Traditionally, management theory has been based on hierarchy, structure and delegation of activities. However, in today’s business landscape, with is ever increasingly marked by flow of information and changing processes, there is an increasing gap between power of knowledge and power of decision. In other words, the organizational (hierarchical) distance between the point where the relevant information is needed and the point where such information is used to make a decision is large enough for relevant information to be lost.
Of course, old-school managers will tell you that as long a reporting lines are defined and KPIs/objectives are cascaded correctly, there is no problem in efficiently delegating. That would be true, except in a business world that increasingly revolves around technology and services, “information” isn’t only about predefined metrics that are pivoted and rolled up in a spreadsheets and reports. The information has become the change that happens to those spreadsheets and reports.
Ultimately, the gap between knowledge and decision affects an organization to the extent to which changes to the business processes become business as usual (i.e. a regular activity, that occurs more than once during a financial lifecycle).
Let us take an example
In a classical business world, the reporting format down-towards-up (sold units, best selling items, items with the best margin) and the decision format from up-towards-down (targets, commissioning scheme) is pretty straight forward. But let’s imagine the following:
- Christine decides to partner up with a local partner/affiliate, which directly impacts the commissioning scheme and sales volume
- Blaine would also like to leverage online lead generation to boost sales, which impacts cost and customer visibility
- Claire thinks she could improve sales volume by engaging in a profit-sharing scheme by partnering up with a local services provider
Considering all of that, Jim has to prioritize the strategy for next year. To him, all projects seems like a good idea, because ultimately all of them boost sales and customer visibility. And to Jim, it’s all about the bottom line.
Furthermore, let’s assume there is enough time and budget to do both projects in every particular region. And even if Blaine’s idea (online lead generation) could be easily implemented across the other two regions, the affiliate and profit sharing schemes Christine and Claire have in the pipeline are pretty particular to their respective regions.
What none of them imagine is that implementing these projects (with end dates at several times throughout the year) will impact the reporting structure. You can’t directly compare in-house sales with affiliate sales. And online lead generation also involves additional cost, not just additional sales. All of these non-uniform changes in the reporting structure will also change the way budgeting is done for the following year and Jim has to take all that into account.
Moreover, Carla, Alma and Blythe – the persons in charge of the three respective projects in each region have a deeper understanding of the details of each project, but they are not aware of each other project and so cannot foresee the impact they will have on each other.
You cannot drive a car by just looking at speed and fuel gauge
However obvious that might be for cars, a lot of companies are governed by just looking at profit and capital / operational expenses. Even though budgets and project priorities are blurted out in endless Excel sheets, few companies have a truly processes-centric approach that allows them to see how different processes and lines of business influence each other.
The truth is that a lot of people in management positions think, speak and act in lists. But the truth of the matter is that in a dynamic business landscape where automation is business as usual, lists just don’t cut it anymore. Relationships (between projects, processes, features and requirements) are graphs and mappings between changing entities are hash tables.
One thing that cannot be automated is the process of changing processes
A lot of the work that can be automated (rolling up sales reports, balancing accounts and taking orders) has been or will soon be automated. There is less and less room for workers who execute a simple process, day in and day out. Which means that the workload itself tends to become increasingly unstructured, highly variable and less predictable. One of the things that cannot be automated (at least for now, if you believe Searle’s Chinese Room argument) is the process of changing other processes in order to achieve certain objectives.
This means that the knowledge work is less about punching in numbers while being on the phone and more about exploring implications, ramifications and impact of change to the work that is already being done (on most part by machines). However, the workforce is for the most part unprepared for this mindset and so is management.
For instance, the worker may not be willing or prepared to propose a change to a process that might (on the short term) negatively impacting his/her KPIs, objectives or personal revenue. The manager or the executive on the other hand might have a zero-risk policy
Global and local optimization
Let’s say you have a company with three departments: sales, tech and operations. The hierarchical structure present in most companies encourages the three respective managers/VPs of sales, tech and operations to seek the optimum for their silo/department. The fact of the matter is that seeking local optima (what’s good for my department) may often yield a strategy that is deeply sub-optimal for the organization. Of course, it would be the job of the CEO to balance the view and build a global optimum from the local optima, but the reality is that s/he often lacks the information required: partly because it was filtered out at lower level as “not relevant to our department”, partly because he doesn’t have the patience to challenge things on a lower level. By taking the safe path towards local objectives, global objectives can be missed on a higher level.
In programming, choosing the solution that seems to best fit locally and/or on the short term is called a Greedy Algorithm. Although it might work for simple problems, which model linear relationships, under certainty and following simple restrictions, it may often produce deeply sub-optimal results. You see, this class of algorithms are not called “greedy” by chance – they are called so because they seek immediate maximization of the outcome/benefit/revenue. Which brings me to my next point …
Global optima take time to achieve. Which is just the opposite of the current business landscape which seeks immediate gratification. Bigger stock price, bigger sales, bigger bonus. When? By the end of the financial year! Heck, let’s have it this quarter – as a stretch target. We are all greedy. We want pay-offs now. The promotion, the raise, the stock price increase. We put pressure on ourselves, our on peers, on our direct reports. We put pressure to achieve things now. And we keep ignoring the complexity, the impact and ultimately the fact that achieving the best possible outcome every week of the year is not the same as achieving the best possible outcome this year.
We tell ourselves that achieving the best in each department every month will make the company achieve the best this year or for the next three years. And that might have been true when labor was manual and the market and processes and the opportunities changed infrequently. But that is no longer true.
As our world is getting more complex, uncertain, riddled with change and illusive local minima, we are becoming increasingly like the kids in the Standford Marshmallow Experiment: surrounded by temptation to get our “fix” now and depleted of the discipline to seek long term goals.
People who have the information don’t get to decide; people who decide don’t always have the relevant information
You’ll probably think that if relevant objectives are cascaded from executive to management to worker, nothing can go wrong. Right?
Well, that used to be right. But nowadays, the complexity and inter-dependency of processes (especially automated ones) put the knowledge worker in the position to be the only one to spot or define what is “relevant” in some cases. As you’d expect, “cascading” this information upwards goes against the flow and oftentimes gets a lot of resistance – especially if you have to get through 7 layers of red tape until you can get to someone who has the authority to make a change.
Even if the hands-on guy at the bottom of the food chain who spotted a problem in the process or an opportunity for improvement somehow manages to get his point across to his manager’s manger’s manager, this will have taken 3 months. It will take another 6 months of meetings with people who have no knowledge or competency in the matter to get the project pushed through, budgeted, approved and scheduled. Most of this red tape will not improve the original idea, but it will riddle it with compromise. The guy on top won’t be willing to vouch for the idea (even if it’s a good one) out of fear of alienating his other direct reports.
In a shifting business context, the core idea of relevance (the “key” in Key Performance Indicator) is one that requires effort and input from throughout the organization. And most organizations are still severely top-down.
Flatten or shard: why hierarchy is dead
We used machines to speed up our processes, to scale them to high volumes of decisions and events, to make them more reliable and cheaper. We did this to such an extent that the bottleneck in organizations has become people’s ability to understand, plan and follow-up on change. Part of that is because our educational system still embeds our minds with the “assembly line” mentality; the other part is that both workers and managers prefer short-term (and short-sighted) gains and a risk-averse attitude.
The modern workplace needs to extend its mentality toolbox and means of interaction beyond list and tabels (towards charts, graphs, analytics and more scientifically founded decisions) to deal with increasing uncertainty and complexity.
Some ideas of improvement may include:
- Removing unnecessary overhead and flattening organizational structures.
- Rotating people between similar positions before promoting them.
- Creating cross-functional knowledge roles rather than cross-functional management roles
- Make sure managers have hands-on experience
There are two main trade-offs between flattening hierarchy (reducing subordination) and sharding business lines:
- Flattening reduces overhead, but it may also blur accountability
- Sharding clarifies boundaries, but reduces opportunities for cooperation and creativity
Ultimately, organizations have a choice between reduced risk and increased cooperation/innovation/creativity. And in today’s landscape, there is less and less of a clear recipe.
Instead of a conclusion
Organization face a great challenge of transitioning from traditional hierarchical/command-and-control setups to flatter or matrix-like structures. In this transition, confusion is the highest risk. So ultimately, the best tool for keeping things under control is keeping organizational process knowledge closer to the point of decision, not only towards the place of execution.
Delegation works great for activities, but it fails miserably for knowledge tasks.