LagomWorks Research Series: June 2020
Moving beyond Span and Control: A fit-for-purpose organization structure in Distributed Organizations
Keywords: Organization Design, COVID-19, Remote Working, Distributed Organisations
The ongoing COVID-19 pandemic has engendered narratives around Work from Home (hereinafter WFH) being an inevitability for India Inc. Notwithstanding the obvious cost connotations, when Tata Consultancy Services (hereinafter TCS) announced plans to move up to three-quarters of its workforce onto a permanent WFH model by 2025, Tata Sons’ Chandrasekaran clarified that it was not necessarily a cost-saving measure, since TCS would continue to bear the expenses of its long-term office leases well into the near future. Yet a narrative centred solely around cost and efficiency detracts from the fact that the likes of TCS together comprise but a small fraction of the country’s workforce. Most Indians are employed informally, and in traditional, if not brick-and-mortar setups. Add to this human beings’ endemic nature of only begrudgingly accepting change, and it becomes evident against India Inc’s uneven digital scape that the more hierarchical organizations will find it difficult to go the remote working way.
In this note, I argue then, that a fit-for-purpose organization design, whether WFH or otherwise, must not only aim to reduce costs, drive growth, and strengthen short-term performance and long-term organizational health, but also drive agility and resilience. Transcending reporting lines and boxes determinant of decision rights, accountabilities, internal governance, and linkages in a Foucauldian sense, it must allow for managing complexity and scale to drive sustainable performance.
Reconfiguring for balance: an opportunity presented by the distributed approach
Over two decades ago, Bartlett & Ghoshal laid out the fundamental dilemma facing multinational firms, as one situated at once in achieving global coordination while simultaneously being locally responsive (Bartlett & Ghoshal 1998). The organizational solution to the global-local dilemma was a global matrix across product lines, geographic markets, and functional groups. While such a matrix creates clear points of connection across organization boundaries, it does not always allow for the speed of change that the current context, comprising rapid digitization, empowered customers, and COVID-19 safety measures, demands.
Today, in many industries, that model of organization design is arguably flawed. The reason is the success formulas do not last very long (D’Aveni 1994). The advantages around which the organization is designed are vulnerable to the business implications posed by COVID-19 and thus, the challenge is to design organizations to execute strategies when there are no sustainable competitive advantages. The need for organizations to become more ‘reconfigurable’, has been well articulated by Galbraith in 2010 where he believes that the power of the truly reconfigurable organization lies with the leaders who can move work to where talent, capabilities, and capacity are, regardless of where they are in the world. Herein lies the case for the distributed organization structure.
Almost quixotically, truly agile organizations need to learn to be both stable (resilient, reliable, and efficient) as well as dynamic (fast, nimble, and adaptive). To master this paradox, companies must design structures, governance arrangements, and processes with a relatively unchanging set of core elements: a proverbial fixed backbone. From a pool of over 2,300 large US companies, Columbia Business School professor Rita Gunther McGrath identified high-performing organizations as those which increased their net income by at least 5 percent annually in the ten years leading up to 2009. Her conclusion was that these organizations were both extremely stable, with certain organizational features that remained the same for long stretches of time, as well as rapid innovators who could adjust and readjust their resources quickly. The delicate act of balancing the tension between stability and flexibility then falls on the trifecta of the organizational structure in defining how resources are distributed, governance in outlining how decisions are made, and processes in determining how things get done, including but not limited to the management of performance.
Read more: Performance Management in the New
Yet, how can an organization which is designed as fit-for-purpose deliver the right mix of speed and scale? I argue that this is achieved by the distributed organization, though three core steps which it adopts.
1. It endeavours to match the operating model to the business strategy
The operating model defines the level of integration needed across the portfolio, based on the extent to which the business models underlying each component are similar or different. Business models reflect how the company makes money from different types of customers. Starting with strategy on how we serve customers to how we make money – ensures that the process, in true design thinking sense, starts with the customer in mind. These insights then set out the basic roles that business units, geographic territories, and functions play in the company as well as the decision rights that define interactions among them.
2. It builds an organization model with clear accountabilities for work and outcome
An approach to designing distributed organizations puts managers at the centre of the redesign process and delivers better results by empowering them to shape their teams. The distributed approach makes it easier for hundreds of designers to work together cohesively while redesigning thousands of positions. In turn, it focuses on the following:
- On defining roles. Since managers have direct experience and hands-on involvement as well as know-how around how work gets done on a day-to-day basis, it puts them in the best position to define required roles, determine how those roles should work together, and identify the most appropriate Key Performance Indicators (KPIs) to measure performance at each level.
- For finding the best talent. The distributed approach improves the odds of finding the best talent for each role. Mid-level and junior managers often have more granular knowledge than senior executives do about the talent that exists deep within the organization. This means that managers can select people for positions in a way that aligns talent with the needs of the business while supporting the growth and development goals of individuals.
- In encouraging engagement and improving morale. The distributed design gives managers a sense of ownership and accountability around the new structure. This can boost engagement and enthusiasm by demonstrating to managers that senior leaders trust them sufficiently enough to take relatively critical organization design, selection, and implementation decisions.
- In strengthening horizontal alignment. The distributed design also gives managers opportunities to clarify responsibilities with their peers, spell out decision rights, and clear up pain points which might in fact be invisible to senior leaders in a typical executive-led design process.
3. It helps design strong networks across organizational boundaries through a systematic focus on processes, metrics, and talent.
The horizontal flow of ideas, capabilities, and talent across geographic, functional, and business-unit boundaries is imperative. And, as powerful as the alignment of the organization model to operating model is, it does not in itself create an effective organization. The Star Model remains the best guide for activating the non-structural design elements that facilitate horizontal, cross-boundary work (Kates and Galbraith 2007).
When Galbraith (2010) outlined the reconfigurable organization, he built it on a multi-dimensional matrix that remains relatively stable, boosted with a set of cross-boundary teams that are formed around major growth and innovation opportunities. These teams would form around a specific opportunity and disband once the task was accomplished. Yet while this idea of reconfigurable teams sitting on top of a stable structure is still useful, today we can go beyond mere teams and design dynamic networks powered by technology that allow people to work and collaborate in real-time around the world using common tools and data. These formalized networks are not ad hoc or based solely on relationships. The organization around these networks is carefully engineered to make them successful within the core structure of the business, with elements such as:
- Reward systems and metrics to encourage collaboration, as well as the right senior executive behaviours.
- Common business and management processes which align work practices, making it easier for teams to work together.
- Selection of people are selected into these teams based on their collaboration skills and behaviours.
- Decision-making forums built to manage trade-offs that serve the greater company interests.
Today, formal networks are increasingly utilized in two broad forms: those that are opportunity-focused and those which provide a standing-governance forum for the oversight of complex boundary-spanning work.
PepsiCo and other global organizations are being increasingly run through what some leaders refer to as a distributed network model (not to be confused with technology networks). The objective is to leverage talent, investments in product innovation, and the many brands and physical assets without centralizing the work and decisions of a very diverse global snack business. Such networks don’t occur spontaneously in large complex organizational systems. They must be deliberately designed as a system. In such models:
A shared purpose is critical to these networks. Each of the network members has a “day job” with its own set of objectives, but when the network is activated around the right idea, the members come together around a shared agenda.
Metrics must be set to encourage greater risk-taking and they must be aligned across markets and functions to assure these new ideas will be priorities for senior leaders in the regions who are under pressure to deliver local results. This may be the most difficult challenge in companies known for delivering consistent financial results every quarter. New ideas always have a hard time finding their way into the priorities of a big profit engine, especially when the investment needed for developing a new idea compromises short-term objectives (Christensen 1997).
Standing-governance forums manage work that requires an integrated strategy and execution. But these networks oversee a standing agenda and set of processes that are sustained over time; this work is less project-oriented and more part of the fabric of the organization.
The organization post COVID-19
As we navigate through or emerge from the COVID-19 pandemic, depending upon where we are, cost structure will continue to be a priority as companies seek to automate non-customer-facing work in order to repurpose resources into innovation, product, and service platforms, as well as brand building. The market imperative to build organizations that deliver the benefits of both agility and scale cannot be avoided.
A great starting point could be the framework for designing organization structures on the lines of distributed systems as defined by Mark S. Foxx in 1981, a snapshot of which is provided below.
Today’s complexity requires companies to be explicit about the operating model – the power relations between the different parts of and actors within the organization. The organizational model is then the veritable design tool which can articulate and illustrate these assumptions about power and accountability. The Front-Back structure (Galbraith 2005) produces insights and draws out options for grouping business units, operations, and commercial functions to serve the strategy most effectively – and with the right mix of differentiation and integration.
Finally, formal networks serve as a dynamic system to move work and decisions to where the right talent and perspectives sit. As I conclude I table that if we are to hark Sun Tzu’s dictum that ‘In the midst of chaos, there is also opportunity’, we must work to shape organizations along the notions of Who we are (as our Purpose, Value, and Culture), How we operate (in the manner of our Structure, Talent, and Decisions), and How we grow (in the sense of the Ecosystem, the Platform, and Learning).
- Bartlett, Christopher A, and Ghoshal, Sumantra. Managing Across Borders: The Transnational Solution Harvard Business Review Press, 1998.
- Christensen, Clayton M. The Innovator’s Dilemma. Harvard Business Review Press, 1997.
- Fox, Mark S. An Organizational View of Distributed Systems, 1981.
- Galbraith, Jay R. Designing Organizations: An Executive Briefing on Strategy, Structure, and Process. Jossey-Bass, 1995.
- Galbraith, Jay R. Designing the Global Organization. Wiley, 2000.
- Galbraith, Jay R. The Front-Back Model – How Does It Work? 2005.
- Galbraith, Jay R. “The Multi-Dimensional and Reconfigurable Organization.” Organizational Dynamics, Vol. 39, No. 2, pp. 115-125. 2010.
- Kates, Amy, and Jay R. Galbraith. Designing Your Organization: Using the Star Model to Solve 5 Critical Design Challenges. Jossey-Bass, 2007.
- Rita Gunther McGrath, “How the growth outliers do it,” HBR, 2012.