Creating adaptive organisational designs

Organisational structure is a fascinating topic that has been the focus of much academic and practical research over the past century. The first metaphor I was taught as a representation of how a firm is organised was the “pyramid” where the workers at the base undertook operational activities that were coordinated by the next layer of management, who were guided by business strategy developed at “pointy end” of the pyramid of executive/senior management.

There were a lot of assumptions in this design:

1. The knowledge and expertise was at the top of the pyramid
2. The information flow was upward – management needed information to control operations and executives needed information to control the business.
3. The more knowledge an employee had, the more likely they would be able to move upwards.
4. Knowledge was trapped by systems (e.g. production lines, machines, etc.) and operational workers were employed as a component that undertook defined tasks within these systems. These tasks were “isolated” from each other and therefore workers became masterful at one part of the process, with little conversion between tasks.

The next step in organisational design was based on the advent of information and communication technologies that were seen to be able to “replace” line workers and provide better quality control through “business process re-engineering.” Furthermore, less workers meant less managers and considerable downsizing and flattening occurred to create sparse organisational designs where remaining managers had larger jurisdictions of control and authority and remaining workers were closer to strategy and executive. The results of this approach were mixed. While automation provided release to workers from mundane and dull tasks, much of the innovation potential and know-how of the firm was retired early, redeployed, resigned, or retrenched. While the bureaucracy of middle management had been slashed and operations were closer to strategy, most of the managers who had traditionally operationalised strategy were mid-career unemployed, struggling to find work, or taking up home maintenance franchise opportunities!

The flat organisation is still a major design artefact in many businesses today. However, more and more organisations are starting to obtain value through a network view of the organisation. The network view builds on the benefits of the flat organisation through providing “information and knowledge marketspaces” for stakeholders (customers, employees, suppliers, regulators, shareholders, etc.).  The networked organisation focuses on connectivity over control, enablement over isolation, and accountability over authority. The networked organisation creates a complex sense-making network where new ideas, information, and knowledge can be readily obtained because knowledge and information is dispersed across the organisation and beyond. The organisational boundary becomes very difficult to plot in these business environments and often “customer value” is obtained through the combined capabilities and outputs of multiple business partners or service providers. Furthermore, knowledge from these new alliances filters back to the organisation through interactions and “cross-fertilisation” of ideas between companies with shared interests, but different capabilities.

All characteristics of the networked organisational design point to a far more adaptive environment where people are central to processes because collaborative relationships are central to the business objective of sustained competitive advantage in existing markets and first-mover advantage in emergent markets.

Of course, there are many trade-offs with networked organisational designs and you should consider your business environment carefully before moving towards implementing these structures. Some of these trade-offs are:

1. Greater transparency – while this may sound good, careful preparation and management needs to be undertaken to ensure stakeholder support.

2. Spill-overs – opening up the boundaries means that security policies need to be invoked to ensure information and knowledge that is proprietary or secret is retained safely.

3. Head-hunting – employees often interact more with people outside of their organisation than inside at times and “going native” is more likely.

4. Reduced management control – information asymmetries are eased and therefore workers are more knowledgeable and more capable of finding “work-arounds” in the system. Enhanced ability to communicate gives workers a greater voice in the company and its operations. While the democratisation of the workplace can be a positive aspect of networked design, there are obvious negative repercussions if these liberties are abused.

In the end, I believe that diversity leads to adaptation, therefore,  the best organisational designs represent a fluid mix of pyramid, flat, and networked structures, which are knowingly invoked to satisfy particular strategic requirements.