by Yves Morieux
The third simple rule is the cornerstone of building such options: enriching the system by growing the realm of opportunities. Only when there are people with power can a company build new capabilities. Companies that increase the total quantity of power have widened their range of possible strategic moves. As French military strategist General André Beaufre pointed out, the very essence of strategy is protecting and increasing freedom for action.4 The organization is not just in the service of executing the strategy; rather, it is what determines the very possibility of a strategy.
However, leading such a high-powered, highly adaptive organization poses new challenges. Leaders in such organizations need to be constantly on the lookout for ways to increase the number of stakes that are meaningful to people and also important to the performance requirements. They need to be closely in touch with the needs and goals of their people and to understand what really matters to them. They need to understand what people really do.
Integrating Power in Organizational Design
In the hard and soft approaches, power is the missing element in organizational design. When organizational design focuses exclusively on structure and processes, the result is often what we call a pendulum effect in which power swings back and forth from one group to another, often with destabilizing effects.
Take the example of the different organizational design solutions to the inevitable tension between line managers and project managers. Starting in the 1980s, many companies introduced a new role—the project manager—to improve their product development and customer-service capabilities. This evolution made the matrix structure much more common. The goal of the project manager role was to get teams composed of members from many different line departments (marketing, design, engineering, manufacturing, sales, and sourcing) to cooperate on the development of new products so that they would be completed on spec, on budget, and on time, or better serving important customers so that the company maximized its profitable sales.
To do this effectively, project managers needed power, and organizations gave it to them. They got the power to evaluate team members, which had traditionally been the role of the line manager, and have some say in rewards and promotions. But this power came at the expense of the line managers. As a result, the line managers became less able to mobilize their people when it came to achieving line objectives, such as building new capabilities or deploying new technological standards. These companies improved significantly in terms of meeting short-term project goals, but at the cost of seriously degrading their performance when it came to longer-term goals such as maintaining and extending the experience base of the workforce or engaging in cutting-edge technological innovation.
When companies facing this dilemma began to realize that they were losing ground on the long-term targets, they then embarked on yet another redesign to reempower line managers. But, of course, this new power shift often came at the expense of short-term performance on projects. So the pendulum kept swinging, each time disrupting the business and disorienting people and without these companies being able to reconcile their short- and long-term requirements.
Matrix organizations are not always necessary, but no matrix can succeed without increasing the total quantity of power so that everyone has enough power to achieve his or her objectives. One company made the pendulum stop swinging by creating a new stake controlled by line managers. The new stake was career progression for engineers based on expertise. Line managers became responsible for assessing engineers on a variety of specific skills and could move high scorers into expert positions. This responsibility was a new card in the game, which went into the line managers’ hands. It also related to an important performance imperative for the company: competence development. Both line and project managers now have the power they need to mobilize teams on both short- and longer-term objectives.
Another example of the pendulum effect in organizational design is the age-old debate about centralization versus decentralization. For decades, local managers controlled many company decisions—including advertising, manufacturing, buying, recruitment, and promotions. In banks, for example, branch managers made the most critical decisions; in pharmaceuticals, it was the country managers.
Then, about twenty years ago, everything began to change. Shifting trade barriers provided an opportunity to leverage economies of scale, and technological innovation provided new ways to do it. Companies centralized functions and standardized processes. The local managers found themselves with very little power. This is what had happened to GrandeMart’s store managers. Decisions about personnel, product selection, and supplier relationships were all handled centrally. In pharmaceuticals, the heads of country operations often were reduced to little more than acting as points of contact on local regulatory issues.
More recently, however, everything has changed again. Global markets have become more volatile and demanding. As a result, companies need to respond to local conditions and adapt to local demands. They need to add new capabilities to their local operations to ensure responsiveness, adaptability, and customization.
Many companies have again decentralized some activities but often at the expense of other requirements, triggering another swing of recentralization. Such pendulum shifts not only fail to satisfy the various performance requirements, but also add the disruption of frequent structural changes. The only solution is to create new power bases at the local level—at stores, branches, and countries—thus achieving both economies of scale and local responsiveness. Then companies reconcile what centralization and decentralization aim at, which no structural solution can achieve.
Again, this costly and ineffective back-and-forth organizational design is driven by a belief in the intrinsic effect of structure. But the effect of structure is conditional and indirect:
It is conditioned by the other organizational elements with which structures combine.
It is indirect because what matters is not the elements (whether considered in themselves according to their supposed pros and cons, or considered according to their mutual consistency), but how their combination shapes the goals, resources, and constraints to which people adjust their conducts.
It’s possible to stop the pendulum swing between line management and project management or between centralization and decentralization. But it requires putting a rigorous consideration of power at the very center of organizational design. (See the sidebar “Organizational Design.”)
SIMPLE RULES TOOLKIT
Organizational Design: Thinking beyond Structure, Process, and Systems
Don’t think of organizational design in terms of structures, processes, and systems. Do we have the right structure? Should we organize by customer segments, geographies, or functions? Should we go for parallel or sequential processes? Since each of these solutions is supposed to carry intrinsic benefits to deal with specific performance requirements, you will end up with an n-dimensional matrix organization—by region, product, function, segment, etc.—as there are more and more requirements to satisfy.
Instead, think of organizational design in terms of power bases and the resulting capabilities. Capabilities are concrete behaviors, embedded in people with power and interest to do something. What do we want our organization to be able to do tomorrow that it can’t do today? Who needs to have power to achieve these goals and how will we provide it to them?
Here are a few power-related issues to consider when making your design decisions:
Identify the stakes that matter for organizational members. Is it staffing on this or that project, working with this or that technology, the allocation of tasks within teams, control of work flow, working times, promotion, or geographic mobility?
Identify the people who control these stakes, how many they control, and their goals and problems.
Assess if there is an overconcentration of power that hinders the full participation of those whose work has an impact on the multiple requirements of performance.
Make su
re each function has the power it needs and create new power bases accordingly.
The kinds of changes that companies make when applying simple rule three—such as giving a store manager the power for key staffing decisions—often look small in comparison to major structural changes. But structural changes alone can’t take into account systemic effects such as power and cooperation, so they often do not have the positive effect on performance that smaller changes do. Of course, the resource of power is necessary but insufficient to ensure cooperation for the good of the company. For cooperation to be beneficial, you also need some constraints. This is where simple rules four, five, and six come into play.
SUMMARY OF SIMPLE RULE THREE
Whenever you consider an addition to your organization’s structure, processes, and systems, think about increasing the quantity of power. Doing so may save you from increasing complicatedness and enable you to achieve greater impact with less cost. This can be done by enabling some functions to have an influence on new stakes that matter to others and performance.
Whenever you are going to make a design decision that will swing the pendulum—between center and units, between functions and line managers, and so on—see if making some parts of the organization benefit from new power bases could, in fact, satisfy more requirements in dealing with complexity so that you don’t have to swing the pendulum in the other direction in the future (which would only compound complicatedness with the mechanical frictions and disruptions inherent to these changes).
When you have to create new functions, make sure you give them the power to play their role, and that this power does not come at the expense of the power needed by others to play theirs.
When you create new tools for managers (planning, or evaluation systems, for instance), ask yourself if these constitute resources or constraints. Providing a few tools simultaneously is more effective (because it creates a critical mass of power) than many tools in a sequential way, one after the other.
Regularly enrich power bases to ensure agility, flexibility, and adaptiveness.
4
Simple Rule Four
Increase Reciprocity
How can you ensure that an organization channels each person’s autonomy in the most effective way? The three simple rules we described in the previous chapters improve people’s ability to deal with complexity—the multiple, fast-changing, and often contradictory performance requirements companies need to satisfy. These rules provide people with new resources—knowledge of others and their work contexts, integrators that help foster the cooperation of others, and new sources of power—so they are able to make better decisions and take effective action. Put another way, these rules are about using the group to leverage people’s autonomy. Their effect is to enhance the potential of the individual’s judgment and energy.
In the next three chapters, we will describe the simple rules that impel people to deal with complexity. These three rules channel people’s enhanced judgment and energy so that they actually do make better decisions and take actions that improve overall performance. These rules are about putting each individual’s autonomy in the service of the group. Their effect is to ensure that people’s enhanced potential achieved by the first three rules is fully used for the good of the company.
The last three rules achieve this by creating feedback loops that expose people, as directly as possible, to the consequences of their actions. Some of these feedback loops are contained in tasks and activities, rather than imposed from outside, so they have an immediate effect on people—either gratifying or penalizing—depending on how much good they do in their current work situations. The use of direct feedback loops leads to greater flexibility and adaptiveness in organizations, because the loops tailor themselves to specific circumstances. The more direct the feedback loops you create, the better you will meet your performance requirements and the more organizational complicatedness you can avoid.
The fourth simple rule—increase reciprocity—creates a context in which each person’s success comes to depend on the personal success of others, just as overall performance depends on cooperation among individuals or groups. By reciprocity, we mean the recognition on the part of an organization’s members that they have a mutual interest in cooperation—that the success of one depends on the success of all. By applying this rule, the technical and economic interdependencies of the tasks involved in performance are reflected in the personal interdependencies between people, because of the mutual interests at stake. The primary management tool for increasing reciprocity is the design of what we term rich objectives.
In this chapter, you will learn:
How the hard approach to the design of roles and objectives actually destroys a sense of reciprocity. Just as conventional views of power can lead to counterproductive zero-sum power shifts and the pendulum effect, there are common misconceptions about roles and objectives that make it more difficult—and sometimes impossible—for people to recognize a mutual interest in cooperation.
How to design rich objectives. Rich objectives help organizations increase reciprocity. They are composed of three elements: collective output objectives, individual input objectives, and overlap objectives. Together, these elements make interdependencies more visible to people, so they recognize the need for reciprocity.
How to change the context to reinforce rich objectives. There are three steps companies can take to reinforce rich objectives: eliminate internal monopolies, remove resources that fuel dysfunctional self-sufficiency, and create multiple networks of interaction (what we call multiplexity). These steps intensify the interdependencies in the organization so that people are compelled to take them into account, that is, to cooperate.
To help illustrate these points, we will tell the story of an industrial goods company we call Industronal that was under intense competitive pressure to improve the quality of its products. We will describe how rich objectives helped the company’s purchasing function cope with the necessity of cutting purchasing costs by 20 percent without compromising on quality and on-time delivery of supplies to internal end users.
Three Misconceptions about Roles and Objectives
Before we dive into the Industronal story, we’ll address three misconceptions about how to define employees’ roles and objectives that have their origins in the so-called best practices of the hard approach to management. As we will see, these misconceptions don’t increase reciprocity; instead, they destroy it:
The more clarity, the better. The first misconception is that an individual’s roles and objectives should be as detailed and well defined as possible. Although we certainly don’t advocate confusion in role-and-responsibility definitions, we believe that a certain degree of fuzziness in these definitions can be a good thing. Think back to the relay race. To be sure, it is necessary to clearly define the order of the four sprinters and the specialized roles of, say, the first sprinter, who needs to know how to get out of the blocks quickly. But some aspects of the sprinters’ roles cannot and should not be defined precisely in some important gray areas. For instance, at exactly what distance should the sprinter pass the baton to the next—at ninety-six meters? At ninety-seven? When you define roles with too much clarity, it often has the opposite of the desired effect because it allows people to avoid recognizing their interdependencies. Instead, they just adhere to the specification (“I handed it off at ninety-six meters, just as you said.”) and check the box next to that responsibility, rather than working with others to find ways to deliver the desired output (a smooth and rapid handoff of the baton) in a given situation. (See the sidebar “Beware Too Much Clarity.”)
Cooperation dilutes personal responsibility. The second misconception is that responsibility is always, and can only be, lodged in the individual. “If everyone is responsible, nobody is responsible.” But, as we will see, the reality of interdependency is that it is impossible to parse responsibility such that each person’s “amount” is perfectly defined. It is also possible
to hold more than one person responsible for the same task. In the relay race, for example, two sprinters know they both have responsibility during the twenty meters or so within which the handoff of the baton must take place. If the baton drops in this gray area of the handoff between two runners, both are at fault.
Interdependency destroys accountability. We often hear managers say things like, “How can I be held responsible for results that depend on the performance of others?” The third misconception is that we can be accountable for our work only if we are the sole authority over it and control all the resources necessary to accomplish the task. But it is possible for a person to be accountable without having exclusive control over the resources needed to deliver, as long as others who partly control those resources cooperate.
How do these misconceptions play out in real work situations? No doubt, you have heard employees say, “Boss, please tell me exactly where my responsibility starts and ends in this process.
