Requirements for the New Era Organization
As discussed earlier, Industrial Era Organizations were built for economies of scale employing people who were often seen as interchangeable parts similar to parts of a machine. Management principles delineated by Fayol and Taylor provided a roadmap for managerial efficiencies that were required for this transition from an agricultural-based economy and small business craftsmen. And, this transformation that came to be called the Industrial Era was widely successful in raising the standard of living and the quantity & quality of mass-produced goods. However, just as the Industrial Era brought about transformative change, it too ran into changing conditions that challenged the underlying assumptions driving a global economy.
Mass production has shifted to mass customization of products and services for niche markets. Employees are better educated and no longer tolerant of micromanagement. The technology that enabled the Industrial Era has moved further into global communication and computing — moving information around the world instantly. Even the speed of product movement has sped up from months to days or hours. Technology is now moving even further into new realms traditionally reserved for “knowledge workers.” In comparison, the world of Generative AI is evolving faster than any technology before now and the vision of what is possible is difficult to discern as we experiment to find benefits (and possible risks!!). As a manager recently said, “the old ways of work, aren’t working.”
New ways of organizing for work are needed to cope with constant change, no longer stability between episodic disruption but managing a Portfolio of Changes that are concurrent, overlapping, and often in conflict. This challenge raises the question — What are the requirements for the New Era Organization? A secondary question is, how we will break the paradigm that is deeply rooted in the Industrial Era, in our minds, organization structures, policies & procedures, and leadership & management styles? For now, we will focus on the first question and leave the second for discussion later after we drill down into what pioneering organizations are testing already.
Requirements for the New Era Organization
After an analysis of the challenges before us, we can identify three broad areas that need addressing –
· Responsiveness (agility) that is Purpose-driven
· Autonomy for timely decision-making (but without anarchy)
· Cross-organization linkages that are aligned
Responsiveness (agility)
Changing conditions requires agility in how the organization recognizes problems & opportunities and then mobilizes for action. Note this is agility (small “a”) and not Agile (big “A”) that too often is seen as a magic bullet for increasing organization responsiveness. Agile is currently going through a fad stage having moved from managing software projects to being advocated for all management activity. While this Agile fad is driven by consultants, several companies are discovering that agility is more than Agile principles and processes.
The key to being responsive is clarity on what should drive the response. This places the Statement of Purpose as the keystone that provides guidance on who the customer is (who we do things for, since revenue drives success from all perspectives), what we deliver to the customer (what we do, both product and/or service), why we do it (provides an understanding of the meaning of what we do from the perspective of the customer), and how we do it (our chosen structure and operating style for producing value). This customer-facing responsiveness needs to permeate throughout the organization and not stop at the edge of the organization that has a direct relationship to the customer. In this way, the value chain within the organization includes many customer interfaces that ripple the ultimate customer needs (external) throughout the organization in hand-offs and support functions. This last part is critical in how staff functions need to shift their mindset from being a cost center to one of value generation to support their internal customers. These internal customer linkages provide the necessary line-of-sight for everyone from their job to the ultimate customer, so they understand how they provide value that eventually works in support of the revenue producing, external customer.
Responsiveness also requires the necessary supporting communication linkages, so the identification of emerging issues is not delayed, or decision-making is not slowed. This requires several requirements of the organization’s information systems including widespread data collection beyond past or current needs. In one case, a motor fuels refiner and marketer chartered a model of their distribution system with an objective of optimizing networkwide supply and distribution — having the right supply available where and when needed. At the heart of this Supply Distribution Model was a network optimization tool that would predict all product movements and inventory balances across the national supply network, which then enabled the identification of actions needed. From a project perspective, the savings were better than expected, exceeding $50MM per year in reduced product outages and lower inventory holding costs. However, when testing the sensitivity of the optimization model, it was discovered that minor changes in price forecasts would swing the inventory strategy from one extreme of building inventory to reducing inventory to the bare minimum. Further investigation showed that the product schedulers were not using the output from the optimization program. They did not have to since they now had ready access to a central database that captured not only the current product balances but how they were changing based on supply decisions already made. Simple heuristics for addressing predicted problems was sufficient and the wild swings of any optimization was wasted. After all, the ability to predict future prices was so often wrong that it was more cost-effective working toward a balanced supply system than missing the mark of an optimized inventory. Yes, the savings from the project were there, but not from the planned optimization. Instead, making data that was previously hidden in the information systems transparent and easily accessed produced all the savings.
Traditional Industrial Era organizations often capture data within organization silos or for the financial accounting system. Any additional access required special programming or permission from the data owner. This approach to data availability is obviously contrary to agility in responding to customer needs even when the customer demand is relatively predictable. Data ownership too often has been used as a weapon of power between organization silos, such that a mindset shift of open data availability goes a long way toward greater responsiveness.
This then raises the issue of what data should always be knowable versus what needs some secrecy. Insider trader laws within the US place restrictions on people making market trades for personal benefit using information that is knowable to them from their job but not yet publicly available. Traditionally, this only impacted those who were in executive positions who had such privileged information, but that has the potential to shift as data openness moves toward full transparency. Obviously, this requires wider education of employees who may become knowledgeable of information that has the potential to impact stock market movements. However, there is a larger problem that limits organizations from becoming more transparent — the desire to hide mistakes. Too often people try to limit who knows about their mistake in the hope of making a correction. Unfortunately, this desire to hide their mistakes often leads to further losses as they double down on their mistake hoping for a turnaround or fail to involve others who may have an ability to assist in correcting or stabilizing the earlier mistake that likely was made correctly at the time with the information available then.
Problems associated with secrecy can also extend to delays of strategic change initiatives. This secrecy is done with good intensions of not wanting to worry employees needlessly. However, when the change is finally announced, there is little to no awareness of the underlying problem that is being addressed. Change is then introduced without the foundation for understanding the “why” behind the change initiative and how it will impact organization processes and employee work activities. This naturally leads to resistance and extrapolation of the change into adjacent areas that are outside the change’s intended impact. The desire to reduce employee fear has only shifted when that fear is demonstrated and often comes with greater impact since the background of the problem has been hidden for so long. Avoiding conflict does not eliminate the disconnect, it only shifts the conflict to when the timing is more critical since resistance later eats directly into the organization’s ability to make the necessary changes.
Autonomy — Distributed Decision-making
While communication linkages support the structure of the Informal Organization, power & authority are baked into the Formal Organization as represented in the organization chart. In this way, power and authority are intimately connected with authority being the tool upon which power is exercised. Such authority to take action in a traditional hierarchy is ultimately held at the top, either the owner or Board of Directors action as an agent of the stockholders (owners). This authority limits the types and magnitude of decisions that can be made, either for commitment for action or implementation of the decision. In times of stability, the delegation of authority for decision-making is static with outlier issues being pushed up the hierarchy until the positional authority is sufficient to make the decision or start action. However, in a dynamic environment, this decision-making process falls short of the timeliness required for quick response to changing conditions or new problems or opportunities.
The management advice that is often heard is, “delegate more” but this requires managers to trust others to make “good enough” decisions that will likely be different from what they may have made themselves. It also requires trust by those who are asked to make the decision that they have sufficient training to make the decisions and will not be punished for making a mistake that is often judged in hindsight using information that may not have been available earlier when the decision was made. The lack of trust from both directions can easily limit the effectiveness of delegation of authority, both in what is delegated and the degree to which empowerment is accepted. Further, in hierarchies with a strong power culture this is especially problematic since employees have long been trained in learned helplines — better for the boss to make the decision and take the risks (I am not paid enough!).
As can be seen, delegation of authority has many cultural dimensions that have to be addressed such as power & control attitudes, past rewards & punishments, openness to new thinking, and appreciation of the value people bring to their work using their knowledge and expertise gained from past experiences. There is also a need to reconsider what “empowerment” means in action. The traditional meaning is directly related to delegation of authority, an explicit transfer of power that comes with some constraints. The trouble with this traditional approach to empowerment lies in the perceived boundaries that people extrapolate to new situations. To the degree that the situation faced is within the explicit delegation, these boundaries of empowerment are sufficient. However, that requires stability, not the dynamic conditions we now face. For any situation outside those explicitly captured in the downward delegation, employees must make a personal decision on the degree of risk associated with the necessary decision being inside or outside the perceived boundary established by earlier delegation. And, if in doubt, bounce the issue back up the hierarchy as being outside the current delegation of authority.
Shifting to an alternate view of empowerment uses a different way of thinking about risk. The traditional downward empowerment uses risk avoidance for anything outside the explicit boundary. The alternate approach reframes risk within the Statement of Purpose and “not being excluded.” Instead of limiting empowerment to what is included within the boundary, empowerment is seen as what is not excluded by previous delegation though limited by the Statement of Purpose. This alternate way of thinking is often captured as “better to ask for forgiveness than permission” and greatly increases decision speed. Of course, this requires a clear linkage to Purpose without any hint of personal benefit. It also helps to evaluate risk from a worst-case scenario — can you live with that outcome? Using the team decision-making processes of consent or advice also helps improve the decision-making process and reduce personal risks. Working in an organization with such an approach to empowerment is exhilarating in how much can be accomplished in an otherwise, bureaucratic organization.
On the other hand, some alternate structures such as sociocracy or Holacracy take the time to identify decision rights that are delegated to teams using areas of expertise or impact, possibly limited by magnitude or scope of the decision. Such clarification and delegation help address categories of decisions delegated versus financial limitations alone. It also involves team decision-making that brings more forethought to the decision thereby reducing risk and increasing ownership for implementing the decision. Implementing this approach to distributed decision-making requires the use of management principles and the training in their use. A study of pioneering organizations shows that many organizations are now testing distributed decision-making that employ principles and guidelines. (See the chapter on team decision-making for more on these group decision processes and how principles drive action while using soft forms of control.)
Cross-organization Alignment
The formal organization chart often fosters the creation and reinforcement of silos that separate people into artificial groups defined by how authority is defined and delegated. As such, these silos work against the production of work and communication channels can only go so far in establishing cross-organization alignment of purpose. The traditional Industrial Era organization faces these problems of alignment by reorganizing the organization chart. As such, some functions and people are moved around into different reporting lines thereby resolving some of the symptoms with new lines of responsibility and authority for action. Like a pendulum, organizations often swing between centralized and decentralized structures, oftentimes trying to find a happy mix with a matrix that has dual reporting. Some of the structures are built around geographic areas or product/services delivered, again with a matrix structure thrown in from time to time. While triggered by the symptoms of an underlying problem, the solution presented in the reorganization is more often driven by power centers in the existing organization chart than in a green field structure that tracks the internal value chain that services the ultimate customer and how support groups are connected. Note also that some of these staff organizations can gain power themselves in how authority is delegated from the top into operating and support groups.
The reorganization change cycle often takes six months to a year to identify alternatives, followed by another year or two to decide and implement the new organization structure. Unfortunately, by the time the reorganization is fully in place another reorganization is necessary since the core problem of purpose-alignment was not addressed, only politically feasible solutions to a symptom of the underlying problem. This leads to further negative consequences of poor problem solving — a passive-aggressive attitude toward the change as in “this too shall pass” or the ”flavor of the month.” Since the reorganizations fail to ever get the structure right, there is little inducement for people to quickly get onboard knowing that the power structure will be stirred up in another year or two.
The result is Whack-a-Mole where the organization is constantly hammering down problems only to have other problems pop up. Two things are required to get past this cycle of failed reorganizations. First is the understanding that any organization chart is developed for delegation and control of authority more than the effective production of work. This requires a mindset shift from change as episodic disruption to one of continuous adaptation to changing conditions. Change then becomes a series of routine adjustments and not large-scale shifts in reporting relationships. And, when you get down to it, most reorganizations only address a small organization issue with the rest of the changes rippling as new reporting lines are drawn. Once the organization sees change as routine adjustments, it is possible to make the small changes that have a large impact in how the organization works. The difficulty then shifts from a power struggle to determine the end state to an outsider’s view of what would be done if built for the flow of work necessary to support the customer, including internal customers. The knee jerk response would be the creation of a cross-organization design team but that treats the needed change as a traditional reorganization. Alternatively, the organization can have a small team that is focused on Purpose Alignment, not to solve problems but to convene those most knowledgeable and impacted for the resolution of the problem. Combined with this responsibility, the Purpose Alignment Team can serve as a network weaver to facilitate resource allocation and prioritization of activity in fulfillment of the Statement of Purpose, not to mandate change but to convene collaboration among those impacted.
Working toward purpose alignment will also encourage direct communication and minimal structure necessary for the production of work. That leaves control as a function that is deeply embedded into the way Industrial Era organizations operate. Part of the answer lies in trust mentioned above and elsewhere in this book. It is also necessary to rethink control — what needs controlling and the process that is employed. Traditionally, a hard form of control is employed using the explicit delegation of authority and supported with the Performance Management System. Rewards and punishment are often added to reinforce the power that is implicit in the delegation and use of the authority. Alternatively, some pioneering organizations are happily working with principles that establish guidelines for actions. For example, unrestricted distributed decision-making is prone to anarchy without having a boundary set by the organization’s Statement of Purpose. Guidelines for action can then be enabled with the Principles of Effectuation that come from the study of successful entrepreneurs. (More on principles in tension and effectuation are found in later chapters.)
Bringing it all together
The objective is an organization that routinely adapts to changing conditions using a soft approach to control. Pioneering organizations are already demonstrating what is possible, but they have usually gotten to their current structure and operating style having been a start-up built on the organization requirements of being agile, aligned, and people sensitive. Or they were led through an existential crisis by a visionary leader who was dissatisfied with previous organization experiences. This leave a challenge before mature organizations that are struggling with organization dysfunctions that have not yet reached a point of crisis — not yet. For these organizations, they need to shift from the Industrial, control orientation approach for management and leadership to the New Era Organization that is purpose driven, aligned, and driven by people who see value in what they can do together that they cannot do alone.
This article is from a forthcoming book, “Leading New Era Organizations”.
