Part V: Designing Organizations: What’s next? Designing Organizations for the 21st Century
“In the US, since the late 20s, the prevailing theory held that businesses should be run for a balance of interests--which meant that it should not be accountable to anyone.”
--Peter Drucker
I‘ll reign in the history lessons from the last four parts present some prototypes and provoke some thinking around possible solutions for the future of designing organizations.
Who (or what) is an organization designed for?
Historically, organizations have been oriented to the shareholders in the context of business. In business, the whole operation is supposed to be oriented to creating value for those who own the company, perhaps rightfully so. But what about those who create the value? What of the employees, the customers, the communities they operate in and contribute economically to? In today’s world, it would not be a stretch to describe a business operation as a system within a system built to create value for a number of different entities, not just the shareholders. This is especially true as the gig economy continues to grow and as coworking facilities offer blended work spaces.
What if it takes more than one company to truly create value in longer lasting ways? These are themes that are emerging now as the cracks in the foundation of traditional organizations become apparent.
Who is a company for?
The temptation to mimic large company structures is real and seductive. For a long time, we believed the myth that bigger is better, that what is good for GM must be good for America. These massive organizations are optimized for delivering most of their value to shareholders and executives. Most small businesses, I suspect, would have a similar but much smaller lists of owners, partners, principals, employees, clients, etc. These often overlapping groups that need to be satisfied, along with the main elements of capital and time, are the main characters and props needed to carry out the dramatic enterprise of running a successful business.
The bottom line here is that we do believe with a religious fervor that we must grow up and ape the giant organizations in terms of efficiency. The truth is we don’t have to. Small companies are not big companies. They have other advantages. They are nimble and can change course quickly, responding to opportunities and threats faster (because their lives depend on it). This dynamism is an asset to be leveraged, not ignored.
What business are you in?
At Insitum, we orient and optimize our business around detecting and then fulfilling (indeed exceeding) our client’s needs. We are essentially first in the growth of talent business, and second in the relationship development business. We do the first in order to have excellence in the second. Scaling our type of business can be tricky as the main currency are the relationships and trust we have built, which is not always easy to foster and grow.
We are a service business. As such, relationships matter a lot. They are fragile as much as they are critical. For us, it’s much easier to keep a client than to get new ones, but we constantly have to do both. With that in mind, we have to establish relationships, and grow into them by doing great work and helping our clients grow their business. To do that well, we need thoughtful, authentic people who know what they are doing and can really diagnose and develop novel ways to help our clients. Traditionally, this falls upon very few individuals who are senior enough to think through a response to a client problem.
Financial returns are the by products of the quality and depth of the relationships they are a testament to your level of trust not the “quality of management.”
-- Bo Burlingham, Small Giants
We have optimized our operations by putting our employees first. We consider things like profits for shareholders and owners to be byproducts of the work, not the main product. We believe that by putting our employees first, we can nurture their expertise and growth, which will enable our clients to create a virtual cycle of quality, ownership and trust on multiple levels. As a business owner, I can say with all honesty that I wasn’t sure what would happen, and part of me thought it was really an experiment in-line with the philosophy of Bernie Sanders. But results matter and we have had a number of things happen by flipping this model around, not the least of which include increased profits, a growing body of repeat clients who trust us, an authentically wonderful work culture, and an ever expanding quality of work that we can look back on with pride.
We think what we are trying to do is exciting and awesome,which is why we need to have a very good feedback system. We are willing to accept that we sometimes make bad calls or that we need to change things. It’s all a part of the deal. The problem is that people don’t always like change so much. This choice is a wake up call and begs the question:
What kind of business do we want to be?
We are trying to answer this question as we put these changes into place within our own organization. We make mistakes and design things we have to redesign later. That is the nature of it. I am pretty sure we are never done. One of the greatest lessons I’ve learned on the job is that the world is never finished.
“Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
--Larry Fink, CEO of BlackRock
Of course, not all business owners think like Larry Fink. Even Larry Fink probably hasn’t always thought like this. There is a gamut of business types, and they can be organized any number of ways. As owners and as employees: what do we want out of our business, or our jobs? Out of work? Out of life? It is critical to answer these questions to clarify and inform your business orientation and leadership style. Let’s break down this two-by-two:
Economic Instrument
On one side of the economic galaxy there are the businesses that exist solely to make money. They are a financial mechanism. These businesses enable jobs, tax bases, and bring economic value. There is nothing inherently wrong with this. In fact, I am guessing most businesses are like this. These businesses are the ones that seem to be obsessed with the efficiencies and financial returns that maximize profit and minimize effort. Emotions really have no place here. Scale and hierarchy and many of the topics we have discussed in previous articles fit in this type of business. For some, it may make a lot of sense. We have seen a trend businesses trying to escape the race to the bottom of the commodity curve by focusing on relationships and not transactions. This is a struggle you will likely face if this is your arena.
Fulfill a Passion
On the other end of the spectrum, there are companies that really started and continue to exist because someone is truly fulfilling or expressing some kind of passion. These seem to be the types of businesses that are more readily open to being more than a profit machine. They do more than make their owners rich, yet they are still sustainable as an enterprise. They often believe that financial returns are the byproduct not the goal. Financial returns are the result of long term client relationships. These are businesses with unique skills, and they have excellent reputations. They are in this for the long haul. They prioritize relationships over short term profits, and they get to know their clients intimately. They often have a high retention of employees as well.
These businesses are centered around relationships both inside and outside the company. They are typically smaller companies, so there are usually no conflicts with executives running the company at the expense of shareholders. The relationships with employees is critical, as they are often engaging with customers in ways that may seem inefficient or unprofitable, but in these businesses it’s the long game they are thinking about. We have found that by empowering employees, we unlock purpose, ingenuity and as sense of ownership.
Charismatic Leadership
What can we say about this one? It goes back a ways, and it’s something we’ve seen before and will see again. It has gotten a bad rap but a clear hierarchy is designed to enable a select few to make most of the choices that govern the fate of the organization. This is an older model that still has residue from the early bureaucracies that helped early kingdoms accrue vast amounts of wealth at the expense of the poorer masses. They were really built to consolidate wealth and power among the few. They gave us things like Nimrud in Babylonia and the Great Pyramids. Essentially these old rulers called themselves gods or had direct contact with them, much like we treat many of the CEOs of the largest companies today. (At least they are paid like gods). There was also great technological and artistic advances that came with the package, but with them came great human suffering and slavery.
As we have showed in previous posts, companies are made up of people who need to have a higher degree of autonomy and responsibility. Often they need to figure out what they are supposed to do as much as to be able to do it.The autocratic leader works well in businesses built around them. There are obvious examples like Erdogan in Turkey or Putin in Russia, but I suppose Oprah can be such a leader as well, though no one would in their right mind compare her to the two dictators. That her business empire is built on her reputation and charisma is not debatable; however, without her, there would be no Oprah empire. In a way, our business can be designed around charismatic leadership in the partners, much like a law firm, though our billable rate is shamefully less than our lawyer’s.
Cooperative Leadership
I have intuitively migrated to a management style that is called a servant leadership style. We have tried to invert the power pyramid to the point where instead of people working to serve the leader, the leader (me) exists to serve the employees. I used to joke that my real title was chief obstacle remover. Without knowing it, I have put into practice many of the principles of this style of leadership. So as not to have any slavery or class issues, let’s rename it Cooperative Leadership. The most important characteristic I have noticed is to lead by embodying the concept of humility. This helps empathy find a home in your workplace. If you are purposeful about it, most employees take your cue and start helping each other. It’s about unlocking a basic human instinct: that we are hard-wired to protect our tribe. We have to help define our tribe within a larger circle.
“...take high abstracted man alone; and he seems a wonder, a grandeur, and a woe. But from the same point take mankind in mass, and for the most part they seem a mob of unnecessary duplicates...”
-- Herman Melville
We have tried to observe and diagnose how we really work and optimize to the best of that structure. We have clarified what type of company we need to be to succeed. I believe we have to design for adaptability, design for consistent change, and design for reconfigurability. These are the realities of our era.
I have had the opportunity to work in many companies and organizations and see how they operate and observe the culture. A few were unpleasant, most were fine, and some were exceptional. I have tried to pull from this experience to build a culture that works for everyone. Now it’s your turn to decide which style you want to lead with inside of your organization.
“One cannot manage change; one can only be ahead of it.” --Peter Drucker
The idea that a leader is worth many multiples of the lowest employee is another myth we have not been able to let go of in the U.S. We tell ourselves that leaders get paid so much to manage many duties and people, because they are smarter than anyone in the institution, they work very hard, and they make difficult choices. Is this really true? The CEO of a hospital system does not really know more about heart transplants than the best heart transplant surgeon they have there. That heart surgeon is not an expert about anesthesiology. And so on. This is the nature of knowledge work. We need to rethink how leadership fits into new structures of power. It needs to enable trust and flow across silos because the nature of work has changed, too.
Trust is the currency of our work. It makes everything possible. It is earned, given like a gift, and once it's lost, it’s really hard to get back. For us, it’s not just executing tasks, it’s putting the faith in people that they will do the work to figure things out, overcome the challenge, and deliver incredible work. We have to push decisions out to the appropriate people who have the knowledge to best make those decisions.
All of this is related to how power is leveraged, stored, and used within an organization. The nature of power is shifting and needs to be dispersed in new decentralized ways. How is power expressed and discharged in your organization? How do people wield it? What happens if they misuse it?
All this leads to developing more autonomy and collective accountability. This means that enabling, growing, and mentoring talent is priority number one. I happen to believe that people are wondrous marvels, not cogs in a wheel. If you believe people are interchangeable parts, you may be in the wrong century.
Part I: Designing Organizations: What’s wrong with efficiency?
Part II: Designing Organizations: How Efficiency Became King
Part III: Designing Organizations: Efficiency needs some company
Part IV: Designing Organizations: The Perennial Search for Inspiration
Part V: Designing Organizations: What’s next? Designing Organizations for the 21st Century
Other Articles by Ric Edinberg
Is Design Thinking Really Bullshit?
Influential References
Burlingham, Bo. Small Giants: Companies That Choose to Be Great Instead of Big, 10th-Anniversary Edition. 2016. Print.
Churchill, Neil, and Virginia Lewis. “The Five Stages of Small Business Growth.” Harvard Business Review. 1983. Print.
Drucker, Peter F, and Mark Blum. Management Challenges for the 21st Century. Solon, Ohio: Playaway Digital Audio, 2009. Audio.
Harford, Tim. Adapt: Why Success Always Starts with Failure. 2012. Print.
Harari, Yuval N, John Purcell, and Haim Watzman. Sapiens: A Brief History of Mankind. 2015. Print.
Kilcullen, David. Counterinsurgency. Brisbane: Queensland Narrating Service, 2010. Audio.
Kilcullen, David. Twenty-eight Articles: Fundamentals of Company-Level Counterinsurgency. Washington, D.C.: Iosphere, 2006. Web.
McChrystal, Stanley A, Tantum Collins, David Silverman, and Chris Fussell. Team of Teams: New Rules of Engagement for a Complex World. 2015. Print.
Mintzberg, Henry, and der H. L. Van. “Organigraphs: Drawing How Companies Really Work.” Harvard Business Review. 1999. Print.
Mokyr, Joel. The Gifts of Athena: Historical Origins of the Knowledge Economy. Princeton: Princeton University Press, 2011. Print.
Wilson, EO. “Consilience Among the Great Branches of Learning.” Daedalus. 127.1 (1998): 131–49. Print.
