Org design 2.0

Quiz question: who coined the phrase: “The only thing that is constant is change”? It’s not Gates, or Musk. Nor is it Obama, Clinton, or even Trump.

Well done to anyone who knew it was… the Greek philosopher Heraclitus - who is thought to have said this in around 500 BC. Since the days of Heraclitis, the decline and fall of empires, the invention of the printing press, the Industrial Revolution, the computer and now the Internet have added even greater strength to the maxim. Change is arguably even more constant now than ever before (although the philosopher himself might argue about the semantics).

Organisations built for change

The world is changing more rapidly than ever. Scientific theories from Kurzweil's The Law of Accelerating Returns to Moore’s Law of processing power indicate that the pace of change will only increase alongside the power of technology. It took airlines 68 years to reach their first 50 million customers. Within 19 days, 50 million people were playing Pokemon Go. Organisations must respond to survive and thrive.

In the context of constant change, people, organisations and societies are rethinking long-accepted beliefs about how to organise large groups of people to best react and adapt to ever-evolving conditions. Where change is not only constant but also rapid, a new way to design organisations is required to embrace that rapid change, rather than mitigate for it. This blog will explore the ways in which organisations are adapting in order to thrive in the modern world under extreme conditions of rapid change - something we call Org Design 2.0.

An organised group of people with a shared purpose or goal

An accepted definition of an ‘organisation’ suggests that it is a collection of people with a shared purpose. By extension, organisation (org) design is the way in which an organisation sets itself up to deliver that purpose. Many factors, such as size, industry and market conditions may influence how organisations are set up, but setting a vision and controlling the output of all parts of the organisation to deliver on that vision (known as ‘predict and control’) has been the traditional model, which has served many organisations very well for many prosperous years. Here’s a simplified example of what we mean:

1. Organisation defines its purpose or common goal
2. Organisation defines strategies to deliver that goal based on predicted outcomes, often years in advance
3. Structures (teams of people) are set up to deliver the strategies (which are too big or too numerous for one person or one team to deliver)
4. Systems are established to:
5. Control the behaviour of people in the organisation so that they continue to deliver strategies
6. Manage the risk arising from any change to the prescribed strategy
   

Rapidly changing environments need a different approach

Those reading between the lines might have spotted some issues with that model. We’ve already discussed in Bank to the Future how dangerous predictions can be, so leaders basing their strategies on assumptions about the future are already treading a volatile path. The lead time to plan and deliver on strategies lasting years (or even decades) is simply far too long in a rapidly changing environment.

But there are other, more human, issues with a predict and control organisation. Where organisations define and establish strategies based on predictions and develop systems to control behaviour and manage risk, ideas to radically change direction in response to market conditions are lost or even deliberately suppressed in order to prioritise the status quo.

To illustrate, let’s consider a colleague from an organisation designed for predict and control - we’ll call him Des. Des works in Sales for a medium-sized organisation called Ion Org, which manufactures and sells small parts for nuclear reactors. Des has discovered an issue with the way in which small parts are delivered to his customer, HyperPlant. The issue hasn’t been picked up by the Manufacturing team which produces the parts as it’s not a safety issue or by the Product team as it wasn’t identified as the last annual planning cycle. However, HyperPlant has told Des they might switch to an upstart competitor, Natias, which offers a smoother delivery experience.

Des reports to his boss, who in turn reports to his boss, who promises to raise the issue at the next executive team meeting, next month. Des’ boss asks him to prepare a proposal. Des is excited - this is a great opportunity. He spends his evenings reading a whole host of materials about the future of small parts for nuclear reactors and realises it would make a lot of sense for Ion Org to expand its operations. HyperPlant not only runs nuclear reactors but offshore wind farms too. Diversification would not only solve the issue he identified with HyperPlant but also protect against regulatory and competitive threats emerging in Ion Org’s key markets. He writes his boss’ name on the proposal and sends it on, hopeful that his idea will be accepted and implemented soon. Weeks later, after the executive meeting, Des asks his boss whether they liked the proposal. They did - it will be added to the agenda for the next executive strategy meeting, scheduled for the start of the following year.

The next day, disheartened Des receives a phone call from Natias, offering him a post in their new wind farms and solar panels division. He leaves Ion Org a month later.

Imagine that’s the process an organisation follows whenever anything which threatens the organisation’s strategy or purpose is sensed by people with expertise to deal with it. Where organisations design their strategies, structures and systems to optimise control: ideas get wasted; people get demotivated; and ultimately companies lose to competitors.

There are countless examples from recent history of organisations which have failed to adapt to market conditions, resulting in decline. The rapid rise of technology which generates an environment of rapid change has resulted in a number of notable recent examples. The story of the founder of Netflix, Marc Randolph, being laughed out of an early meeting with Blockbuster is a powerful prescient image of the reversal in fortunes of those two companies. Let’s be clear - Blockbuster didn’t fail because it was set up with a command and control structure. It failed because it didn’t respond quickly enough to unexpected change, coming from the disruption of the film and TV consumption that Netflix pioneered. The only way to build for unexpected change and disruption is to embrace adaptiveness.

Embracing adaptiveness

To avoid Ion Org’s issue and to future-proof against the failures of Blockbuster et al, organisations must learn to embrace change and respond to environmental or unseen factors affecting any part of their strategy much more quickly. A growing list of companies from different industries are embracing adaptiveness and building change into their vision and purpose. To do this, they are developing a ‘bottom up’ philosophy which comes directly from the world around us. Contrary to traditional thinking, which favours a strong leader with clear ideas to dictate to galvanise and dictate to their employees, the bottom up approach allows organisations to respond to threats by empowering all colleagues to deliver against the organisation’s goals.

To understand why the bottom up approach beats the top down approach, let’s take the example of the Sagrada Familia cathedral in Barcelona, the architect Gaudi’s unfinished life’s work. Gaudi’s work was famously unfinished, because Gaudi passed away before it could be completed - this represents a failure in the top down approach which relies on a charismatic or brilliant leader (or leadership group) for an organisation to be successful. Some have also pointed out that Gaudi’s looks uncannily like a termite colony. The evolution of the termite colony is a classic example of building from the bottom up. Each termite individually works as part of the collective group to build and constantly add to minute sections of the colony. Where one piece does not work, it is adapted by others to make sure it fits the right model. Bottom up beats top down in environments where responsiveness and adaptiveness is paramount.

And there are numerous other examples of bottom up approach in the natural world and in human society. As human beings, our immune systems are constantly sensing and responding to threats, based on small pieces of information, while the billions of neurons controlling our brains work together to sense and respond to outside factors which control our actions, like the termite colony. In our society and technology, common law represents a great example of bottom up development, which builds and adapts based on precedent with each new case. The fluid, unwritten constitution of the UK is both stable (with numerous checks and balances) and inherently adaptable, making the UK legal system the envy of many other developed nations, while machine learning algorithms constantly adapt based on new information to the point where they learn by themselves how to respond to external threats and change.

In order to successfully deploy a bottom up approach and to design for adaptiveness there must be a strong emphasis on the purpose of the organisation. If everyone within the organisation understands and buys into the common goal, they are likely to be more sensitive to changes which may impact that goal, as well as more motivated to deliver it in the face of change. Fredrik Laloux describes such organisations as Soulful Organisations. The ‘wholeness’ which comes from working for an organisation with a shared purpose is not an easy thing to generate (especially starting from a position of apathy), but there is strong evidence that an organisation of employees who genuinely care about the purpose of the organisation is more likely to succeed.

The impact of culture

This comes down to culture as well as organisation design. While organisation design dictates the systems and structures of an organisation, its culture is dictated on a more granular level, by the people who make decisions and do the jobs which sit within the systems of the organisation. Two organisational psychologists Baron and Hannan at Stanford University took to Silicon Valley to assess which organisational culture is most effective. They identified five types of organisational culture, producing vastly different results:

1. Star - organisations which recruit highly talented people, paying them the highest salaries. A high-risk, high-reward approach to culture, followed with great results by Google.
2. Autocratic - organisations which are led by one all-powerful figure, often the founder, who dictates orders to the people.
3. Bureaucratic - organisations with a committee-based decision-making model, characterised by a strong middle management layer and clear policies, rules and regulations.
4. Engineering - organisations which hire technically excellent people.
5. Commitment - organisations which build extreme emotional ties with their people, through a strong sense of purpose and a model close to a family bond.

The study followed organisations in Silicon Valley from each of the five types of organisation. Of the five types, the Commitment organisation was by far the least likely to fail. Simon Sinek advocates a similar approach to win customers, as well as motivate employees. Starting from ‘why’ - a collective purpose - and working outwards to a product allows organisations with strong purpose to grow exponentially versus competitors who focus on ‘what’ or ‘how’. Having a clear purpose and a workforce motivated to deliver should clearly be any organisation’s starting point.

Decision making in a flat organisation

Systems that embrace change also need a different mechanism for decision-making. In Ion Org, the decision to change its processes and protect its high-value relationships and the decision to broaden its markets, needed to be escalated through various levels. Forward-thinking companies are exploring ways to build powerful systems of distributed authority, which allow the right person to make faster and better decisions. In its purest form, this leads to ‘flat’ organisations where no hierarchy is required at all. By developing principles against which decisions should be made, purpose-led flat companies are finding a way to embrace adaptiveness and be successful.

In order to ensure the right person makes the right decision, futuristic systems also rely on collective intelligence and idea meritocracy. In other words, decisions are made by the person most qualified, not the person most senior. This is fostered by building a culture of openness and information sharing. Modern communication tools built for transparency like Slack can help to break down information asymmetry. Again, this relies on a strong sense of purpose - remember, in an adaptive system with a commitment culture, colleagues are motivated by the common purpose, not targets and KPIs designed to control their day-to-day activities, so it’s crucial that everyone fosters and steers others towards that common purpose.

At Intergiro, we find that feedback is an effective way to do that. Our feedback is structured and links directly to our principles, which in turn feed directly into our purpose, so they are the only ‘performance’ measurement required. When we ask a colleague or customer for feedback, we are asking “how well am I contributing towards our common purpose?”

More structure = greater flexibility

That’s not to say that creating an organisation which senses and responds is without challenges. And removing bureaucracy and hierarchy is not just about removing structure, but also about empowering colleagues by creating structures which support them in sensing and adapting to change. In fact, organisations looking to embrace change may appear more structured than those that don’t.

Spotify have been touted as pioneers of the Squads, Chapters, Guilds and Tribes system for designing their product teams, which has allowed them to build products quicker than competitors. Crucially, Spotify teams operate in a highly structured environment designed to balance high autonomy with high alignment, meaning strong communication and a shared purpose are more important factors than the actual design of each team. As long as an organisation is set up to foster high autonomy and high alignment, the specific team and leadership structure does not matter.

Indeed, many elements of ‘traditional’ organisation design may be perfectly valid for 21st century businesses. For example, teams of people in divisions led by directors and a hierarchical system of middle management may not be a sub-optimal way to run an organisation, as long as those teams are able to sense and adapt where necessary and the right decisions can be made quickly.

Finding a model for high autonomy and high alignment also unlocks the opportunity to create a globally distributed team. This can boost the organisation’s collective knowledge thanks to diverse ways of thinking and serves a practical dual purpose in terms of ease of market entry and an exponentially increased talent pool. With all of the digital tools that are available to facilitate remote working, it’s more important to build the right structures than to build an office for all of your workers to share desk space and facetime.

Our manifesto

At Intergiro, we are constantly experimenting with Org Design 2.0. We have written down our organisational operating system, setting out the principles we follow at Intergiro. Every new colleague reads the manifesto and everyone is encouraged to comment on it. More importantly, we iterate our operating system just like a tech release, with bug fixes and new features. We’re currently operating on version 7 and we’re actively working on version 8. This approach means we constantly evolve as an organisation and embrace ideas from everyone in the company.

We’d love to hear more examples of challenges and successes from your own experience of designing organisations built for change. You can share them with us here.