Tag Archives: organization structure

Scalability

Leave a reply

From the Ask Tom mailbag –

Question:
We have worked very hard to refine our core process. We believe we have the highest quality in our product offering and simultaneously have driven out extraneous costs. So, our customers enjoy a high quality product at the most competitive price. In spite of that, while sales growth is steady, our profitability suffers. Our gross margin is good, but by the time we get to the bottom line, the net is not so good. We have tried to cut SG&A, but that seems to make the net even worse. The more we try to take our company to the next level, the more frustrated we become.

Response:
You are in that No Man’s Land dilemma, too big to be small (amongst your competitors) and too small to be big (among those companies who have the biggest market share).

This is a classic integration issue. You describe your refined core process, which is clearly a step up to S-III. Your core system is well-honed, but scalability is elusive. Your core system creates your gross profit, right where it needs to be, but it sits among other systems that drag down the net profit. Companies at S-III have great products, but scalability only happens at S-IV.

  • S-I – Product
  • S-II – Process
  • S-III – Core system (sequenced processes, critical path)
  • S-IV – Integrated systems (multiple critical paths)

Your core system is critical, it is the product that your customers want, but it is now surrounded by other systems. Not only do these systems have to be effective and efficient, but they also have to be integrated together, and that is the challenge at S-IV.

Most core systems exist in a defined operation function, and are surrounded by a marketing function, sales function, project (or account) management, quality control, research and development, sustaining engineering, human resources, facilities and finance. You may have a strong core function in ops, but your company will never scale without the integration of all those internal systems.

Why Organizational Structure?

Leave a reply

What is organizational structure? On a single piece of paper, it’s called an org chart.

Organizational structure is simply the way we define the working relationships between people with the organization. All social settings have a social structure. Parent-child, teacher-student, politician-constituent, minister-congregation, coach-player, manager-team member. The social structure helps us understand what is expected and what are the norms of behavior.

Organizational structure in a Management Accountability Hierarchy (MAH), helps us understand the working relationships between people in the company. It is important to know who has the authority to make decisions, the authority to solve problems (the way we would have them solved), but most importantly, who is accountable for output.

Managerial roles are stacked in levels of work so we can more quickly understand the context in which that role is working.

Levels of Work

  • S-V – Business Unit President or SME CEO. The context is on the entire enterprise as it sits in its marketplace.
    Timespan 5-10 years.
  • S-IV – Executive manager. The context is the many parallel systems that have to work together. Timespan 2-5 years.
  • S-III – Manager. The context is on a single serial system, or a single critical path. Timespan 1-2 years.
  • S-II – Supervisor. The context is on the work in hand in the near term. Timespan 3-12 months.
  • S-I – Production. The context is on the work in hand today, tomorrow and next week. Timespan 1 day to 3 months.

Impact of External Systems

2 Replies

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.

Teal and Levels of Work

11 Replies

Followers of this blog know its underpinnings are in research conducted by Dr. Elliott Jaques from 1952 to the time of his death, March 8, 2003. From this period of 50 years, he published 23 books and countless articles under the moniker Requisite Organization related to his research on levels of work.

During that time into present day, there have been numerous trends in management, one specific track I plan to follow through a series of posts, is the interest in what began as Self-Directed Work Groups. The Self Directed Work Group was most notably practiced by Boeing and Motorola in the 1980s and sported the manager-less team governed by group decision making.

More recently, self-directed work groups have emerged under other naming conventions like Holocracy and Teal. Several years ago, I wrote a series in response to Holocratic methods, most notably practiced by Zappos, the shoe company under the direction of Tony Hsieh.

This past week, I was contacted by Bruce Peters, a Teal practitioner, who asked me to take a look at the Teal management approach through the lens of Elliott’s research, hence, this series on Teal and Levels of Work. My immediate response was that Teal probably works just fine, until it doesn’t. When it stops, what is the disconnect? And, how do you get it re-started and back on track. My approach will be to bring insights from levels of work that support various intentions and practices of Teal. We may still stumble across some philosophical disconnects, but let’s cross those roads when we have more context.

The cornerstone of Teal was documented in a book titled Reinventing Organizations by Frederic Laloux. Bruce became friends with Laloux several years ago and has been an ardent supporter of its tenets and practices. Bruce also comes from a longstanding background with Requisite Organization and levels of work, so this should make for an interesting discussion.

To summarize the lens of levels of work, in a paragraph, does a disservice to the profound comprehensive reach of Elliott’s research, AND still, it is important to lay some groundwork to set the context. I believe most would agree, that the purpose for every organization is to fulfill its mission (however defined) and that in doing so, the organization encounters problems that have to be solved and decisions that have to be made. Further, some problems are more complex than others, some decisions more complex than others. To understand levels of work is to embrace these distinctions in complexity, not all problems are created equal.

So, Elliott’s research, his findings, his understanding, embodied in levels of work, is based on problem solving and decision making. If we can understand levels of problem solving and decision making, we now have a basis to explore organizations and how they are structured. Without this understanding, organizations get structured in all kinds of wacky ways, some comical, some powerfully destructive.

Laloux’s book Reinventing Organizations chronicles the cultural shifts of hierarchy across the ages contrasting organizational characteristics with emerging, then mainstream social characteristics. Laloux’s schema is descriptively brilliant, capturing the shift in social milieu in a pattern of color, finally arriving at Teal.

  • Organization Magenta (Magic) – tribal groups where power emerged from magic (nature and spirits) and those perceived closely aligned with magic (sorcerers, shaman) maintained power through fear of retribution from nature and spirits.
  • Organization Red (Impulsive) – magic disappeared, but the fear remained in a dangerous world where connection to an organization meant survival. Power consolidated with those groups (and leaders) with the fortitude of violence to enforce that power. Chiefdoms, proto-empires, street gangs and mafias. Slavery was an acceptable norm, provided safety within the context of violence. Emergence of the alpha wolf.
  • Organization Amber (Conformist) – hunter-gatherers turned to animal domestication and agriculture, allowing for more social stability, emergence of laws. Chiefdoms turned into states and civilization. Personal awareness emerges creating psychological safety in like groups. Like groups established the need for conformity and group norms. Stability provided longer term planning against future uncertainty.
  • Organization Orange (Achievement) – Personal awareness of an individual as part of a group, emerges from underneath the shroud of conformity in the form of individual achievement. Effectiveness, goals and outputs breakout from pre-existing rules. Dominance comes through achievement, reinforcing within norms (slavery is no longer acceptable), the 800 pound gorilla. Nike, Coca-Cola, Walmart consolidate power in an increasingly rigid caste system. Centralized control, economies of scale readily observable. Ambers’ command and control becomes Orange’s predict and control. Individual accountability emerges.
  • Organization Green (Pluralistic) – the Orange machine lives on, yet some organizations sense its unintended consequences relative to emerging social norms. Conscious Capitalism emerges seeking fairness, equality, harmony, community, cooperation and consensus. Green endeavors to break down caste distinctions, social classes, patriarchy. Statistical evidence emerges that Conscious Capitalism outperforms Orange in its own measures. Here are the first protestations against organizational hierarchy.
  • Organization Teal (Evolutionary) – this is where Laloux explains that hierarchy disappears and organizations become self-directed.

With this as a background, I will leave you with this thought – Hierarchy still exists, but not where you may have historically found it. Even Laloux provides a hint, but then moves on, assuming to have dismissed the idea of hierarchy altogether. Yet, if you can postpone your dismissal, you will come to find insights that open doors that seemed shut.

This is likely to be a lively conversation, and I invite comments. If you have never posted before, your comment will be held in a queue (to prevent spam). Once I have weeded out the spam, your comments will post in real time. If you receive this blog by email, you will have to click through to the blog site to see the comment threads. See you online.

Knowing Information Does Not Assure Success

Leave a reply

It was a short break toward the end of the day. “I studied your books, attended your lecture,” Sam said. “I am excited to share this information with my team. But, I thought our organization would be farther along than it is?”

My face simultaneously winced and smiled.

“Organizational progress has little to do with information,” I replied. “In this age, the same information is available to everyone with curiosity. Knowing is only the first step. Next comes understanding and where that information applies to your organization. Then, you must do something, decision and execution.

  • Knowing information
  • Understanding and application
  • Decisions
  • Execution

“Along that continuum, your organization is exactly where it deserves to be.

“How many companies have access to the technology, but are unable to see where or how to adopt it. It is NOT the technology that makes the difference, it is how the organization is structured. In every company, there are four organizing documents, mission, vision, business model and structure.

“The business model and structure are intertwined and will determine the effectiveness in the market. Sometimes that effectiveness means market share and success, sometimes survival or death.

“When I talk about structure, it is the way we define the working relationships between roles in the organization. On a piece of paper, it looks like an org chart, but behind the piece of paper is a set of working conditions that govern our behavior in getting work done. The way we define those working relationships, I call culture.

“And, every company has the culture it deserves.”

Networks and Level of Work

Leave a reply

In my last post, we started to look at the hallmarks of Agile through the lens of Levels of Work. We looked at North Star through three organizing documents, vision, mission and business model. Today, we move down the list.

  1. North star embodied across the organization.
  2. Network of empowered teams.
  3. Rapid decision making and learning cycles.
  4. Dynamic people model that ignites passion.
  5. Next generation enabling technology.

Network of empowered teams
In a short post by Seth Godin, he chronicled the history of networks from crude computers, each requiring its own building, to those as big as refrigerators, then small enough to sit on a table, now carried in your pocket. Something else happened.

Godin says the first computers were good at two things, arithmetic and storing data. Then, computers got connected so they could share arithmetic and data. Godin described this as the computer meets the telephone, meets the fax machine, and the more people with fax machines, the more valuable the network. The third iteration included the disintermediation of both space and time. This was the death of geography. The current iteration, Godin calls the hive mind, the intersection of technology and agile networks (some of which may contain people).

The transparency afforded in current state technology distributes data and analysis to everyone who can understand it. Distance is dead. Real-time erases delay.

What impact does this have on decision making and problem solving? What decisions are now calculations (no longer a decision)? Who, in the organization, works on those problems and the new decisions we could not see before? How do we measure the size of those decisions? In the end, who is accountable for the output of those decisions?

Godin’s insight on the state of technology provides some clarity on our understanding of the state of the organization. Four issues, problem-solving, decision-making, accountability, authority. It depends on the Level of Work.

McKinsey and Agile

Leave a reply

From the Ask Tom mailbag –

Question:
You seem dig your heels in around hierarchy. Here is an article from McKinsey on agile organizations. McKinsey is a big company. I think they know what they are doing.

Response:
McKinsey is a big company and they know what they are doing, but with the absence of an understanding of levels of work. Here are their five trademarks. Today, we will work on the first.

  1. North star embodied across the organization.
  2. Network of empowered teams.
  3. Rapid decision making and learning cycles.
  4. Dynamic people model that ignites passion.
  5. Next generation enabling technology.

North star embodied across the organization.
This is the strategy that the organization serves. The most important function of management is context setting. This is important at every level of work, to establish the cascading contexts aligned with the overall strategic objective. There are three primary organizing documents –

  • Vision statement
  • Mission statement
  • Business model

Vision Statements and Mission Statements
These two organizing documents set the initial context, but most are nonsense about “being the premiere provider” of something and “exceeding customer expectations.” These kinds of statements do NOT set context. They are vague and contribute to the ambiguity already present in the world.

The reason most Vision/Mission statements are vague is their attempt to position the company at some point in the future, five to ten years out (rightly so). At the five year mark, all of our tangible, concrete plans go out the window. The discussion shifts from known things to conceptual things. The problem is that most people do not think conceptually and those that do, don’t practice very often. Most feeble attempts all sound the same.

So McKinsey is correct. North Star is important. But, McKinsey and Agile do not have a corner on this market. Every company I know makes this attempt, they just don’t do it very well.

For another discussion on North Star, you might also check out Accelerate, by Suzanne Frindt. Of course, she calls it Yonder Star, instead of North Star. Same idea.

The Business Model
The business model is the first step in defining the organizational structure. The business model flows from identification of market segments, value proposition in each segment, resources required including people. Often, defining the business model provides guidance on the creation of the conceptual vision and mission statements. The most helpful resource I know is Business Model Generation. It is a very easy and explanatory method of creating your North Star documents.