Before I finish this segment,
I want to give you one particular example of where emergence failed.
And I want to extrapolate from there to say, look, it's all very well
talking about emergence of principle, but we've also gotta be quite careful with it.
And the example I want to use is a,
a very famous example of of a corporate bankruptcy, Enron.
Enron Corporation.
Now, you've all heard of Enron, you all know that in 2001,
Enron filed for bankruptcy.
It was at the time the biggest corporate bankruptcy in America.
And the story here is just worth repeating briefly, because Enron, you know,
even two or three years earlier, was being hailed as the most successful,
the most exciting company to work for in America.
Enron started out in the world of oil and
gas, gradually it moved into the trading of oil and gas.
It figured out that you could make much more money trading oil and
gas than actually getting the stuff out of the ground and distributing it.
But they didn't stop there.
They'd actually moved from trading oil and gas to trading all sorts of things.
They'd started trading weather derivatives.
They started trading broadband capacity, and details perhaps we won't go into now.
But the architects of this, Chairman Chen Ken Lay chief executive Jeffery Skilling.
They came up with this model, a management model.
Which said,
in order to sort of harness the potential value that we're creating here.
What we've got to do is we've got to create enormous degrees of freedom for
our employees.
So they hired the best and the brightest from Harvard Business School,
from other leading business schools.
They gave them lots of freedom to figure out for
themselves how to spend their time, and
they encouraged them to pursue any and every business opportunity they could.
And essentially what happened was they kind of,
they liberated all these almost like animal spirits in their employees.
And people went off and created businesses.
Now, that's a good thing, but
they started creating businesses in areas that they didn't understand.
And they started running after opportunities without doing their
due diligence on whether they were good opportunities or not.
And eventually the whole system imploded.
Now let me be very clear on this because Enron became bankrupt because of fraud,
because they were essentially hiding all sort of assets off their books.
Because they were doing deals between subsidiary companies that
essentially kept the, the, artificially kept the share price at a high level.
But for me the two things are linked.
That is, the fraud on the one hand and
this attempt to create a, a, really free market system inside the company.
And they're linked in the following way, which is that Ken Lay and
Jeff Skilling encouraged people to be, to be entrepreneurs.
To try and find new business opportunities.
They created enormously ridiculous even
ambitions about becoming the biggest and best company in the world, full stop.
And in doing so,
they create expectations in the stock market which could not be fulfilled.
And gradually, as the reality of how much money they were making fell away from what
the stock market was expecting.
They kind of filled that gap if you like with the various off
balance sheet accounting activities that,
that led them to ultimately to cause the collapse of the company.
So, so to be clear, Enron was successful for awhile.
Enron became almost too big for it's boots.
It started to kind of coming up with over winning ambitions that led them to
create businesses which were not appropriate.
And at the heart of all that I would argue, they created a system based on
this properties of emergence that they kind of took too far.
So my point is, is the following, yes emergence is a good idea,
yes giving people authority to make their own choices is a good idea, but
it has to be within a structure.
It has to be with some very clear boundaries around the edge.
It has to be with a very clear sense of direction, and it has to have the support
and structures from managers, from the system, from the rules if you like.
To ensure that people actually have the,
the resources, the information they need to make smart decisions.
So that is where emergence goes wrong.
On the whole, most organizations could do with more emergent activity.
But Enron is a classic example of a company that took it too far and
actually bankrupted itself in the process.
Julian BirkinshawProfessor of Strategy & Entrepreneurship
