Definitions of parasites vary, but the meaning of the original Greek parasitos is close enough -- "one who eats at another's table." Unable to produce, parasites can't live on their own. To survive, they must drain life-giving energy from their hosts. Unlike the mutually profitable, two-way flow between producers in a symbiotic relationship, the benefits of a parasitic relationship move in just one direction -- from host to parasite. Over time, the host weakens as its resources are siphoned off to support the parasite's growth.
Nature abounds with parasites. Of the 50 million or so species on earth, roughly half survive by exploiting some other organism. Virtually every disease afflicting humans, plants, and animals is caused by parasites of one sort or another. Everyday, thousands of tapeworms -- some as long as 75 feet -- are removed from their listless human hosts.
In the economy, the array of parasites nearly matches nature's. Some, like the mugger robbing a victim at knife point, are simple and obvious. The benefits of this brief "relationship" flow in one direction. And, just as a virus uses its protein "hook" to latch onto a cell membrane and a tapeworm uses suckers to attach itself to the small intestine, the mugger uses his knife to hook his victim into an involuntary transaction.
Large and sophisticated economic parasites tend to employ more subtle hooks. The federal government exploits what is probably the most ingenious form of economic parasitism ever imagined. Instead of dining exclusively on the resources of angry taxpayers, our leaders use deficit spending to siphon off our children's inheritance. We can complain all we want, but this tapeworm has an enormously powerful "hook" -- an incumbency racket of perks and PACS that guarantees Congress a 98%+ re-election rate.
In business, all healthy, mutually profitable economic relationships are "hook-free" -- open and voluntary. When either party decides that the relationship is no longer profitable, it must have a way to disengage and find new trading partners. That's why contracts have termination clauses. Indeed, it is the ever-present risk of losing profitable customer relationships to competitors that keeps productive, mutualistic organizations disciplined and efficient.
In a way then, it's odd that so much of conventional business strategy is devoted to creating customer "hooks," to insulating the firm from relentless competitive pressure. "Defensible barriers" are erected to protect market positions and profit streams from head-on competition. The more "locked in" customers are, the higher their "switching costs," the more remote the possibility of a successful competitive attack. In high-tech, the ultimate strategic triumph is having your proprietary design become the industry's de facto standard -- hooking the entire industry.
But more often than not, companies that manage to achieve such strategic victories are soon destroyed from within, by the unstoppable growth of bureaucracy. Once they're free of direct competition, firms that started off as highly productive mutualists begin to behave more and more like parasites.
In the Seventies, Xerox -- protected by its original patents -- became so bloated that it couldn't make price-competitive copiers or create any shareholder value from PARC's string of breakthrough technologies. Only the expiration of its patents, a massive market share loss, and a complete corporate transformation shook Xerox from its parasitic lethargy and returned it to world-class competitive stature. Today, Intel executives admit that if AMD hadn't shattered its 386 monopoly, the 486 and 586 would still be bogged down somewhere in the system. Microsoft, despite its stunning track record, is terribly overstaffed. And a lethargic Autodesk still watches as smaller, leaner competitors whittle away at its once overwhelming dominance.
The sad truth is that no matter how gifted a manager you are, when you're inside a strategically dominant organization, it's nearly impossible to find, much less root out, all the waste and bureaucracy. Every time you shut down one useless activity or department, another pop ups. Profits that should have gone to shareholders or reinvestment are instead consumed by the company's own bureaucratic tapeworm.
It's only when a company's strategic position is gravely threatened -- as Apple's now is by Microsoft Windows -- that it will begin taking a hard look at itself. But even then, management almost always attacks the symptoms rather than the cause of the disease. Headcounts and cost levels are cut, but as soon as revenues rebound, the bureaucracy grows back stronger than ever.
What's missing here is the recognition that a bureaucracy, like any other parasite, cannot be purged unless its "hook" is removed. As long as that hook remains intact, the company's tapeworm will keep growing back, no matter how furiously management hacks away at it. But removing the bureaucracy's hook requires some unconventional management practices.
For example, instead of granting each department a permanent monopoly over a specific functional area, an anti-bureaucracy strategy eliminates departmental "hooks." It opens things up, creating new options -- an internal corporate marketplace where project teams and outside suppliers bid for work at fixed prices. Instead of building a centralized control apparatus to contain costs, an effective bureaucracy cure is based on decentralization, where the risks of competition and rewards of success give teams and departments the incentive to stay lean, innovative, and agile.
Go ahead. Build "defensible barriers" against your external competitors. Try to gain the strategic advantage and "hook" your customers. Just make sure that those same hooks aren't allowed inside your company. Insist on free-flowing competition. If forced to compete with your genuine producers, your organizational parasites will wither away.