Choosing the Correct Principal To Design Your Organization Around — What the #neworg Movement Doesn’t Tell You Pt. 1

This is the first installment of a two part series in which I address some issues that many organizations grapple with today but I feel are underrepresented in the current, very active discourse about new ways to organize companies.

I’m a proponent of and believer in the idea that organizations need to change drastically — or to use some hipper lingo: need to install a new operational model — in order to cope with today’s challenges (digitization, speed, complexity, convergence, to name a few). There are several smart and insightful people who drive, develop and shape the thinking on the topic, for instance Frederic Laloux, Brian Robertson & the people at HolacracyOne, Aaron Dignan of Undercurrent fame, Mike Arauz & the whole team of August, Niels Pfläging and several others. (All of them are also highly recommended, in case you don’t already follow their work!)

I’ll henceforth call this whole development and its proponents simply the #neworg movement (some call it new work but that sounds too operational for my taste).

Across the board, the basic assumptions and ramifications are all very similar:

  • Organizations are thought of as dynamic, ever-evolving networks instead of static, hierarchical structures.
  • Agility and the ability to continuously adapt to — or, even better: shape — new environmental conditions become key capabilities for organizations.
  • Self-management, situational leadership or fluid roles become important tools for achieving the former and creating more dynamic environments where driven people can grow and follow their purpose.
  • The worlds increasing complexity results in more uncertainty and limits our capability to predict and plan. At the same time the connected world allows for scale to a formerly unknown degree. Thus, there is a bigger emphasize on ‘creative dabbling’ as Nassim Taleb would put it. That is, experimenting with a variety of new ideas that might have a high risk to fail but only a limited downside whereas they have huge potential upside in case they succeed. This approach is also described as an evolutionary approach in contrast to the traditional top-down strategy model.
  • Organizations are driven by a shared purpose. Hence, they are understood as a place for the people who constitute them. They are a place people go to (though not necessarily physically) in order to achieve great things together — in contrast to viewing employees primarily as a resource and cost factor.

I subscribe to all of it. If you are interested in my take on it as well as the underlying ideas and theories, I point you to my piece The Antifragile Organization.

The discourse has already reached the point where we are beyond identifying the problem — very simply put: slow, static organizations which are designed badly for coping with today’s challenges. Instead, we are in the early stages of creating solutions and collecting experiences with them. Holacracy for instance provides a complete solution. Frederic Laloux analyzed a whole bunch of organizations which operate with a new model and summarizes them as teal organizations in his brilliant book Reinventing Organizations. The great people at August call their concept responsive organizations. 
(A great term! More intuitive than my antifragile organization and way better than calling it simply an agile organization as some people do, for instance the people at McKinsey. Though it’s correct that agility is important, it puts it dangerously close to agile project management and people are getting trapped and start saying things like: ‘we do scrum, we are done’. Particularly dangerous as I met some scrum coaches who don’t get the why behind the method. What I also like about the responsive organization term: It incorporates one important fact I’ll stress in part two: The outside perspective. Side-note to the side-note: I so miss the public notes feature that worked so well as Grantland-style footnotes, Medium!)

All this is pretty good news, as companies around the globe — even in good old, famously conservative Germany — are sensing that their current operating models are no longer viable and looking for solutions. However, I attest the #neworg movement that it focuses on only one third of the equation and doesn’t stress two really important aspects enough:

  1. The principle organizations should organize around
  2. Creating a link between the organization and the outside world by design

Let me elaborate on the first point.

The principle you organize around matters

Most organizations I have seen or worked with are organized by function. Of course the bigger ones often have an explicit (or de-facto) matrix organization, but when it comes to the bottom of it, people are put into boxes that are sorted by the task they perform.

The traditional, functional approach to organization results in silos

In the old days, when your competitive advantage was mainly realized by being more efficient, which you in turn achieved by a high degree of specialization, this was a remarkably well-working way to organize your company.

Yet, those days are gone. The world per se is increasingly complex and so is work (which is performed in this world. Worth to state this explicitly as some people tend to forget this in self-centered organizations — see my second point). For the last probably five years, I have literally neither seen nor worked on a single relevant project that would have succeeded without a multi-functional, interdisciplinary team setup.

That multi-functional team approach is all well and good; “at least people leave their silos and collaborate at all”, a cynic might say. Yet this approach comes with a cost: It creates an — unnecessary, as I’d argue — amount of organizational friction. The degree varies, depending how well companies have learned to deal with it but the basic issues are always the same:

  • Every person on a multi-functional team reports to a different boss who has his own goals, interests and ideas for the project. Since they are the direct reports of the people on the team, members of the team often don’t act solely on what’s best for the project but what their bosses wishes are. You could argue that’s a personal mistake. To me, however, it’s a design flaw.
  • Intertwined with the former point: Since all the different functions are involved, the respective managers often not only want an indirect say in the project (by influencing their subordinates) but an explicit one. This results in the multi-headed steering committees or project boards we all know so well. The multitude of involved interests — functional and individual — leads to a lot of complexity in the decision-making and often to half-baked results. This is further complicated if their is no explicit decision-making process in place, which many companies lack from my experience. We end up with a situation where the project’s outcome largely depends on politics.
  • People who work ‘in the line’ have regular tasks which are often not re-prioritized or re-organized: The project is the classic work on top which influences the quality of work negatively for obvious reasons.

There are other factors as well, but these are the main pain points I want to make here.

“Every part of your business should be organized around the ‘principle’ that makes work the most seamless”

Of course, their are techniques and tools which address each of the individual points and create a varying degree of relief. However, to me these are mere meddling with the underlying problem: functional organization itself.

I don’t want to over-generalize the point. I don’t argue that there is no place for functional organization at all. If you are in a business where efficiency and specialization is mandatory, there might be good reasons to organize some aspects of your business by function. For instance if you have complex manufacturing processes in place. But what works well in one area, doesn’t necessarily in another.

Most companies don’t perform only one kind of task. Therefore, every part of the business should be organized around the ‘principle’ that makes work the most seamless. Even if you are said manufacturer and your production works best when organized by function, you likely have several departments that don’t. Take for instance the multitude of functions that ultimately exist to address your customers. At an average company we might find marketing, sales, customer service and PR.

All of them are supposed to cater to the same customer. Back in the days, it was probably not optimal that they were isolated functions, but it didn’t create huge amounts of pain for the customer. Customer service operated the hotline, marketing created ads, PR talked with the press and sales, well, sold your product.

“Your customer frankly doesn’t give a damn about which department is responsible for managing a particular touchpoint/experience”

Today, however, the downside of this isolation much bigger. In a digital age, where we all try to optimize the user experience along the customer journey, all while managing a multitude of touchpoints, the frictions I described above create a real problem.

On the one hand, you want to create an integrated customer experience — as your customer frankly doesn’t give a damn about which department is responsible for managing a particular touchpoint/experience. He only wants his issue solved! — yet on the other hand you need to align at least four departments to do so. I speak from experience when I say: This usually doesn’t work great.

So the question becomes: What should you organize around? There isn’t a single, definitive answer for it, as the principal around which you design your organization should depend on what you are trying to achieve. When it comes down to it, all work is there to create something — be it a product, a great customer experience or a set of well written and designed PowerPoint charts — and your organization should be created in a way that you can achieve the best possible results as seamlessly and quickly as possible.

Coming back to our imaginary example, it would probably be a smart idea to create a structure around your customer segments and their respective journey. Set-up teams that consist of people out of all departments formerly involved and give them full responsibility for the customer experience along the journey. In this way, you drastically reduce said frictions and increase the likelihood to end up with integrated customer experiences by a lot. Also, you speed-up the process at the same time.

The same company might come to the conclusion, that a functional organization works best for other parts of the business. Again, there is no single truth except that its a good idea to challenge your current principles around which you organize. They might be antiquated.

Particularly if you are seeking new approaches like the ones the #neworg movement presents, there is a big opportunity to do both at the same time. A fundamental organizational shift is complicated enough, so doing it once instead of twice might be a good idea.

Thus, I believe my point — to think about the principle around which you design your organization — needs to be stressed more than it’s currently the case among the #neworg movement. The nature of our work, how we create and deliver value but also very basically the way we do stuff, has changed a lot. Largely driven by digitization and some other factors. But the way we organize our companies has by and large stayed the same. The result: A misfit between what needs to be done and the structures in which it is done. Therefore, we need to change the ways in which we organize our work and the units in which we create it.


In the second installment I will address the second issue which I call outside perspective by design.


About me

I work, think, write and speak about digital business, technology and decentralized systems. If you’d like to connect, follow me here on Medium, or check out my website to find out more. I’m always glad to talk & interested in inspiring discussions. My analog residence is Munich, Germany.