Did you ever notice that the decline of an organization can be traced to the day they move into a flashy, opulent new headquarters?
Consider:
- Pan Am
Pan Am built their new headquarters in 1963. It was the largest commercial office building in the world. They sold the building to MetLife in 1983 and ceased operations in 1991. - Enron
In 1985, Enron moved from the lavish, marble Pink Palace in Omaha to an even flashier headquarters in Houston. They filed bankruptcy in 2001, taking down Arthur Anderson and PG and E with them. - Sears
The Sears Tower was completed in 1973 and sold in 1994. It was the tallest building in the world for 25 years. In 2004, Sears was merged into KMart. - Braniff
Braniff moved into their extensive headquarters in 1978. The Chairmans personal apartment had over $1 million in furnishings. Braniff ceased operation in 1982. - AT&T
The building with the Chippendale top was finished in 1985 just before AT T was broken up. The building was leased / sold to Sony in 1995.They became a subsidiary of SBC in 2005.
The list goes on and on. This does not just apply to big commercial companies. Think of all the cathedrals of Europe. Think of your local congregations that moved to rental space and then to owned space. Think of the local service organization that made the same transition. Think of your local school district building. Think of your city maintenance complex.
The decline may not be sudden, it might take decades. Growth may continue for years, but decline will happen. The building is rarely the reason for the decline, but it is an indicator that “slippage” has started.
There are three possible reasons:
The Sports Illustrated Cover Jinx
There is an urban legend that appearing on the cover of Sports Illustrated brings bad luck. The list of incidents is impressive. The common explanation is that an athlete must be at the peak of their game to be on the cover and the only direction to go from there is down. See Regression Toward the Mean.
Hence, organizations only erect large fancy buildings when times are extraordinarily good, but eventually regress to the mean.
A Shift in Focus
This one is more subtle. The focus begins to change. Instead of a focus on the mission or on delivering value to customers or even on enhanced shareholder value, the new headquarters symbolizes a focus on prestige and employee comfort. Not totally, but it is there. Eventually, the organization degrades.
Diversion of Income
Even moving from the “kitchen office” to rented space has a cost, especially to small nonprofits. Now recurring donations must be secured for rental overhead. Donors tend to resist overhead, no matter how efficient or how important it is.
Moving to owned space is an even bigger jump. Owning property means that, in addition to the mortgage expense, time and money must be spent to preserve and maintain the asset. And the existence of debt profoundly influences every day-to-day decision, as every cent of reserve funds and every cent of operating funds are borrowed. [Note: they could be used to pay down the debt.]
So What?
It’s just this. Anytime you are proposing a big ostentatious purchase, such as a new headquarters, or an airplane, or a yacht, etc., stop. Think about it. Why are you doing this? Does it advance your mission or does it just make you more proud? Does it change your view of the operation.