Organize for Complexity, part II (BetaCodex13)

1. Makeitreal! ORGANIZE FOR COMPLEXITY Part2.Howtomakeworkworkagain. Howtobreakthebarrierofcommand-and-control– andcreatethepeak-performance,networkedorganization 13 BetaCodexNetworkAssociates NielsPflaeging&SilkeHermann&LarsVollmer IllustrationsbyPiaSteinmann BetaCodexNetworkWhitePaperNo.13,June2012

2. Thispaperaddressesfundamentalquestionsofinterestto businessowners,managers,professionalsandchangeagents Thisisthe2ndpartofourpaper. Someofthequestionsyouwillfindaddressedinitare: •  Howcanorganizationsdealwithgrowingcomplexity? •  Howtoadjustagrowingorganization,withoutcreating fallingintothebureaucracytrap? •  Howtobecomemorecapableofadaptingtonew circumstances? •  Howtoovercomeexistingbarrierstoperformance, innovationandgrowth? •  Howtobecomeanorganizationmorefittohumanbeings, andachievehigherengagement? •  Howtoproduceprofoundchange,withouthittingthe barrier? Inthispaper,youwilllearnaboutconceptsthatallowto designentireorganizationsforcomplexity,regardlessofsize, age,industry,countryorculture.

3. Part4. Organizationsassystems:Howtodesignforcomplexity “OrganizeforComplexity“-BetaCodexNetworkWhitePaperNo.13

4. Thedominantmindsetturnedintoaproblem: Toimagineorganizationsaspyramidsisamisguidedmetaphor Designprinciple"Alpha": The organization as a bureaucratic hierarchy, steered by managers who are always in control Managerscommanding/controllinga pyramidof“followers”fromaboveis notasmartwaytoorganize.Mostof ussensethat,intuitively:Our experiencefrompracticecontradicts thatthiscanactuallywork. Thisremains,however,thedominant mindsetincompanies,sincethe developmentofmanagementtheory aboutacenturyago.Whenwespeak of“management”,weusuallyreferto techniques,toolsandmodelsaimed atimproving,optimizing,orfixing organizationsascommand-and- controlpyramids.

5. Abettermetaphor:Theorganizationasamulti-layerednetwork Designprinciple"Beta": The organization as an inter- connected, living network, steered by market forces. Nobody is in control. Everybody is in charge. Asmarterandmoreusefulwayto lookatorganizationsistoseethemas anetwork.Thisisnotonlymore alignedwithsciencethanthe mechanistic“pyramid”dogma,butit isalsobyfarclosertoreality,andin severalways. Becauseorganizationsareinfact: •  Networksofindividuals (throughInformalStructure) and •  Networksofvalue-creatingteams (throughValueCreationStructure). Let'stakeacloserlookatthese concepts.

6. Theworkplaceisnetworked:Theorganization´s informalstructure.Basedonindividualrelationships InformalStructuresemerge outofhumaninteraction.In anysocialgroup.Informal Structurebyitselfisneither good,norbad.Itsimplyis. Mostsocialphenomenaarise frominformalstructure: Gossip.Networking. Socializing.Politics.Group think.Conspiracies.Factions, coalitions&clans.Resistance tochange.Responseto crises.Peerpressure. Solidarity.Mobbing.Youname it.Factis:Informalstructures arepowerful.

7. Theworkplaceisnetworked:Theorganization's valuecreationstructure,basedonteaminteraction Inanorganization,value-creation flowsfromtheinside-out. Valuecreationisnevertheresultof individualaction:Itisateam-based processofworkinginteractively, “with-one-another-for-each-other”.

8. Theworkplaceisnetworked: Puttingtogetherinformalandvaluecreationstructures Understandingorganizationsas valuecreationnetworks,under- fedbyinformalstructures,and notascommand-and-control pyramids,youwillstopcaring muchaboutformalhierarchy (whichisactually“trivial”,from thepointofviewofcomplexity thinking). Youwillinsteadcarealot aboutvaluecreationstreams, andonsupportingpeer pressureandemergent networkingpatterns. Organizationalrobustness comesfromthequalityand quantityoftheinter- connectionsbetweenhumans andteams–notfromrules, bosses,orstandards.

9. Togainabetterunderstandingofvaluecreation,itishelpful tounderstandthedistinctionbetweencenter,andperiphery Market Periphery Center

10. Theperiphery:theonlypartoftheorganization withmarketcontact Market Periphery Center

11. Thecenter:nodirectmarketcontact. Theperipheryisolatesthecenterfromthemarket Market Periphery Center

12. Centralizeddecision-making (command-and-control) inasystem Designprinciple"Alpha": Centralizeddecision-making, command-and-control Indull,slow-movingmarkets,centralization ofdecision-makingasshownhereis efficient.Centralizedcontrolisobtainable.In dynamicmarkets,however,centralsteering andthusanysystemthatreliesoncentral decision-makingcollapses. Market Periphery Center ! ! 2Information 2Information 3Decision 4Command 4Command 1Impulse 5Reaction Client

13. Solvingthecomplexitydilemma,throughdecentralization Decentralizeddecision-making, sense-and-respond Indynamicmarkets,thewayoutof thecontroldilemmaisconsequent decentralization,ordevolution,of decision-making,whichbecomesfar moreeffective:Thisway,decisions aretakenwhereinteractionwithand learningfromthemarketoccurs.The rolesofcenterandperipherychange dramatically. Designprinciple“Beta”: Market Periphery Center 2Information Servesthe periphery, ifneeded! 2Decision Isincharge! 4Command 1Impulse 3Reaction Client

14. Part5. Howtotransformyourorganizationintoa complexity-robustnetworkandhowtoturn “Beta”intothedominantmindset “OrganizeforComplexity“-BetaCodexNetworkWhitePaperNo.13

15. Designinganorganizationasadecentralizednetwork Toturnyourorganizationintoadecentralized cell-structure,ortobuildaneworganizationas suchanetwork,onemustunderstandthe elements,orbuildingblocks,ofsuchadesign. Fourelementsarenecessary: •  aboundary,orsphereofactivity •  networkcells (withadistinctionbetween centralandperipheralcells) •  connectingstringsbetweennetwork cells,and,finally, •  marketpull–connectionswiththe externalmarket Nolinestructures.Nofunctions.No departments.Nosharedservices.Nodivisions. Nocentralizedstaff.Thisisadifferent,andfar moreeffectivewayofdefiningstructure,in complexity.

16. Identityandthesphereofactivity SphereofActivity - (shared) Values - Principles - Positioning - Rituals - Memes - ... Organization&teams

17. Thesphereofactivity Market Organization&Teams Self-organizationrequiresthatthesystemis surroundedbyacontainingboundary.Thiscondition definesthe“self“thatwillbedevelopedduringthe self-organizingprocess. Thecontainingboundaryhastheroletodirectself- organizationtowardsvalue-creation. Theelementsofthesphereshouldbeputdownin writing,e.g.ina“LettertoOurselves”,a“Manifesto” ora“CultureBook”.

18. Themarketanditscomponents Market - Customers - Owners - Banks - Society - Competitors - Unions - …. Organization&teams

19. Value-creationflowsfromtheinsideout. Market-pulldoesthesteering. Market Periphery Center Acell-structurenetworkgainsstabilityand resiliencenotthroughhierarchicalpower relationships,orthrough“resistanceto pressure”,butthroughthe“pull”thatcomes fromtheexternalmarket,andfromthe complexhumanrelationshipsitnourishes internally.Marketdynamicsdothesteering. Soundssimple?Itis.

20. Fromvalue-creatingteamstovalue-creatingnetwork Wecallthelinksbetweennetworkcellsstrings. Wecallthelinksofperipheralcells withthemarketmarketpull.

21. Marketpull:Onlyperipheralcellshavedirectlinkstothe marketandcanthusdelivervalueexternally

22. Step1indraftingyourorganizationasavalue-flownetwork: Startfromtheoutside-in,bythinkingaboutperipheralcellsfirst Peripheralcellsshouldbe: •  Asautonomousaspossibleintheirdecision- making,functioninglike“mini-enterprises”, responsibleforabusiness,holistically •  Containnolessthan3teammemberseach, withcross-functionalcapacities •  Measuringtheirownresults

23. Step2:Designcentralcellsasinternally value-creatingsupplyunits Theroleofcentralcellsisto delivervaluetoperipheral teamsthatthesecannotcreate themselves. Theirroleistoserve,notto ruletheperiphery.Itisnotto executepower,orcontrol. Ideally,theseteamsselltheir servicestoperipheralcells throughpricedtransactions, andonaninternalmarket. Examplesforhowtodothis existatcompaniessuchas Handelsbanken,dm-drogerie markt,andMorningStar.

24. Centralnetworkcells Centralservicesmightinclude: •  HumanResources •  Finance •  SystemAdministration (IT) •  Juridical •  CentersofExpertise •  CommunitiesofPractice •  ... Insmallerorganizations,there mightsimplybecentral“shops”, •  “OrgShop”–ateamdelivering organizationservices,and •  “InfoShop”-ateamdelivering servicesrelatedtoinformation

25. Step3:Iterate–involvemany,manypeople intheprocessofdesigningafullnetworkstructure Usually,youwillhavetogothrougha fewiterationstoarriveatavalue- structuredesignthatisnotonlybetter thanthepreviousformalstructure,but alsoasdecentralizedaspossible, scalableandviableinthelong-term. Moreoftenthannot,anorganization willmakeadjustmentsaftersome initiallearningwiththenewdesign.

26. Individualsand“portfoliosofroles”: Anormalityindecentralizednetworkstructures Inadecentralizednetworkstructure,“positions”ceaseto exist.“Roles”rule.Individualsusuallyarenotconfinedto onenetworkcellalone,butwillactindifferentcells,filling indifferentrolesindifferentpartsofthenetwork. Consequently,everyonekeeps“jugglingwithroles“,all thetime. Anexample:Apersonwiththeofficialtitleof”CFO“on thebusinesscardwouldplayaroleinacentralcellwhen servingotherteamsofthenetwork,butbepartofa peripheralcellwhendealingwithabank.Thesame personmightalsofulfilladditionalroleswithinthe organizationthatmighthavelittleornothingtodowith finance.

27. Part6. Additionalrecommendations “OrganizeforComplexity“-BetaCodexNetworkWhitePaperNo.13

28. Promotearesult-basedachievementculture Maketeamperformancevisible (resultsonly!),tonurturea team-based“winningculture”. Never,ever,attempttomanageindividualperformance, though,asindividualperformancesimplydoesnotexist. Stopmanagingworkingtimeorcontrollingindividual behavior-“behaviorism”hasbeenprovedwrongalong timeago! Whatworks,instead:Themostadaptiveandsuccessful organizationsfocusonnurturingaculturethathighlights theimportanceof“fun,whilewinninginthemarketplace.” Youcannothavethatcontrollingindividual'sbehavior.

29. Promoteself-developmentandmastery Youcannotandneednotdeveloppeople.Peoplecan dothatontheirown.Anorganization,however,can createandshouldcreateconditionsandforumsfor self-development,anditcanalsotakecarethat leadersgetoutofthewaybynottryingtocontrolor containself-development. Individualmasteryistheonlyviableproblem-solving mechanismincomplexity. Weusuallytendtooverratetalent,andunderrate systematic,disciplinedlearning.Wetendtooverrate class-roomtraining,andunderratelearningthatis integratedintotheactualworklife.Wetendtooverrate formalinstructionandunderrateinspirational interaction,informalnetworkingandcommunitiesof practice. Trainingbudgetsonlyserveforcontrol–notfor learning.Soscrapthemandmakelearningresources availabletothosewholearn,ondemand.

30. Cultivateprinciples,notrules Simple/fewprinciples>Complexbehavior Complicated/manyrules>Stupidbehavior

31. Focusleadershipworkonthesystem.Notonpeople. Self-organizationincomplexsystemsis natural.Withacontainingboundaryand externalmarketsinplace,thatshould provideforthesteering. Leadership,thus,hastobeworkfocused onimprovingthesystem,onmakingthe marketpalpableinsidetheorganization throughtransparencyanddialogue,and onallowingforself-organizationand socialpressuretofunction. Workonthesystem,notthepeople.

32. Practiceradicaltransparency Informationistoentrepreneurialresponsibility whatoxygenistothehumanbody. Inanorganization,withoutfastandeasyaccessto information–includingthatonteamperformanceand financialresultsortheorganization–teamsand individualswillbewakingaroundindarkness. Transparencyisliketurningthelighton. Transparencymakesambition,ahealthyspiritof competitiveness,andgrouporpeerpressure,possible. Having“openbooks“ispartofthat.Ifyoufindyourself thinkingaboutpossible”dangers“ofopeningthebooks, thenyouprobablyhaven'tthoughtthetopicthrough,yet. Thenit'stimetodothat,now.

33. Maketargets,measuresandcompensation“relative“ Transparency&Improvement Peerteamcomparisons Comparisonsw/previousperiods Dialogue&dissent Paybymarketvalue Resultsharing … Indynamicmarkets,prognosis becomesimpossible.Planningturns intoafutile,ifnotdangerousritual.In knowledge-intensivework,dangling carrotsinfrontofpeoplenotonlyfails towork,itactuallyde-motivates people,stranglesengagementand teamspirit. Directionthroughtargets,measuring ofperformance,andcompensation systemshavetoconsidercomplexity andthenatureofhumanmotivation. Letpurposedrivebehavior,not numbersormanipulativeand controllingprocesses. Beta   Fixed&individualtargets ManagementbyObjectives Budgets&Plans Performanceappraisals PaybyPosition PayforPerformance Incentives&Bonuses … Alpha  

34. Asum-up:Applythefullsetof12lawsoftheBetaCodex- asetofdesignprinciplesforcomplexity-robustorganization Law Beta §1Freedomtoact Connectedness §2Responsibility Cells §3Governance Leadership §4PerformanceclimateResultculture §5Success Fit §6Transparency Intelligenceflow §7Orientation RelativeTargets §8Recognition Sharing §9Mentalpresence Preparedness §10Decision-making Consequence §11Resourceusage Purpose-driven §12Coordination Marketdynamics Alpha notDependency notDepartments notManagement notDutyfulfillment notMaximization notPoweraccumulation notTop-downprescription notIncentives notPlanning notBureaucracy notStatus-oriented notCommands

35. Morereadingandresources Formoreaboutorganizationalstructures,seeourwhitepaperno.11. Formoreaboutcell-structuredesign:seeourwhitepapersno.8,9and11. Formoreabout“relative“performancemanagement:seeourwhitepaperno.10. Formoreaboutproblem-solvingincomplexity,seeourwhitepaperno.7. FormoreabouttheBetaCodex,seeourwhitepapersno.5and6. Allpaperscanbeaccessedfromthispage:www.betacodex.org/papers Youarefreetouse&sharethismaterial.Ifyoumakeuseofthismaterialinyourwork, pleaseletusknow–wewouldlovetolearnaboutthat! Wewelcomeyoursuggestionstoimprovefutureversionsofthispaper. ThankstoPiaSteinmann,whocraftedallillustrationsusedinthispaper, andtoJurgenAppelo,whosedrawingsoriginallyinspiredit.

36. TheBetaCodexNetworkwhitepapers-sofar Special   Edi+on   Special   Edi+on   FindallBetaCodexNetworkwhitepapersonwww.betacodex.org/papersandonSlideshare. Whitepaper–The3StructuresofanOrganization ©BetaCodexNetwork–Allrightsreserved 25

37. The“OrganizeforComplexity”book Paperbackedition Deluxeedition (withbonuschapter) www.organizeforcomplexity.com

38. Make it real! ValéryaCarvalho mvaleriacarv@gmail.com LinkedIn SãoPaulo NielsPflaeging contact@nielspflaeging.com nielspflaeging.com NewYork,Wiesbaden SilkeHermann silke.hermann@nsights-group.de insights-group.de Wiesbaden,Berlin,NewYork LarsVollmer me@lars-vollmer.com lars-vollmer.com Hannover,Stuttgart betacodex.org GetintouchwithusformoreinformationaboutleadingBetaCodextransformation, andaskusforakeynoteoraworkshopproposal.