Three Ways Dysfunctional Organizations Die


The air feels heavy and choking. Every action is second guessed and scrutinized. Welcome to the dysfunctional organization where revenue is stunted, discord is encouraged and insolvency looms around the corner. “All happy families are the same, but every unhappy family is unhappy is its own way states Leo Tolstoy’s in his novel Anna Karenina,

Leo Tolstoy’s philosophy on happiness has become known as the Anna Karenina principle. The Anna Karenina principle states that a deficiency in any one of a number of factors dooms an endeavor to failure. A successful endeavor is one where every possible deficiency has been avoided. Dysfunctional organizations don’t always manifest themselves as toxic, hyper-competitive bullyfests. Dysfunctional besets an organization via 1 of 3 dysfunctions: self-seeking, fear, and unfocused.

The Self Seeking Dysfunction

The self-seeking dysfunction elevates the good of an individual or department above the good of the organization. Commonly referred to as selfishness, organizations crippled by this ailment demonstrate a “win by any means necessary” mentality.  Departments and individuals act independently and in ways unbounded to rules, logic, and the greater aims of the organization.

Self-seeking dysfunction is perhaps the most difficult dysfunction to unravel as at times it manifests itself in a positive way. That salesperson that crushed their quota is doing good work. But if that salesperson’s attitude and sense of loyalty drift from the organization’s best interests, then bad side effects result.

The earliest stage of a self-seeking organization is disjoint between individual pursuits and corporate goals. Taken further, the self-serving dysfunction creates ethical gaps. Such a case is evident in the story of Parmalat, a family-run farm, founded in 1961 in Northern Italy. Over the subsequent 40 years, Parmalat grew into a multinational food conglomerate. In 1990, when Parmalat’s financial performance began to slip, management decided to obscure the poor financial performance.

That initial decision in 1990 to temporarily obscure bad news planted a seed of destruction that grew into an inferno over the subsequent thirteen years. That is until 2003 when the fraud could no longer remain uncovered. Parmalat became insolvent and the CEO was arrested for fraud. The self-seeking dysfunction reached an endpoint and Parmalat is now synonymous with one of the biggest corporate frauds of modern times.

The Fear-Based Organization

Dysfunctional organizations that struggle with fear ailment fixate on job titles, prestige, and competition. The hallmark of a fear-based organization is a pervasive air of distrust. In this type of organization, the goal is to get ahead by any means necessary.

Most kids who grew up in the 1980s and 1980s remember the whimsical designs of Lisa Frank that seemingly canvassed every binder and notebook. Fewer know the story behind the company.

Lisa’s Arizona based employee once boasted annual revenues of $250 million while employing 350, before crashing to the single-digit millions in revenue and six employees.

Lisa Frank Headquarters, Courtesy: Insider

While Lisa Frank undoubtedly operated in a fickle industry, the workplace environment of Lisa Frank destabilized operations. Management forbade workers from speaking to each other and recorded their phone calls. Once, the CEO instructed a manager to padlock the building doors when an employee left work 10 minutes early. “It was a revolving door,” an employee said of the company’s turnover. In his four years of employ in the 40-person creative department, he estimates that group “may have changed over at least two to three times…It was just unbelievable. One year, almost a third of the entire staff turned over.”

As the world moved online, the shoot-first, ask questions later mentality of top management crippled Lisa Frank’s ability to adapt to a changing world. Those who lacked formal organizational authority had no say. Thus, the new age of the Internet blew past the demoralized employees and blew Lisa Frank’s business to smithereens.

The Unfocused Organization

The unfocused organization doesn’t equip or expect their employees to deliberately seek the best possible solution. These organizations offer solutions without a full understanding of the problem. They dismiss failure as unpreventable, defer to experience rather than wisdom, and blindly follow instruction, no matter its quality.

Blockbuster serves as a classic case of an unfocused organization. Blockbuster stores dotted the U.S.A. and despite regional competition, their dominance was total. As the world migrated to digital, Blockbuster wasn’t caught unaware. They saw the competition, knew the competition, and laughed the competition out of their offices in 2000 when Netflix offered to be bought for $50 million.

Blockbuster’s customers didn’t rent from Blockbuster because they “had a fun store”. Customers wanted a video rental experience that was quick, effortless, and provided the best possible . Blockbuster lost focus on these needs of the customer. This lack of focus is exemplified by the corporate headquarters as related by Netflix’s co-founder Marc Rudolph that was “designed to impress visitors with the company’s wealth and power, from the building to the loafers worn by CEO John Antioco.

Some five years after the 2000 board meeting, Blockbuster fought hard against the now powerful Netflix and even floated the idea of a merger. Three years after that, Blockbuster effectively handed the DVD by mail and subsequently the streaming market to Netflix by announcing a large DVD by mail price increase and a focus on “making our retail stores fun.” In 2010 Blockbuster filed for bankruptcy protection, completing their unfocused dysfunction.

What to Do with the Dysfunction

It’s easy to look at these dysfunctions and think “wow I’m glad my organization isn’t like that.” The real truth is more complex and unsettling. All organizations have flaws. These flaws may be glaringly obvious or in many cases are hard to detect. When left unchecked, flaws morph into organization ravaging dysfunctions. Consistent self-examination, analysis, and strategic plans to mitigate flaws result in a robust and profitable organization.