How To Build The Organization of Tomorrow — Today
Or Design & Lead Organizations To Survive & Thrive The Digital, Disrupted & Damaged World
“Only 3 things happen naturally in organizations: friction, confusion, & underperformance. Everything else requires leadership.” Peter Drucker
Organizations are incredible things. They allow us to come together to realized unprecedentedly bold and ambitious visions. They becomes entities in their own right, although are made up of individuals. They have a culture that is a crystallization of each person’s feelings, fears, beliefs, assumptions, and habits yet have a mind of their own. They can be designed, managed, and led but never fully controlled.
Over the last few years we have worked with or encountered scores of world-class organizations would, despite their differences in products and outcomes, share an unprecedented challenge: how to design the very nature of their organization to fit the fast-changing world. From FMCG giants to brilliant non-profits, from global banking behemoths to major public services, every organization is having to grapple with huge changes in their internal and external environments that are making the raison d’être and science of “the organization” no longer fit for purpose.
Back in the (hey)day of large organizations, the concentration of resources — human, industrial, technological, financial capital — within a large hierarchical organization allowed massive efficiencies of scale. The costs of doing business — people making and selling stuff — was reduced. The lowering of such transactions promised unprecedented investment in innovation. Whether we think of the East India Company or Bell Labs, the large organization underpinned by hierarchy and command and control management, worked to amass incredible riches and drive unheard of transformation.
When access to the means of production and distribution were vastly expensive and limited in accessibility, large organizations were the only groups of human beings that could make and sell advanced innovations. Whether making and airing TV shows, printing and distributing books, finding and mainstreaming chemicals in pharmaceutical and cleaning products, or building and popularizing railways and skyscrapers, only those with access to huge amounts of capital which could be wielded efficiently by hundreds of obedient workers — i.e. modern organizations — could play.
Industrial Age organizational thinking assumes that the world is linear: a dead yet predictable algorithm not a living and unpredictable organism. The management science that runs them, pioneered by firms like General Motors in the 20s and 30s, was designed around the production line, replete with machine metaphors like “efficiency”, “outputs”, and “productivity”. Inspired by the easy control and operation of machines, a vast body of thinking around organization design, organograms, structures, operational models, auditing, accounting, improvement processes, hiring and firing, revenues and performance management has mushroomed over the past 90 years. Such techniques and technologies can have a brilliant impact on scale, efficiencies and excellence of delivery.
But they can also crush creativity, humanity, and authenticity, as millions have discovered. The story of how Ray Kroc took the McDonalds brothers’ innovations in burgers, customer service, and organizational order and turned them into an Industrial-Age giant elegantly brings this to life. Although they were never truly fit environments for their employees to thrive, the low expectations workers had for autonomy, purpose, creativity, and collaboration meant that for a century, large hierarchical organizations have been able to be successful despite their obvious weaknesses. Organizational technologies have attempted to shape society into neat linear forms: spreadsheets, databases, P&L statements, Gantt charts, customer segmentations, engagement surveys and much more. They have succeeded for so long because society was relatively static and people were generally disempowered. You were lucky to get a job in a big organization: it was safe, supportive, and you were decently paid.
However this paradigm is no longer entirely working. Firstly, most large organizations no longer invest in, or can deliver, genuine transformational innovation. Research has shown that the organizations that have the most market power spend less on R&D, as “the total number of innovations is inversely correlated with concentration… “innovation falls as industrial concentration increases.” Meanwhile other work has shown that as an organization gets older and larger, it becomes far less innovative. The funding for innovation lags the spending on bureaucracy as the org employs more people to manage others. When Geoffrey West examined the data and adjusted for inflation and market growth, “all large mature companies have stopped growing.”
What this means is that the large hierarchical, linear organization no longer compete on innovation and adaptability at a time that most are being disrupted by more creative and agile competitors. As the CEO of Zappos (the largest shoe retailer in the world, acquired by Amazon) has said: “Research shows that every time the size of a city doubles, innovation or productivity per resident increases by 15 percent. But when companies get bigger, innovation or productivity per employee generally goes down.”
The only option is to radically redesign the organization so it fully fits the environment it must co-evolve with. In the Digital Age, the ecosystem that every organization now finds itself in, the world is massively more varied and complex than it was even twenty years ago. In the fast-changing and fluid VUCA world, ideas, data, money and sometimes people, move around networks with blinding speed. The resulting complexity of emerging needs, capabilities, and technologies requires networks of hearts and minds coming together in rapid collective intelligence and co-creative action to survive and thrive. Such non-linear, fast-changing systemic connectivities are way too complex for a linear organization. Which is why many of our organizations and systems — private, public, and political — are no longer creative, agile, and networked enough to cope.
Everything you do is fitting the future better or fading from future relevance but it is never static.
Organizations that cling to Industrial-Age organizational rules are struggling to attract, motivate, develop and retain the most creative, high-quality, transformational people. And so they are missing out on the ideas, strategies and innovations (in process as much as product) that they need to keep them lean, adaptive and effective. Most major organizations are fading from relevance, on the way to a major fail. As they lose fit with the world outside, the ecosystems they rely on for support, they become increasingly challenged. This shows up in a set of signs and symptoms of impending failure at the organizational and individual leadership level:
This does not mean that hierarchy is dead and we will throw out our management skills and tools. Nor does it mean we have to deal with what I call “death through consensus” or the tyranny of mediocrity that often emerges in communities that seek to flatten hierarchies for some form of mythical equality. But it does mean we need to get a lot smarter and wiser about how we design, manage, lead, and guide the organizations we have.
What every organization needs to do is to harmonize the opposing polarities between HQ / markets, central/local, and top down/bottom up in order to design living organizations systems that harness the best of both whilst mitigating the risks of either pole. We bring together all polarities in what, following ancient pre-Socratic Greek philosopher Heraclitus, I call a “palintonic harmony”. Such an organization has a hybrid structure and hybrid processes. We give those in the center and “at the top” permission to think systemically and strategically for the organization. At the same time we want those at the edges and at the coalface to find and act on insights about customers and thee reality on the ground that only they have access to and can grok.
In this model, neither those nominally at top or bottom are experienced as more or less valuable as human beings. Neither are serving the other group; or both serve each the other. Rather than the CEO or Director being the boss, with endless hours spent working out what she or he wants, the Purpose is the boss. Everyone in the system serves the purpose and is seen as essential parts of the organizational system with equal inherent worth as human beings. Managers and employees, capital and labor, working together respectfully to solve problems that really matter in collaborative ways, honoring the need to Get Stuff Done efficiently with low transaction costs as well as the need to regularly open up dialogue and decision-making on adaptive strategies and innovations that all can contribute to without a race to the bottom.
Now what?
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