Paper by Charles Handy on the merit of federalist principles applied in businesses and other organizations. Handy begins the article discussing how companies are creating leaner, more integrated, and global networks, and how this is essentially the incorporation of federalism’s principles to make a difference in business organizations. Handy proceeds to explain that organizations today are increasingly seen as minisocieties rather than impersonal, bureaucratized assemblies, with major companies in every country moving in the same federalist direction. He then explains that federalism is not just a fancier word for restructuring in a company, arguing that the principles of federalism, and the very idea of it, reach into the soul of an organization, making it a way of life rather than a business framework or political system. Handy notes, however, that it is the structure that changes first, which grants a series of paradoxes to federalism's operation, the first being that paradoxes need to be both large and small at once. He states that this paradox of both bigness and smallness in organizations dominates politics and business today, and that federalism balances pressure among those in the center of an organization, those in the centers of expertise, and those in the center of operating businesses, with the true centers of federal organizations dispersed throughout the operations. Being so arranged, these centers exist to coordinate, not to control. Handy identifies business’s second paradox as its declared preference for free and open markets as the best guarantee of efficiency. However, he notes that open markets, operating on their own, do not necessarily work any better than central planning, arguing that a bit of both is needed, a fusion embodied by the federal compromise. Handy then designates the desire to run a business as if it were one’s own when one cannot afford, or may not want, to make it one’s own, as the third paradox, observing that it is cheaper and safer to expand one’s business range by alliances and joint ventures. As alliances function largely as marriages, he notes, federalism serves to facilitate such business relationships due to its qualities of trust and common goals. He goes on to identify the pull of professionals as an additional force pushing companies toward federalism, labeling them human assets -- high achievers who see themselves as having careers beyond the organization, and who prefer small, independent work groups based on reciprocal trust between leader and subordinates, which are part of a larger central unit or family. Federalism therefore enables such professionals to succeed and draws them into an organization. Handy goes on to emphasize subsidiarity as the most important part of federalism’s principles, an arrangement in which power is situated at the lowest point in an organization and can be rescinded only by agreement. Subsidiarity therefore imposes on the individual or group “type two accountability,” and federalism enables that function. On a related note, plurality also constitutes a key element of federalism because it distributes power, avoiding the threat of autocracy in an organization and the absolute control of a central bureaucracy. Handy then identifies interdependence, alongside a common law, language, and currency, as a way of effectively doing business, followed by separation of powers and twin citizenship. Handy closes the article identifying a series of maxims for managing in today’s organizations, and goes on to observe that federalism is appropriate for the current times, an era in which diversity and difference are respected, people want to be independent and pursue their own goals while being part of something bigger, and where people look for structure without the burden of rigid, hierarchical authority.
Handy, Charles B Harvard business review book series Federalism - theory & application White, Caroline Barnevik, Percy Akers, John IBM General Electric Company Johnson & Johnson Coca-Cola USA Coca-Cola Company Grand Metropolitan (Firm) British Petroleum Company Accor (Group) Honda automobile Royal Dutch Shell plc Unilever (Firm) PepsiCo, Inc Whitbread and Company Pizza Hut (Firm) Subsidiarity Motorola, inc Morita, Akio, 1921-1999 Sony Corporation Chrysler Corporation Organization theory Organizational behavior Organizational change Institute of Directors Asea Brown Boveri Ltd Galvin, Robert, 1922-2011 Sir Robert Horton
Source
Paper by Charles Handy on the merit of federalist principles applied in businesses and other organizations, 1992; Charles Handy Papers; Box 20, Folder 6; 16 pages
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