Anyone who has ever been through a reorg, or run a reorganization process, knows the feeling. Things don't quite fit. It's like you are building a piece of Ikea furniture: what you end up with looks OK, but there are left over parts and you are never quite sure if you put it together correctly. The only way you find out is when it falls apart.
Your typical organization structure is based on the military, but instead of generals you have CEO's and instead of privates you have your average employee. Like most things that are currently broken about business, the system made sense at the time of its implementation but quickly gained a life of its own and now seems so critical to the smooth operation of a business that it is beyond the pale of questioning. Grandiose hierarchies were a critical control in a world where the ultimate risk is to life and limb and where you need to deploy large-scale resources in a coordinated fashion. Early companies needed to create long-supply chains across huge distances (like the trusts during the late 1800's and early 1900's that combined control rail networks with control of production of oil and refining capability), just like an army. Early companies also needed to have one coordinated resource deployment, making sure that hundreds if not thousands of employees would all pull the same lever in the same way at the same time to get the same specified result.
Times have changed, and most companies (at least in the U.S. and Western Europe) do not get competitive advantage from large coordinated workforces doing manual labor. Our economies are service and innovation systems, and there is nothing that kills the human spirit like control, group-think and managers who get to the top through tenure and corporate politics.
Reorgs are based on the theory that you can take different units of management, composed of people who perform tasks, and rearrange them to achieve some objective more effectively and efficiently. Some companies, like Microsoft, reorg frequently as a way to get their people focused on customers, ideas and problems rather than manager status. But most companies ossify their organization structures because changing them is difficult and often takes time away from productive work (at least that's the theory). In this way experimentation in organization structures rarely comes from the very place that needs org structure innovation the most: large companies.
Org structures should first and foremost be a tool to align what Henry Blodget calls business risk and investment risk. Simply put, you want your employees to win when the investors win, and you want your employees to lose (but especially management) when the investor loses. Sadly, this is rarely the case.
So what does our present org structures of generals and privates get us? A perpetual system that places employees needs, the personal goals of management and the monetary goals of the investor at odds. Here are two of the most significant examples.
Title = Status. There is an implied assumption in most organizations that the way to get to the next title, the next rung in the ladder, is to make money for investors. We all know this is the exception, not the norm. Even when promotions are not due to favoritism or negative corporate politics, the reality is that it is very difficult for a manager to know exactly why their employee is successful. The manager is left with their instincts (usually an emotional response subject to wide variation based on mood and factors not associated with employee success), the input of peers and the need to solve a problem quickly (i.e. "I need this task done because my boss is chewing my butt about it, and I think Susan is the best person to do it.") All of this boils down to a systemic gap between what the investors care about (sustainable competitive advantage that delivers predictable returns above the cost of capital) and what employees care about (making sure that the stars align so that I can get a promotion and a raise). This means that reorgs often become a competitive, rather than cooperative, exercise. Everyone understands that the potential chaos of a reorg provides an opportunity to put oneself in a better position to succeed. The basic military org structure will always reinforce this behavior, no matter how much a good manager tries to work otherwise.
Artificial Barriers: Because employees understand that they don't win by focusing on investor objectives there is a huge pressure to ensure that "ownership" (as opposed to accountability) is first and foremost in most reorgs. But the nature of work is changing, and there are many times when a work product or service must de facto be the result of multiple groups working as an organic whole. Organic group direction has been written about and spoken about for a long time, but in a company it tends to run headlong into the reality that "organic" is short-hand for "no one to blame when things go wrong" and "no one to get the credit when things go right." As we have discussed, this matters a lot in a military org structure because getting ahead (and therefore getting more prestige, money and control) means that the person who is going to make the decision about whether you should get ahead or not needs to like you and feel comfortable with you. So the present org structures create artificial barriers between groups that almost always increase inefficiency and decrease agility and speed of response.
As has been written in this blog before the cure to this is to replace managers with markets. Buyers can rarely afford to be as free with their money as managers can. Buyers have to specify the outcome they want, what that outcome is worth to them (cost benefit), how they will measure whether the outcomes are being achieved (contract and / or SLA), ongoing negotiations around payment based on delivery and direct feedback about performance (since the personal relationship that frequently develops between manager and employee is harder to sustain in a buyer / vendor relationship).
Final thought on this is that the present economic downturn will likely start sorting some of this out. We are likely to see the total regular full time workforce as a percentage of the population decline and never recover, as more people move to independent and contractor status. Managers will increasingly have to spend their time selecting the right vendor, and spend a correspondingly decreasing amount of time managing reorgs.
Reorgs should be performed like regular reviews.
Posted by: John | April 04, 2009 at 02:27 PM