy--would be very welcome here.

Kling, apparently accepting the characterization of WalMart as "a bureaucracy of 1.5 million people", responds that

The fact that Wal-Mart is not highly decentralized reflects the importance of economies of scale in its logistics capability.

I wonder if either Kling or Delong know that WalMart is being sued, in part, for being too heavily decentralized? Read Always Low Prices -- Always: WM vs. Class Actions

Central to the plaintiffs' case is the contention that Wal-Mart is a heavily decentralized company, in which managers are given wide latitude to make hiring, pay and promotion decisions. This, the lawyers argue, is a bad thing, because it leaves too much discretion in the hands of store managers, who can thus be influenced by their own negative stereotypes. Under this scenario, decentralization in management, which has been one of the core productivity-boosting principles of American business in the last two decades, becomes something that companies must avoid or limit.

WalMart has a shared database, which is centralized. It has a shared "culture", which WalMart works hard at by, e.g., moving managers around. It also seems to have central directives, which must be obeyed. Nonetheless, it appears to have achieved an interesting kind of decentralization. It isn't split into Delong's "15,000 companies of 100 employees each", but it is split into close to 5000 units of about 150 each, some hundreds of supercenters of about 350 each, and then of course the supporting divisions from warehousing and trucking to database management.

In Tom Peter's Pursuit of Excellence, the section on "Smallness" begins on page 270. Beginning on page 271 we see a conversation about the need to "Divide it up", then

The point of smallness is that it induces manageability and, above all, commitment. A manager really can understand something that is small and in which one central discipline prevails...More important, even in institutions that employ hundreds of thousands of people, if the divisions are small enough, ... the individual still counts and can stand out. ... The lion's share of the top performers keep their division size between $50 and $100 million, with a maximum of 1000 employees each. Moreover, they grant their divisions extraordinary independence...

As I understand it, each WalMart unit has a limited function, and has the objective of achieving that function at lowest cost. Some decisions take place within units located in Bentonville, and others don't. Each unit is small enough so that a unit manager can know everybody, so that "the individual still counts and can stand out" -- so he has a role to fill in achieving the objective of his unit. So he can be fired (or possibly given a second or third chance), in case of failure in filling his role.

Maybe FEMA, or part of FEMA, can indeed be like that, with a central database of trucks, buses, trains, boats, planes and people, to identify and locate resources when a hurricane threatens or the New Madrid lets go or flying saucers come down and start zapping skyscrapers. Would you volunteer your minivan? Then you should be in the database. (And is it AWD, and are you an experienced snow driver?) Would you volunteer a room or two in your house? ditto. And so on. My rural village is unlikely to be evacuated, but has a lot of resources (e.g., schoolbuses) which could be predesignated and called upon when we finally have to evacuate NYC. Central commands slow things down, I believe, and should rarely be invoked except to initiate or correct. (I will try to describe the system I'm visualizing, but not today.)

It would be very interesting to see somebody try to organize FEMA that way. I don't think Bush tried (though as I understand it, he quite correctly resisted the folding of FEMA into DHS). There should, of course, be some specific unit of FEMA which was responsible for checking the New Orleans evacuation plan, and which should have noticed when the city government started preparing the "you're on your own" DVDs this summer. I think of that as criminal. I think of the Louisiana failure to pre-allocate some of those 21,000 registered buses (for evacuation of the coast) as criminal. I think of FEMA's failure to notice as being...well, maybe not criminal. But definitely not good, and quite possibly attributable to a lack of focus.

UPDATE: it's perfectly possible that FEMA, at whatever level, did notice the city's you're-on-your-own plans and said they were okay; I would at present consider that to be criminal. More central to my own thinking, though, is the WalMart class action suit.

The class action suit explains at length that WalMart is highly centralized in terms of data-tracking, and in terms of a uniform culture, and in terms of some specific policies decided at the highest level. However, this is largely background, explaining why a class action suit is legitimate. The discrimination complaint itself has to do with payroll and promotion policies which are not centrally decided.

In sum, Wal-Mart deliberately grants its managers broad discretion at critical junctures in making compensation decisions for employees in the field. ... For promotions above department manager Wal-Mart has a very subjective process [that has systematically disadvantaged women]... Wal-Mart also allows store managers to apply their own unwritten criteria when selecting candidates. Store Manager, Art Mireles, for example, testified that he relied on factors such as teamwork, ethics, integrity and the ability to get along with others.
How, then, does WalMart control the store manager whose subjective judgement is given so much power? The class action suit explains how it works:
the major part of store manager's compensation is tied to store profitability.
Well, sure.

I have no desire to defend or attack WalMart, but it seems to me that it is not useful to describe it as "a bureaucracy of 1.5 million people." It is a product of evolution, of cumulative selection on several levels simultaneously, in which WalMart, Costco, Target, KMart, Home Depot, Ames, and on and on are constantly competing for the same dollars; in which each WalMart store competes for resources with other WalMart stores, each WalMart manager competes for resources with other WalMart managers, and so on. The result is an extremely focused collection of entities providing a highly efficient path from supplier to customer -- but not the most efficient path, because there is no such thing. The struggle will continue, and I expect that WalMart will eventually go under.

Can FEMA, or part of FEMA, be structured that way? Maybe it could be, but I don't think that anyone has tried.


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