Firms that have “very few layers of management, if any …. are mostly highly successful,” writes the Director of the Future Work Forum, Peter Thomson, in an article, ““Why Are [Corporate] Rebels So Rare?” Thomson goes on; “This raises the question, if this is such a good way of organising work, why isn’t everyone doing it?’.” One answer is that delayering may not always be the answer.
As a further contribution to my series of articles showing why the discipline of management hasn’t advanced, including the inexorable gravitational pull of 20th century management, the lack of clarity of what a coherent model of improved management (aka 21st century management) looks like, and the fragmentation of management thinking into little fixes that leave the bigger systemic issues untouched, there is also the failure to apply what is already known.
Is Delayering The Answer?
Delayering is a frequent remedy suggested by consultants to firms that are struggling to enhance flexibility and responsivness. Yet the recommendations are in conflict with the evidence.
“For decades,” writes Julie Wulf, a Faculty Research Associate of the National Bureau of Economic Research in her article, “The Flattened Firm”, “management consultants and the popular business press have urged large firms to flatten their hierarchies. Flattening (or delayering, as it is also known) typically refers to the elimination of layers in a firm's organizational hierarchy, and the broadening of managers' spans of control. The alleged benefits of flattening flow primarily from pushing decisions downward to enhance customer and market responsiveness and to improve accountability and morale. Has flattening delivered on its promise to push decisions downward?”
Wulf concludes not. She presents evidence suggesting that while firms have delayered, flattened firms end up with more control and decision-making at the top, not less. “Flattening can lead to exactly the opposite effects from what it promises to do… In sum, flattening at the top is a complex phenomenon that in the end looks more like centralization.”
Wulf used a large-scale panel data set of reporting relationships, job descriptions, and compensation structures in a sample of over 300 large U.S. firms over roughly a 15-year period. This historical data analysis was complemented with exploratory interviews with executives (what CEOs say) and analysis of data on executive time use (what CEOs do).
Generally, when managers are talking about flattening the hierarchy, they are still thinking in hierarchical terms. They have yet to emerge from an inward-looking pre-Copernican mindset. Changing the number of layers won’t do much good unless and until mindsets change so as to embrace the primacy of the customer rather than maximizing shareholder value, and a competence-based network rather than a vertical hierarchy of authority.
Wulf’s finding ties in with my own experience. I have been in large firms with many layers, where conversations are multi-directional. Anyone can talk to anyone. The right mindset creates the right spirit of conversation, curiosity and fluidity. By contrast, I have been in tiny single-layer organizations which are tied up in bureaucratic knots with a single layer. Decisions based on authority, not competence, began cropping up everywhere.
The Problem Of Leadership Mindset
A reasonable hypothesis would be that it’s the mindset that creates much of the rigidity, not just the number of layers.
The article in fact offers a vivid picture of the mindset problem. "The successful leader in the past,” writes Thomson, “has been one who is powerful and decisive, who impresses the shareholders with a personal vision and surrounds himself (it’s usually a man) with people who think similarly. They like having power, enjoy being in a position of authority and in many cases are ruthless in the way they treat people. They know best, which is why they are paid hundreds of multiples of the average salary in the rest of the organization. They come in, make the ‘difficult decisions’ stripping assets, cutting the workforce and implementing top-down financial controls. They promote people who think the same way and get rid of the ‘rebels’ that dare to think otherwise.”
Even if this picture of a CEO is something of a caricature, it does illustrate the point that the number of layers in an organization with such a CEO would make no difference. Whether there was one layer or ten layers, there would be little collaboration or innovation.
The Role of Adhocracy
This idea of removing organizational constraints is associated with the concept of adhocracy, a term coined by Warren Bennis in his 1968 book The Temporary Society, later popularized in 1970 by Alvin Toffler in Future Shock. The concept has been further developed by academics such as Henry Mintzberg.
Adhocracy is a flexible, adaptable and informal form of organization that is defined by a lack of formal structure that employs specialized multidisciplinary teams grouped by functions or outcomes. It operates in an opposite fashion to a bureaucracy.
Adhocracy is said to be characterized by an adaptive, creative and flexible integrative behavior based on non-permanence and spontaneity. It is hoped that these characteristics enable speed and innovation.
Alvin Toffler predicted that adhocracies would get more common and are likely to replace bureaucracy. He also wrote realistically that adhocracies would most likely come in the form of a temporary structures, formed to resolve a given problem and dissolved afterwards, such as cross-department task forces.
Thus it is one thing to relax rules for a temporary task force. It is quite another to propose it as a way to run a big organization on a sustained basis. If nothing else, there are legal rules and regulations that must be complied with.
Moreover, even the most agile and innovative organizations have systematic processes for doing key things, such as strategy, innovation related to creating new businesses, and talent management. They don’t abandon all processes: they set aside 20th century processes and develop 21st century processes designed to enable speed, agility and innovation.
The Case of Matt Black Systems
Even in the example discussed in Thomson’s article, the case of Matt Black Systems, as explained in 500%: How Two Pioneers Transformed Productivity - The First Truly Self-Leading Organisation (Magic Sieve B ooks, 2020) Andrew Holm and Julian Wilson explain how they took a struggling 30-person industrial firm in the U.K. (Matt Black Systems) that was steeped in a traditional way of working and increased productivity by 500% through “a truly bottom-up approach.”
The five person organization is run in a collaborative fashion with each staff member contracting with customers and other staff to get things done. This proved to be a massive improvement on the previous rule-based organization and resulted in a 500% gain in productivity. Five staff are now doing what was previous done by 30. But if one looks carefully, one can see that there is a small number of very clear and distinctive norms as to how the firm will operate, including even a system language and a new ruleset supported by a dictionary assisting the user with their understanding of 1400 common legal and regulatory business terms. Although the directors have removed themselves from the day-to-day running of the business, they do serve as bankers, landlords, organizational model providers, and brand owners in their role as service providers to the operations.
Alignment and Coupling
The idea that it is possible to run an organization on a sustained basis without any rules is an unrealistic dream.
A fuller discussion of the issues is contained in No Rules Rules (2020), a book by Netflix CEO, Reed Hastings, and Erin Meyer. The authors are intent on having as few rules as possible, but there are always some rules. How many and what kind depend on legal and regulatory context. In the case of Matt Black Systems the organizational model designers took the rules from outside the organization, such as contract law, HR Law, Generally Accepted Accounting Principles (GAAP), and Quality Management, and openly applied them within the organization, without unnecessary additions. The only rules applied at Matt Black Systems were those of the law and regulatory environment.
“If your focus is on eliminating mistakes,” write Hastings and Meyer, “then control is best.” In an oil firm or an airline where safety is critical, then there must be “hundreds of safety procedures to minimize the risk of people getting hurt. Control and audit mechanisms are a necessity when you’re trying to run a dangerous operation profitably with as few accidents as possible. Likewise, if you are running a hospital emergency room and give junior nurses the context to make decisions themselves with no oversight, people might die.”
In other businesses, innovation may be more important than avoiding mistakes. The authors cite the case of Target which has made a priority of imagining fresh ways to get customers into the stores. Where innovation is critical, “don’t tell your employees what to do and make them check boxes. Give them the context to dream big, the inspiration to think differently, and the space to make mistakes along the way. In other words, lead with context.”
Where firms are loosely aligned to encourage innovation, then tight alignment on the goal is critical. If you are already part of a tightly coupled system, you may have to work with the top leaders in the company in order to change the entire organizational approach before trying to lead with context.
“Netflix is a loosely coupled system. Decision making is highly dispersed, with few centralized control processes, rules, or policies. This provides a high degree of freedom to individuals, gives each department greater flexibility, and speeds up decision making throughout the company.”
But alignment on the goal is very tight. “If loose coupling is to work effectively, with big decisions made at the individual level, then the boss and the employees must be in lockstep agreement on their destination. Loose coupling works only if there is a clear, shared context between the boss and the team.”
The consequences of mistakes for different sectors can be startlingly different. If Netflix has a brief outage in its video streaming, it apologizes and moves on, at little cost. If one of Boeing’s planes crashes due to a design flaw, the cost may be tragic loss of life and a cost of many billions of dollars.
The dilemma for an increasing number of firms is that, in the age of digital, they must be both innovative and safe.
And read also:
What 21st Century Management Looks Like
Defeating The Disease Of 20th Century Management
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