Fungibility – An Organizational Malaise

by Timothy B. Corcoran on September 20, 2009

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I’m a longtime fan of Stanley Bing’s irreverent take on business in his Fortune magazine column.  As with many columnists, he takes a slightly edgier tone on his accompanying Bing’s Blog.  In a recent post Bing discussed the critical employee, the one with specialized knowledge, the one who is irreplaceable.  It called to mind the old joke:

A factory machine shop mechanic retires.  Some weeks later, the machines at the factory stopped working. No one can get the equipment running again, and the factory is losing hundreds of thousands of dollars every day. The factory manager call the retired mechanic back in as a last resort. The mechanic walks through the whole place then tells the factory manager, “It’ll cost $50,050 to fix the problem.” “Anything!” he cries. So the old mechanic walks onto the factory floor, approaches a complicated series of pipes and valves, and taps a stuck valve with a small hammer. All of the equipment instantly comes online and starts humming. The factory manager exclaims in surprise, “You’re charging us $50,050 to tap a pipe?”  The old mechanic responds calmly, “No, I’m only charging you $50 to tap the pipe; the $50,000 is for knowing which pipe to tap.”

Too often, we fall into the trap of believing that we alone know the right pipe to tap.  This malady applies to assembly line workers, secretaries, salespeople, corner office managers, executives and even to the CEO.  In my career I’ve encountered this multiple times.  There was the sales manager who bragged that he “closed every one of his sales team’s deals personally” and the finance manager who proclaimed that “the revenue recognition model is so complex, no one else can run the reports.”  I’m sure that they believed they were establishing job security.  After all, if no one else can do the job, then they should have jobs for life.

There was once an unwritten rule in sports: you never lose your starting position due to injury.  Then in the early 1990s, Joe Montana, the 4-time Super Bowl winner, was injured and his replacement, Steve Young, had successful starts and ultimately won the starting job even when Montana was healthy again.  Montana left in a fury and was never as dominant again; Young brought another Super Bowl win to the franchise over several successful seasons.  In sports as in business, the organization or the team is what’s important.  If you are so critical to the team that we can’t live without you, then the team’s highest priority is to find a way to live without you.  Or, in other words, your irreplaceability makes you highly risky, and, therefore, replaceable.

This sounds counter-intuitive.  After all, why would we risk offending a star performer and potentially hasten his or her departure, just to ensure that we have someone ready to take his place?  It’s all about reducing the organization’s risk.  If I can’t live without you, then I can’t live with you.  If your knowledge is unique and specialized and mission critical, then my obligation as a business owner is to add redundancy.  In many cases we find that these star performers aren’t as unique and specialized as they claim.  But in other cases, we find that they are as important as they say they are.  It doesn’t matter.  The organization must reduce its risk by spreading that knowledge.

Like all aspects of organizational behavior, it’s a balancing act.  Do some managers mistakenly assume that everyone is fungible, that no one has specialized knowledge?  Yes, it happens all the time.  An old employer of mine routinely re-assigns salespeople to new territories and product lines, without any apparent regard for the importance of the relationships the salespeople have established.  And many companies lose good people and solid performers during layoffs, because they try to spread the cuts evenly rather than measuring the relative contributions of those impacted.  But just as risky is allowing the organization’s success to be funneled through one person.

In Bing’s anecdote, one of these irreplaceable employees recognizes his importance and makes some outrageous demands.  His plan backfired, and his manager began planning for a different future:

“Otto has succeeded in doing one thing,” he said darkly. “He’s made it necessary for me to think about life without him. Once I started thinking that way, I realized it was possible. Now I’m thinking, what do I need this aggravation for… to pay this much for the job that cost me so much less last year? Sure, it’ll be hard to replace him. But nobody is irreplaceable. Sometimes I have to remember that.”

Good business owners don’t allow themselves to be painted into a corner.  It’s important to grow your people, to provide them training so that they become subject matter experts.  But at the point where this specialized knowledge becomes mission critical and no one else can perform the role, then it’s time to share the knowledge.  Done right, the expert then moves up to bigger and better things.  Whether or not we actually have a plan in place to keep star performers moving up is a topic for another day.

Update: According to Bing, Otto ultimately received the raise he demanded.  I faced this same situation some years ago when I met a valued employee’s aggressive demands.  I then spent the next year making him dispensable, and eventually he moved on.  While some thought it was retaliation, it actually resulted from his raising my awareness to the shocking fact that we couldn’t operate without him.  Had he never made the outrageous demands, he might still be there today.

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