Governance In The Information Age

Re: 70s-80s corporate restructuring, executive compensation..

Another wealth creator has been the salary and benefits incentives boards used for the CXOs of a company to shift 90% of their headquarters’ staff from below-the-line costs to the profit-making parts of the company (usually out in the divisions). In the 70s-80s, info-tech was able to do most of the accounting and process-management, workflow required at headquarters. Boards often held out the sharing of these savings/productivity changes with the remaining management team (resulting in 10x+ benefits improvements – which was just a small fraction of headquarters’ cost reductions). Tom Malone and co. at MIT Sloan documented this macro-economic effect of IT on companies (in papers published in the late 80s). The typical conversation a CEO/CFO had with their (industrial-age process-oriented – Carnegie/Sloan-style centralized command-and-control organization) staffs amounted to "if the divisions don’t have a use for you, I don’t either, good luck on your job search."

Consider that one of the reasons the Navy has carriers requiring ~5,000 sailors is that the number of admirals is (still) determined by headcount, rather than a measure of force projected. If they were as automated as, say, super-cruise-liners, they’d have 1/4th or less the headcount (of a much higher trained & technical staff – e.g. tool shops that could build of anything from near-raw materials), and not need to stay in port half-the-time for servicing and stocking. Imagine how quickly this would happen if the services were allowed to use, say, "you’ll get 10% of the dollars saved when you copy the cruise-liners and improve automation, time-at-sea, and salaries paid by 75% – or more."

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