From Industry to Uncertainty

Note: If you like this post check out my latest book on Agile Organizational Design!

Before we start digging in to how we do organizational design for the new age, let's spend a bit of time explaining why we need to consider a new model in the first place. I'll do a brief history lesson on how we ended up with our current perspective on organizations, what has changed, and what we can do it about it. I'm going to borrow heavily from the book Organizing for Complexity by Niels Pflaeging, as I do so. Niels has done an excellent job of explaining the history of management thinking and why it needs to change. it's also important to point out that a good number of the design principle in this book have leverage the thinking contained in this excellent book. His thinking has enriched the material in this book, so I'll do my best also make mention of some of the key influences.

Traditional thinking is over a century old

Let think about that for a second, the predominant model used to structure organizations is rooted in outdated thinking that is over a century old

If we want to get to the root of traditional thinking on how organizations are structured and managed we have to go way back over a century ago to the year 1911. Frederick W. Taylor published the *Principles of Scientific Management, a management model geared towards attaining high efficiency. The goal was provide the best price to what at the time were spacious and stable markets. A key tenet of this philosophy was that organizations would be much more efficient if resources were organized by specialization. This would allow functional oriented departments to focus on efficiency through highly standardized and repetitive activity.

Activities were planned and coordinated through the use of functional managers who ensured that individual employees received adequate instruction and feedback on performance targets. Executives and owners determined what the organization should be doing and how it should be doing it, managers were responsible for ensuring successful execution of plans, and employees accomplished individual tasks as they were doled out by managers.

The majority of employees were essentially cogs in a well-orchestrated machine; they did the work and were not required to perform any meaningful thinking. The result was that as organizations grew larger we needed more centralized planning and coordination to deliver across all of these divided people.

This legacy thinking was well suited to the Industrial era

The previous era, was one of economic scarcity. Back in the Industrial era, the goal was to cut costs and deliver commoditized products and services to a large and undifferentiated customer base. Organizations achieved this by making work as repetitive as possible through standardization. Standardization created economies of scale. which drove down costs, allowing for goods to be provided to customers at a price they could afford.

Work and workers were organized to maximize these economies of scale; specialists were grouped together into functional departments, highly repetitive activities were completed in large batches, and passed from one specialist group to the next. Customer demand was serviced in large quantities, again using a big batch approach.

A century ago this thinking was a step forward. We were in the Industrial Age, management gave us a huge boost in Industrial Productivity. We were in a market typified by low customer wealth, this approach effectively serviced the required customer demand. Organizations introduced a comparatively small number of products to a large and undifferentiated customer market. Product lifecycles were extremely long, taking years or sometimes even decades before one product would be displaced by another product.

Traditional thinking is toxic in the age of uncertainty

Who really believes we are still in the Industrial Age? If I were to name our current age it would the Age of Uncertainty. Niels Pflaeging, in his excellent book Organizing for Complexity calls our current age the Age of Complexity. Niels explains that this age of complexity /uncertainty is typified by hyper competition, rapidly evolving market niches, mass competition, and accelerated shifts in technology.

In short we are in an era of constant and accelerated change.

Niels describes how management is a social technology that has become toxic, in our current age of uncertainty. In today's era traditional thinking completely erodes an organization's ability to effectively deliver value. The principles of division and command and control are completely counter productive.

The Age of Uncertainty != The Age of Industry

The Age of Uncertainty requires a radically different approach than the Age of industry. Today's organizations achieve market success by offering differentiated products and services to customers who can and are willing to pay a premium for the latest innovation. What this means is that organizations can be incredibly efficient, follow plans to perfection, and be incredibly effective at coordinating thousands of specialists, but still fail as a business. The biggest risk has shifted from building products cheaply to building a product that nobody wants.

Successful enterprises today provide differentiated products, services, and even platforms to unique customer segments. Product lifecycles are shorter, with obsolescence coming in months, weeks, and even days. Speed of execution and more importantly speed of organizational learning becomes more important than cost of execution, and processes, organizational design, and management methods need to be designed to support speed.

The most fundamental change between traditional management methods and ones that leverage lean and agile methods is the shift from planning and coordinating to learning and collaborating. In an environment where the market is constantly shifting, long-term plans, static processes, and economies of scale will work against you. Instead, organizations need to be designed to manage feedback, and be able to adapt to constant change.

A network of self motivated, cross functional teams

Motivation not Coercion

Our approach to Organizational Design needs to help us group people with diverse skills and viewpoints into teams with cohesive objectives, and place them in direct contact with the market they are trying to serve. Achieving this means we need to take an honest look at our belief system about people. According to Niels book on Organizing For Complexity, we have to believe that people need to work, and under the right conditions they can even enjoy it. We need to believe that people do seek and accept responsibility, that they will be creative in meeting a goal that they accept, and people want to reach their own potential.

Our new approach to organizational design needs to result in conditions that maximize people's self-motivation and cannot create conditions that interfere with intrinsic motivation.

Teams not individuals

A key point Niels makes is that we are talking not about empowering individuals! Many a management fad in the 90's resulted in what could be described as organizational anarchy, rather than any increase in market value or improvement in working conditions. Niels goes onto explain that individual performance is an illusion, no value can be generated from the result of an individual action!

Value comes from interaction between individuals; especially if those individuals have a diverse set of opinion and capabilities, and those individuals can get frequent market feedback. If we add in a dose of radical transparency we start to see the alternative to command and control style decision making; Niels calls it Social Density. It is the conditions where peer pressure can be used to allow a group to take the corrective actions it needs to deliver value in a constantly changing world.

Our new approach to organizational design has to help people self organize in cross functional, market facing teams, and promote radical transparency within and across those teams

From hierarchy to value Network

In subsequent sections of this book, I'll further explore how to facilitate a new type of organizational design, one that emphasize growing a network, of self organizing, self motivating teams that respond rapidly to market feedback.

Neils provides a nice mental model for the new organizational structure, from a hierarchy, to a circular value network. Functional departments are replaced by cross functional teams. Teams act as networked cells that self form, organize, and connect to deliver value.

We will lean heavily on Niel's idea that market pull is what connects our teams across an organization. External stakeholder activity initiates market pull. One or more market facing teams, placed at the "edge" of the organization respond to this pull, and as a result may request assistance from one or more support teams placed in a "core" zone, creating market pull inside of the organization.

It is through this new model of an organization that we can better respond to the needs of rapid feedback, co-creation, and meeting unique customer needs. I'll be borrowing and adapting this mental model in future sections of this book.

On top of the will to make this change, organizational designers need lightweight approaches to define and test our way to this new normal. We need practical tools that allow knowledge workers to participate in the process and self form based on what the market is asking for. It is the goal of this book to provide a set of principles and practices to achieve these ends.

Note: If you like this post check out my latest book on Agile Organizational Design!