How simple structural design can transform your organisation
This article was first published on D/sruption
Organisations today are under pressure to adapt to changing customer needs, changing competitor landscape and changing technologies, and fast. There isn’t time to be held back by complexity, the alternative is too unpalatable. Yet we continue to see it everywhere. In fact, 60 per cent of organisations we have surveyed cite ‘complex organisational structures with too many layers of management’ as a barrier to being fast enough to respond to market change. We can all think of areas of our business that feel overcomplicated or inefficient, and we have experienced how this complexity stifles a business’ ability to deliver on its plans.
Typically, when organisations have responded to change, they have built on to the existing business design - bolting on new capabilities, adding to teams’ accountabilities, creating new propositions or channels to market, adopting new technologies; and managing it all through new (often more complex) governance. Historically, change has unwittingly created a more complex business.
Simpler businesses respond faster
There’s a paradox here: to be agile enough to succeed in a changing world, you need to design your organisation to be simple; effective and dynamic. However, if you’re in a rapidly changing environment, it’s likely that your organisation has become more complex as you’ve sought to accommodate change.
Today’s top-performing organisations are breaking this paradox; creating simpler businesses that respond faster and progress further towards success.
By flattening hierarchical layers, aligning teams around what really creates value and empowering people to make business decisions from lower levels of the business, this group are able to outperform their competitors by up to 30 per cent. We refer to these organisations as ‘Agile’, because they have greater clarity in how they deliver on their commitments and can make change happen faster.
Unlocking the value of simplicity can be challenging, especially for established organisations. So, what can we learn from the Agile cohort to help us overcome these hurdles?
Decentralise and de-layer your organisational structure
The traditional approach to driving change is for top teams to puppeteer the change from on high. But to truly embrace a quicker pace, it’s important the people who are first presented with that change feel confident responding themselves. Not everything needs to be flagged to the top. Decentralisation can unlock your business’s ability to deliver change.
Having the confidence that your people can make tactical decisions themselves requires being sure they are totally clear on their own accountabilities and how they contribute towards customer outcomes and business performance. Aligning accountability to customer and performance outcomes is a key driver of simplicity.
A radical example is the online retailer Zappos. The company has been using Holacracy, an approach which promotes self-management and self-organisation. As Zappos originally grew, they became slower to respond to customer feedback due to the many layers employees needed to go through to get things done. By using Holacracy, every employee can quickly act on customer feedback using guides and checklists. All new employees at Zappos, no matter what their area of expertise, get thorough customer service training to ensure great customer service flows through their entire organisation.
This approach tends to go hand in hand with removing unnecessary layers of management. Focused management is powerful, but excess management is debilitating. In our Agile cohort, 47 per cent empower decision-making from anywhere in the organisation with little or no need for senior approval and the same group have created flatter organisational structures, with few layers of management.
Structure teams around what creates value for your customers and your business
Organisations have tended to be organised around technical or operational functions, based on theories of division of labour and specialisation of tasks. However, we find this approach limits an organisation’s ability to respond to change quickly, when it’s needed most.
Today’s agile leaders think differently about the set-up of teams and the roles individuals play. The most successful organisations have decided to organise their people around what’s most valuable for customers. Over half of the Agile cohort have concluded that in their business, this means organising around their products and services. In these cases, they have grouped people to work in common products and services teams regardless of their specialist skills and competencies.
This makes operational sense – it helps simplify and bring clarity to how work is delivered, but it does mean a significant change to what it means for your team leaders. Instead of being the most senior functional experts, leaders in this new world need to be able to get the best out of multi-disciplinary teams.
These teams are already well established in agile project teams, but they are now proving valuable in creating simpler organisations. A large UK bank is forming multi-disciplinary teams including software engineers, customer contract personnel, business analysts and proposition developers to drive new service experience (e.g. home buying). A large medical diagnostics business is pulling different business and technical skills into common teams to drive faster product development and build more valuable customer solutions.
Teams organised around customer value, along with clear accountability, delayered management hierarchies and more decentralised decision making, create businesses that are way more capable of understanding the need to change and delivering on those changes at pace.
The alternative, traditional, top down approach adds ever more complexity into the business and just serves to compound problems, making life tougher for the business and for all those working in it.