Category Archives: Organization Structure

Fear, the Loss of Control

“And, if the CEO feels that the CEO role is to be the glue that holds this house of straw together,” Pablo continued, “there is an associated, frightening feeling that the CEO is losing control. The CEO applies more glue. We see the invention of control systems, so the CEO can see more clearly that things are falling apart. These control systems remove the need for managers to make decisions, the decisions are made for them, they no longer are required to use discretionary judgement.”

“These control systems look like what?” I asked.

Pablo smiled. “In simple form, the manager does something that is detected by a control system (KPI), the indicator is reported (KPI report) to the CEO related to underperformance, so the CEO can chastise (motivational intervention) the manager for not being smart enough, not fast enough or paying too little attention to quality. The CEO applies more glue in an attempt to regain control.”

“I think we are up to three layers of glue,” I observed.

“Glue, band-aids, temporary fixes, or even more dysfunctional changes in the structure, creating an increasing fugue in the way people work together.” Pablo stopped. “Timespan is the framework where all of this becomes clear. What looks like a communication breakdown, or a personality conflict reveals itself as an accountability and authority issue. Structure is where we place accountability and where we release authority to make decisions and solve problems.”

“And, what of the control system?” I asked.

“The CEO conversation is not, can’t you work harder, but, in the work in your role, what are the decisions you have to make, what are the problems you have to solve? This is the essence of managerial judgement that leads to managerial effectiveness. CEO effectiveness rarely requires massive applications of glue. This is a design problem, not a performance problem.”

Structural Quagmire That Starts at the Top

“Let me push back,” I said. “I assume that CEOs do have a firm grasp on the managerial relationships inside their company.”

“And, you would be missing the critical overlay that timespan brings to the overall structure,” Pablo explained. “With timespan as the overlay, the CEO will discover that not all people on the executive team have defined roles at S-IV (Multi-system Integration). Most CEOs have too many direct reports, or if I can more accurately describe – the CEO is the direct manager of too many people.”

“I have seen that,” I replied.

“Or, over time, team members with solid S-III (Single System) capability are promoted to S-IV (Multi-system Integration) roles where they struggle. This over-promotion (Peter Principle) causes the CEO to be dragged into system integration issues. Problem solving and decision making has no systemic or disciplined structure. There is no generally understood order, titles become jumbled and subject to individual interpretation. But, here is the real problem. The CEO gets the feeling that the CEO role is to be the glue that holds this house of straw together.”

“I have seen that as well.”

“And, if there is underperformance, the CEO believes it to be a fault of the team member, when it is really a problem of structure. There is a design problem that is covered over by the CEO in heroic attempts to make people smarter. And if there is continued underperformance, then the team becomes the culprit. Finger pointing surfaces down into middle management, and the band plays on.”

The Rare Grasp on Structure

“I get it,” I said. “Timespan helps us sort out the complexity of problems at hand with the selection of the right person to solve that problem. You say that timespan touches everything a manager does?”

“Let’s start at the top with the CEO,” Pablo replied. “I rarely meet a CEO who has a firm grasp on the structure of their organization. And, by structure, I mean, the way we define the working relationships between people. Not only is it important to define the accountability inside a single role, it is also critical to define the way those roles work together.”

“I’m listening.”

“There are two types of working relationships, vertical and horizontal,” Pablo continued. “Vertical relationships, we understand more easily. Those are (vertical) managerial relationships. Every technician understands they have a supervisor, every supervisor understands they have a manager. If the organization is large enough, every manager understands they have an executive manager. Somewhere, hovering at the top is the CEO.”

“This is the CEO who rarely has a firm grasp on the structure?” I asked.

“Precisely,” Pablo smiled. “Most people get promoted in an organization because someone left the company, leaving a hole in the org chart. Or someone appears qualified for a promotion, requests a promotion, but there is no hole on the org chart, so we create a new role, with a new title. Or someone needs (deserves) a raise, but we cannot justify the increase in compensation without assigning a new title with a new role. Or someone needs leadership experience, so we make them a manager and assign a single person for them to manage. There are all kinds of wonky reasons that org charts get bloodied up.”

“We were talking about timespan?” I reminded.

“And, those bloodied org charts make no sense, they are bloated, accountability is vague, performance excuses abound. So we have communication seminars and do personality testing, AND nothing changes. That’s because we don’t have a communication problem, we have a structural problem. Timespan creates the only framework where we can accurately define two things, accountability and authority.”

“Accountability and authority for what?”

“To make decisions and solve problems. Work is making decisions and solving problems. It’s all about the work. When we can measure the decision (with timespan) and measure the problem (with timespan), we can now structure the organization around something that makes sense. Supervisors have a larger (longer timespan) context than technicians. Managers have a larger (longer timespan) context than supervisors. Executive managers have a larger (longer timespan) context than managers. It’s all about the work, all based on goals and objectives.”

“And, CEOs rarely have a firm grasp on their structure?” I repeated.

“Understanding timespan, the CEO can overlay levels of work onto the org chart, and discrepancies leap off the page. The burning platforms inside the org chart now reveal themselves, not as communication breakdowns or personality conflicts, but as structural problems, where we have not accurately identified the complexity of problems at that level of work, or mismatched a team member to make those decisions or solve those problems.”

To Stay Green

“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.”

Growing Pains

From the Ask Tom mailbag –

Question:
As the CEO, I am stretched a bit thin. I have 10 direct reports, with the prospect of adding two or three more as we continue to grow. I have 1-1s with each manager for 60-90 minutes twice a month, but it leaves little time to spend as CEO. I feel a bit like I am pulled into the weeds.

Response:
Your company is too big to be little and too little to be big. Your company is in No Man’s Land. You have enough resources (budget) to make the hires necessary to relieve a bit of pressure, but these are critical hires, you don’t want to make a mistake, so you continue stretching. There is only one way out.

You have to build the infrastructure of your executive management team. You cannot work longer hours. You cannot work harder. You can only spread the burden.

This is a dilemma first faced by every entrepreneur startup, where the Founder makes all the decisions and solves all the problems. As the organization matures, what happens when all decision making continues with the Founder? What happens when all problem solving continues with the Founder? The speed of decision-making, the speed of problem solving slows down, sometimes stops.

You managed to get out of startup, but your inclinations continue. Others, I am sure, have told you that you have to let go. No.

You have to delegate. This is not a task assignment. What you have to delegate is decision making and problem solving. The most important thing you can do, as CEO, right now, is to build the infrastructure of your executive management team. If you cannot do this, you will end up with 13-15 direct reports and you will still wonder why you are stretched so thin.

The Bloated Organization

From the Ask Tom mailbag –

Question:
I grew up, as a manager in a small company. I just received an offer, which I accepted at a large company with over a thousand employees. As I look around, and I know this is a corporate structure, I feel a little lost. There are managers of this and that, directors, senior levels, junior levels. I got a copy of the org chart, looks like there are about eleven levels between the clerical team and the CEO. I have only been here for two weeks, but it looks like chaos. Even the meetings I attend seem misdirected. There is a formal agenda that gets blown through quickly, then there is a discussion (argument) that goes until the end of the meeting (always ends on time). Did I make a mistake? Should I have stayed at my old company? (Unfortunately, too late, they already filled my old position.)

Response:
At least they end their meetings on time.

I often get a call from a company like this, complaining of two things. They think they have a communication crisis or a personality conflict between two people. The company wants to know if I can arrive, do some personality profiling and conduct a communication seminar. Your description gives me better clues to what is really going on.

In most cases, I do not believe in communication breakdowns or personality conflicts. I believe there is a structural issue. Structure, organizational structure, is simply the way we define the working relationships between people. On paper, it looks like a chart, in real life, a messy chart.

The most important definition in working relationships is two related concepts, accountability and authority, one goes with the other. To be accountable for an output, I must have the authority to make a decision or solve a problem in the way I would have it solved. If I have the authority to make such a decision, I must also have the accountability that comes with it.

This basis for organizational structure, accountability and authority, also provides guidance for the number of management levels required. Without much more due diligence, my intuition tells me this organization needs no more than five levels, meaning it needs no more than five levels of accountability.

Organizations, like the one you described, get bloated because there is no framework for decision making or problem solving. Supervisors get promoted to manager because someone needed a raise and got a title instead. Or, someone got a raise and needed a title to go with it. Or, an underperforming team member needed more supervision, so they got a special manager to watch over them (instead of a demotion or termination). Organizations get bloated for all kinds of reasons. And, that bloating costs the company in decision friction and problem solving throughput.

But, you are in a situation you are stuck with, at least for now. And you are likely a junior manager with lots of accountability and little authority. Here is your first baby step. Get clear with your manager, in each key area of your role, what is the specific output and how often will that be reviewed. For each accountability, what is the authority you have to make a decision or solve a problem in the way you would have it solved. That will keep you from getting fired in the first 60 days.

Check back with me then and tell me what more you have learned.

The Learning Never Stops

We are in the process of learning and the learning never stops.
What are the impacts to your business model?

  • Pretty much everyone has discovered Zoom. It is not as good as being in person, but it works pretty well. We are learning its impact on travel budgets, travel time avoided, continuity stops and starts between travel trips that did not occur.
  • Individual initiative. We have learned who can work independently (making decisions and solving problems) and who struggles without constant oversight.
  • Necessity of being there. When it is not possible (or prudent) to be there, we learn more about the necessity of being there. Human inspection is replaced by remote sensors, providing not periodic data, but constant 24/7 data.
  • Distributed decision making. If it is convenient for managers to make decisions, decisions get made by managers. With a distributed workforce, where it is not convenient (incomplete data, delay) for managers to make decisions, decisions get made by the most appropriate person.

What are the impacts to your business model?

Your Business Model and Constraints

Every business has a model, an internal structure that helps to understand the way it interacts with its market. Business Model Generation defines these elements –

  • Customer Segments
  • Value Proposition
  • Channels
  • Customer Relationships
  • Revenue Streams
  • Key Resources
  • Key Activities
  • Key Partnerships
  • Cost Structure

I suggest another element surfacing as the world comes back on line in this pandemic – constraint.

Every system (business) has a constraint. That constraint is connected to a-capacity-of-something. Initially, constraints show up as whack-a-moles and we arm ourselves with mallets to snuff them out. Eventually we understand that every system will always have a constraint, our job is to put the constraint where we want it (strategic constraint). Some constraints are internal to our business model, sometimes they are outside (external systems, like the market, regulation, finance, labor, technology).

Examine your business model and its constraints. Capacity may have shifted due to the pandemic, your constraint may have moved, your business model may be wobbly because something subtle (or not-so-subtle) has changed.

The First Sea Change

The first sea change for every organization is the way we organize work. The startup asks this question of every new team member. “What do you do well, where can you help us?”

“I can do this and I can do that.”

“Great, because we have some of this and some of that for you to do.”

We always start off organizing the work around the people. People with special talents get special work, others not so much.

Is there work left over? There is always work left over. It doesn’t take long for the founder to understand we can no longer organize the work around the people. We have to organize the people around the work. And, that is the first sea change for every organization, the emergence of roles.

Impact of External Systems

By the time an organization reaches S-III maturity, its core system is maturing and provides for eventual profitability. At S-IV, the organization sees the emergence of multiple systems and sub-systems (marketing, sales, account management, operations, quality control, research and development, HR, accounting).

At S-V, with maturing multiple systems and sub-systems, the organization has to look outward, to external systems. No matter how well the company is organized internally, it is external systems that impact success (or failure).

Market (External System)
Markets organically shift related to demographics, trends, economic growth or contraction. These organic shifts are sometimes subtle and relatively slow. The relative slow speed allows companies to respond (market response).

Regulation (External System)
Most companies are financially regulated (taxes), some are subject to stringent environmental regulation. During COVID-19, regulation dramatically clamped market demand, by defining essential vs non-essential companies.

Labor (External System)
The US went from record low unemployment to depression level unemployment in a matter of 60 days. Labor is an external system that impacts the way we internally organize.

Finance (External System)
Finance includes institutional debt, credit lines, owner investment, private equity investment. The company believes it should be able to borrow as much money as it has the ability to repay. Banks, on the other hand have these concepts called covenants which require certain internal ratios. Finance, as an external system has an impact on the way we internally organize. COVID-19 shifted credit in some cases to forgivable debt guaranteed by government.

Most of these external systems stand alone, but COVID-19 has brought together a not-so-subtle interplay. The organizations who survive are those who are mature in their internal systems, but also understand the interplay and impact of external systems. Those companies funded in the first tranche of stimulus were those who kicked in applications immediately. Most smaller companies, with immature systems, without awareness of external systems were brushed to the second tranche or left in the cold.

It is the role of the CEO at S-V to ensure both, maturity of internal systems and skilled experience in external systems.