By Guy Higgins
Organizations seem to continuously grapple with a single important issue – how to create a structure that has the consistent performance of a highly centralized structure while retaining the agility and responsiveness of a highly de-centralized structure. Based on my experience, actual organizational structure is a function of organizational size.
Very small organizations tend to be inherently responsive – there simply is almost zero impedance to either communication or decision/direction. One apparent price for this speed/agility is a frequent lack of consistency in the quality and strategic alignment of the decisions/directions. This lack of consistency is a result of the absence of stringently implemented and enforced processes. Action is taken by the “right person,” but said action is aligned with that person’s perspective of “the right thing to do” and his understanding of the organizational strategy. So, very small organizations react very quickly – sometimes well, sometimes not so much.
Very large organizations tend to achieve very consistent performance (although that performance may be significantly poorer than possible). One apparent price for that consistency is the loss of speed/agility. Both the consistent performance and the loss of speed/agility are the result of the creation, implementation and enforcement of processes (processes are good things, but they do take time). These processes seem to require (or are required by) layers of management – parts of the organization to execute the processes. Each of these parts of the organization uses time to complete “its” steps in the process. When the output of the process reaches the decision maker, it is in a consistent format with all the expected information (all the blocks are checked). The decision maker can then quickly absorb the information and then either make the decision or convene a meeting to discuss and debate the situation/information and then reach a decision. None of this is bad, but it does have unwanted characteristics.
Am I implying that very small organizations cannot be consistent or that very large organizations cannot be agile and responsive? I don’t think so. Before I get further into that, I want to take a short trip down history lane.
The very first known organization chart, and therefore the first purposefully designed organization (as opposed to an ad hoc organization), was developed by Daniel McCallum for the New York and Erie Railroad in 1854. The organization (and its chart) was highly de-centralized (each railroad line was physically independent and run independently). Decisions were made by the men at the stations and on the trains – the men actually running the railroad. In that age of telegraphic information, they were also the men with the best, most current information. The railroad had a common set of processes that were enforced – but enforced at the “local” level, the level at which time-sensitive decisions were made. In this instance, “time sensitivity” means that the time available in which to make and execute a decision, the time required to obtain the information needed to make the decision, and the time available for the action to be completed all align.
Seventy-five years later (say about 1930), organization charts were commonplace, but little thought had been devoted to the question of centralization vs. de-centralization. Most companies were organized with central control. I suspect that this was largely the result of the Status Quo Bias (humans are reluctant to change the existing situation) not some considered decision. The greatest discussions about organizational structure addressed the question of whether they should centrally organize around focused efforts (products, programs, projects) or technical skills (engineering, finance, manufacturing). In fact, these discussions are continuing today as companies swing, pendulum-like, between strong program structures and strong matrix structures.
I’ll assert that large companies suffer from this oscillation between strong matrix structures and strong program structures, and that has resulted in the centralization that is common among these large companies. Similarly, it is the absence of any matrix-like influence in very small companies that results in the decentralization and lack of consistency.
I think that the information technology available today can enable both very small and very large companies to operate with both consistency and agility.
For small companies, the key to consistency is process. These companies can, with much less effort than feared, expected or projected, document the ways that they will do business – that documentation is their processes. The documentation need only be as detailed as necessary to achieve acceptable consistency of performance. It’s always important to remember, when documenting/creating processes, that the goal is to get the job done, not to create the process. The process is a tool, not an end objective. Very small companies are, commonly, project-oriented by nature – this puts the decision making in the hands of the people doing the work, which in turn creates responsiveness/agility. Information technology makes it simple to create the processes and make them available to everyone in the company.
Very large companies, however, have the opposite problem; they have lots of processes, but they also centralize the decision making at very high levels (to ensure that consistency across the entire organization). These companies need to invest much more effort in achieving agility than does the very small company in achieving consistency. To achieve agility in a process-dense environment, very large companies need to:
- Establish a common vocabulary to facilitate effective communication across the company
- Commit to the creation of a culture that puts the decision making at the “pointy end of the sword” so that the people who most need quick decisions and are most able to make those decisions are invested with that authority.
- Invest in the development of leaders at all levels of the company – people who speak the common vocabulary, understand the business, understand the “non-user-friendliness” of the real world, and are practiced in leading and making decisions.
- Trust leaders throughout the organization and accept the inevitability of mistakes and failures. Mistakes and failures should never mean the end of a career.
These activities will move a company from being highly centralized to being more de-centralized. That leaves very large companies with the problem of ensuring consistency in a more de-centralized organization – similar to a small, de-centralized company. This is where modern information technology again comes riding to the rescue. Networks allow the nearly instantaneous publication and updating of processes throughout the organization – and it also facilitates continuous improvement of those processes – two-way (up and down the hierarchy) process management.
It takes much more work to change the direction of a very large company than it does a very small one just like it takes much more effort to turn a glacier than it does an ice cube. That doesn’t mean that all companies should not be investing effort in being both consistent and agile.