Category Archives: Organization Structure

Not an Ideological Discussion

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From the Ask Tom mailbag –

Question:
I have been told that my org structure is misguided, that I need to flatten my organization out, that my various teams should be able to make their own decisions. What gives?

Response:
What seems like an off-the-cuff remark about the way you run things, turns out to be a bit more complicated. The organizational structure is not something dictated by a friend, or a consultant, based on some ideology about modern companies and the new look of the corporation.

Organizational structure is simply the way we define the working relationships between people. If we draw it on a piece of paper, it looks like an org chart. If you give me your org chart, it tells me how you think about those working relationships with respect to these two questions –
Who has the accountability for output?
Who has the authority to make what decisions?

Your org structure defines those two questions according to your business model. Your business model will guide you to the structure you need based on the complexity of the decisions you make and the problems you solve. Easy decisions and easy problems don’t need much structure. But no one builds a growing business based on easy decisions and easy problems, things become more complex. The complexity of the work provides clues to the structure you need.

How complex is your business? If your company replaces residential roofs, one project at a time, with no overlap between projects, things are pretty simple. Add a second story to that residential roof and suddenly you have more safety issues. Simultaneous contracts add more complexity with scheduling, crew capacity, material receiving and staging. Shift to commercial roofing and things stack up faster. Professional buyers enter the picture. OSHA oversight and compliance. Insurance and risk management. Code compliance and risk retention. Cash flow and credit facilities. Operational and quality assurance systems. Warranty and maintenance contracts. There are multiple levels of complexity, all part of the business model which dictates the structure required.

You can remove the management layers in your company, but the complexity remains. You should have no more layers in your company than is required by your business model. But removing layers will leave some decisions to be made by people who do not have the capability to make those decisions. Removing layers will leave some problems to be solved by people without the capability to solve those problems.

Organizational structure is not an ideological discussion.

Without Profit

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“You continue to use the term managerial system,” I started. “What do you mean?”

“In the beginning, in a startup, every company is haphazard, organizing the work around the people they have. At some point, there is still work left over and the founder realizes work can no longer be organized around the people, we have to organize the people around the work. Specialized roles emerge. And, then those roles have to work together.”

“And the system?” I asked.

“Roles cannot be haphazard, working together cannot be haphazard, too much friction against profitability. I have seen companies work extremely hard and never make a profit. Eventually, they have to make a profit or the company dies (a long slow death exasperating death). For a company to survive and be profitable, they have to create a managerial system, what we call structure.”

“Structure?” I prompted.

“Organizational structure is simply the way we think about, often on paper, the accountability and the authority in the working relationships between people,” Pablo stopped. “Two types. Vertical managerial relationships and horizontal cross-functional relationships.”

“And this structure is important for profitability?” I clarified.

“Yes, and this structure is important for the sustained creative output of the people who work in the company. Because without that, the company will also die, become a corrosive institution where no one wants to work.” Pablo paused again. “To stay green and growing, the managerial system has to be vibrant and well-thought-out.”

What is Possible?

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“I just finished the org chart for my team,” Kayden announced, holding up a piece of paper with circles and arrows.

“I see that,” I replied. “Why do you think an org chart is important? It’s only a small team, 18 production people and two supervisors, then there is you.”

“You said it was important, remember?” Kayden was quick to respond.

I nodded. “Yes, I did. But, do you remember why?”

“So people will know who to report to,” he followed my nod.

“So, you think you were made manager so people could report to you?” I asked.

“Well, it does sound a little arrogant.”

“What is organizational structure?” I pressed. “I mean, we draw boxes on a page and connect them with lines. What does it all mean?”

“The lines connect people that work together,” Kayden floated.

“So, what? They work together. What do the lines mean? Look at your chart. Most of the lines are vertical and are connected to a supervisor or connected to you? What do the lines mean?”

“It’s the way we define the working relationships between people,” Kayden finally stammered.

“Now, we are getting somewhere. An org chart defines the working relationships between people. And, we have to forge the kind of relationships that move the company forward, with respect to these two things – Accountability and Authority. In every working relationship, who is accountable for what? And, in every working relationship, who has the authority to make decisions? The right working relationships determine what can be done, what is possible. The not-right working relationships lead us into counter-productive activity and thwart what is possible. That’s why an org chart helps us understand those working relationships.”

Guiding Value in Hierarchy

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“But, if I delegate things out to other people, meaning, if I delegate decision making to other people, doesn’t that erode my power, as the CEO?” Suzanne wanted to know.

“If power is that important to you?” I replied.

“Isn’t that why I started this company, built it up from scratch? I am the one who made all the decisions. I am the one who had all the accountability,” she protested.

“And, you still have all the accountability. In the beginning, it was appropriate for you to make all the decisions, there was nobody else around. And, as the number of customers grew from a handful, to a dozen, to a hundred, they demanded your organization grow to accommodate their needs. As your organization grew, through necessity, you had to delegate, first tasks, then decisions. To the point where you now feel a loss of control.”

“And, a loss of power,” Suzanne quickly added.

“And, there is the rub. You see your organization as a hierarchy of power. Don’t kid yourself, the world is biologically ordered into a hierarchy of value. You see the value in your hierarchy as one of power. A power hierarchy begins to weaken the purpose of the organization’s original intent. This is a very serious shift, to understand your organization, not as a power hierarchy, but a hierarchy of competence. And, when you see it that way, what changes?”

Not a Communication Problem

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Thinking about competence, we begin with individual competence. Ultimately, however, we have to think about organizational competence. It not just great output from a single performer, but the output of the organization as people work together.

Organizational structure is simply the way we define the working relationships between people. We represent this on a piece of paper called an organizational chart. We have both vertical working relationships and horizontal working relationships. How well these relationships work will determine the quantity and quality of organizational output.

And, this is where the trouble begins. On the org chart, we draw lines between people, up, down and sideways. We think we understand what those lines mean, but until we specifically define the lines, we will experience organizational friction.

Working relationships are defined by two things, accountability and authority. Most organizational friction looks like a communication problem or a personality conflict, but that’s just a symptom. Underneath, we have a structural problem where we have failed to define, in that working relationship, where and what is the accountability. And, in that working relationship, who has the authority to make what decisions.

People tell me they have a communication problem. I don’t think so. I think you have an accountability and authority problem. Because you failed to define it.

Individual Performance, Not Enough

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In the beginning, there was a Founder. Who had an idea to start a company. Perhaps it was a hobby. Perhaps it should have stayed a hobby, but, then that wouldn’t make for a very good story.

There was work to be done, and it was the Founder who was doing the work, there was no one else. And, there was work left over, so the Founder hired some people, mostly friends and family to help out. Each of these people contributed according to their own ability, work organized around each of their talents. And, there was still work left over.

At some point the Founder realized work could no longer be organized around the people. The people had to be organized around the work. Roles emerged, specialized roles for people to play. Individually there were good performers and poor performers, but individual good performance does not necessarily translate into organizational performance. Not only do people have to be effective in their individual roles, but those roles have to work together to create a competent organization.

Organizational structure is simply the way we define the working relationships between roles. Individual high performance is not enough, we have to look at the way people work together.
—
Watch Tom Foster on Chris Comeaux’s Anatomy of Leadership.

Commitment to the Work

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“What do you mean, make it necessary?” Max looked confused. “We know what we were supposed to do in that handoff meeting. What more should I do, as the leader, to make it necessary?”

“Three things,” I replied. “First, what is the vision, what does that handoff meeting look like, feel like, taste like? Your vision of the paperwork is NOT a big checkmark across the page. Your vision of the paperwork is individual checkmarks on specific line items. More important is the discussion between the estimator and the project manager about each line item. So, what does good look like.

“Second. Does the team, the estimator and the project manager, have the capability to understand the decisions and problems, and the capability to make those decisions and solve those problems? Max, you are the leader. It is your judgment I depend on to assess their capability and make the necessary resources available.

“Third. Are they committed to the work? A checklist looks like compliance, but compliance isn’t good enough. You, as the leader, need commitment to the work. It is your role to create the circumstances for that commitment to exist. If you just needed compliance, you could do that with pizza. But, pizza doesn’t create commitment.”

Skip the Detail

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“We understand handoffs,” Max agreed. “That handoff between estimating and project management is so critical that we have a hard agenda, 150 boxes to check. Now, most projects only have, maybe, 50 critical items, but we go through the checklist just the same.”

“And why do you use the checklist?” I asked.

“What we found was that the output from estimating, I mean, it was a great estimate, but sometimes it wasn’t what the project manager needed. Sometimes, we estimate in one unit of measure, but install in a different unit of measure. So we mapped a checklist to make sure that the output of estimating matched the input requirements for project management. It’s all about outputs and inputs.”

“So what went wrong? You identified a problem with the handoff meeting that didn’t get discovered until you were in the field. What happened with the checklist?” I wanted to know.

“I looked at the paperwork. Both the estimator and the project manager just got lazy. Instead of checking all the items, there was just a big checkmark that covered the page. They got busy and skipped the detail. They were trying to save time.”

“And saving time turned out to cost time,” I nodded. “Why didn’t they slow down and take the time?”

“That’s the $64,000 question,” Max replied.

“No, it’s a really simple question. They didn’t examine the detail because you didn’t make it necessary to examine the detail. Often, things don’t get done, because we don’t make them necessary.”

Scale This Thing Up

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“You made it halfway through the year. You should have your numbers by now. How did it go?” I asked.

Max grimaced. “You know we have done pretty well in the past, so we wanted to see if we could scale this thing up. We had a firm target, and we were firing on most cyclinders. But we only made 75 percent of goal. I can’t put my finger on one specific thing, seems like a bunch of little things.”

“Let’s start with sales,” I said.

“Sales were good, contracts in hand, but a good portion of the projects sit in backlog. We just couldn’t get the work finished so we could bill it.”

“So, let’s look at project management,” I nodded.

“That’s where some of the problems began. There were mistakes in the handoff meeting between estimating and project management. We didn’t discover the mistakes until we were in the field. We were short some materials. Man hours were estimated too tight, so we had crews that got stuck on one job, when they were supposed to start another job. Once the schedule started piling up, we got further behind. Then a permit didn’t come through. None of this is dramatic, but it all adds up, and so here we are.”

“One of the biggest problems in a company trying to scale is handoffs,” I nodded. “You can have one or two core systems that do great, but you have to get ALL your systems in sync. Work moves sideways through the organization. First place to inspect is the handoffs, where work moves from one function to the next.”

The Distraction of Advice

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Al Ripley believed, for every management problem, there was a management consultant. As issues surfaced in meetings, Al would look down his nose, over the top rim of his glasses, and ask the inevitable. “Don’t we know a consultant that can help us with that?” Outbound Air.

Consultants may be necessary and provide helpful direction, but a consultant will never lead you to the promised land.

The lower the capability of the team, the more consultants, the more tools will be purchased to offset. Those temporary measures can only be hurdled by building the capability of the team. Success can only be achieved with the right tools and guidance in the capable hands of your team. It has less to do with the guidance and tools and more to do with the capability of the team.