Organizational structure in the age of unpredictability.

Organizational structure in the age of unpredictability.

In a perfectly predictable world, what’s the best way of organising a business? My guess is that it would be run like a perfect machine. Or like a big, monolithic computer. Programmed in best in class business processes. In a world with no surprises, you could build the perfect machine, program it perfectly by complex business processes, hire only the ‘resources’ that fit perfectly into those existing processes, and hone the whole organisation to deliver the ideal input/output ratio.

In fact, this is the way most businesses are set up. At least it’s the target state of most traditional companies. This is because the world used to be much more predictable and therefore better suited to such ‘Tayloristic’ models. The underlying goal was to distribute known packages of work in the most efficient manner. Today, however, things are increasingly unpredictable and fast. And this has some fundamental impacts. In such an environment, it’s impossible to plan the perfect organisational machine.

So, rather than planning for efficiency, forward-looking businesses are rebuilding their organisational structures around agility, robustness and innovation. And as businesses adapt to this new normal, the top-down management structures of old are coming under pressure. It’s easy to see why: the centralised decision-making, business siloes and organisational hierarchies of old put barriers in the way of adaptable operations.

Organising around adaptability

What does the future-fit organisation look like? For me, the answer’s simple: businesses need to put in place a structure which gives their people the freedom to act autonomously and quickly. It’s a simple idea, but one which demands profound change.

The first step is to enable employees to accept ownership over things, again. Interestingly enough many engaged leaders are caught by surprise, how difficult this is for many of their employees. Many experiences and traditional ‘tayloristic’ principles have to be ‘unlearned’ to accept ownership. Decision ownership has to be pushed out to every single employee and allows to think and decide for themselves. Step two goes further; creating an organisation in which employees are encouraged to seek out the most important and immediate challenges for the company, and to solve them.

At Siemens, we call this ‘ownership culture’: employees are empowered to make decisions for themselves and proactively drive change. We know that we can’t “switch it on” from one day to the other. But we implement it as an increasingly fundamental guiding principle across the company. The model is like that used in Open Source software development, where developers work in loosely organised networks to solve challenges. And it’s an approach makes perfect sense in a wider business context; after all, who’s better placed to understand how to improve the business and adapt to change than the people on the front line?

Here, the role of the manager changes. Rather than telling employees what they should work on, managers act as coach and guide their teams through their work. Their role is to ask those important ‘why’ questions to help employees stay on track. It’s an incredibly rewarding role and one that we know managers embrace once they’ve made the initial adjustment from linear management processes.

Self-organised networks

At Siemens, we’ve gone further and encouraged self-organised, bottom-up communities to flourish. These are entirely created and run by employees, with absolutely no functional management oversight. Indeed, they spring up in response to challenges that are often not even on managements’ radar and earn their legitimacy through their value-creation, purpose and passion of the employees that participate in them. There is no filtering process for the best initiatives, but it is evolutionary and the best will survive.

One such initiative is Grow2Glow (G2G). The aim of G2G at Siemens is to help women unlock their potential through coaching and find the inner strength to strike out for new horizons. The programme helps match trained coaches within the Siemens family with women who request coaching. Today, some 140 qualified coaches across all areas and disciplines respond to the needs throughout the company. The role of management in this success has been limited: all we’ve done is give the network the space it needed to grow.

I still rememeber the initial days when it was not mere than the initial idea of some engaged people, who wrer not beeing completely sure whether they’d be ‘allowed’ to start this at that time. Absolutely amazing what it has grown into in less than 2 years, globally.

Another great example of the power of self-guiding networks can be seen in the development of some of our most visible internal tools at Siemens. One of the tools was intended to be a simple way of showing employees our organisational structure. Traditionally, we would have briefed a group of designers to build it based on our specification. Instead we opened the project up to our employees and told them to create the solution they wanted. As a result, we now benefit from a far more user-centric AND feature-rich tool than everything we would have imagined. And it’s not finished: through our social page employees are still contributing new ideas to make the tool ever-more relevant and useful for them — at an amazing speed!

Unlearning the past

As professionals, we’re taught to be efficient. To work only on the jobs we’ve been tasked with. To play our roles as cogs in a well-defined machine. As managers our task was to program this ‘monolithic computer’ with best in class business processes. Ideally with business processes that treat people as anonymous resources rather than individuals. But this approach is no longer fit-for-purpose. Instead, as employees we must take ownership of our work and focus change and innovation on those areas where we know it needs to be focused. And as managers, we must give employees the space and freedom to innovate while providing coaching and support to ensure their innovations thrive. We must, in short, unlearn Tayloristic approaches and embrace flatter and more fluid organisational structures. This is not easy, especially for people who are long trained in such an environment. But the result will speak for itself: even more rewarding careers and better business outcomes.

By Robert Neuhauser, EVP and Global Head of Siemens People and Leadership

The Agile Manager

The Agile Manager

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The agile workplace is becoming increasingly common.

In a McKinsey survey of more than 2,500 people across company sizes, functional specialties, industries, regions, and tenures, 37 percent of respondents said their organizations are carrying out company-wide agile transformations, and another 4 percent said their companies have fully implemented such transformations.

The shift is driven by proof that small, multidisciplinary teams of agile organizations can respond swiftly and promptly to rapidly changing market opportunities and customer demands. Indeed, more than 80 percent of respondents in agile units report that overall performance increased moderately or significantly since their transformations began.

These small teams, often called “squads,” have a great deal of autonomy. Typically composed of eight to ten individuals, they have end-to-end accountability for specific outcomes and make their own decisions about how to achieve their goals. This raises an obvious and seemingly mystifying question for people who have worked in more traditional, hierarchical companies: Who manages in an agile organization? And what exactly does an agile manager do?

Lay of the land

The answers become clear once you understand that the typical agile company employs a dynamic matrix structure with two types of reporting lines: a capability line and a value-creation line.

Nearly all employees have both a functional reporting line, which is their long-term home in the company, and a value-creation reporting line, which sets the objectives and business needs they take on in squads.In agile parlance, the capability reporting lines are often called “chapters” and are similar in some ways to functions in traditional organizations (you might have a “web developers” chapter, say, or a “research” chapter).

Each chapter is responsible for building a capability: hiring, firing, and developing talent; shepherding people along their career paths; evaluating and promoting people; and building standard tools, methods, and ways of working. The chapters also must deploy their talented people to the appropriate squads, based on their expertise and demonstrated competence. In essence, chapters are responsible for the “how” of a company’s work.

However, once talent is deployed to an agile team, the chapters do not tell people what to work on, nor do they set priorities, assign work or tasks, or supervise the day-to-day.The value-creation reporting lines are often called “tribes.” They focus on making money and delivering value to customers (you might have a “mortgage services” tribe or a “mobile products” tribe).

Tribes are similar to business units or product lines in traditional organizations. Tribes essentially “rent” most of their resources from the chapters. If chapters are responsible for the “how,” tribes are responsible for the “what.” They set priorities and objectives and provide marching orders to the functional resources deployed to them.

Management roles

In this world, the work of a traditional midlevel manager is reallocated to three different roles: the chapter leader, the tribe leader, and the squad leader. Let’s examine the responsibilities of each and the challenges they pose for traditional managers looking to become agile managers.

The chapter leader

Every functional reporting line has a leader. This chapter leader must build up the right capabilities and people, equip them with the skills, tools, and standard approaches to deliver functional excellence, and ensure that they are deployed to value-creation opportunities—sometimes in long-term roles supporting the business, but more often to the small, independent squads.

The chapter leader must evaluate, promote, coach, and develop his or her people, but without traditional direct oversight. Chapter leaders are not involved in the day-to-day work of squads; they don’t check on or approve the work of their chapter members, and they certainly don’t micromanage or provide daily oversight. Instead, regular feedback from tribe leaders, team members, and other colleagues inform their evaluations and the kind of coaching they provide. Since they’re not providing direct oversight, their span of control can expand greatly, a fact that can eliminate several layers of management. In fact, chapter leaders often free up enough time to tackle “real work” on business opportunities as well.The most difficult challenges facing new chapter leaders are letting go of the day-to-day focus, and shifting attention to building the right capabilities and helping match talent to the right roles and value-creation opportunities.

Traditional managers are accustomed to closer oversight of their people. But if they can let go, they will find themselves in jobs that call on more of their leadership and creative talents. Not only can they join squads occasionally, but they can optimize their chapter-leader role in interesting ways. For example, if a company reconfigures squads frequently, reallocating talent to different roles or teams, the chapter leader might create and manage a backlog of “nice to have” functional work that his talent can help with in between their deployments.

The tribe leader

Since these value-creation leaders borrow or rent most of their resources from the chapters, they no longer bear the burden of building up their own functional capabilities. Instead, tribe leaders act as true general managers, mini-CEOs focused on value creation, growth, and serving customers.

They must develop the right strategies and tactics to deliver desired business outcomes and to determine what work needs to get done, how much to invest in which efforts, and how to prioritize opportunities. They work with chapter leaders to match the right people to the right squads.

Like chapter leaders, tribe leaders manage less and lead more. Since they have profit-and-loss accountability, they must develop a strategic perspective on their business and their customers, a cross-functional view of the core capabilities of the broader organization (so they can efficiently secure the resources they need from chapters), and an integrated perspective of the company as a whole and how their part of the business fits in with the larger enterprise.

Those who succeed will develop more of a general-manager skill set and an enterprise mind-set that can break down silos, enable collaboration across organizational boundaries, and empower product owners to provide day-to-day guidance on objectives, priorities, and tasks.

The most difficult challenges for traditional managers tackling the tribe-leader role are letting go of the need to fully “own” all the people working for them, as well as shifting attention from micromanaging the day-to-day work to developing the right business strategies, setting the right objectives and priorities, and making the right business decisions.

Tribe leaders must also wrestle with their reliance on getting their talent from chapters. They must resist the urge to build their own set of resources and create shadow functions so they never lack what they need when they need it. That end-around scuttles the agile matrix, which relies on healthy tensions and constructive conflict to get the right capabilities to the right opportunities at the right time.


The squad leader

Team leaders, or “squad” leaders, serve a crucial purpose in the agile matrix. They aren’t the “boss” of the people on their team. They help plan and orchestrate execution of the work, and they strive to build a cohesive team.

They also provide inspiration, coaching, and feedback to team members, report back on progress to tribe leaders, and give input on people development and performance to relevant chapter leaders.

Think of squad leaders as individual contributors who have developed leadership skills or at least developed an interest in learning these skills. The squad-leader role can be more or less formal and can even change over time depending on what the team is working on.

Once again, the challenge for someone from a more traditional company is to lead without exerting onerous control. But the rewards can be great. Some squad leaders will grow into tribe leaders, while others will continue as individual contributors with the additional skill of agile leadership.

Something old, something new

The idea of autonomous teams is not new; it’s been around for decades. For instance, in the quality movement that took hold in manufacturing and continuous improvement 50 years ago, quality circles and high-performance work systems often relied on an autonomous self-managed team with an informal team leader who was not technically a boss. More recently, companies such as WL Gore (in materials science) and Haier (the Chinese appliance manufacturer) have emphasized the empowerment of small teams, even if they don’t use the language we associate with agility—or focus those teams on software development, where agile has made some of its most prominent marks.

The agile revolution

Conceiving of the organization as an organism rather than a machine lies at the heart of the gathering trend toward more agile companies. But what does this look like? In a collaborative effort comprising a series of agile “sprints,” 50 McKinsey experts from the firm’s digital, operations, marketing, and organization practices recently spelled out the nature of these changes—both the overall paradigm shift, as well as five critical shifts that “traditional” organizations must encourage in the mind-sets of their people.

The squad leader is now a part of an agile matrix, where the value-creation, or tribe, leaders provide constant direction and prioritization around where the value is, and the capability, or chapter, leaders focus on ensuring deep functional expertise, common tools and competencies, and economies of scale and skill.

If these leaders can become effective, non-intrusive managers, the agile company will enjoy the best of both worlds: the benefits of size and scale typically realized in large organizations, as well as the benefits of speed and nimbleness often associated with small entrepreneurial start-ups.

About the author(s)Aaron De Smet is a senior partner in McKinsey’s Houston office.