Designing Innovative Organizations
Design thinking has been around for the better part of a century, but recently is having a renewed impact on the fields of organizations and management. My interest in organizational design began after I spend time in a clean tech early stage company and then a year as a digital nomad, I saw how critical and under-emphasized it was in most companies. In this post, I will discuss what design thinking is, what an organization is, and why it is important to connect them. Furthermore, I will explore location independent organizations as an example (organizations that are fully distributed without a physical office), asserting that analytical thinking is necessary but not sufficient for their development.
What is Design Thinking?
Design thinking is a human focused and solution oriented methodology. It is broadly an iterative cycle of discovery, definition, prototyping, and feedback. There has been an extensive amount written about design thinking, and it has been described in many ways including, “a framework for innovation”. I will use Roger Martin’s concept that design thinking is the combined expression of analytical and intuitive processes.
An analytical approach involves collecting data and producing results based on prior data (generally quantitative data). While the outcome may be accurate there are two main concerns. First the use of means or averages, studies look at a large group of subjects and discuss what on average leads to better performance. This may be generally useful but does not take into account the uniqueness of each organization. While some contingencies are controlled for and rigorous research designs increases confidence in the results statistical type analysis simplifies a complex context into a basic trend, what is lost is often meaningful when the goal is innovation. Second, the data used is historical; even if it is collected in real time when the study is being conducted by the time it has gone through peer review it’s a least a couple of years old. In an environment that is changing quickly the study (although accurate) may not speak to current or near future concerns. In contrast an intuitive approach is free of data and relies on the gut instinct of an individual. This on its own can of course lead to anything, is subject to cognitive biases, and is wildly unpredictable. I (in agreement with the work of Roger Martin) am arguing that during the creation or re-creation of an organization neither of these modes — analytical or intuitive — are sufficient, and yet, both are necessary. It is the combination, expressed through the design thinking process that brings innovation and a path to organizational growth.
Design thinking, or the combination of analytical and intuitive thinking, is basically the idea that one has observed and collected data. This data is utilized, but there is also a sense of looking to the future, and the use of creative thinking to address the current puzzle and that something different, something new that has never been tested and may be worth consideration. Trying something new that has not been done, or applying a concept to a new context requires a logical leap. If data and proof of success is required to try something beforehand, then nothing new will be attempted in business. Data cannot be analyzed if it does not yet exist. Yet, there are always some similarities that can be drawn to other related sources, and those are critical to review. Ideas are not 100% novel and therefore by an effort of triangulation of what is known through evidence and intuitive belief, the design process can move forward. One very critical note here is that design thinking is a process, the first solution is not the final solution. As testing begins, both in limited trials and the initial launch, the results are evaluated and fed back into the process of discovery, definition, and prototyping.
This has a strong tie to the process of Lean Entrepreneurship, with the distinction that Lean Entrepreneurship specifically address business model development and design thinking is a more general methodology. Similar to design thinking, Lean Entrepreneurship is focused on understanding information that is relatable, for instance through an analogy of another geography or industry, or by comparing and contrasting with other solutions to the same problem. Lean Entrepreneurship then prescribes a statement of testable hypotheses, preferably in a staged manor so that assumptions may be confirmed or rejected. This process is iterated with adjustments being made as needed until confidence is sufficient in the business model that a full launch is supported. It is clear that iterative process are applied in many areas, including product design and business model development. However, when it comes to organizational design particularly the internal structure and how employees and their activities are coordinated most companies are still relying only on analytical insights based on historical data. I am suggesting for a company to be innovative and continue to grow going forward that a design thinking, again an iterative human centered and solution oriented process, being applied to organizational structures and processes is essential.
What is an Organization?
Organizations exist to achieve work and develop ideas not possible by a single person. Organizations learn and develop knowledge through the people involved and they can shape that learning with the structure and processes (both formal and informal) they put in place. Therefore, I assert that an organization is a collection of knowledge managed through structures and processes, which allows for the utilization of resources and the output of a product or service.
The study of organization is not new, early insights come from Fredrick Taylor’s scientific management movement in the early 1900’s (as well as Ford’s work flow innovations). The early objective of optimizing the efficiency of humans in work practices through training and systems. This was achieved with a series of time motion studies and resulted in specialized work (aka the division on labor) and exacting procedures. This improved task efficiency but added an increased need for coordination. A responsibility which becomes more challenging as well as critical to organizational success as the organization grows in size and complexity.
Early work in the design of organizations focused on how to structure work to balance this differentiation with integration. Many dimensions of structure were explored including: hierarchy, centrality, specialization, standardization, formalization, and complexity. Each having a way to separate and bridge groups, as well as describing the distribution of power and flexibility. The clarification of these dimensions progressed to the exploration of the bridges on how to integrate across structural divisions.
The work on connecting various parts of organizations is considered coordination and has recently been focused on the role of technology. For example, examining what roles technological advancements such as email, chat messengers, and video conferencing have in the coordination of organizational activities. Generally, technology is viewed as benefiting efficiency but does not fundamentally change how coordination is achieved. Past research has shown these fundamental principles which are required to coordinate are accountability, predictability, and a common understanding. In order to achieve these, the five general mechanisms utilized are plans and rules, objects and representations, roles, routines, and proximity. This has all been well studied and is broadly understood in the management community. Yet, when learning about the prior work on organizational structure and coordination there seemed to me to be implicit assumptions about physical location and work norms that just did not fit with my experiences.
My experience with organization shifted when I was the director of research and development for an early stage clean tech company. It became clear to me that no matter how amazing the technology, product, or service is that success in terms of market adoption and scaling the company was dependent on the functioning of the organizational system as a whole. This (in part) drove me back towards academia. When I returned as a student of entrepreneurship and organizations and started looking at how companies are being organized now, I kept seeing so many assumptions of the past carried forward, unchallenged, into a modern environment that is so radically different from when the initial studies were done. While there are multiple ways this is occurring, the one that really jumped out at me was the assumption that organizations needed an office and that the employees should sit in it (my year as a digital nomad has impacted my mindset, and highlighted for me areas where old assumptions are carrying on). The more I explored research on organizational geography and collocation the more convinced I became that innovation in organizational structures and processes required design thinking. While there are a handful of organizational scholars active in this area, the majority are not, and I am excited to aim my research career to the field of organizational design and the future of work.
The Application of Design Thinking to Organizations
The development of location independent organizations required a leap of logic; specifically around the collocation of workers and the establishment of an office location. The following is a discussion of how neither analytical nor intuitive thinking is sufficient for the success of location independent organizations and how they are the produce of a design thinking process.
Physical offices provide a space for workers to collocate, which is useful for the sharing of information and the coordination of tasks. These are key responsibilities of organizations, so it is no surprise that the default of organizations is to establish an office, which supports collocation. Collocation provides individuals with frequent informal in-person interactions that lead to effective coordination. The location and interactions of individuals within a physical space has been explored in academia examining the connections between students, based on college dorm assignments. This study demonstrated that the physical proximity and the unplanned frequent interactions facilitate social ties, shaping how information flows. The topic of micro-geography continues to be studied with a focus on the informal connections created as a result of physical proximity. This includes work examining the seating arrangement in the US Senate and teachers classroom locations in public schools. Broadly, this research finds that the collocation of individuals increases familiarity and the development of informal network ties. Without physical collocation in offices, location independent organizations may struggle to generate internal informal networks, impacting coordination. Yet this practice is increasing in popularity. Technical solutions alone are not enough to create informal connections; therefore, organizations have innovated past prior behaviors to establish remote specific norms.
In considering location independence, organizational decision makers will be aware of the numerous pros and cons of virtual teams, but it is not clear if a fully distributed and office-less organization will experience all of these effects or if the impact will be greater or less than a partially remote team. Virtual team research shows benefits such as the ability to hire better workers and increased novelty and creativity. However, there is also significant evidence of negative outcomes; for instance, tasks taking longer, increased conflict arising from subgroups within teams, and reduced coordination due to limited access, poor communication, or misunderstandings. Furthermore, those considering location independence will be familiar with online communities and their fully distributed arrangement. These communities manage coordination through lateral positions of authority, and story telling to spread work norms. Broadly, online communities demonstrate that large groups of individuals are able to share information and create innovative outcomes while being fully distributed. Yet, it is not clear if this will be successful in organizations with paid employees and rigorous demands of performance. Therefore, while there are some available insights into how location independent organizations coordinate work it is not directly supported, this is a novel structure and adopting it requires belief based on indirect information.
A designed organization is one that both uses intuition and analytical evidence. The design team knows what was done in the past and the limits of that information. So they are able to use that data within an appropriate context. Additionally, by engaging with future looking questions, they acknowledge that they are working on something that is new and has not been tested before they start. Therefore, the use of small tests along the way, continuing to move closer to a solution via data triangulation. It is recognized the process will not be perfect nor will it be direct. In contrast, location independent organizations developed with a fully analytical approach would start with a company focused on evidence based analytical approach. They will wait for studies to show why and how to design their organization. While this may be accurate at the time of the data collection it does not project to future problems or take into account any context specific considerations. At best an organization focused only on proven solutions will be behind the curve and non-innovative, implementing only what generally worked for other companies in the past. A fully intuitive design is generally not going to be useful either. For instance, when an individual is not using any evidence but claims to just have an instinct for a new way to do things there is no reliability. While this could work in simple cases, in such a complex situation as organizational structure this is not sufficient. Without the use of related evidence to triangulate and guide and narrow the scope of development, this will be like playing darts in the dark. Therefore, a balance of the two is preferred. The ability to look forward while understanding how past data can be supportive is a difficult balance but with innovation and organizational growth as potential outcomes, it is worth the challenge.
Learning from Experts
By implementing a design thinking process to organizational structure an innovation comes to life. However, this process is not intended to be done in isolation. Discovery, learning, and being inspired by those who have gone before is part of the process. The prototyping and testing done by the hundreds of location independent organizations already operating can serve to accelerate the next wave of organizational design thinking. One way to connect to others is participating in events, an upcoming opportunity for this is the Running Remote Conference in Bali on June 23rd and 24th, 2018. The event will feature from founders and executives who are experts in remote work; for more information visit runningremote.com, make sure to explore the speakers list including individuals from Doist, Buffer, Atlassian, Github, Time Doctor, and Flexjobs. Organizations today face a difficult environment with frequent innovation as well as moving targets, but with a design thinking methodology and a community of peers the opportunities for growth supported by organizational design innovation are abundant.
