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Excerpt: The Fiefdom Syndrome: The Turf Battles That Undermine Careers and Companies -- and How to Overcome Them

by Robert J. Herbold

There is a potentially infectious condition inside virtually all organizations that can cause more damage than economic downturns, management upheavals, or global business shifts. Until now it has had no name. But this condition has been an enormous problem in all facets of business. It has impacted some of the world's leading companies, including Procter & Gamble, IBM, Coca-Cola, and Microsoft.

I call it the "fiefdom syndrome," and it happens to all organizations, large and small, profit and nonprofit. It occurs at the individual level as well. And it can significantly decrease an individual's, and a company's, effectiveness. In extreme cases, it has shaken entire industries and taken down major corporations.

The problem begins when individuals, groups, or divisions--out of fear--seek to make themselves vital to their organizations and unconsciously or sometimes deliberately try to protect their turf or reshape their environment to gain as much control as possible over what goes on.

It is a natural human tendency, probably dating back to the origin of our species. But if this human tendency isn't managed properly, the damage caused by these "fiefdoms" can begin to undermine an organization. Left untouched, fiefdoms can toll the death knell of what should have been a strong and vital organization...

In the early '90s, Microsoft's sales subsidiaries in most major countries were feeling very confident in their abilities to run their businesses. They enjoyed impressive revenue and profits. When Microsoft started these subsidiaries in the 1980s, they were intentionally made independent to ensure they could grow fast, unencumbered by directives from

Redmond, Washington, headquarters. It was the perfect environment for fiefdoms to take hold...

Subsidiaries came up with their own ways to analyze their business, methods that tended to emphasize how well they were doing. They institutionalized those new measures and used them to report on their business... In one country, employees' personal computers might be charged to the department in which the employee works, while in another country, they might charge all PCs to the information technology group. In some countries, revenue was certified and officially booked on a weekly basis.... In another country, revenue might be booked on a monthly basis.... Comparing the performances of the subsidiaries was like comparing apples and oranges. Getting all of this data sorted out at the end of a quarter to form uniformly defined corporate financial figures was a nightmare...

You can imagine what a mess this created for the corporate finance folks at the end of the quarter. The number of frantic phone calls and e-mail messages flying back and forth between the subsidiaries and the corporate controller and his department was phenomenal.

I remember during the first week of January 1995 walking into the office of one of the financial analysts who was trying to pull together all the European results. I had been at Microsoft for only a few months, and as the new chief operating officer, I was making the rounds to see how the place operated. The analyst was on a speakerphone in the midst of a screaming match with the Italian subsidiary about why they seemed to change each quarter how they categorized marketing costs for shipping promotion materials and what they classified as cost of goods sold... It was clear to me that there was no discipline in the system. The Italians weren't trying to be difficult--they felt that they were running their business smartly. The problem was that the corporate folks didn't have a focused, disciplined approach toward the basic elements of the company's financial structure. It would drive Bill Gates nuts that it took weeks for the company to figure out what the quarter was going to look like. Not that Bill was overly interested in the short-term financial results. In fact, he absolutely wasn't; he was focused on designing and developing great software. But he was very concerned that we didn't have the information systems in place to make the financials fall into place in a timely manner. After all, we were the world's foremost software company. He expected the company to have superb systems.

A couple of weeks after the end of the October-December 1994 quarter, I was meeting in my office with Mike Brown, Microsoft's chief financial officer. Bill stuck his head in and said, "So where are the results? I know you must have the raw data by now. Come on, guys, do you want me to go in there and figure out how to piece it all together myself? Do you want me to write the code? I'll do it over the weekend." This undisciplined behavior on the part of Microsoft's overseas subsidiaries was not unique to Microsoft. I saw the same kind of behavior at Procter & Gamble, where I had worked for twenty-six years. The heads of the sales organizations in the various countries eventually positioned themselves as president of the company in their respective countries. And clearly a president needs his own finance, HR, and IT personnel. Before long, they were developing their own marketing efforts, often out of sync with the overall strategic and marketing direction of Procter & Gamble's products and services...

At Microsoft, the true impact of the geographical fiefdoms that had grown up over the years and the financial challenges they posed to the company hit home when Microsoft had to embarrassingly make excuses to its customers when they asked to see how Microsoft managed

its financial systems. Our customers were expecting to learn the best practices from a global leader in information technology. After all, they reasoned, a totally networked high-tech company with offices throughout the world must have the most sophisticated financial reporting system

on the planet, right? Later in this book, I'll describe what Microsoft did (in record time) to break up its fiefdoms and truly turn itself into an incredible showcase of financial-systems excellence. Today the company can close its books each quarter in a couple of days.