Black Holes in Organizations

(book)



EXECUTIVE SUMMARY

iUniverse, 2007, ISBN 978-0-595-42536-5



Ron Lutka
CPA, CMA, ACIS, P.ADM, CorpS, Acc.Dir

www.blackholebook.com


MAIN IDEA

Indifference to simple yet essential basic activities allows an accumulation of failures to occur. This harms organizations as small repetitive failures cause large problems.

Continually booking the wrong sales tax codes can result in upset customers, wasted time, and hefty penalties. Failure to reconcile balance sheet accounts can lead to expensive restatements. Not removing the burr from the table can lead to customer returns and declining sales. Late deliveries can lead to nasty lawsuits. Improper processing of returns and customer charge-backs can bankrupt a company—and has.


Often this harmful condition perpetuates, largely unnoticed. However, at some late point, if these simple failures continue to accumulate in volume the damage will manifest itself on financial reports, in operations, and elsewhere—impeding organizations from functioning as management intended. The good news is, these harmful activities can be identified and eradicated.



Black Holes

Two Conditions Develop

Over time, two conditions develop in organizations that allow black holes to form.

First, each activity within an organization was likely executed correctly, not necessarily at the same time but at one time or another. Forces worked against these activities pressuring them to break down—then they did.

Second, senior management’s attention drifts toward top-end strategies and away from execution of basic grass roots activities. Understandable to a degree, since top-end strategies can provide leverage: leverage of company assets and leverage of executive time. However, when the drifting becomes excessive, black holes easily form.

Therefore, with nobody tending to simple yet essential basic activities—shoring them up when they break down—black holes form.

Definition

Black holes are failures of basic activities that, in volume, choke organizations causing a drag on their performance. More specifically, they can be defined as:



Three Basic Components

A black hole in an organization includes the following components:

  1. Destruction in some form occurs within the organization, whether in the form of undesirable activity or a lack of desirable activity.
  2. There is an abundance of undesirable activity, or a lack of abundance of desirable activity, not merely an occasional occurrence.
  3. Management might or might not be aware of the destruction, but management definitely has an absence of awareness of the root cause of the destruction.


Damage Caused by Black Holes

Having formed, black holes remain neglected and free to propagate. Choked organizations are held back from achieving their goals. Although black hole–creating items are usually failures at the micro-level, such failures in volume cause or at least irritate much more serious problems. Even relatively simple black holes drain cash flow, narrow margins, degrade products or services, lead to substantial write-offs, hamper an organization’s ability to deliver products on time, and upset customers therefore spoiling customer retention. Additionally, black holes complicate addressing problems when discovered. The true damage is elusive, as the cause of one problem could be the effect of another root cause. Though more common in administrative and financial areas, and less so in production black hole–creating items can exist in volume anywhere within the organization.

This damage has repercussions that extend beyond financial statements and fouled operations: executives’ dimmed professional aspirations; lost jobs; and low employee morale to name a few.



Eradicating Black Holes

Structured Approach

Black holes are pervasive and elusive; therefore their eradication requires a structured approach. The structured approach suggested includes:



Detail-Level Review: A Basic Premise

To improve an organization’s functionality, we have to accept a basic premise:


We know something, but we do not know everything.


From this premise, two categories of questions to pose to an organization’s employees during the detail-level review are presented:

  1. systematic questions
  2. supplemental questions

An inquirer poses supplemental questions after posing systematic questions. Supplemental questions are questions an inquirer asks based upon his own personal knowledge of an area under his review. As such, questions one inquirer asks will differ from those asked by another inquirer were he to also ask about that same area. Therefore, systematic questions are designed to fill the gaps in the inquiring person’s knowledge, though they are asked first.

However, the systematic questions go beyond ‘filling in the gaps in the inquiring person’s knowledge’ to assisting the employee in providing a fuller answer to both the systematic questions and the supplemental questions.

The detail-level review suggested consists of very few questions and has powerful attributes. Because the review addresses an organization at a low level common to all organizations the same few questions can be asked of any employee in any department in any company of any size in any industry in any part of the world.


Repairs

Repairs give organizations gains. Repairs parallel the review as best as possible for numerous reasons. Organizations shift after even modest repair is one reason.

Activities are basic building blocks of organizations. ‘Omitted activity’, ‘incomplete activity’, ‘wrong activity’, ‘wrong sequence’, and ‘symbiotic activity disconnected’ are some of the ways basic building blocks (activity) can fail. This can lead to process failures, which can lead to failure to produce and deliver quality products and services or administrative failures, which in turn can threaten survival. It is individual basic activities we want to first repair.

Although gains can be made in-house, the gains will be limited because employees trying to keep organizations functioning are often already over-stretched heroes. Black holes must be overwhelmed before they overwhelm the organization and this requires outside help dedicated solely to that issue, preferably help trained in this field. Corporate Streamlining Company Inc. has been established for that purpose.


What Do Black Holes Look Like?

Appendix A consists of over 16,000 words and discusses 31 ‘what do black holes look like?’ items, complete with examples; however it is not comprehensive. Black hole–creating items are as plentiful as grains of sand in the Sahara Desert. To list them all would be almost meaningless. Yet it is important to understand the types of items that can be either the causes or the by-products of black holes so the reader can observe and then determine if his organization is subject to a black hole. Dishonesty, unstable data, and problem solving replaced by blame are examples of the “black hole” landscape.

Real life examples of problems and opportunities unearthed while addressing black holes in organizations are mentioned in appendix C of the book.


What Causes Black Holes to Form

Big change events cause an organization a sudden jolt such as when it merges with another organization, when sales suddenly boom, when the organization moves locations, or when it adds a new product line. However, obvious, large and easily recognizable breakdowns caused by the sudden jolt are not black hole–creating. A big change event can fracture the workings of an organization suddenly causing obvious work flow disruptions, workloads to become unequal, and policies and procedures to become misaligned. However it is the accumulation of many small breakdowns unbeknownst to management that are black hole–creating and the target of our special attention.

More important than big change events are subtle factors for they creep up on an organization slowly and tend to become more deeply rooted. The same “big change event” basic failings can occur gradually: good employees leave one at a time; errors occur one at a time and are not corrected; a small change is layered on top of the organization that it could not easily support; a new procedure is implemented without properly training the users; and an old procedure is forgotten. Every process has many small parts that are not documented or noticed and with each departing employee a piece of knowledge walks out the door, leading to inefficiencies.

Either a big change event or subtle factors can overwhelm an organization, one suddenly and the other over time—especially over time. And if management is unaware of the root causes of the destruction, then a black hole has formed.

The diagram on the left portrays how subtle failures of basic activities can cause or at least aggravate much larger problems higher up the organization to the point the organization’s survival can be threatened, especially when these failures occur in volume.

The Future of Organizations

Management Tool

As management understands black holes and realizes they can be diffused, they will no longer tolerate them: who would tolerate a thorn at the bottom of his foot when he could simply remove it? Corporate Streamlining Technology® is a tool for helping locate failures of basic activities that can then be eradicated.

Compliance Officer

There will come a day in the future of large organizations when failing to hire a compliance officer to hold the form of the organization as it moves forward will be perceived as a serious governance shortfall. This perception will be a natural outcome of organization personnel grasping the existence and the character of black holes then eradicating them. They will never want one to surface again. Pain has that effect.

Compliance officers are not new to organizations; however this compliance officer will not have his attention riveted on contract compliance and regulatory rules, but rather on organizational functionality. He will ensure compliance to the organization operating as management intended. He will venture below the business process level to continuously and systematically comb through the organization searching for black hole–creating items (failures of basic activities) to ensure they are terminated early so they do not threaten the organization’s survival.


About the Author

Ron Lutka is the founder and President of Corporate Streamlining Company Inc. that specializes in identifying and eradicating black hole–creating items, developer of Corporate Streamlining Technology®, designer and facilitator of the Corporate Streamlining Technology course, and is a certified Corporate Streamliner.

Ron’s articles have been published in the Treasury Management Association of Canada’s Canadian Treasurer magazine, and the Society of Management Accountant’s CMA Management magazine where his article was a feature article. Ron also presented his case claiming black holes exist in organizations at the InterDoc Symposium in April 2006.

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