Core Group Theory
(Kleiner)

Knowledge Center

The actual objective of the modern corporation

Kleiner makes the bold statement that what comes first in every organization is: keeping the Core Group satisfied (normally most of the top managers). And yet, according to Kleiner, Core Groups are not inherently bad or dysfunctional. They are rather necessary and even the best hope we have for ennobling humanity, since organizations are natural amplifiers of human capability. An organization's Core Group is also the source of its energy, drive and direction. Or more accurately, any organization goes wherever its people perceive that the Core Group needs and wants to let it go. Non-members depend upon the Core Group for direction. The Core Group and its members depend upon the non-members for their legitimacy.

Core Groups are normally not mentioned in any organization chart. Compare: Organization Chart. They exist only in people's hearts and minds. After some time, organizations will resemble their Core Group and act like it. And automatically pivot and twist to give the members of the Core Group what they think they want and need, without even asking them. Great Core Groups hold an essential form of knowledge. They set the context that establishes this knowledge as significant.

How do Core Groups become so powerful?

Kleiner explains that the mechanism is based on guesswork and amplification. People who are not in the Core Group try to guess what it is the Core Group wants. So even a casual remark in passing by a Core Group member can be amplified to a shift of direction of an entire division. As a consequence, top managers need to be very cautious in what they say. According to Kleiner, concepts like the Balanced Scorecard do not really change this. Although more objective measurements may be used and there is better strategic communication top-down, still a lot of guesswork remains: people assume that they should interpret the numbers according to what they perceive the Core Group really wants, And people also assume they should interpret the Core Group according to the numbers: if the measurements send a clear signal, then people assume that is where the Core Group wants the organization to go. According to Kleiner, Core Group dynamics also prevent organizations from changing easily. Both the Core Group and the non-core employees are interested in maintaining the status quo.

Expanded Core Group Organizations

Kleiner suggests that is it is possible to create "Expanded-Core-Group Organizations". To do this, the following elements are suggested:

• Employee securities (stock) ownership plans.
• Financial literacy.
• Non-hierarchical decision-making.
• Comprehensive (financial and strategy) training programs.

This is where Core Group theory is not unlike Value Based Management thinking.

As far as the Value Creation part of VBM is concerned, it is important to decide whether an organization should aim primarily at maximizing shareholder value, or to take the position that in reality the Core Group comes first. The last is essentially a form of Stakeholder Value Perspective. Thus Core Group dynamics can provide an explanation for the phenomenon in which companies, despite having adopted the maximizing shareholder value philosophy, are not being very responsive to shareholders needs. Sometimes Core Group members believe mistakenly, that the organization's first task is to keep up the share price. The easiest way of doing that is: the presentation of slowly but steadily growing positive quarterly results. Through guesswork and amplification the entire organization will follow a Core Group that makes this serious mistake. The organization will support the Core Group in providing a manipulated and wrong picture of the reality instead of what really should be done: taking decisions that maximize shareholder (or stakeholders) value. Compare: Seven Signs Of Ethical Collapse

Book: Art Kleiner - Who Really Matters

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