Organizational design has been saved
Hierarchical organizational models aren’t just being turned upside down—they’re being deconstructed from the inside out. Businesses are reinventing themselves to operate as networks of teams to keep pace with the challenges of a fluid, unpredictable world.
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Fast-moving global markets and digital disruption have forced companies to innovate rapidly, adapt their products and services, and stay closer than ever to local customers. This has prompted a resurgence of interest in business organization. Our findings in this area are startling: 92 percent of companies believe that redesigning the organization is very important or important, making it No. 1 in ranked importance among this year’s respondents. Companies are decentralizing authority, moving toward product- and customer-centric organizations, and forming dynamic networks of highly empowered teams that communicate and coordinate activities in unique and powerful ways.
In his book Team of Teams, General Stanley McChrystal describes how the US military’s hierarchical command and control structure hindered operational success during the early stages of the Iraq war.1 After watching Al-Qaeda disrupt his army and win battles, McChrystal’s solution was dramatic: Decentralize authority to highly trained and empowered teams and develop a real-time information and operations group to centralize information and provide all teams with real-time, accurate data about war activities everywhere.
This new mode of organization—a “network of teams” with a high degree of empowerment, strong communication, and rapid information flow—is now sweeping businesses and governments around the world.
McChrystal did not change the formal structure of the military. Rather, he created a new structure that allowed for dynamism and flexibility within the overall organizational structure. This new structure enabled officers to quickly move from their administrative positions to mission-oriented projects for a set purpose, knowing that they would once again have a home to return to within the larger organizational structure after the mission was completed. This new mode of organization—a “network of teams” with a high degree of empowerment, strong communication, and rapid information flow—is now sweeping businesses and governments around the world. It is built on several fundamental principles:
Examples of this new structure are appearing throughout business and government, in each case dramatically changing the effectiveness of the organization. The Cleveland Clinic reorganized its entire hospital network around patient medical problems, moving beyond traditional functional medical practices—which separated surgeons and medical specialists—to combine personnel into patient-centric teams, dramatically improving patient outcomes. Hospitals and health care organizations around the world are similarly reorganizing around patient needs and away from traditional medical specialties.4 3M, Nestlé, and other innovation- and service-centric companies are decentralized and use shared service centers and information centers to help teams maintain productivity and alignment with overall business strategy.5 And companies like GE and IBM now post leaders in regional centers of excellence, dispensing with the notion that “leaders” only operate out of corporate headquarters.6 This new type of organization, which we call a “network of teams,” moves beyond the concepts of the unwieldy 1960s-era matrix organization. Integral to an effective network of teams is to define the mission of each team clearly, delegate responsibility, assign strong team leadership, and build a shared culture and set of information and communication tools that help teams align with each other. Why is this trend so prominent now, with 92 percent of our survey respondents rating redesigning the organization very important or important? (See figure 1 for our survey respondents’ ratings of organizational design’s importance across global regions and selected countries.) Two major factors are driving change. First, the pressure to get products to market quickly, combined with a generally greater sense of empowerment among the workforce, is making small teams a more natural and productive way to work. Small teams can deliver results faster, engage people better, and stay closer to their mission. Second, the digital revolution helps teams stay aligned. Today, teams can easily use web or mobile apps to share goals, keep up to date on customer interactions, communicate product quality or brand issues, and build a common culture. Rather than having to send messages up and down the corporate pyramid, people can access information immediately, with companies using roles like “liaison officers” to make sure teams know what other teams are doing.
Smaller organizational units tap into the human strengths of communication: People simply know each other better.
Academic research supports this strategy. Sociologist Robert Dunbar proved that the optimum number of people any individual can know well and communicate with is around 150, a phenomenon known as the Dunbar Effect.7 Smaller organizational units tap into the human strengths of communication: People simply know each other better. As Jeff Bezos, CEO of Amazon, puts it, “If I see more than two pizzas for lunch, the team is too big.”8 To prevent silos from impeding effectiveness and to improve collective thinking, digital information centers help teams share common knowledge and see the relationships between elements. In the Iraq war, McChrystal set up an information center to monitor seemingly random attacks by Al-Qaeda so he could help teams see the patterns. Each team had a “liaison officer” responsible for communicating with other teams when information was needed quickly. The same principle applies in business. At Nestlé, a digital information center brings together social network, TV, and news information about all of Nestlé’s food brands around the world to help product businesses see where a brand is succeeding or failing to gain traction. Corporate headquarters in Switzerland serves as a clearinghouse and strategic planning center, distributing information everywhere and empowering the businesses to grow.9 A team-based organization structure can itself enable rapid business disruption. For example, in each new city into which it expands, Uber relies on a three-pronged leadership model consisting of a city general manager, a community manager, and a driver operations manager. The rest of the organization is built out based on the unique needs of the city.10 As organizations shift to this new model, so must vendors and consultants who serve them. One major health product and pharmaceutical company is completely reorganizing its sales force to sell integrated solutions to meet the needs of its health care clients’ outcome-based organizations.11 A major IT provider that sells computers and servers is going through the same transition to meet the integrated needs of IT departments that are also now organized by team rather than technology.12 Team-based operating practices are part of a larger trend toward new models of management. Hierarchically structured organizations were designed around traditional management thinking in which leaders “tell people what to do, set goals, and create standards.”13 In contrast, in many new management models, goals are set at the bottom, leaders are evaluated by performance and not span of control, and performance management occurs continuously rather than once per year.14 (More than two-thirds of the companies polled in our survey this year are redesigning their performance management practices.) Middle management is continuing to thin out. Research shows that US companies today have an average span of control—the number of people reporting to a supervisor—of 9.7, rising as high as 11.4 at large companies.15 Despite the massive changes underway, in this new world, formal and flexible structures will continue to coexist. Perhaps ironically, it still takes formal structure to ensure that a structure of teams works effectively. Putting this insight into practice, the ability to quickly build, deploy, disband, and reform teams is a critical skill for today’s organizations. Functional organizations, then, are not going away, but they are being supplemented by “service centers” and “centers of excellence” to provide scale and consolidate administrative tasks. To enable this kind of operating model, functions like IT, HR, and finance must all be reorganized to support such teams locally. What does the “new organization” look like in practice? We envision a management model that draws clear distinctions between two necessary roles and types of management: the administrative or talent manager (reflecting the traditional, formal structure) and the mission or project manager (representing the new, team-based structure) (see figure 2).
Figure 2. Two types of managers in a network of teams
|Administrative or talent manager||Mission or project manager|
|Focuses on the individual’s career and development goals||Focuses on the project and mission objectives|
|Measures an individual’s achievement against individual goals capabilities, and potential||Measures an individual against contribution to mission, team, project, and organizational results|
|Listens to individuals’ long-term career goals and helps them reach those goals||Listens to individuals’ desires for that mission or project and helps align them with the project or mission needs|
|Gives the individual coaching and development toward their career capabilities, career goals, and specialization objectives||Gives the individual coaching and development toward their role in the team and the project, focusing on how they can contribute more and how they can work better with the team|
|Makes sure the individual has “rights of return” to another organization and takes care of “return trip” after each project completes||Focuses on getting the right people into the project or mission, regardless of their individual career journeys at the moment|
|Tracks and monitors the individual’s career progression and patterns of success or weakness||Tracks and monitors individuals’ contribution to the project or team and how they can improve their value to that team|
Managing two different types of functions in an organization can be challenging, but a few principles illustrate the shift in mind-set necessary to make this work. Companies should view employees fundamentally as resources of the organization rather than as resources of the manager. This is why the military developed the parallel ideas of administrative control and operational control. Administrative control refers to the employee’s home structure and to how an employee is developed and supported, the home to which an employee returns when a team-based project is finished. Operational control, by contrast, refers to the process of ensuring that the mission to which an employee is assigned is accomplished successfully. By its nature, it includes performance management for the employee during that period. Companies’ definitions of the line between administrative and operational control will vary, but the fundamental concept will not. In every organization, an important key to the success of this model is that each employee has a “home” to which he or she can return. Fear that one will not have such a home can weaken strong teaming and lead to perverse incentives for employees—an obstacle to success in a network of teams. For HR, the implications of such changes to organizational design can be profound. Job titles and descriptions, to cite an example, are becoming more flexible and broad to account for an individual’s potential to be deployed to a variety of teams. HR organizations will need to adapt to address the concept of administrative and operational control as companies switch from highly functional and hierarchical models to project-based organizations in which employees are constantly embedded in teams and ecosystems that form teams. Performance management in an organization designed around empowered teams also looks significantly different. Traditionally, managers rate employees with little input from others, but this is not a sufficient test of performance under a team-centric approach. The critical question now, with all team members invited to weigh in, is: “Would we want this person on our team again?” It is not, “Did you make your manager happy?” In such an environment, engagement can improve as well, because employees generally feel more connected to their “team” than their “organization.”16
Cisco, one of the world’s most successful and enduring technology companies, sees a team-based organizational model as fundamental to its strategy. According to John Chambers, executive chairman and former CEO, speed and time to market are central to the company’s success: “We compete against market transitions, not competitors. Product transitions used to take five to seven years; now they take one to two.”17 To address this continued disruption and the highly competitive nature of its business, Cisco has set up a new talent organization, Leadership and Team Intelligence, focused entirely on leadership and team development, team leader selection, performance management, and intelligence-gathering for Cisco teams and their leaders around the world. Ashley Goodall, the senior vice president who runs this group, is leading a wide-ranging redesign of Cisco’s talent practices and technologies to focus on the optimization of team performance, team leaders, succession management, and talent mobility between teams. He plans to use real-time performance conversations, ongoing pulse surveys, and text analytics to monitor and benchmark team performance. The intent is to build information about how the best teams work together and how they drive results, and then embed these insights into the company with a direct focus on employee engagement, strengths, and empowerment.18
The days of the top-down hierarchical organization are slowly coming to an end, but changing the organization chart is only a small part of the transition to a network of teams. The larger, more important, and more urgent part is to change how an organization actually works. Now, more than ever, is the time to challenge traditional organizational structures, empower teams, hold people accountable, and focus on building a culture of shared information, shared vision, and shared direction.
Deloitte’s Human Capital professionals leverage research, analytics, and industry insights to help design and execute the HR, talent, leadership, organization, and change programs that enable business performance through people performance. Visit the “Human Capital” area of www.deloitte.com to learn more.