Friction
An organization structure is all about designing friction to optimize decision making
Overview
In my experience many companies don’t think about the friction created by the design of the organization structure. They spend more time thinking about the individuals and the teams, but not the decisions that the teams should be making. In this post I’ll take you back to high school Physics to describe friction (albeit an abbreviated version) and then how understanding of physics should be applied to org structure design. The key to a good org structure is that you understand your strategy and the decisions to be made. A good structure is all about facilitating better decision making.
What is Friction
Friction is an opposing force that causes an object in motion to slow down or an object at rest to stay at rest.
There are a two main friction forces:
- Static Friction — An object on a hill will require more friction with the ground to not move. As you remove friction the force of gravity will over take the object and cause the item to start to move.
- Kinetic Friction— The winter Olympics are a great example of this through sports like Bobsled, Luge, Speed Skating and Alpine Skiing. In these sports the goal is all about speed and reducing the kinetic friction. This comes down to making sure that friction is minimized.
In addition, the heavier the object the more force that is required to move the object. This applies in decision making as well, especially large organizations where many people have to be involved.
What is Org Structure
For this article I’m referring to organization structure in regards to how business functions are organized within a company. In my experience there are three main versions:
- Centralized: Operate as a shared service across the organization supporting all business / product units. This is most commonly seen in functions like Finance, Accounting, HR, Legal where there are more advantages of having a common discipline vs. in depth business knowledge.
- Distributed: Operate separately across the organization with tight alignment with the business / product unit. This is most commonly seen in general management functions. The main reason for this is that you are wanting to optimize for business understanding vs. functional understanding.
- Federated: This is the in-between model of the above. In this model members of a team are embedded within a product / business unit and also have some amount of time within a Center of Excellence to improve the functional discipline. I have seen this in analytics and strategy teams that operate almost as consultants for the business.
Here is a conceptual model of these different structures:
Designing friction
Let’s start to pull together the two concepts of Friction and Org Structure. To start I think it is helpful to think about the decisions that you are making. The below quote from the 2015 Amazon Shareholder Letter does a great job of highlighting different decisions.
Some decisions are consequential and irreversible or nearly irreversible — one-way doors — and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions. But most decisions aren’t like that — they are changeable, reversible — they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups. — Jeff Bezos
With the above as context it is clear to me that you want reduce the coefficient of friction for type 2 decisions. For these “2-way doors” you want to design the structure of the org to quickly make these decisions. For the Type 1 decisions you want to make sure there is enough friction in the org structure to force the conversations to occur.
As you are designing your org structure I recommend doing an inventory of the decisions being made and categorize them into Type 1 and Type 2. Here are some examples of Type 1 and Type 2 decisions:
I have found the largest source of friction in decision making is often around resource allocation. Thus you’d want to design a team to have enough space to make Type 2 decisions quickly without input from other teams. As for Type 1 decisions the level of friction can be very high where it requires CEO input or can be minimized to a business unit or functional leader.
Below is an example based on “Whether to outsource finance and accounting operations?”
- Centralized: The functional leader can make this call with minimal input from the business teams. This is the lowest friction. Downside is that changes could impact the business teams without minimal input. Depending on the organization this might be acceptable, especially for smaller companies (e.g. Apple)
- Distributed: Each distributed functional lead must come together to discuss the strategy and agree on a path forward or accept different designs by business unit. This has the highest amount of friction. This model is often setup for Conglomerates where there is minimal interaction among the businesses and each distributed team operates independently (e.g. Berkshire Hathaway)
- Federated: The role of the CoE is to cover decisions like this that impact the organization and the team would work with the overall functional lead to make the decision. This would be slightly more friction than centralized. This is a common design for large organizations where they would have a CFO and essentially a VP of Finance for each business (e.g. Microsoft)
In closing
Designing your organization structure should be about the decisions you are making and how to have the right amount of friction in your organization to make the best decisions as quickly as possible. I believe that starting with your strategy and the decisions you want to make is the best way to design an organization. Though often org design does not come out of a business strategy discussion and instead is about optimizing for individuals on the team. I recommend the next time you are involved in a re-org that you think through the impacts on decision making.
