Tag Archives: organizational structure

To the Next Level

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From the Ask Tom mailbag –

Question:
As I talk with other CEO friends, they keep talking about taking their company to the next level or that they want to scale their companies larger. It sounds like they know what they are talking about. But do they? They are my friends, and I don’t want to disparage, but in many cases, I have my doubts.

Response:
No organization can ever grow larger than the CEO. If it does, the wheels will get wobbly and the organization will falter. The same is true as levels of work are built inside the organization. No level of work can exceed the capability of the manager. If it does, the wheels will get wobbly and the organization will falter. It doesn’t matter if the company is S-I, S-II, S-III, S-IV or S-V. Faltering can happen at any level.

Most who say they want to take their company, or department, or team to the next level has no clue what that means. Timespan and levels of work create the only framework that clearly identifies what that means.

Scalability doesn’t happen until S-IV, where multiple system integration occurs. Listen carefully to your friends, but judge not what they say, only judge what they do (or are capable of doing).

How Many Levels?

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From the Ask Tom mailbag –

Question:
You recently described an organization as having five levels. You also said that some organizations don’t need five levels. I am trying to figure out how many levels our company needs?

Response:
Your question is similar to the manager’s span of control issue. The consultant’s answer, “it depends.” The number of levels in an organization depends on the complexity of the decisions and problems faced by the company’s mission. That’s why it is important to occasionally sit down and revisit the mission. We think of mission as “what the company does,” but it also includes which markets, geography of those markets, market segments, governing rules and regulations, availability of labor, incorporation of technology, availability of capital. All of these elements play in to the complexity of the organization.

The initial mission always exists in the individual eyes of the founder. In the beginning, that mission may be modest, simply to prove the concept is viable (minimum viability). With early success, the mission can grow, be redefined as the organization learns more about the environment it created. And we think, with more levels, the more success we see. That is not altogether true. You can have a successful organization at any level, with an appropriate number of managerial levels, even an organization with just one.

S-I (One level of work) – This is the sole practitioner, an individual technical contributor, whose mission is to solve a narrow market problem requiring only one mind, usually supported by technology. Successful sole practitioners could be an artist, writer, even a computer coder developing a single application to solve a market problem. A good living can be had by the savvy sole practitioner, though it is rare to reach any large scale by yourself. (Timespan 1 day – 3 months).

S-II (Two levels of work) – This is the sole practitioner who gathers surrounding assistance. There is too much work for one and that additional work is necessary to solve the problem. At this organizational level that additional work requires coordination for quantity output, at a given quality spec, according to a deadline time schedule (QQT). There is no system yet, because the quantity or complexity of work does not require it. This could be a entrepreneur with a small team. It could also be that the organization requires a system, but does not possess the internal capacity to develop that system. Many successful S-II organizations simply purchase their system from someone else, as a franchise or a license from a larger organization (who has a system for sale). (Timespan 3 months – 12 months).

S-III (Three levels of work) – But even a small franchisee, with one or two stores, who wants to increase to three or four stores, eventually requires an internal system. At three to four stores, an additional level of work appears. It is interesting that one of the larger franchisors, Chick-fil-a only allows one store per franchise. This may be an unconscious realization that the capability of their franchisees is limited to S-II. The hallmark of an S-III organization is a single serial system (single critical path). This is often an artisan craftsman, a subcontractor on a larger project. (Timespan 1 – 2 years).

S-IV (Four levels of work) – Consists of multiple parallel systems that have to be integrated together. S-III as a single serial system is limited in its growth. For an S-III company to scale, it requires the coordination of multiple systems. From its core production system, the S-IV organization also has to coordinate material purchasing, equipment procurement and maintenance, personnel recruiting and training, marketing campaigns, sales efforts, legal review, project management, quality control, sustaining engineering, R&D, human resources and accounting.

S-V (Five levels of work) – This is the enterprise in the marketplace. And, the marketplace is not just about customers. Marketplace includes regulation, labor, finance, technology, competition, logistics, supply chain. This is still within the Small to Medium Enterprise (SME) but also extends to larger organizations.

An organization can be successful at any level, it is governed by the level of their mission.

Possibility for Creativity

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“When I look at my company,” Susan said, “many times I see the stifling of creativity and innovation, often in the same sentence extolling the virtues that are being trampled.”

“How so?” I asked.

“We have some initiative suggested by a consultant, process improvement,” she said. “We spend a couple of off-site days banging our collective heads together to come up with ideas to make things more efficient. We chew up a couple pads of flip-chart paper, posted on the wall, everyone high-fiving.”

“And?” I asked, looking for the other shoe to drop.

“And two weeks later, nothing has changed. We are still doing things the same way, suffering the same consequences.”

“Do you personally believe creativity and innovation are important,” I pressed.

“Of course,” Susan replied. “We had some great ideas, it’s just that nothing seems to happen.”

“Sometimes, ideas are not enough, intentions are not enough, even first steps are not enough,” I replied. “Sometimes, it’s the context in which these ideas sit. It is the surrounding conditions that serve to resist new momentum, change. We are seldom wanting for creative and innovative ideas, it is creating the conditions for those ideas to flourish. Sometimes, it is difficult to create the conditions for those ideas to even be possible.”

The Framework of Structure

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“Organizational structure based on the timespan of related goals and objectives?” I repeated, as a question. “Has to be more complex that that.”

“Of course. Organizational structure is complex,” Pablo replied. “But, that is where is starts, looking at the level of work, goals and objectives.”

“A bit overwhelming,” I surmised. “Still looks like a large kettle of fish.”

Pablo nodded in agreement. “After the vision and mission, the founder must examine the internal functions required to kickstart the company. And, remember, this is an infant company, so there aren’t that many internal functions. Producing the product, delivering the service, finding a customer willing to pay and a way to deposit the money into the bank. That’s it, in the beginning.”

“So, in the beginning, following the vision and mission, I have to define the first functions required to produce the product or service. And in each function, determine the goals and objectives?”

“And, the ‘by-when’ of each goal will tell you the level of work required. That is the beginning of structure.”

Working Relationships and Social Relationships

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“Why is this so important?” I asked.

“We look at an organization and instinctively think it is a collection of personalities, and that we must pay attention to the personalities as that will be the way our organization gets along. Far more important is the structure, the way we organize the work and define the working relationships,” Pablo nodded.

“How so?”

“Think about the simple relationship between a manager and a team member,” Pablo continued. “That relationship will spell trust, fairness and deep satisfaction. OR, it will spell frustration, manipulation and despair. The organization gets to choose how it defines those working relationships. Further, those emotionally charged responses will spill over into the way people see the rest of the world. On the shoulders of the organization is the tone for other social relationships.”

Because We Said So

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“Just to be clear,” Sarah wanted to know, “if communication is the symptom, but accountability and authority is the cause, what’s the fix?”

“You already told me that your communication seminar did not make any improvement. Is your answer embedded in your question?” I asked.

“We have to fix accountability and authority?” she angled her head to the side. This was not a rhetorical question.

“Let’s take the easy example,” I replied. “Two people who have to work together, but, neither is each other’s manager. Let’s take your Marketing Director and your Sales Director. In that working relationship, what is the accountability and what is the authority?”

“Well,” Sarah started. “They are not each other’s manager, so there is no accountability and no authority. They are professionals, they should each know what they are supposed to do.”

“Oh, really,” I nodded. “Would it be a good idea for marketing to coordinate with sales and for sales to coordinate with marketing?”

“Yes, I suppose,” Sarah concluded.

“If they are supposed to coordinate, but they don’t, what kind of problems emerge? And, does that look like a communication problem?”

“Yes, that is what we were trying to fix in the communication seminar,” Sarah smiled.

“But, it didn’t get fixed, because it wasn’t a communication problem, that was only the symptom. What you had was an accountability and authority issue. If it would be a good idea for them to coordinate, if the Marketing Director calls a meeting with the Sales Director, is the Sales Director accountable to attend?”

“I’m not exactly sure,” Sarah winced.

“You are not sure because you did not define their coordinating relationship. By virtue of the fact that the two are in a coordinating relationship, if one calls a meeting, the other is required to attend. Of course, they have to mutually schedule the meeting, but they are required to attend. Why are they required to attend?”

“I am still not sure,” Sarah winced twice.

“Because we said so,” I stated flatly. “By virtue of their coordinating relationship, they are required to attend. Further, they are required to do what?”

“Coordinate?” Sarah was catching on.

“Exactly,” I said. “Now that we have specifically defined the accountability in their relationship, do we have a communication problem?”

The Girth of the Organization

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“Why do most startups fail?” I asked.

“The standard answer is that they are undercapitalized,” Pablo replied. “But, I believe that is only a symptom of a larger problem.”

“The larger problem?” I pressed.

“Most startups begin with an idea, that the founder believes may have viability as an enterprise. It is this beginning of an idea, only vaguely formulated, where the trouble begins,” Pablo replied. “You have to start with the founder and the development of the business model, and ask how big?

“How big?” I asked, in a wandering sort of way.

“Think of big in terms of timespan. If the founder only thinks about the first handful of customers and the fulfillment of the first handful of orders, that is as far as the business will go (grow). More mature organizations answer longer timespan questions related to the mission and vision of the organization. The most often missed characteristic in both of those documents is the concept of by when?

“By when?”

“For the founder, meaning initial stakeholders, entrepreneur, investor, private equity, board of directors, the initial question to task the CEO is what is the timespan of the mission? Timespan will determine the girth of the organization going forward.

“And, this is where the standard reason of undercapitalized emerges. Most startups don’t have the resources to deploy more than the first handful of customers and orders, so that is where the thinking stops.

“Those organizations that more clearly determine their mission, the timespan of the 3-4 critical goals will have greater clarity on what kind of organization must be built. And, the biggest accountability for the CEO is to build that organization.”

To Stay Green

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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.”

The Bloated Organization

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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.

Your Business Model and Constraints

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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. For realtors, leveraging tools like Digital Business Cards For Realtors can also eliminate constraints in networking. 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. Additionally, when forming a business in Georgia, understanding the specifics of a georgia llc can help you navigate any new constraints or changes more effectively. Consulting with local experts can ensure that your LLC complies with state regulations and leverages the benefits available to businesses in Georgia.