What is the best organisation design for the age of uncertainty?

In the age of uncertainty, the most successful organisations are the ones that can adapt and respond to change in a nimble way. These are organisations that foster creativity, collaboration, proactive innovation, commitment, and agility.

The fifth law of organisation behaviour by Craig Larman states that “culture follows structure”. But what does this law mean? According to Craig Larman “In big established groups, culture/behaviour/mindset follows changes in the organizational system and design. That is, if you want to really change culture, you have to start with changing the organizational system (groups, teams, roles and responsibilities, hierarchies, career paths, policies, measurement and reward mechanisms, etc), because culture does not really change otherwise.”

Best organisation structure for business agility

Pre-bureaucratic or entrepreneurial organisation structures are best suited for business agility.  They lack rigid structures and processes; people are organised in loose networks and can often collaborate with each other easily and without any impediments. However, these structures lack standardisation and do not enable us to exploit economies of scale.

Large organisations often require functional hierarchies and standardised processes to increase efficiencies and benefit from economies of scale. However, the same standardise processes and hierarchies that make large organisations more efficient also make them more rigid and less agile.

In large organisations, there is an unwritten rule that you have to follow the processes. You hear things like “this is how we do thing around here”. This mindset inhibits creativity and out of the box thinking. It is often difficult to regularly reimagine the way we do work in large organisations as it requires changes to processes across multiple silos and departments.

The hierarchies in large organisations also often double up as an impediment for free communication. The silos created by these hierarchies often become like islands with their own kings and queens and develop a subculture. Departments and units tend to focus on their own best interest rather than the best interest of the organisation as a whole.

The solution

There are multiple ways that we can reorganise large organisations to create structures that promote both agility and efficiency. One of the most popular solutions is to create a matrix organisation where delivery teams are organised around the products or services even though they report to different hierarchies.

In this structure we create teams around products and services. These team will have all the capability needed to independently provide their product or service to the end customer. There will be no dependency on other teams across the organisation. For example in a bank, you may have a personal lending team, a credit card team, a home loan team, etc. And these teams will have capability to manage and maintain the entire product or service independently. They will have the capability to service all their business and technology needs on their own including Internet banking, core banking, call centre, KYC (know your customer), security, legal, compliance, marketing, operations, etc.

Each individual person belongs to a single team only. For example if you are a marketing professional on the personal lending team, you only work for personal lending and will not be a shared services across multiple teams. In this structure the hierarchies help us set up efficiencies across disciplines of work and the product/service teams help us have agility in response to changing markets.

Incentivising the right behaviours

It is important to note that setting up a matrix organisation structure is not enough to promote a culture of creativity, collaboration, proactive innovation, commitment, and agility. It certainly is a good start but we also need to make sure whatever structure that we come up with, incentivises the right behaviours in the organisation. We need to make sure the roles and responsibilities, career paths, policies and reward mechanisms also promote a culture of agility.

To illustrate this, I’d like to share a story with you. In 2018 there was a major scandal involving Victoria state police faking breathalyser results in Australia. The police apparently had quotas to fill which motivated officers to blow into breathalysers themselves multiple times to meet the quotas. Over a period of a few years, more than a quarter million breath tests were faked by the Victoria police.

I remember I was driving one morning and listening to a morning radio show. The host was interviewing the police commissioner and scrutinising him over this scandal. I remember clearly the journalist was asking with an angry voice, “So who is going to lose their job over this scandal?” And I yelled back at the radio in my car, “No! Replacing the people won’t make the slightest difference. The problem is not person, it’s the quotas. Even if you fire the person in charge and hire another one, they will make the exact same mistake. This behaviour is what the job requires from them.”

Written by Arash Arabi.