I once asked a project manager how he divided up the work when he started a new project.
He responded that you only have two choices: You can slice a cake vertically or horizontally.
Well, those are the main choices, yes. But there are also some variations and combinations (you can make one vertical and two horizontal cuts, for example.)
But no matter which way you prefer to slice it, the problem is that we tend to see only way of doing it – our preferred way, even though there may be other possible solutions, and even if the way we do it today is not the most effective.
Let me borrow an example from Eric von Hippel, an MIT professor.
Imagine that you have to decorate two rooms, and that you have hired two interior decorators to do the work. How are you going to divide up the work between them?
The most natural thing is that they do one room each. Indeed, some will claim it’s the only solution that will work.
One may obviously give each of them the responsibility for one-half of each room, but that seems like an inefficient solution.
One assumes that both will have to coordinate with each other, if the room is to be decorated in a consistent manner: The solution that the first interior decorator selects for his/her part of the room has to fit with what the other interior decorator selects for the other part.
But imagine that both work for a hotel chain that has standardized the way its hotels are built.
Then the option of splitting the work up in half-rooms suddenly becomes feasible. The two interior decorators may agree on style and colors on beforehand. Or maybe one can be responsible for floors and walls, and the other one for furniture.
The same goes for projects (or indeed, for entire organizations).
If you are to design and build two aircrafts, you can divide up the work between two manufacturers by asking one firm to design the engines, and the other firm to design the aircraft bodies.
But an alternative is to have one firm do the front half of the aircraft body of each aircraft, and the other firm the back half of each.
This way of dividing up the task actually resembles the way Airbus does it, with complete modules manufactured first, which are then attached to each other to form a complete aircraft body.
In other words, you can slice it vertically or horizontally.
The question is of course how we can know what the most efficient way of organizing things is. You can see (or guess) the ingredients of a cake – but you can’t tell from looking at people who should work with whom in a project team or unit in the organization.
But let’s assume that work is basically about solving problems while exchanging information with other people, in order to coordinate the work in the best possible way.
One can then identify how information is transferred (or should be transferred) between people, and adapt the formal organization to the way people actually work.
In a small project, this can be done by developing a project plan, identifying how the different activities relate to each other, and spending some time in a workshop discussing the best way to organize the teams.
In a larger project or a larger organizational unit, another approach should be used, as it will be difficult for leaders to get a good understanding of the entire system (I recommend using a questionnaire to collect data in this situation.)
It is by now well documented that by aligning the organization with the work processes (or more specifically, with the information flow and the interdependencies), you can reduce complexity, increase productivity, and increase the ability to adapt to change.
You put the people who have the greatest need for coordination in the same unit or team. That way you create more meaningful unit mandates, reduce the number of interfaces, and cut down on the number of meetings needed to coordinate the work.
P.S. See chapter 5 of my book for a detailed discussion of this issue.
We first identified key design criteria, based on interviews with more than 40 managers.
The most important criterion was to design an organization that would help the firm achieve growth for one of the key products. It was also important to find a model with the right “balance” between different business areas.
At the same time, there was a need to simplify the structure, and reduce the number of management layers.
We then started developing a couple of alternative models.
It was pretty hard work, trying to identify a model that would meet the different criteria, while avoiding an increase in costs. But one evening, in a meeting with the VP of Human Resources, we thought we had found at least one possible solution.
We went through the criteria and could check off one after another. We concluded the meeting on an optimistic note.
But as we were about leave, the VP remarked:
Wait a minute…this alternative makes a great deal of sense. But let’s see…how many of the senior executives will move up, and how many will move downwards, if we go for this option?”
That question re-framed the discussion. Suddenly we were not talking about what you could call the “rational” criteria, but about the impact on individuals and whether the proposed model would get the support of a large enough coalition to be accepted (and once accepted, whether it would be implemented with some level of enthusiasm).
So we looked at the model, and considered the potential impact for each of those who currently held leadership position (and who would be candidates for key positions in the new model).
A simple count suggested that the balance would be negative: A lot fewer would move up than down in the management hierarchy.
So we went back to the drawing board. And in the end, we did produce three alternative models that were more attractive, both from the “rational”, and from the political side. One of the proposed models was then selected by the CEO. The subsequent implementation of the model went quicker than we had anticipated.
* * *
One word of caution here: I am not suggesting that you should “start with the people” in the sense that you should tailor the design to the personal interests of the current members of the management team.
The main design criteria should be derived from the strategy of the firm (see my book for a detailed description of a methodology you can use for this purpose).
The political test is an additional step that you carry out, once you have a potential solution that fulfills the main requirements, and satisfies the key design criteria.
But it’s a step that you shouldn’t skip– if you want your proposed model to be implemented.
A week ago, I was in a meeting with the CEO of a middle sized firm. He explained how they were organized, and drew a diagram of the main units. He explained that they had introduced this organizational model only a few months ago.
I asked him whether he believed this model was the “final one” – or whether it was a necessary, transitional step to another model.
He paused for a few seconds, rose from his chair, walked to the other side of the room to close the door, which had been left half open when we entered.
Then he sat down again and drew another diagram, completely different from the first one. And he went on to explain why the firm would have to adopt this alternative model.
Think about this for a moment: The rest of the organization is busy trying to understand and implement the most recent re-design, and the CEO is already thinking about the next one!
Visionary leaders are often one step ahead of the rest of us. As Jack Welch once pointed out, such leaders “can see around the corner”. They anticipate and prepare for what happens next.
There’s a story about John Sculley, the former head of Apple Computers, that is illustrative.
Sculley was trained as an architect. While he was with Apple, he designed a holiday home. While the building was still under construction, he invited one of his staff members to visit.
He went for a tour of the building, and when he came to the sitting room, he asked: “What do you think about the view to the rose garden?” The staff member looked out of the window, but could only see rubble.
The world needs visionary leaders (without them, Apple wouldn’t have existed). Yet there’s a big challenge here.
The challenge is that others may not see the rose garden, at least not yet. Or they may see it, but prefer quite a different kind of garden. So often what starts as visionary inspiration leads to a long drawn process of convincing others to buy into a proposed design.
A well-known expert on decision processes, professor Paul Nutt, estimates that the chances of making the right decision decreases by 50% if you start a process by communicating a preferred solution. The reason is that it creates resistance (if people don’t understand the rationale behind the solution) and discourages a search for even better alternatives.
If you are a leader, what can you do?
There is no easy answer. I certainly wouldn’t suggest that you should stop thinking about the future. And there will probably always be some degree of tension between what we as leaders view as necessary, and what followers believe is possible or desirable.
It seems clear, though, that we should be careful about starting a change process by communicating a preferred solution. Before we do that, we should try to identify whether there is a felt need for change: Did the discussions at the last management forum meeting suggest that people are aware of the shortcomings of the current model? What about the feedback from employees and customers, or from the board?
If there is not already a felt need for change, we need to focus hard on creating a shared understanding of the need for change among key stakeholders and engage the entire system in a “strategic conversation” (to use the term coined by Arie de Geus).
In the initial phase, it may help to distance ourselves somewhat from a potential solution, and focus more on articulating the goal or the design criteria: “We agreed at the last meeting that we are not able today to utilize our resources effectively across the sites. So we know that improved resource utilization is a key criterion for our future organization”.
One thing that we should do as leaders is to design the decision process. Refraining from proposing a preferred solution does not mean that you should delegate the decision process itself.
By sketching out a decision process with different phases, you can alternative between steps where you work more individually, and steps where you involve a lot of people to gather data and generate new ideas.
Another possibility is to propose two potential solutions, and ask people to debate the merits of both (ideally, with reference to the goals or design criteria that have been formulated. )
If you are visionary enough to imagine one rose garden, you might also be able to imagine two.
I had the privilege of talking with Professor Costas Markides last week. Costas is professor at the London Business School, and has been nominated as one of the world’s leading management thinkers.
We discussed the concept of ambidexterity – or the ability to manage “dualities”.
If we could focus on just one thing – one business model, one market segment, or one technology – it would be relatively simple to design the organization. As long as we correctly identify what the main challenge is, we can optimize the organization to meet that particular demand.
In a complex business environment, however, we don’t have that luxury: The organization may be based on two different and conflicting business models, may serve two or more different markets, and perhaps utilize both high end and low cost technologies. Then you might have what we call a “design contradiction”.
What is the right design for this kind of organization?
There are design contradictions in other domains, too.
In urban planning, one wants to provide access for cars while at the same time allowing people to walk or cycle safely. The traditional solution is to use strict regulations and to separate pedestrians, cyclists, and cars.
Professor Markides has used the Dutch town of Dracthen as an example in some of his presentations. This town implemented the “shared space” concept developed by road engineer Hans Monderman (1945 – 2008).
This urban design concept eliminates the strict boundaries between road and pavement, and also removes road surface markings, traffic signs, and traffic lights. The town of Drachten experienced less, not more, traffic accidents, after making these changes.
But let’s take a step back and first describe the basic challenge, and discuss why this is relevant to organizaton design. Here’s a a transcript of our conversation:
Q: In your recent work you discuss the kind of organization that is required to support innovation. What’s the key issue here?
A: First of all, it’s important to be clear about what we are talking about. There are different types of innovation. Most innovations can be handled within the current structure of the organization.
But there are some types of innovation that can not be managed within the existing structure. These are the radical or disruptive types of innovation that cannibalize the existing business. Or firms that pursue multiple business models within the same time, where they potentially compete with each other.
It’s in these types of situations that we need to consider redesigning the organization.
Q: There are also other types of conflicting demands.
A: Yes, in academia we speak about different types of “dualities” and the need to be ambidexterous to manage these.
Let me give you an example from my own institution: At London Business School, we evaluate professors on two primary contributions: One is your research productivity, and the other is “citizenship” towards the school and other fellow academics.
These are conflicting activities: The more time I spend on trying to be a good citizen, the less time I have to do my research!
At the same time, all the incentives we have are geared toward encouraging research productivity. But the leaders say, ”Oh, by the way, we also expect you to be a good citizen”. But this is not evaluated or rewarded. So people don’t spend much time on this…but at the end of the year it is repeated: “We also want you to be good citizens!”
Q: So this illustrates one solution when you have two conflicting demands: You ignore or pay lip service to one demand, and focus on the other.
A: Yes, and that’s what often happens in organizations. The CEO comes and says: “I want you to invest in the current business……but don’t forget, we want innovation as well, we need to create the business of the future!”
That’s what they say, but what managers look at, of course, is how they get evaluated and rewarded at the end of the year. And what is that? Usually the budget and whether you have done enough to promote the current business. So that’s what people focus on.
Q: The second solution is to actually try to address both demands, by creating a separate unit with an explicit mandate and with rewards, and perhaps with a separate culture and identity, to develop new products that may even be in competition to the existing ones.
You write about this solution, but you also seem a bit skeptical about it.
A: Many academics have written about it, including Clayton Christensen, who claims that it is the best solution for innovation oriented companies. But it is an old concept that one has written about for 30 or 40 years now.
We see many examples of companies doing this. My favorite example is Nestlé, which set up a separate business unit to develop the Nespresso business, but there are many others, for example, banks like ING that established separate units to manage the internet banking business.
It works up to a point, but I have a couple of concerns.
It may be a good solution, but not all the time. It depends on a variety of factors. It depends on the nature of the conflicts between the two demands or the two activities that we are considering. There are some business models that really are conflicting, and others that are just different, but not really competing or conflicting with each other.
So whether you separate or not depends on several factors, like the degree of conflict, and also your experience – if you have done it before, maybe you can manage the two activities within the existing organization, and you don’t need a separate unit.
Unfortunately, people have learned about this solution and now immediately separate when they create a new business concept, but I say to them that they should think about these factors first, before they rush into it.
The second point is that even if you separate – separation does not mean isolation. There are still synergies between the units that you need to exploit! Even when you create a separate unit, you need to ask whether you need to separate everything, for example, should the new unit have its own people, processes, distribution channels, culture, etc., or should it share some of these elements with its parent company?
There are no right answers, but you need to think about these issues.
Q. Going back to your first example, there might be a continuum from negative synergy to positive synergy between two units. Can we measure this?
Sometimes activities that seem to be synergistic are in fact in conflict.
Andrew Campbell mentioned to me once the example of tennis and squash – they are both two player racket games, so it may seem like you can become a better squash player by practicing tennis, but in fact, he claims the opposite is true. So there’s a negative synergy there.
A: Yes, and companies need to assess the degree of synergy, like you say, to find out how conflicting the new business model is. But it’s very subjective, just look at the airline business.
If you ask outsiders, the Ryanair business model doesn’t seem very different from the one that British Airways has. Both of them have airplanes, and both of them fly from one location to the other, and so on.
But if you talk to managers in British Airliens, they will give you a million reason why the low cost airline business model conflicts with the business model of larger and established airlines. So it’s difficult to measure it as an outsider, you have to let the managers themselves measure it and assess it.
This is also why you see that within the same industry, companies are reaching totally different conclusions. You have some banks that have concluded that internet banking conflicts with normal banking, and needs to be managed in a separate units. Other banks have concluded it is just a new distribution channel and manage internet banking within the existing organization.
Q: Finally, you describe a third alternative. Instead of ignoring one activity, or separating the new business from the existing business, you have also been considering a more radical solution, that does not rely on separation.
I was intrigued by your example of the Dutch village of Drachten, and how they implemented Hans Monderman’s urban planning concept.
A: Monderman had some ideas that revolutionized how you think about traffic design, and you now see many towns implementing this concept.
In towns, we have people who walk, people who cycle, and people who drive cars. Three different activities, and what do we do? We separate them: Travellers who drive cars, use the road, those who walk, use the pavement, and if you cycle, use the separate lane, and so on.
Just as we separate conflicting activities in an organization.
Monderman instead said: No, let’s not separate them, let’s have one road and let’s remove all the regulations, traffic signs, traffic lights, and markings.
He found the village of Drachten, where they agreed to do an experiment and implement this concept.
As he predicted, accidents went down, because people started taking personal responsibility for their behavior.
I use this example to help leaders think about other alternatives when they design organizations.
Q: So the parallel here is that you have different activities – walking, cycling, driving, each with their specific demands, that might be in conflict. The typical solution is separation, but a different solution that resolves the conflict – or Russell Ackoff would say “dissolves” the conflict – is the shared space concept that Monderman developed.
A: Yes. Most of our behavior is determined by the environment. We know what kind of behavior we want, we want people to manage different activities at the same time, so we need to step back and ask whether we can create an organizational environment that allows people to be ambidexterous. I think the answer is yes.
Hans Monderman emphasized the when you trust people to behave responsibly, they will. When you drive down the road, and see no road signs and no police watching you, you make the right decision yourself: You slow down the speed.
So the question is whether we can create an organization where we give people the autonomy, in the right culture, with the right values, to make the right decisions.
So this is a possible solution to the ambidexterity problem.
It won’t be relevant in all cases, but in some. As I said initially, the key thing is to understand the particular challenge that you are facing and a devise a solution that is appropriate for the situation.
Costas Markides’ most recent book is about how you can make to or more more business models co-exist within the same firm and is called Game Changing Srategies. He also contributes to the Ghoshal blog at the London Business School.
In the videos posted in the last five blog posts, I have described five important ideas in the field.
What I tried to do was to select innovative ideas (or concepts/tools) that I thought relatively few people were aware of, and that few organizations have implemented so far.
At the same time – ideas that I believed would have a big positive impact, if adopted and implemented more widely.
Here, let me briefly summarize what each idea is about and why I think it is needed.
1. In the first video I spoke about idealized design. Unlike the typical visioning process, it does not require you to predict what the future will be like. Rather, it asks you to assume that the environment will be exactly the same as today, and to image what would be the ideal organization given the current challenges facing the organization.
The purpose is to raise the aspiration level and spur creativity, while at the same time developing realistic solutions that one can start implementing today.
2. In the second video I described some key features of the axiomatic design approach, which was the main inspiration for my book (particular chapters 2, 4, and 8). The key observation is that new organizational designs often contain contradictions which prevents them from being fully effective.
At times, these contradictions are only discovered after a new organizational model is implemented. For example, one discovers that although a new model enables the organization to reach one goal, such as cost effectiveness, it compromises the ability to reach another goal, such as improving the customer experience.
The key idea is that we need to be more precise in defining requirements and to test how different requirements relate to each other, before implementing a new design (In the coming months I intend to develop this idea further and develop tools that I will test on my client projects.)
3. In the third video, I discussed the classic issue of how to align the formal organization with the work processes. I presented the FRAPS diagram, drawn from my book. The diagram is intended to summarize a key insight in the academic research on organization design: To maximize effectiveness and minimize coordination cost, you need to integrate (between roles/units/processes) when there’s a high level of interdependency, and separate when there is a low level of interdependency. It’s a simple principle, but frequently overlooked.
4. In the fourth video, I turned to vertical structure and talked about how to define managerial accountability. In particular, I discussed Elliott Jaques’ concept of three tier management, which distinguishes between the responsibilities of the direct line manager and the manager’s manager. This is not a new idea, but few companies have implemented it consistently. Every large organization that intends to get better at developing talent and facilitating internal mobility should consider it.
5. Finally, in the fifth video I discussed a somewhat controversial issue, namely, why we need hierarchy and whether democratic governance is a viable alternative. There have been many idealistic attempts at removing management hierarchies, but as I explained in the video, few have been successful.
I argued that the basic challenge isn’t to create more participation or engagement per se, but to recognize the basic design contradiction: To be successful, a democratic organization would also need to be effective. That’s why we have organizations – to get things done. I describe the best option I have encountered so far – the circular organization.
This video marathon has come to an end, but I consider these five ideas to be foundational, so I am going to return to these topics frequently on this blog, but maybe discuss them from different angles. One thing I want to do is to show in a bit more detail how to apply these ideas in an actual redesign process.
By the way, I received several comments about the videos (some posted on the blog, some via email) – I appreciate that, I learn a lot from your feedback and try to respond to every message I receive, so keep’em coming.