Defining roles, accountability and governance Archives - Page 2 of 6

Defining roles, accountability and governance

In this series of posts I describe how to define the high level architecture and governance model of an organization, as well as individual level roles and accountabilities.

Do small and innovative firms need “structure”?

September 14, 2020 By Nicolay Worren

Photo by fauxels from Pexels

“Structure” is associated with large and well established firms that serve stable and mature markets.

Such firms need the clarity and predictability provided by roles, hierarchy, rules, procedures, and control systems. Innovation is not so important for such firms; efficiency is what counts.

Small firms, and in particular, start-ups, require a more fluid, agile, and flexible form in order to grow and succeed. Speed counts. Having a (formal) structure would slow things down. It would also hamper innovation, which requires freedom from constraints.

Sounds logical, right?

It is what students have been taught in business schools: Efficiency requires a “mechanistic “organization, while innovation and change require an “organic” organization.

Yet a growing number of studies is challenging this view.

Several empirical studies have been conducted on this topic. They have been published in well-known journals, and are based on data from hundreds of small, fast growing firms.

Let me mention the key findings from three studies (see references below).

The first study was conducted by Wesley Sine from Cornell University with two colleagues.

They looked at several indicators of formal structure, including the degree of formalization of roles, the degree of specialization among the employees, and the number of executives relative to employees (which they call “administrative intensity”). The data came from 449 internet start-ups.

Conclusion: The firms with more role formalization, more specialization, and more administration outperformed the others.

Another study collected data about 1411 Dutch firms. The findings are similar:

..we find hierarchical, centralized structures with strongly specialized employees to occur frequently and to perform well in terms of growth.

A third study is based on data from 2,431 high-tech start-ups in Germany. It considered the role of hierarchy, and introduction of middle managers more specifically.

The autors explain that entrepreneurs are usually reluctant to introduce middle managers, because they fear that it will lead to bureaucratization and less innovation.

Instead, they find that the opposite is the case. In fact, among these firms, hiring middle managers early increased the chance of launching product innovations by 33% (!).

So the answer seems clear: Small and innovative firms do need structure.

In his book “The unicorn’s shadow”, Wharton professor Ethan Mollick concludes:

…the founders that pay attention to the boring details of people and structure will succeed where others fail; a strategic focus on growing your team wisely is the most important thing you will do for long-term success.

You can find the studies referenced here:

Grimpe, C., Murmann , M. and Sofka, W. (2019). Organizational design choices of high-tech startups: How middle management drives innovation performance. Stratagic Entrepreneurship Journal, 13, 359–378.

Meijaard, J., Brand, MJ. & Mosselman, M. (2005). Organizational Structure and Performance in Dutch small Firms. Small Business Economics. 25, 1, 83-96.

Sine, W.D., Mitsuhashi, H. & Kirsch, D.A. (2006). Revisiting Burns and Stalker: Formal structure and new venture performance in emerging economic sectors. Academy of Management Journal, 49(1), 121–132.

Should there be a computer on your organization chart?

June 11, 2018 By Nicolay Worren

I attended a conference in Denmark recently where I met Richard Burton, professor emeritus at Duke University.

It was he who first raised the question in the headline. I thought it was an intriguing one.

Computers are increasingly doing the work that middle managers used to do – planning, decision making, quality control. Many people believe that artificial intelligence and robotics will lead to a reduction in the number of middle managers in most organizations during the next decade.

So if computers are doing the work – why not put them on the organization chart?

As Professor Burton said, if your work is not yet automated by a computer, you are probably working for one! (Like the two assistants in the diagram above.)

I guess Prof. Burton posed the question to provoke us to think about the issue.

And it’s a question that goes to the heart of how we define “organization”.

Some academic researchers define organizations as “information processing systems” – systems for collecting, transferring, and processing information.

With this view of the world, you could put the computer on the chart, because people or computers are just alternative ways of providing processing capacity to the system.

But in my opinion, this definition misses a key point.

It’s obvious that information is being transmitted and processed in organizations. It’s also clear that computers can do some task better than humans can do (or at least faster and more efficiently).

But information processing is not the purpose of organizations per se.

Instead, we need to view organizations as “accountability hierarchies” (as suggested by Elliot Jaques). Organizations have a mandate and/or mission – usually tied to external needs and stakeholder expectations.

A hospital has a legal and moral obligation to provide patient care. A school is supposed to educate students. A firm should serve its customers and other stakeholders.

To get these things done, the mandate or mission is broken down into more specific functions and tasks. People at various levels of the organization are held accountable for performing these tasks in order for the organization to fulfill its mission and mandate.

You can digitalize your organization all you want. But computers are not accountable. Only people can be accountable for performance.

A case in point: In Norway, where I live, several hospitals have had problems with their digital patient journal systems. In some cases, the system has failed to schedule appointments with patients with serious diseases who needed to take diagnostic tests.

The typical response is to blame this on a computer glitch.

But we cannot avoid responsibility by blaming a computer.

People define the functional requirements to the IT systems, people program the systems, and people follow up whether the systems do their job.

So we should not put the computer on the organization chart. The organization chart has always been – and should still be – a map of reporting lines, roles and responsibilities.

As we digitalize, the organization showed on the chart may become smaller, flatter, and more decentralized.

There will be fewer and fewer boxes.

One day there might not be any boxes left.

But by then it is no longer an organization, but a machine.

Three misconceptions about the matrix organization

April 14, 2016 By Nicolay Worren

What is a matrix organization?

Are matrix structures inevitable in complex organizations?

Unfortunately, there is a lot of confusion about this.

One reason is that textbooks and articles fail to provide good definitions.

A book I just read proclaims that the matrix “is an excellent choice” for higher education institutions. But it doesn’t describe in any detail what it is.

Consultants and “thought leaders” who recommend this solution aren’t very precise, either.

This is one reason why some misconceptions have taken hold.

Let me address the three most common ones.

Misconception #1: We are talking about the same thing when we use the term “matrix organization”.

Consider a fairly typical re-design process in an organization. A project team or working group is considering alternative organizational models. They first look at a product based model:

…they may then compare it to a second alternative, such as a geographical model:

…but then, somebody may ask why they can’t combine them, and they may produce a drawing like this one:

It might be a good idea to combine two different dimensions.

But this type of illustration is not very helpful in itself. The reason is that it leaves a lot of questions open to interpretation.

What IS it supposed to show?

Does it mean that the units that are connected by the lines are supposed to collaborate, and if so, about what and in what manner?
Does it mean that people in these units will participate in joint meetings, teams or projects?
Does it mean that these units will share the same goals and KPIs?
Does it mean that people, somewhere (usually not shown on this type of chart) will report to two or more managers? (If so, who does this apply to – will everybody have two bosses, or just some people at a specific level of the organization? )

Or all of the above, or none of the above?

It wasn’t always like this.

When the matrix solution was first introduced, it was relatively clear what it entailed. But it has gradually become a very ambiguous concept.

There are also multiple variations of it, and these variations are usually not described or discussed.

As the author Stephen Haeckel put it, ambiguity is good for many activities in life.

It’s a good thing if you are writing a poem or creating an abstract painting.

But it is the mortal enemy of good systems design.

So the kind of drawing that you see above is not very helpful – unless we specify what we mean.

To do that, we need to use a different format, we need different types of illustrations – and a more precise vocabulary.

Only then will we be able to explore what the actual design options are and identify the risks and limitations of the different alternatives. Only then will we be able to create a common understanding among those who are involved in making the decision about a new organizational model.

Misconception #2: “The main challenge of the matrix is that people have to work for more than one boss”

It is fairly common to hear that the main problem with the matrix is that it’s difficult to work for – or report to – multiple managers.

However, there are few organizations today, matrix or not, where you only relate to one manager.

In most organizations, regardless of reporting structure, you work for multiple managers, participate in teams and projects, contribute to cross-functional improvement initiatives, and so on.

This can be time-consuming for sure, but it is not necessarily the main problem.

What is problematical, however, is reporting to two or more managers if the goals and KPIs that these managers have been assigned are in conflict with each other.

This may be the case if the units that the managers belong to have conflicting mandates or overlapping jurisdictions, something that happens relatively frequently in large and complex organizations.

And installing matrix reporting lines doesn’t do much to resolve this problem. On the contrary, it will probably make it worse.

(If you want want more detail, there’s a piece of research that confirms this point. You can find it here.)

The implication is: If you have a matrix structure that doesn’t work, you don’t need to abandon it completely. With a few modifications (aimed at clarifying roles and removing overlaps in unit mandates) it may become a lot more effective…

….which leads me to my third point:

Misconception #3: “The choice is either/or”

Some proponents of the matrix solution basically say: “Either you have a modern organization with a matrix, or you are old-fashioned and have a silo organization”.

In my opinion, this is a false dichotomy.

It is based on a confusion between two different things – the formal reporting structure, or who should be the line manager, and the extent of information sharing and collaboration across units.

It’s false dichotomy because you can of course have extensive collaboration across units even in an organization where every employee has only one line manager.

The matrix is one type of multi-dimensional organization, where you have different units such as product units and geographical units at the same level in the organization.

However, as I describe in my book, there are other organizational models that also have this feature and that look similar on paper, but that do not assume that employees report to two bosses and do not require overlapping goals and KPIs (see a brief summary of the line of reasoning in this blog post).

The matrix organization is also quite rare (if you define it as I do – “a two-boss reporting structure”).

During the last 7 or 8 years, I have interviewed managers in about 40 different firms.

Only 2 or 3 of these firms had a matrix with a two boss reporting structure, and in these cases, it applied to a relatively small group of people, typically middle managers at one specific level or in one part of the organization.

So at least in my experience, a formal matrix structure is not very common.

However, what is quite common is something I call a hidden matrix.

By that I mean governance processes and authority relationships that cross the formal units, but which are not shown on the official organization chart (and that are usually not deliberate).

This is an important issue, which I will discuss in my next blog post.

If you have a question or comment, feel free to enter one below!

If you really mean it, formalize it

May 6, 2015 By Nicolay Worren

In every organization, there are numerous informal initiatives that have yet to become part of the formal organizational structure.

There may be an informal group that meets to discuss how to improve the customer experience.

There may be a network of people from different subsidiaries who share methods and best practices.

There may be an informal group of people from different business units that discuss whether they can collaborate to develop a new offering.

Informal is good.

But the things that really matter, we should formalize.

By that I mean: Defining goals for what we are trying to achieve, allocating resources to the initiative/process, and appointing a manager with some degree of authority and accountability for producing results.

Again, there’s nothing wrong with informal initiatives, processes, and projects.

We need them to create shared understandings and a common culture.

We need them to correct for the shortcomings in the formal structure and to bridge people in different units, who may benefit from sharing knowledge or exploring new opportunities together.

We need them so we can try out new ideas or concepts, before we fully commit and put the organization behind them.

Where we go wrong is when we pretend that informal initiatives are sufficient to address the key strategic challenges we face.

When we claim that we have implemented a global organization, yet all we do is to collaborate across existing local units, in some limited areas, without implementing fundamental structural changes.

When we claim that we are customer oriented, yet we have still not aligned the formal organization with the market.

When we claim to operate as “one firm”, yet all we have done is to communicate this vague intention, without doing anything to address the numerous obstacles that prevent coordinated action among the various units in the firm.

First of all, it just doesn’t work.

Half way measures produce half way results. It requires more than this to become global, customer focused, or well integrated.

Secondly, we just create cynicism among employees, because they will compare our statements about bold strategies with the current organization – which is left unchanged.

They will conclude that we aren’t really serious about it.

Because they know that if we really mean it, we formalize it.

Related posts:

Is your organization overspecified or underspecified?

November 27, 2014 By Nicolay Worren

How much “structure” do you need in an organization?

This is one of the eternal debates in the field of management & organization.

Unfortunately, the debate is often based on ideology and personal preferences. One example is the movement that advocates an organizational form called “holocracy”, which is a concept for an organization without bosses.

This idea has received a lot of attention (see here for one example).

But shouldn’t we start by trying to understand the challenges facing a particular organization, before recommending a solution?

In my work as a consultant, I do find that some organizations are “overspecified”, that is, that they rely too much on hierarchy and formal procedures.

For example, I have observed this in some public sector organizations.

Those who work in such organizations are supposed to be aware of – and comply with – a large number of guidelines, procedures, regulations when carrying out their work.

Their roles and duties are typically highly formalized (i.e., specified in writing); decision making authority is often centralized; and there are several layers from the bottom to the top of the pyramid.

But in many other organizations that I work with, the opposite is the case.

People in these organizations complain that they don’t know what their role is or what they are responsible for.

Work processes are ad hoc or informal – or highly political – even in cases where everybody would agree that it would be fairer and more effective to have a formal, standard way of performing them.

In such organizations, people may participate in a lot of discussions, but nobody seems to have the authority to make a decision (let alone follow through and implement it).

People can’t make choices and set priorities because they don’t know what the overall direction of the organization is.

In the words of author Stephan Haeckel, “They feel like they are on board a rudderless ship that is drifting at sea”*.

Such organizations are “underspecified”, that is, they lack leadership, structure and governance.

Of course, most organization would fall somewhere in the middle of such a continuum.

But the point is that one has to find out where on the continuum one is, because the solution – if one wants to become more effective – is radically different.

We also need to understand the particular external demands facing the organization.

A bank, for example, typically is on the extreme end of the continuum, with a lot of focus on formal processes.

But this is not necessarily because bank managers believe in a “control and command” philosophy. It is because all banks need to comply with externally imposed regulations – and manage its own financial risk. (And, by the way, as a customer, would you want to deal with a bank that didn’t focus on risk management and compliance?)

But I am not saying that the business environment determines everything.

In some cases we do observe that an organization is indeed overspecified. And that people in the organization believe that this is a real obstacle to increasing effectiveness. If so, we should of course try to introduce more flexibility and more informal ways of working.

We may try, for example, to reduce the number of detailed specifications of policies and procedures, and instead focus on outcome-oriented goals. This will reduce the number of rules and provide employees with more autonomy in selecting the course of action to take to reach the goal.

But if the organization is underspecified, we need to follow a different approach.

Depending on the situation, the right intervention may involve clarifying unit mandates and defining individual accountabilities, introducing some standards for how to perform key work processes, establishing basic principles for decision making, or re-organizing people into a new reporting structure with a more logical grouping.

*The phrase is borrowed from Stephan Haeckel’s excellent book “Adaptive Enterprise” (HBS Press, 1993).

Do small and innovative firms need “structure”?

Should there be a computer on your organization chart?

Three misconceptions about the matrix organization

Misconception #1: We are talking about the same thing when we use the term “matrix organization”.

Misconception #2: “The main challenge of the matrix is that people have to work for more than one boss”

Misconception #3: “The choice is either/or”

If you really mean it, formalize it

Is your organization overspecified or underspecified?

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