Category Archives: Organization Structure

Is the COO Irrelevant?

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From the Ask Tom mailbag –

Question:
I read your book, Outbound Air, again.

And I was thinking there might be a conflict with trendier/newer business models. A lot of companies seem to be pushing flatter structures and mixed function work-groups. So there isn’t really a role for COOs as say, the CEO’s internal quarterback

My understanding is that COOs exist to corral the various functions i.e. highest timespan
while the CEO is dealing with strategy, major threats etc.

So does the timespan model change for these flatter-structured businesses where the COO is supposedly irrelevant?

Response:
Elliott’s response to a similar question goes like this –
“I hear these things, and I just have to ask, who is kidding whom?” It is not that the role of the COO disappears, but it is certainly different.

Small Organizations
First, many organizations (small ones) are not level (V) organizations in the first place. Indeed, many companies are level (III) organizations, so they have production, supervision and a CEO, who really plays the role of a level (III) manager. Nothing wrong with this small company, the CEO can make a wealthy living out of it.

Growing Organizations
As the company grows, the level of work will necessarily increase to level (IV). There are multiple functions (systems) inside the company that must be integrated together. Again, the CEO in a level (IV) company will play the role of the integrator. In a larger, more mature company, this would be the role of the COO.

Maturing Organizations
In a level (V) company, the CEO must leave the integration role and truly focus on strategy. Without an effective COO at level (IV), the CEO will necessarily be dragged down into the weeds (back into integration activity). And, as long as the CEO is doing work at level (IV), the company will not grow, likely grow and contract in fits and starts, never effectively integrating their multiple systems. Yes, it is possible to have a dysfunctional level (IV) organization.

Digital Technology
Over the past two or three decades, technology arrived. Indeed, computer systems (note the word system) supplant many level (III) functions. MRP and ERP software systems, in their algorithms, require very specific steps in specific sequences, level (IV). The algorithms were created by some very smart teams who created systems and system integration in a variety of disciplines.

However, with effective technology implementation, the managerial work changed. So, let me pose this question. If we have a technology platform that serves to move data between multiple functions in the company, integrating those functions together, a level (IV) role, then what is the work of the COO?

Here is a hint. Work is decision making and problem solving. In the presence of an effective ERP system, what decisions are left to be made and what problems are left to be solved by the COO? There is an answer to that question.

Your thoughts? -Tom

How to Test Capability at S-IV

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From the Ask Tom mailbag –

Question:
Your post last week helped to explain our dilemma in transitioning an (S-III) Inventory Manager to an (S-IV) VP-Inventory Control role. You said we should have tested him with a project prior to promoting him. Maybe it’s not too late. I know we already promoted him, but could we give him a project as a training tool to introduce him to this new level of work.

Response:
Yes, not a bad idea. This project will give his manager an indicator of how your Inventory Manager is making this transition. The biggest difference in this transition is a subtle shift from a single system internal focus to a multi-system external focus.

  • S-III – System (creates the system, monitors the system and improves the system)
  • S-IV – Integration of multiple systems and sub-systems (attention to dependent systems, interdependent systems, contingent systems and bottlenecks)

So, here are the elements to embed in the project.

  • The project has to be real. No contrived projects as a test. If you want to build a leader, it has to be a real project.
  • Your new VP-Inventory Control needs to be the project leader, under the coaching of his manager. The VP-Inventory Control’s manager is likely to be the CEO (S-V).
  • The members of the project team need to be interdisciplinary, from functions outside of the authority of Inventory Management. As the project leader, your VP-Inventory Control will have to gain willing cooperation from the team, not as a manager, but in a cross-functional role as project leader (prescriber authority). He will have to negotiate with each project team member’s manager for their participation.
  • To be effective, the VP-Inventory Control will have to understand how separate systems impact each other.

Here are the learning objectives of the project (how to evaluate).

  • How well does the VP-Inventory Control understand the systems outside of inventory control? How does he seek to understand those systems? How does he speak with others and ask questions outside of inventory control?
  • How well does the VP-Inventory Control select people to be on the project team? How does he staff the project team? How does he anticipate the input he will need from others outside his own area of expertise?
  • How well does the VP-Inventory Control state the mission of the project, gain willing cooperation from others where he is NOT their manager?
  • How well does the VP-Inventory Control negotiate with peers in the organization to use their resources to accomplish project goals?

It might have been helpful to engage in this type of project prior to the promotion. But, this project can still be helpful to the new VP’s manager (likely, the CEO).

The Struggle for Emerging S-IV

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From the Ask Tom mailbag –

Question:
It took a long time, but our company has grown. Our business model is a distributor, it’s all about supply chain for our customers. Because our business model is driven by the logistics of incoming and outgoing material supply, we recently promoted our warehouse manager to VP-Inventory Control. For us, it was more than just a change of role title. Our warehouse manager took us through re-binning our inventory, bar coding SKUs, RFIDs on serialized product. He is a really bright guy. But his promotion to VP-Inventory Control seems to have gone to his head. With his new-found power, he has emerged as a prima-donna. In our executive team meetings, he believes that inventory control should be the deciding factor in every business decision for the company. If he keeps this up, he is going to get fired.

Response:
Indeed, the move from a Stratum III (S-III) inventory manager to an (S-IV) is a dramatic change in level of work.

  • S-III – System (creates the system, monitors the system and improves the system)
  • S-IV – Integration of multiple systems and sub-sytems (attention to dependent systems, interdependent systems, contingent systems and bottlenecks)

The focus at S-III system level is internal. We demand each of our systems be efficient, profitably leveraging its resources for maximum output. Your inventory manager did just that with a bin system, bar codes and RFIDs. Kudos.

The focus at S-IV is integration. With an internal focus on inventory management, his new role is to assist in the integration of inventory with all the other systems in the company. It is no longer a matter of profitably leveraging resources for maximum output, but optimizing output with the other systems in the company. It is a matter of how one system’s output (reinforcing system) is impacted by another system’s output (balancing system).

This requires the focus for the new S-IV to transition from internal to external. You don’t have a prima donna personality conflict. You have not clearly defined and communicated the new role, nor its differences from the prior role.

You also skipped a step. How did you know if the inventory manager was ready for these new accountabilities? You didn’t. You blindly promoted and now you have a bit of a chocolate mess. The step you missed, prior to the promotion, was assigning S-IV project work, coaching and evaluating the output. Team members should NEVER get a promotion. They earn promotions by successful completion of project work similar or identical to the work in their new role. -Tom

Without This, a Void Filled With Shenanigans

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I am told that we need more leadership around here. I am told that we manage things, but we lead people.

My experience tells me otherwise.

I believe, especially as companies grow larger, that we need more management. I would concur that it is very difficult to manage people. People resist being managed. But, it’s not the people who need to be managed, it’s the relationships between those people. In a company, it is the working relationships that need to be managed.

I hear about personality conflicts in an organization. But, I don’t see a personality conflict, I see an accountability and authority issue. In an organization, we rarely define the accountability and authority in the working relationship. We never defined where people stand with each other, who can make the decision, who can make a task assignment and who is accountable for the output.

We take relationships for granted. We take for granted that people know how to behave with parents, with siblings, with teachers. We take for granted that people know how to behave as managers, but, in most cases, managers behave the same way they were treated by their managers.

There is a science to all this. It has to do with context. Effective managers are those who create the most effective context for people to work in. It is that unwritten set of rules that governs our behavior in the work that we do together. There is a science to context.

Organizational structure is context. It is the defined accountability and authority in our working relationships. Without it, people fill the void with all kinds of shenanigans. Not their fault. It is the responsibility of the manager (including the CEO) to set the context.

Don’t Get Rid of Your Silos

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From the Ask Tom mailbag –

Question:
In your workshop, for the bottom three layers, S-I-II-III, you said there was an internal focus. What happens at S-IV and S-V?

Response:
The Basic Building Block (S-I-II-III) populates every organization, no matter how big or how small. These layers have an overriding internal focus. Why? Because, we told them they had to be internally focused. We (S-IV and S-V) created very specific work instructions, to be efficient, profitable, no waste, no scrap, high utilization of available resources. Those work instructions are internally focused.

S-V – Business Unit President – Internal AND market focus
S-IV – Internal AND external system focus (multi-system integration)
S-III – Internal system focus
S-II – Internal implementation focus (make sure production gets done complete, accurate, on-time)
S-I – Internal production focus

To be effective at S-IV requires a combined internal and external system focus. As the organization grows, it creates more than one system. It ends up with multiple systems and sub-systems. Individual roles grow up into teams. Teams are created inside a single function, or department. With multiple departments (multiple systems and sub-systems) we observe the silo effect. Silos don’t get along with other because they are internally focused.

This internal focus is normal. We told each S-III system to be internally focused, but now we have a silo problem. You likely heard you need to get rid of your silos. Wrong. You need those silos AND you need those silos to be internally focused (efficient, profitable and predictable). The resolution to the silo issue is not to get rid of them, but to integrate them together.

Multi-system integration at S-IV requires an internal AND an external focus. Roles at S-IV have to be able to see outside a single serial system and understand the impact of one system on another system. Roles at S-IV are integration roles, optimizing multi-system output and transitions or work handoffs from one system to another system.

Some companies stay stuck with silos. Some resolve this organizational friction. But to resolve it, requires capability at S-IV, integration, a holistic look at the organization. -Tom

The Danger of Missing Stratum IV

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From the Ask Tom mailbag –

Question:
We have silos. Everybody is in a power struggle. We used to have a great reputation, but I think we outgrew it. The company seems lopsided. Sometimes sales outstrips our ability to fill orders, so some of our sales orders turn into back orders, some of our back orders turn into canceled orders and some of our best customers defect to the competition. Other times, production outstrips our ability to sell, so our finished goods don’t get sold, they stack up in the warehouse. The warehouse gets full, so we rent another warehouse. We carry inventory so long it turns obsolete and costs to hold, eat up our profit. We are like a monster machine. Just read a book by Ken Blanchard Be a Silo Buster. Do we really have to bust up the company and start over?

Response:
With all due respect to Ken Blanchard, you created those silos for a reason. Do NOT bust them up. You need efficient, profitable internal systems. It is not a matter of busting up silos, it is a matter of integrating them together. This is a classic example of a company growing into Stratum IV. This is similar to the chaos we see in Stratum II companies, but on steroids. This is not a few individuals stepping over each other. This is whole departments, internally focused, head down, nose to the grind stone without care or consideration for the other functions in the company.

But, the fix is not to tear them down. The fix is integration and requires capability at S-IV. This is not finding the constraint in a single serial system (S-III), but understanding the impact of one system on another system (S-IV). This is not root-cause analysis, but systems analysis. We have reinforcing systems and balancing systems. This requires, not serial thinking, but parallel thinking.

This is not multi-tasking (because humans cannot multi-task), but truly seeing the dependency, inter-dependency, contingency, and bottle-necks that exist among out multiple systems and sub-systems. This requires a parallel state of thinking. Two specific things to look at –

  • Balance of each system output, optimized to its surrounding systems output.
  • Handoff of work product from one system to the next system as work output flows through the organization.

Optimization
Sales has to be optimized to production. There is no sense selling inventory that cannot be produced timely to the sales order. There is no sense producing finished goods that cannot profitably be sold timely to the market. The output of both systems has to be optimized so they work in sync. Reinforcing systems and balancing systems.

Handoff
A department, head down, will work to their own internal efficiency. The state of their work product may be incomplete or carry a defect for the next stage in the work flow. Work does not flow up and down in a department. Work flows horizontally through the organization, output handed off from one department to the next.

  • Marketing hands off to sales.
  • Sales hands off to estimating
  • Estimating hands off to contracting
  • Contracting hands off to project management
  • Project management hands off to operations
  • Operations hands off to QA/QC
  • QA/QC hands off to warranty
  • Warranty hands off to research and development
  • Research and development hands off to marketing, and so the cycle goes

Each handoff must be inspected and improved. This is the role at S-IV.
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To read more on system constraints, theory of system constraints, The Goal by Eli Goldratt.
To read more about reinforcing and balancing systems, The Fifth Discipline by Peter Senge.

The Danger of Missing Stratum II
The Danger of Missing Stratum III
The Danger of Missing Stratum IV

The Danger of Missing Stratum III

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From the Ask Tom mailbag –

Question:
Our company somehow always manages to pull the rabbit out of the hat, put the fire out that saves the refrigerator, crosses the finish line crawling through glass. But, we can never relax. Every major project is drama. Every major project is the one that will put our company over the top, but we never quite make it. We are always in a state of overwhelmed. Don’t get me wrong, our customers are very happy and return to us, project after project, but it is such a struggle. We never get to breathe, we never finish in stride.

Response:
Your company is operating at S-II (implement), in a market that requires S-III (system). If your organization is completing one project well, what does it get? Another project.

If your organization is completing two projects well, what does it get? A third project. How does it do the third project? The same way it does projects one and two. So, what does your organization get? Another project.

But, what if your organization got fifty projects? How would it do fifty projects? Certainly, not the same way it did projects one and two. Most S-II companies would kill to get 50 projects, not realizing that the 50 projects will kill them. What’s missing? S-III (system) capability.

S-III stands back from the 50 projects and sees the common pattern, extracts that pattern into a system. The system optimizes resources, reduces waste and minimizes effort. The company that wins the race is the one that goes the fastest with the least amount of effort.

S-III (system) brings consistency of output, it’s always the same. Consistency of output yields predictability of output, so we can codify our system. This predictability helps us understand the real cost, now predictable, so we can build in reasonable profit.

Whenever I hear about a profitability problem, I never look for what‘s causing the problem. I always look for a who. In this case, it is a who, with capability at Stratum III. -Tom

The Danger of Missing Stratum II

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From the Ask Tom mailbag –

Question:
We are small organization, but growing. We have a great CEO, with a smart executive team. Our engineering managers are really good at developing inventive systems. And we have a dedicated and loyal work force. We have a good reputation in the market with loyal customers (every one thinks they are special). Then why does our company struggle to make a profit? The CEO is open and honest about our situation. When we want to spend on new equipment or hire additional personnel, we can’t afford it. The profit we do make barely covers the debt service the CEO borrowed to start the company.

Response:
As I translate each element of your description into levels of work, I notice something very interesting.

  • We have a great CEO – S-V
  • Smart executive team – S-IV
  • Engineering managers, inventive systems – S-III
  • — – S-II
  • Dedicated work force – S-I

What’s missing?

When I describe levels of work based on the research of Elliott Jaques, often organizations make the mistake of thinking they have to beef up their hiring in the scarce talent pool at S-III and S-IV. They overlook the necessity at S-II. So what do they miss at S-II?

The work at S-II is typically an implementation role. This is where execution happens. While you may have a dedicated workforce at S-I, with highly skilled and effective technicians, the organization misses coordination of those efforts to these three outcomes –

  • Accurate (meets spec)
  • Complete
  • On-time

It is the role at S-II to make sure the entire project is complete, not just 90 percent. Major profit fade occurs in the last ten percent of the project. It is their accountability to make sure there are no gaps along the way. Hidden profit erosion occurs in these gaps. And, that, at the end of the day, our product or service meets the spec we promised to the customer. There is never enough time to do it right, but always enough time to do it twice.

I was told a story of a company running heavy equipment in a rural area on a distant continent. When I say, heavy equipment, I mean the driver had to climb a ladder to get in the cab of the truck. This was a large company, profitable everywhere else, but this remote location had not seen profit in the past ten years. They had a smart general manager with a brilliant team of engineers. They knew how to do what they were doing, they just could not execute. Their dedicated workforce was frustrated. Try as they might, they always missed their productivity targets, through no fault of their own.

What was missing was Stratum II. S-II is the land of checklists. What was NOT getting done? Think heavy equipment, checklists and preventive maintenance. What happens when you don’t change the oil on a preventive maintenance schedule (checklist)? How productive is a machine with a thrown rod? How long does it take to fly in a technician to troubleshoot the thrown rod? How long does it take to fly in the part to fix the machine?

Sometimes it is not a brilliant system (S-III). Sometimes, it is the implementation of that system (S-II), using a simple checklist. It’s all about the work. -Tom

Impact of HR at S-IV (Integration) Level of Work

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From the Ask Tom mailbag –

Question:
I read, with interest, your post about the impact of HR at Stratum III level of work. What about Stratum IV?

Response:
When companies are able to pull the silent switch in HR from S-II to S-III, they shift HR from a cost center to a value add center. The shift in HR at S-III to S-IV drives HR from a value add center to a strategic center. Sounds glib and trite, but here is what that means.

Understanding tactical to strategic can be measured in time span. The shorter the time span, the more tactical, the longer the time span, more strategic. HR at S-III maintains a 12-24 month outlook, HR at S-IV maintains a 2-5 year outlook. We still call it HR, but the roles are very different. There are three challenges for the HR professional in search of the context for this S-IV role.

The first challenge is to get beyond the annual strategic planning retreat, because most annual strategic planning retreats are really tactical planning retreats. To prove this, look at any published action plan from any strategic planning retreat. No goal or objective is beyond 12 months time span.

The second challenge is that conversations have to happen at levels-of-work above S-III. Conversations with managers S-III and below still arrive at tactical issues less than two years time span. So, this conversation has to happen with S-IV managers and the S-V Business Unit President.

The third challenge is the futile reference to the company’s strategic documents, Mission and Vision statements. As they exist, they are rarely helpful, mostly filled with Pollyanna statements about premier providers and exceeding expectations. So, yes, we have a problem.

Most small to medium size companies don’t think out 2-5 years, at least, not very clearly. Specifically related to HR, here is a short list of S-IV workforce issues.

  • Aging of the workforce, succession planning at all levels of work, 2-5 years.
  • Workforce trends of generational transitions, boomers, Xers, millennials, 2-5 years.
  • Impact of technology on workforce, 2-5 years.
  • Market scarcity of workforce, 2-5 years.
  • Wage management, 2-5 years.
  • Skills training of workforce, 2-5 years.

A funny thing happened during the last recession in some construction markets. As constructions projects slowed and finished, with no new backlog, foreign workers returned home while others discovered air conditioning. Now, as construction resumes in a growing (albeit slowly) economy, there is a shortage of direct labor. Market scarcity of workforce is driving up wages for work inside fixed amount contracts. This is an S-IV HR issue.

Business models are shifting. McDonald’s built into their business model a young transient workforce. Using automation and with an emphasis on training, they were able to constantly recruit first-job employees with the knowledge that employee was going to leave in 1-2 years to their second job or college. Now, McDonald’s is faced with a work-force that chooses life-long employment in the fast-food industry, demanding a minimum wage of $15 per hour. This is an S-IV HR issue. McDonald’s is already testing self-serve kiosks to replace some of their fast-food workforce.

Technology is replacing labor. Robotics replace welders. BIM (Building Information Modeling) reduces labor hours, at the same time requiring new skills to run the software. This is an S-IV HR issue.

John Donovan, Chief Strategy Officer and Group President of AT&T Technology and Operations describes AT&T as a company with very little turnover, 3rd generation employees, now facing competition from Google and Amazon armed for war. Basic math tells them that “ten-thousand employees are behind the curve, about 50,000 are about to be behind the curve, and in the next 24 months another 20,000. 80,000 employees are in an alarm state of need to change.” That is an S-IV HR issue.

Greg Coppelli, CEO, Apollo Education Group says that most organizations who spend (billions) recruiting talent see an ROI on that effort less than 50 percent of the time. That is an S-IV HR issue.

Here are some HR S-IV questions to ask.

  • What do we see happening in our market over the next 2-5 years?
  • If we do nothing to respond in the next month, what will happen?
  • If we do nothing to respond in the next year, what will happen?
  • If we do nothing to respond in the next two years, what will happen?
  • If we do nothing to respond in the next five years, what will happen?

How to Spot Micro-Management

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Joyce was thinking about her team. Things were not a disaster, but not running too smoothly. There was a friction in the team that was beginning to take a life of its own.

“I have been watching Phillip,” she started. “It seems he is struggling with his job as a supervisor, but it’s hard to tell. He has his good days, but not too often.”

“How would you rate his performance?” I asked.

“Well, that’s pretty easy to see. He is always late with stuff and it’s never completely done the way it should be. And then, when I go to talk to him about it, I can’t find him.”

“Is he in the building?”

“Oh, yeah, he will turn up, but it’s like, he was two hours down in receiving, he said he was organizing the place. Now, I know the place needs to be organized, but he was doing it all alone. He was not out here, supervising on the floor, where he really needed to be. The receiving guy should be doing the organizing in receiving.”

“What do you think the problem is?”

“Well, even though he is a supervisor, it seems he would rather be doing lower level-of-work stuff. Some of his team members even accuse him of micro-managing.”

“So, what do you think the problem is?” I repeated.

“It’s like he is in a role that he doesn’t even like, and probably in over his head,” Joyce concluded.

“And who put him in that spot?”

Joyce turned her head, looked at me sideways. A bit of a smile, a bit of a grimace.