The birth of an organization

We hear a good deal these days about an organization’s need for a “vision statement” and a “mission statement.” Many of the manifestos produced in response to this supposed need appear to contain little more than apple pie and motherhood. A proclamation that a company is going to make high quality products, give its customers what they want and need, treat its employees fairly and generously, and provide the greatest possible returns to its stockholders is not likely to have any noticeable effect upon decision- making or other corporate behavior. The sentiments expressed are laudable, but they don’t even hint at what to do.

But cynicism about the effectiveness of platitudes should not cause us to dismiss as unimportant the sharing, by both executives and non- managerial employees, of a common conception of an organization’s goals: of the particular strengths and comparative advantages it can best employ to establish and maintain a competitive niche, and the “style” and strategies best designed to exploit and enhance these strengths and advantages. In previous chapters I have used the term “representation” to speak of the ways in which an organization characterizes itself. Finding an appropriate representation is especially important to the achievement of effective cooperation in new and growing organizations, and making sure that such a representation is conceived and then promulgated until it permeates the decision processes of the organization is an important leadership responsibility.

I can best illustrate both the nature of an effective representation and effective methods for diffusing it by developing more fully an example that has already been mentioned briefly in the commentary on Chapter II: the Economic Cooperation Administration.

1. Creation of the Economic Cooperation Administration

On April 3, 1948, the United States Congress approved the Economic Cooperation Act, implementing the so-called “Marshall Plan” to help restore the weak economies of European countries after World War II. By the end of July, the Economic Cooperation Administration was a going concern, and had already accumulated considerable experience in administrating its foreign aid program.

The following account reports some of the stages in the creation of the ECA. My knowledge of these events was gained largely from the vantage point of a position in the Organization and Management Division of the agency. While I had some small opportunity to check my observations with persons in other parts of the agency, they never saw exactly the same things that I saw, nor do I have any reason to believe that what I saw was the “reality.” Indeed, one moral of the story is that

zation were far from congruent, organizing required arriving at a single picture that was held more or less in common.97

2. Birth Pains

A good deal of the history of the agency during its period of mushroom growth can be read in the phone directories that were revised almost daily. The first directory, issued about April 13, lists fifteen names. As it does not include clerical personnel, the total number of persons who arrived on the scene in the first week and a half was probably about thirty. By April 22, the list contained 138 names including clerical personnel; by July 26, it contained 741 names, and the period of rapid growth was over.

The growth process was one of cell-splitting. Within a few days after his appointment as administrator, Paul Hoffman had appointed, in addition to two personal assistants, a director of operations, Wayne C Taylor; an acting controller, soon replaced by E. L. Kohler as controller; and a director of administration, Donald C Stone. Hoffman also brought in three economists to review for him the substantive programs that had been developed before the agency was formally created. The senior member of this group was Richard H. Bissell, who had served as executive secretary to the President’s Committee on Foreign Aid.

On the program side of the agency the cell-splitting process was very slow; on the side of the machinery of organization, it was very rapid. There are two reasons for this discrepancy. First, there was already in the State Department an “interim aid” unit that was administering earlier assistance funds granted to Austria, France, Greece, Italy, and Trieste, that kept the supply pipeline filled in the early period, and that was soon absorbed as a Procurement Transactions unit in ECA.57

Second, questions of mechanics were much clearer than questions of substance. The agency would need rooms, telephone service, and other housekeeping services, and would have to hire many employees. Even the press relations function was not overlooked. It was much less clear how the agency would administer foreign aid.

By the middle of April the director of administration had appointed a budget director, an organization and methods director, a personnel director, and an office services director. By the third week in April, 63 per cent of the personnel were in these units and another 13 per cent in the Controller’s Office, leaving 24 per cent for all the activities associated with the substantive program. By July 26 the personnel in the program units had increased from one-quarter of the total staff of the Washington office to one-half.

In mid-April, ECA resembled nothing so much as a manufacturing concern without a factory. An office desk or a telephone could be obtained in a matter of hours. In the new, partially finished building the agency occupied, interior partitions were erected with amazing rapidity. But whatever product was emerging was being produced by the State Department group, which was operating with a minimum of contact and almost no direction from the new agency. This course of events is completely understandable. As Washington had a clear conception of what an administrative agency looked like, the framework could be erected. But since no consensus existed about a program, the skeleton was not yet ready to be covered with flesh, blood, and nerves.

3. Alternative Representations

How then, did the program of the ECA and the organization to implement it emerge? One can identify at least six approaches to the organization of ECA. The early administrative history of the agency can be written in terms of the rise and fall of these approaches and of the administrative units with which they were associated. Since they are not wholly incompatible, and since no single one was clearly espoused by the statute creating ECA, the final structure that emerged made room for several of them.

Commodity Screening. Considerable experience had been gained in the administration of foreign assistance through wartime aid programs and postwar interim-aid programs. The chief repositories of administrative memory were the export licensing unit in the Commerce Department and the interim-aid group in the State Department. Some persons in the Departments of Agriculture and Interior had also participated in these earlier programs.

The screening process called for two kinds of specialized knowledge: of needs, and of availabilities. The former suggested some combination of commodity and area specialization; the latter pointed toward commodity specialization.

The Balance of Trade Approach. The enactment of the Marshall Plan had been preceded by economic research on the magnitude of Europe’s needs for assistance. The Committee of European Economic Cooperation (CEEC) had drawn up an estimate in the fall of 1947 of the goods that would have to be imported to maintain acceptable consumption levels, and of the balance of payments that would result from the import program. The “dollar gap” thus arrived at provided a basis for the amount of assistance requested. These estimates, after revision, guided the ECA legislation and the subsequent appropriations.19

In this picture of the program, individual commodity purchases played a subordinate role. Once the aggregate figure for aid to each country was set, it was unimportant whether a particular import was financed with ECA dollars or with dollars bought with exports. The notion that the foreign assistance problem was one of making up a “dollar deficit” follows from the balance of payments concept that has been central to international trade theory. From an organizational point of view, this suggested arriving by economic analysis at overall decisions on dollar amounts of foreign assistance to individual countries.

The European Cooperation Approach. Another set of preconceptions was aimed at bringing about more international trade, economic cooperation, and rationalization of industry in Western Europe. This approach was an essential element in the studies already mentioned and an integral part of State Department and congressional policy.20 Its implications were: first, that the initiative for programming should rest with the European countries acting cooperatively; second, that our relations with them under the program should be multilateral rather than bilateral, and should be channeled primarily through the Paris rather than the Washington off ice of ECA.

The Bilateral Pledge Approach. A somewhat different idea was that assistance should be conditioned on bilateral pledges between the individual participating countries and the United States.99 As one element in the required agreement was the willingness of the participating country to cooperate with the other countries, the two views were not in direct con- tradiction. Nevertheless, the bilateral agreements required direct negotiation through the State Department with individual countries, and thereby weakened CEEC and the Paris office of ECA as the primary channels of contact. The bilateral agreements also emphasized certain specifically American goals such as the continued availability of strategic materials.

The Investment Bank Approach. The Act specifically provided that, of the $5.3 billion in first-year aid, $1 billion be in the form of loans, with the Export-Import Bank as the lending agency. This suggested that it was necessary to determine whether individual projects for plant construction or other capital improvements were economically sound. The Congress itself was ambiguous (and probably intentionally so) in stating the criteria for approval of loans. Both the earning power of the investment and the ability of the country to repay were to be considered.22 The facts that the Congress included the earning power criterion, and that Mr. Taylor, the director of operations appointed by Mr. Hoffman, came to ECA from the Export-Import Bank, had important consequences for the organization of ECA during the first months.

The Policy-Administration Approach. The Budget Bureau had constructed tentative plans for the internal organization of the agency. Because there was no clear conception of the program, these plans resembled the organization that began to develop early in April—great emphasis on machinery and little on production. Provision was made for a bureau of policy coordination, a program bureau, a bureau of operations, and a controller. The first would be concerned with the broader aspects of European recovery, the second with the review of commodities lists, the third with actual procurement, and the fourth with documentation and accounting for funds.

It is a familiar idea that one should deal with a complex problem— any problem—by first making broad decisions, then implementing these with more specific decisions, and then implementing these in turn. This plan mistook a description of the governmental process for a list of the administrative units needed to carry out a program. Certain elements that later emerged in the ECA organization can be identified with the units proposed by the Budget Bureau. But except for the controller, this was a matter of coincidence and not planning. As the organization was modified by gradual adaptation, the unit corresponding to policy coordination absorbed more and more of the functions of the program bureau, and the program bureau absorbed completely the bureau of operations. The reasons will perhaps become clear in the sequel.

4. The Development of Program Organization

As the process of cell division continued, each of the program conceptions we have described found a concrete embodiment in one or more of the emerging organizational units. The fate that each unit suffered tended to depend upon two things. It depended, first, upon how easily its conception of the program could actually be implemented. Each program conception had to be spelled out in terms of concrete administrative activities, and a workable allocation of decision-making responsibilities. A program conception could not be regarded as workable unless it could be elaborated into a decision-making process for allocating $5 billion among the Western European nations and for translating these allocations into authorizations for the purchase of specific goods and services. Not all the approaches were capable of being implemented in this sense.

A unit’s fate depended, second, on the natural alliances it found with powerful Washington agencies surrounding the ECA that shared its conception of the agency program.23 Such alliances might decide the outcome as between competing approaches that were both workable.

In the ensuing power struggle, ideas—in particular the conception of the program—played a major role both as weapons and as motives for empire building. The conceptions were weapons that could be used to advance the claims of units to a larger place in the program. They were motives for empire- building because these units saw the broadening of their functions as the principal means for implementing their conceptions of the program. This kind of struggle was not peculiar to ECA; analysis of empire-building in government and in business would show that these elements are always present and very often of central importance. It is easier to identify them in the early history of ECA than in an agency that has already gone through a process of natural selection.

The commodity screening view of ECA’s program prevailed in the Procurement Transactions Division (the new name of the State Department interim-aid group) and in two program units that were set up on a commodity basis: the Foods Division and the Industry Division. The Foods Division was largely under Agriculture Department influence, and all three of the units had close working relations with the Office of International Trade in the Department of Commerce. Commodity screening was also the prevalent conception in the ECA Controller’s Office,

The workability of the commodity screening approach rested largely on several provisions of the act itself. One of these required that the aid should not impair the fulfillment of vital needs of the American people. Crude oil was to be purchased, as far as possible, outside the United States; no meat was to be purchased in this country except horsemeat, and there were other clauses for the protection of the American economy. Private trade channels were to be used as far as possible in the procurement of supplies, and at least half the goods were to be shipped in American bottoms. The effect of all these provisions was to require scmtiny of individual transactions.

Paradoxically, these provisions also created a basic weakness in the commodity screening approach. The crucial decision in screening scarce commodities was not whether their purchase was financed from ECA funds, but whether they were to be exported from the United States. Hence, quotas of total shipments of each commodity had to be established, and these quotas had to be enforced through export licenses rather than through the approval of financing. As a consequence, the main licensing responsibility had to devolve upon the Commerce and Agriculture Departments rather than ECA.24 The same weakness undermined the more naïve, but strongly held, conception that the purpose of screening individual transactions was to conserve the American taxpayer’s money by making sure that the European nations were using the funds only for “needed” items. Since 50 per cent of total European export dollars was being earned by regular international trade and only 50 per cent was provided by ECA, if a transaction were disapproved, the particular item in question could be procured instead with earned dollars and another item substituted on the ECA list.

In the end the ECA organization had to adapt itself to the facts ( 1 ) that export licensing, not procurement transaction screening, was the effective means for controlling individual transactions, and (2) that screening could not control the overall European import program. The Controller’s Office, with its auditing responsibilities, remained the only center of power for the commodity screening approach, which gradually disappeared from the conceptions of the programming divisions.

The balance of trade conception found its base—at first a very unstable base—among the economists who were brought into the agency, largely by Bissell on a consulting basis. Mr. Hoffman and most of the senior personnel immediately associated with him were preoccupied in the early days with external problems. They had to work out relations with the State Department and negotiate the bilateral agreements; they had to develop instmctions for the Paris office that was just coming into existence; and they had to prepare for the appropriations hearings on the Hill.

This left the task of developing the programming procedures and of reviewing the second- and third-quarter programs of foreign assistance to the economists. The actual program revision was the work of a few able, energetic, very young, and very inconspicuous professionals who had par- ticipated in the interdepartmental committees reviewing the original CEEC proposal and who were now operating under Bissell, perhaps not more than a half dozen persons.

The European cooperation approach was easier to describe than to implement.25 It required strengthening the OEEC through plans made by the European nations themselves. Because the Paris office was clearly the appropriate unit for dealing with OEEC, and because the cooperation goals had little relevance for programming and financing assistance, this approach never had a strong organizational embodiment in the Washington office; the center of gravity was in Paris.

The cooperation approach had, however, a negative implication that influenced thinking about the Washington office. There was great temptation to establish “country desks” in the program bureau, which was to be a replica of the WWII Foreign Economic Administration (FEA) organization—with an “areas” division and a “commodities” division. This conception, however, would foster bilateral relations with the individual countries rather than cooperation among them. These objections prevented country desks from sprouting as rapidly as they might have. They were not altogether prevented from developing in units where knowledge of the individual countries was needed for programming and arriving at balance of trade estimates.

Negotiation of the bilateral agreements required by the Act was a high- level matter involving State Department leadership. In the ECA Washington office, only the Office of the General Counsel was deeply involved. Once the pledges had been signed, their implementation of necessity devolved largely on the Paris office and the ECA Special Missions in the cooperating countries. Hence the agreements never exerted an important influence upon the organization of the Washington office.

The investment bank approach found its main internal support in the Director of Operations, Taylor, and its external support in the Export-Import Bank. The conception was applicable, if at all, only to a small part of the total program. Taylor’s unit soon became isolated from the flow of day-to-day transactions in the agency and gradually withered on the vine. The rapid decline of this unit was easily visible in terms of size of staff, changes in titles (Taylor became “the assistant to the administrator”), and office locations.

The unit early established its claim as the loan-approving authority, but a growing conflict developed between the investment criteria and the balance of payments criteria for loans. A crisis in the fall of 1948, when a large proportion of the loan funds were still uncommitted, gave convincing evidence of the unworkability of the investment bank approach and led to a resolution of the conflict in favor of the balance of trade approach.

The result is that during the first two or even three months the entire operating portion of ECA consisted of three groups. The first, comprised of Mr. Hoffman and a few high-level aides, conducted the external relations of the agency with the Congress, the State Department, other federal departments, and the participating nations. They negotiated the bilateral agreements and saw the appropriation bill through the Congress. A second group, in Bissell’s office, worked up a quarterly aid program and shaped up the programming procedures that were later accepted. A third group, inherited from the State Department, actually processed the requests for aid and kept the pipelines full. These three groups, together with their clerical support, could not have consisted of more than seventy-five persons, and probably fewer. During this period the rest of the agency was not so much “doing” as getting ready to do.

5. The Organization and Management Division

The ECA organization acquired a reasonably coherent form without apparently ever having been planned. What was the Organization and Management Division doing during this period? During the early days one could get only a fragmentary picture of what was going on. The oper- ating personnel, each conceiving that he or she had a job to do and little time to do it, did not want to spend time talking to procedures specialists or reading organizational announcements. Although the O&M Division made a valiant effort to find out what the procedures actually were, and to record them, any influence it had on the form of the organization was zational plans spent two feverish weeks trying to arrive at its own con- ceptions of the program and their organizational implications. For better or worse, the two representations that found greatest acceptance in the division were the balance of trade approach and the European cooperation approach. In order to influence the organization toward implementing these notions, a mimeographed memorandum—“Basic Principles of ECA Organization”—was circulated in draft form by the division on April 30. This memorandum largely ignored the proposed Budget Bureau plan, emphasized the balance of trade approach, and pointed to the weaknesses in the commodity screening and investment bank approaches. It stressed the need for strengthening the Paris office in order to foster multilateral rather than bilateral negotiations and warned against “country desks.”

No formal approval was sought for the memorandum, thus avoiding a tedious and probably interminable process. The memorandum was formulated as a set of underlying assumptions and their organizational implications (a “mission statement”?), rather than as an organizational blueprint. It was thought that a relatively brief draft memorandum of some two thousand words might actually be read by a few influential people, and that a few of the central concepts might be absorbed and influence future thinking about organization. The document clearly did not pass unobserved, but it would be impossible to assess precisely what influence it had.

At about the same time, the O&M Division had to provide the Personnel Division with descriptions of positions so that jobs could be classified and appointments authorized in the various units. This put the Division in a strategic position to influence the growth of the units. Until a unit could describe its functions to O&M and get acceptance of its role in the structure, it met a wall of red tape when seeking approval of its appointments. Personnel could be retained by a determined unit chief on a consulting basis, but the lack of a table of organization made a unit’s position very uncertain and exercised a check on expansion. This procedure made possible an effective delaying action against the establishment of country desks and the multiplication of statistical units.

The unit that fared worst was that under the director of operations, for the O&M analysts found themselves unable to reconcile Taylor’s conception of his task with the overall pattern that was emerging in the agency. Although the fate of that unit would probably have been the same in the long run, the halt in its expansion in the early weeks gave Bissell and his assistants time to organize their activities into a coherent pattern.

Having stated the number, he had to live with it; he also now had a means for countering the requests of the Washington units for more and more personnel as the cell-splitting process went on.

When, early in June, the personnel “needs” of individual units were added up, the total exceeded six hundred by a considerable margin, and the deputy administrator turned to the O&M Division for help in arriving at a balanced table of organization in hearings with the heads of individual units. Of course in the end the ceiling had to bulge. By the end of July, the Washington staff exceeded seven hundred. But the agency remained for years spectacularly smaller than any federal agency carrying out a task of comparable magnitude, and the sudden reduction in its rate of growth by the end of July can only be attributed to the ceilings.

On July 26 the first official organization chart of the Washington office of the ECA was reproduced. The chart did not create new organizational arrangements but ratified and gave solidity to the patterns that had tentatively emerged. From the beginning of August, it provided a set of historical boundaries in terms of which new claims for territory had to be argued.

It should be reasonably clear from the recital of these events that the O&M Division was by no means the predominant influence on the final form of the ECA organization. Although that form embodied most of the views expressed in the “Basic Principles” memorandum circulated on April 30, the relation was in only small part causal. The memorandum represented less an influence on organization than a rather accurate forecast of the mold into which the organization would be forced by the requirements of its tasks and goals—the conditions of “workability.”

6. The Aftermath

An organization chart depicting the structure of the Washington office on December 1, 1948,26 shows the focus of program activities lying in the office of the assistant deputy administrator for program, Mr. Bissell. Under him, the balance of trade approach was implemented by the Program Coordination Division, assisted by the Foods, Industry, and Fiscal and Trade Policy Divisions. Provisions of the law unrelated to the central programming functions were being handled by other divisions. The Office of the Controller was performing auditing functions, and a Statistics and Reports Division was “auditing” the effect of the program on the Euro-pean economy. The other important boxes on the chart correspond to the usual housekeeping units—administrative services, personnel, O&M, budget, security, and information. Mr. Taylor had become assistant to the administrator, with a small staff. The Procurement Transactions Division had dwindled to a small Program Methods Control Staff attached to Bis- sell’s office. A total of 770 persons was employed in the Washington office, 290 in the Paris office, and 1,127 in the country missions.

In less than four months, by July 26, the agency had attained virtually its final form, a form dictated by: (1) the relative political support for differing conceptions of the agency task; (2) the identifications and conceptions of the other government agencies surrounding ECA; and (3) the appropriateness of the structure for implementing that conception of the agency’s task which prevailed. But while the form was somewhat predictable it was certainly not planned. The processes of cell multiplication and the power struggles within and around the agency were the main processes through which this rapid adaptation and evolution of an effective organization took place. The organization that evolved represented an oversimplification of the agency’s task—an overemphasis of certain of its aspects, a relative neglect of others. But it did encompass the central features of the task and the requisite political emphases, and did so relatively effectively.

In this sense, the organization structure of ECA can be regarded as a reflection of the way in which the foreign assistance problem was structured by human minds endeavoring to grapple with its complexity. Each organizational unit can be roughly equated with some identifiable element in one of the competing conceptualizations of the problem

When we observe organizational change in the short run, and partic- ularly at a moment of large and rapid shift, we see environmental forces molding organizations through the mediation of human minds. We see a learning process in which growing insights and successive restructurings of the problem as it appears to the humans dealing with it reflect themselves in the structural elements of the organization itself. This view has important implications for reorganization. First, it implies that reorganization can seldom affect efficiency without altering program goals. When we change the organization, we change the picture of the concrete tasks to be done and the concrete goals to be achieved—the representation of the program. When we change the concept of the program, we change the relative importance of the several parts of the complex whole, we alter allocations of resources and priorities among goals.

Second, plans may influence behavior because they provide employees with a conceptual scheme of the agency’s program, a scheme that serves as a framework for decision and action. If the scheme translates the agency’s complex problem into terms that are clear and understandable to the persons who have to solve it, if it leads to a relatively simple division of activities and is helpful as a guide to decision— then its workability will be a powerful force toward its acceptance.

Source: Simon Herbert A. (1997), Administrative Behavior, Free Press; Subsequent edition.

Leave a Reply

Your email address will not be published. Required fields are marked *