Do you work for an extremely effective organization? No offense, but I doubt it, after writing a paper on the concept. Let’s try a “thought experiment,” though. I will share a high-level summary of the characteristics of an effective organization according to science, footnoted with my sources so you can double-check me. Then I’ll take each trait to its logical extreme to imagine a model organization that maximizes effectiveness. Finally, you compare that model to your employer.
After finding different definitions in journal articles, I combined them to say an “effective organization” is an enterprise or a subunit able to choose and achieve goals it believes will maximize its performance. For this post I will ignore how the organization defines “performance,” and I’ll focus on organizations facing rapid change.
Choosing the Right Goals
Looking at that definition, it seems effectiveness can first fail in the choice of goals. Being an effective leader demands setting good objectives and aligning behavior to achieve them. Yet leaders often set themselves up to fail. For example, many companies in the best position to benefit from “stretch goals,” those which seem impossible, are the least likely to use them, one study found. Based on their review of many studies, two researchers concluded most organizations give up on their goals before achieving them, and wanted to explore why. They used computer simulations to suggest companies that set too many goals (eight) will consistently fail to achieve half of them, and should either split the goals among different units or tackle them one at a time.
Fortunately there is powerful evidence that pointing your objectives toward the overarching goal of customer satisfaction has direct impacts on revenues, market value, market share and other financial measures. An example firm is Zappos, which gained strong and sustainable financial success through a hyper-emphasis on customer satisfaction.
Given the low success rates of experts at making accurate predictions when working alone, a more rational approach to goal-setting is to harness the power of crowdsourcing and decentralization, by letting subunit employees collectively choose goals fitting their specific customers. This approach facilitates faster reaction to customer needs as well. Decentralized companies also enjoy higher worker satisfaction and performance.
Moving Past Bureaucracy
Yet most companies group workers by functions within hierarchical bureaucracies that assert centralized control. A textbook explains that in 1922, “Pioneer sociologist Max Weber popularly characterized a bureaucracy as having a hierarchy of authority, a clear division of labor, explicit rules, and impersonality.” But the form dates back roughly 4,500 years, and persists despite decades of opposition from well-known management gurus pointing out the negative performance impacts of bureaucracy at all levels. Among other reasons, hierarchies tend to create functional “silos” that must balance requests from competing internal interests; often put their own priorities first; and create delays as silos wait for work upon which they are dependent.
“Post-bureaucratic theory” claims companies thus have been shifting away from classic hierarchies since confronting the business challenges of the 1970s and ‘80s. A lot of concepts have been thrown under the post-bureaucracy umbrella, but a researcher found these are common: “low specialization, high decision autonomy, high participation in decisions, low formal standardization, and low punishment.”
Not many companies have actually adopted post-bureaucratic forms despite the advantages. We know from years of studies that most firms follow the same kinds of processes and use similar structures despite differences in market, industry, country, and century, a phenomenon deemed “isomorphism.”
Clearly bureaucracies can be “effective” as defined—able to hit their goals. Most, if not all, Fortune 500 companies reflect the form, but that only means they are effective versus other bureaucracies. Indeed, a meta-analysis (study of studies) found isomorphism had only a slightly positive correlation to financial performance and firm reputation. The small size of that correlation suggests there is a lot of room to outpace competitors by doing something different. That’s why researchers and practitioners argue for “matrix” or non-hierarchical structures built on cross-functional subunits.
Traits of Effectiveness
That structure suggests unusual process traits will maximize effectiveness, too. For example, participation by employees in decisions affecting them has been shown to improve: successful organizational change; creativity and innovation; employee performance, satisfaction, and turnover rates; general team performance; and specific process implementations in manufacturing, health care, and software development.
Much has been written about the successes of a few companies which adopted radical self-government and succeeded as a result, including three I’ve written about. SEMCO questioned virtually every aspect of command and control, resulting in a turnaround from near failure to 25 years of sustained success. Zappos moved from a number of nontraditional management practices to full democratic governance with mixed marks for implementation, but apparently still hitting required financial standards. Namasté Solar created a democratically run cooperative and became the largest rooftop solar company in Colorado by one measure, surviving the Great Recession without layoffs.
Related to this is the value of open two-way communication. A company under high change pressure is in a state of constant organizational change (OC), and communication failures in the form of insufficient, inaccurate, or top-down-only communications are considered significant barriers to OC success. Models for implementing OC emphasize frequent, accurate, two-way information flows.
Teams and Individuals
Moving down to the team level, an ability to respond quickly to changing demands may be why Agile has proven more effective than waterfall in fast-change environments, especially at raising stakeholder satisfaction. Most sources agree Agile teams should be full-stack, in that each has all the technical skills needed to complete their portion of the product, and that Agile team members should:
- Generally remain on the same teams rather than frequently changing, because of benefits including higher productivity, predictability, and quality;
- Be collocated in the same physical space (or at least in the same or adjacent time zones), as collocated teams tend to be more productive than virtual teams and to avoid the communication and conflict issues of virtual teams;
- Exercise high degrees of control over how they do their work, because workers and teams are more productive when given more autonomy over how to please their customers; and
- Be self-managing teams, since these experience higher productivity and job satisfaction than manager-led teams if properly implemented and supported.
To support individuals, “high-performance work systems” or “practices” improve return on assets, worker commitment and related measures, cooperation and knowledge sharing, efficiency and flexibility, and innovation—and do so without harming sales or worker efficiency. These practices include formally structured hiring processes; a commitment to training; higher, performance-based pay; and formal performance evaluations in addition to the participation, communication, and autonomy practices I already covered.
Building the Model
Taking all those points to their logical extremes, what would an organization built for maximum effectiveness look like?
Instead of a hierarchy of functional groups, our model is built on a foundation of cross-functional, self-directed, and full stack groupings I’ll call “pods.” Each pod is made up of multiple small teams fitting the same description (cross-functional, etc.). Every pod is dedicated to a specific set of end users (if a product pod) or customers (if a services pod). Each is effectively its own small-to medium-sized business, responsible for all aspects of satisfying its customers. Notice this reduces or eliminates issues of globalization such as competition about priorities among regions, globally required procedures that don’t fit everywhere, and inefficient global teams.
Functions like Human Resources, Information Technology, Legal, Finance, etc., are matrixed: Each specialist reports to a pod, however part of each person’s capacity is set aside for them to work with functional peers in “advisory teams” for the purpose of cross-organizational tasks like annual reports. Knowledge experts on techniques like Six Sigma or technical skills, whom we’ll call “coaches,” replace silo managers for needs like technical training, and form advisory teams for efforts like organizational technical certifications (e.g., ISO).
Each team (technical and advisory) is a self-directed work team using an Agile method appropriate to its workload, but otherwise following processes and rules it creates. Instead of having a team leader job, it has a “facilitator” or “coordinator” role which rotates among some or all team members, primarily responsible for facilitation of meetings and coaching on team processes. Entire teams, as opposed to individual members, report to “pod coaches” (replacing middle managers) with facilitation/coaching roles for multi-team planning, plus networking tasks between pods and with advisory teams.
The pod coach role is made manageable by the Agile progress tracking tools; the lack of responsibility for project-related tasks, handled instead by the teams and Agile processes; team-led hiring practices; and the fact that single-reviewer annual performance appraisals are replaced with 360-degree evaluations of peers by peers. Compensation is tied significantly to achievement of organization, pod, and team performance standards and goals, plus 360 results.
Major organizational decisions are made by org-wide vote. These include identity decisions (mission, values, etc.) and top-level stakeholder satisfaction goals. Smaller decisions are made by a Governing Council representing all employees. Teams elect representatives to Pod Councils with similar duties at the pod level, and the Pod Councils to the Governing Council, plus each advisory team is represented. To enable democratic governance, all organizational information not protected by law is available to all employees after signing nondisclosure agreements: Budgets and financial results, performance data, individuals’ compensation, customer information, contracts, and vendor information. Taken together these approaches maximize two-way communication, autonomy, and participation in decisions.
A Question of Courage
How does your organization compare? This model is post-bureaucratic, democratic, lean, and (lower-case) agile. Thus it is extremely effective, choosing and achieving the best goals for its business. Yes, it is wildly different from the typical work organization. Yet it reflects principles found in effective exceptions like Namasté Solar, SEMCO, and Zappos that have attained lasting financial success, high job and customer satisfaction, and positive notoriety.
At bottom all that is required to switch to this model is management courage. Do you have it?
Please share this post at the bottom of the page.
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