By Art Kleiner

CHAPTER 1

The Customer Comes Eighth

Back in the early 1980s, when writing mission statements was just an infant management fad, a division of the Exxon Oil Company held an employee conference to announce their new "core values." Enshrined as number one on the list was this simple sentence: "The customer comes first."

That night, the division executives met for dinner, and after a few drinks, a brash young rising star named Monty proposed a toast. "I just want you to know," he said, "that the customer does not come first." Then Monty named the president of the division. "He comes first." He named the European president. "He comes second." And the North American president. "He comes third." The Far Eastern president "comes fourth." And so on for the fifth, sixth, and seventh senior executives of that division, all of whom were in the room. "The customer," concluded Monty, "comes eighth."

Said the Exxon retiree who told me this story: "There was an agonized silence for about ten seconds. I thought Monty would get fired on the spot. Then one of the top people smiled, and the place fell apart in hysterical laughter. It was the first truth spoken all day."

"The customer comes first" is one of the three great lies of the modern corporation. The other two are: "We make our decisions on behalf of our shareholders" and "Employees are our most important asset." Government agencies have their own equivalent lies: "We are here to serve the public interest." Nonprofits, associations, and labor unions have theirs: "Above all else, we represent the needs of our members."

Of course, if organizations were really set up on behalf of these interests, then they would do a better job, by and large, in serving them. When organizations fail, people tend to assume that their leaders are inept, overwhelmed, or corrupt. But suppose instead that all organizations are doing precisely what they're supposed to be doing. What, then, is their objective? Judging not from their rhetoric, but from their actual behavior and accomplishments, what purpose are most organizations seeking to fulfill?

This book is an effort to answer that question. It starts with the premise that, in every company, agency, institution, and enterprise, there is some Core Group of key people--the "people who really matter." Every organization is continually acting to fulfill the perceived needs and priorities of its Core Group. It's sometimes hard to see this, because the nature and makeup of that Core Group varies from workplace to workplace, and so do the mission statements and other espoused purposes that get voiced to the rest of the world. But everything that the organization might do--meeting customer needs, creating wealth, delivering products or services, fulfilling promises, developing the talents of employees, fostering innovation, establishing a secure workplace, making a better world, and, oh yes, returning investment to shareholders--comes second. Or maybe "eighth." What comes first, in every organization, is keeping the Core Group satisfied.

Core Group dynamics explain why some corporations spend years scrambling frugally for profit, and then squander it on ill-advised mergers, disproportionate pay for their senior executives, or hidden and improper deals. Core Group dynamics also explain why some government agencies block efforts to reform themselves, even when their reputation and potential survival depends on reform. And why some nonprofit organizations persevere against enormous odds to fulfill their idealistic missions, while complacently dismissing potential partnerships that might genuinely help them. Indeed, every organization seems to have its own forms of Core Group-related folly or corruption.

It's because of Core Group dynamics that a depressing number of business corporations have evolved into organizations with one primary purpose: To extract wealth from all constituents (not just the shareholders, but the employees, customers, and neighbors as well) and give it essentially to the children and grandchildren of some of its senior executives. And yet Core Groups are not inherently bad or dysfunctional. Indeed, they represent probably the best hope we have for ennobling humanity. An organization's Core Group is the source of its energy, drive, and direction. Without an energetic and effective Core Group, all efforts to spark creativity and enthusiasm sputter out.

If you work in an organization, then all this may be second nature to you, so obvious and taken for granted that it barely even registers as important. But when you take a step back, the significance for all of us, even those who don't work in organizations, is unavoidable. We live in a civilization composed of organizations. Indeed, in industrialized countries, the organizational birthrate exceeds the human birthrate. Even though organizations are continually merging, swallowing each other up, or dwindling into inactivity, there are more organizations each year than there were the year before.

People have always used organizations to amplify human power. Individuals didn't build pyramids or cathedrals; tribal and feudal organizations did. But since the industrial revolution, and in the past 150 years in particular, organizations have become powerful in unprecedented ways. They are faster than they have ever been, operating with the perpetual acceleration of computers and wireless communication. They are interconnected through vast global webs of trade and distribution, webs that (among other things) make most human beings virtually dependent on organizations for food, shelter, and transportation. They are pervasive; there are almost no sustainable ways of making a living without organizations, and organizations dominate the political system, instead of paying fealty to it.

If we are going to act effectively in a society of organizations, we need a theory that helps us see organizations clearly, as they are. We need to observe this new species in its natural habitat, to track its behavior, and to study its relationships with predators and prey. Only then can we ask: Why does it operate this way? And what, if anything, could be different? Only then can we learn to use organizations, instead of feeling like we are being used by them. Only then can we move organizations away from being simply the property and tools of the few, and develop their potential for the rest of us. In short, if we want to not just live within society, but establish ourselves as leaders and creators, then we have to understand the dynamics of the Core Group.