The Dangers of Decoupling
What Our Failed Startup Can Teach Others About Organizational Distance
During the last few months of 2017 I was in a constant state of outrage. I woke up every morning terrified of the next inevitable crisis, exhausted from putting out fires. I was tired of wasting my breath shouting into a digital void, asking for recognition of the problems that were escalating every day.
The startup I was working at was a few months from shutting down, and at this point it was too late to turn things around. Looking back, I don’t think we would have made it in the long-term, but what I do believe with certainty is that organizational distance played a role in ensuring that failure. The outsourcing, remote work, automation, and geographic distribution that were part of our strategy to be lean and resource efficient ultimately blocked us from working as an aligned unit.
The sudden arrival of social-distancing and shelter-in-place orders across the world have catalyzed ongoing discussions about the benefits and challenges of a remote working environment. Now, to be clear, the 34% of US workers who are able to keep their jobs remotely — those who haven’t been laid off or aren’t forced to put their lives at risk as they perform their jobs — are the lucky ones. But if remote-work and an ongoing shift towards contract labor remain a norm of business operations moving forward, what are the consequences for workers and their employers?
Tracing Recent Trends of Employee Relations
Remote-work can be posited as the next phase in an ongoing trend away from New Deal era Fordist employment models, where the labor force was organized under large fixed bureaucracies, and further into Post-Fordist flexible specialization, characterized by a condensed core of full-time human capital and a decoupled periphery of temporary workers and outsourced job functions.
I don’t expect, nor do I encourage, a return to the more permanent loyalty-based institutional model that was the norm of the 1950s (which had its own problems of fostering corporate glut, and imposing rigid and expensive requirements on businesses). But I do want to question and problematize the logic of flexible specialization, which has frequently been taken as a truism when it comes to building efficient organizations.
Although this is a gross simplification, one might see the shift towards functional decoupling as follows: if we picture organizations as individual bodies, then we have decided to devote all of our resources to our core. In other words,
Because sometimes we’re sitting down, we should only send blood to our legs when we need to go for a walk.
If we swing too far towards this highly fragmented and detached model of employment, then we might actually miss out on the benefits of operating as a connected unit.
The Consequences of Organizational Distance
In some ways this tradeoff sounds quite reasonable: we can survive with much less, and we’re cutting off the deadweight. But as a consequence, we’ve dulled our senses, and might be missing out on important sources of haptic feedback that could get us out of harms way.
We are mostly aware of the negative impact that this system has on workers who are now decoupled from the core, including:
- Breaking of the “social contract” of protections, training, and benefits for employees
- Growth in the productivity-pay gap
- Lower opportunities for upward mobility
Even those within the core are not necessarily better off, and might suffer from increased overload, caused by downsizing efforts and managing increasingly complex global systems.
But less frequently discussed are the negative impacts this system has on organizational outcomes. Although they might achieve lower payroll costs, organizational distance can lead to:
- Misalignment and miscommunication, which can reduce the quality of information shared and received
- Lag in information and feedback
- A firefighting mentality that can cause increased defects
Organizational distance is also a matter of perception, as some co-located teams can also suffer from these same issues, and remote-teams might operate smoothly. But as we’ll see, the process of decoupling can erode the communication channels that help teams avoid crisis.
Perhaps our startup experience can illustrate that a company’s ancillary functions are sometimes the source of its core competencies.
When Flexible Systems Backfire: The Case of Castle
My first job was at a real-estate startup that practiced a remote-first work culture, with a geographically distributed team, on-demand contractors, and large overseas support staff. Our vision was to use software to manage rental properties in a way that was more transparent and less expensive than traditional firms.
We got further than most startups, going through the Y-Combinator accelerator and raising several rounds of venture capital. But when the company eventually went under, it was a visceral illustration of the challenges that remote and distributed teams face when managing complex and rapidly evolving needs.
We built a system that, in theory, would enable a property manager to manage hundreds of homes without ever leaving the office. We devoted our attention to our core competency — communicating with our landlord customers — and we set up peripheral systems to handle the rest. Customer support representatives in the Philippines would take the first line of calls, gig workers would do the property showings on-demand, our software system would automatically remind tenants to pay rent, and our a network of contractors would handle maintenance.
But reality looked more like this:
Three organizational problems emerged from this specialized and flexible system:
- Information delays: because our first line of customer support went through our team in the Philippines, it frequently wasn’t until the problem was out of control that it would be escalated to our team in Detroit. We had cut off our ability to detect the early warning signs and get ahead of crisis.
- Miscommunications about severity: our founding team was living in California at the time, and frequently had to make trips back to Detroit to fully grasp the challenges. Communication about the challenges was never quite as effective as feeling and experiencing the pain first-hand.
- Inefficiencies caused by managing the complexities: as you can see in the diagram, what was theoretically an efficient system created a communication bottleneck that was overwhelming and unsustainable for the domestic team, leading to high levels of stress and turnover potential.
Why didn’t our system work? There were many reasons, including being a young, inexperienced team taking on an unattractive industry in one of the country’s most challenging markets. But we also built a system that dulled our senses, and made it harder to respond to problems quickly and thoroughly. Our foot was on fire, and we didn’t feel it until we were already consumed by the flames.
Today I’m worried that with the impending economic hardships to come, companies under financial strain will make the same mistakes that we did, and cut down their workforce to the “necessary core functions.” What I hope they realize is that with decoupling comes desensitization, and the short-term efficiency gains might actually come at the cost of the company’s long-term viability.
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