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Turn Your Company Outside-In! A paper on cell structure design, part I (BetaCodex08)

Paper on the innovative "networked cell structure design" approach - an alternative organizational design approach to tayloristic, functional, and process-oriented designs.

NielsPflaeging
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Turn Your Company Outside-In! A paper on cell structure design, part I (BetaCodex08)

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  1. Make it real! TURNYOUR COMPANY OUTSIDE-IN! Part1.Howtobuildthedecentralizednetworkorganization, puttinganendtocentralizedcommandandcontrol. ApaperonCellStructureDesign 08 BetaCodexNetworkAssociates NielsPflaeging,ValéryaCarvalho,GebhardBorck,AndreasZeuch BetaCodexNetworkwhitepaperno.8.Jul2012,originalversionOct2008

  2. Whatyouwillfindinthispaper OrganizationDesignisalostart.Atroubledandsomewhatabandonedgreyspacewithinthe fieldoforganizationaltheory.Nonsensicaltheoryandadviceaboundinthesphereof OrganizationDesign.Andthatisforareason. Inthispaper,weoutlinetherationaleforadifferent,non-tayloristic,waytostructuring organizations–leadingtothequestionofhowtobuildorganizationscapableof (1) accommodatinghumanbeings,and (2) competingintoday'sdynamicandnon-linearmarket-places. Thisisthefirstpartofa2-paperseries.Inthispart,we… • describewhypreviousideassuchassystemstheoryfailedincreatingsignificant momentumforchangeinorganizationalpractice,andoutlinedthedesignprinciplesthat decentralized,networkedcellstructureorganizationsmustadhereto. • detailtheingredientsofsuchstructures,whichinclude (1) asphereofactivity, (2) networkcells, (3) stringsand (4) marketpull. • Finally,wedescribesomeoftheconsequencesofapplyingsuchadesign,highlightingkey advantagesaswell. Inthe2ndpartofthispaper,wedescribetwocasesfromourconsultingpractice, inwhichtayloristiccommandandcontrolorganizationswereredesignedas decentralizednetworks.

  3. Part1: Thetroublewith organizationdesign

  4. Thinkabout organizationaldesign Youarenowprobablyconjuringupimagesofmanagers ormanagementconsultantsshufflingboxesonanorganizationchart. Right?

  5. Organizationaldesign:thelostart Well,thatkindof”corporaterestructuringexercise“hardlydeservestobecalledorganizational design.Thetopicofeffectiveorganizationaldesigntranscendsdisciplinarylines.That'swhyitisnot effectivelytaughtatbusinessschools,that'swhythereislittledecentresearchinthetopic,that'swhy usuallynobodyinanorganization,except”topmanagement“,darestotouchit.Todesignan organizationeffectively,youneedtounderstandbusinessmodels,organizationalbehavior, informationtechnology,accounting,andleadership. Inrecentyears,writersandthoughtleadershavecoinedadizzyingarrayofbuzzwordstohelp managersthinkorganizationsafresh.Thereistalkofnetworkedorganizations,boundary-less organizations,virtualorganizations,learningorganizations,federalistorganizations,wiki organizations,starfishorganizations,andthelike,tonameonlyafew. Butifyouactuallyreadandstudytheseworks,youwillshareourfrustration.Withfewexceptions, mostwritingonthistopiciseitherutopian,orlimitedtocertaintypesoforganization,orisshallowina sensethatitoffersadvicethathasnotheoreticalunderpinning.Theutopionansrailatthestifling natureofhierarchyandextolthevirtuesof“organizationswithoutstructure“:self-organizingwork, networks,andemployeeempowermentwill,theyargue,miraculouslydriveoutcommand-and-control empires.Theothersetofbooksandarticlesoffersdesignchoicessupportedbydetailedlistsofpros andcons.Yettheseanalysesquicklyprovetobeunsatisfying.Listsoftradeoffsandconsiderations failtoprovideaclearsenseofdirection.Whenyoufinishachapter,itisneverclearwhatexactly organizationsshoulddo–choicesabound,butnorationalefordecisionandnoconvincingtheoretical underpinningisgiven. TheBetaCodex,incontrast,presentsanintegratedtheorythatgivescleardirectionabouthowto designorganizationsandhowtomakeitfitwithmanagementprocesses,andleadership.Tooutline howthenewbreedoforganizationaldesignworks,thispaperoffersatourdeforcethroughdifferent disciplines,andthroughmanyoftheconceptualframeworksthattheBetaCodexisbasedupon.

  6. First,someconsiderationsaboutorganizationaldesign Organizationaldesignisameanstoanend.Notmore,notless. Andthatendistocreateandmaintainanorganizationcapableof achievingsustainablecompetitivesuccessinadynamicandcomplexworld.* Inthiscontext,itisimportanttoremember: ?  Thereismoretoorganizationsthandesign– sotobringthedesigntolife,youneedtocreateacoherentwholeincludingvalues, language,communication,leadershipstyle,processes,etc. ?  Thereisnosinglerightdesignforyourorganization– butyourdesignprocessshouldbebasedonrobustdesignprinciples ?  Organizationaldesignisanevolving,iterativeprocess– whichonlyfeelsmessyandcomplicatediftheprinciplesthatareappliedaremessy,and ifimportantassumptionsarenotmadeexplicit. ?  Thedesignyouwillcomeupwithatfirstwillnotlastforever,orevenforlong– becauseyouwilllearnmoreandmoreaboutdifferentdesignoptionsandlearningloops willinevitablyoccur. *ThisclaimiscloselyrelatedtotheBetaCodexNetwork'smission.

  7. Thenotionof dividinganorganization intofunctions, andthendepartments, isfundamentallyflawed. Butwhatisthealternative?

  8. Whyshouldwelookforanalternativeway ofbuildingandgoverningorganizations? Bydividingafirmintofunctions,andthendepartments,youactuallyimpedeworkflow,build organizationalterritories,anddriveoutinitiativeandentrepreneurialthinking.Butcompanieshavedone exactlythatforages. Organizationstodayarecrippledbytayloristicthinkinganddivisionbetweenfunctions.Taylor'sideaof separatingthinkingfromexecution–liketheassumptionthatresponsibilityforcontrolandcoordination shouldbelocatedonelevelabovefromwheretheworkisactuallyperformed–havecreatedimmense misalignmentwithtoday’scriticalsuccessfactors.Theseproblemshavebeenlaidoutindetailbythe BetaCodexmovementsinceitsfoundation (thencoined“BeyondBudgeting”) in1998,andalsobyafair amountofmanagementthinkersandscientists.Assoonas1960,DouglasMcGregorwrote,inhis groundbreakingbook“TheHumanSideoftheEnterprise”,that“itisprobablethatonedayweshallbegin todraworganizationchartsasaseriesoflinkedgroupsratherthanasahierarchicalstructureofindividual reportingrelationships”Forfurtherreferenceontheproblemswithtayloristicmanagement,seethe BetaCodexNetwork'swebsite. Thealternativetotaylorism,however,hasnotbeenthatclear,untilrecently.Andknowledgeabouthowto transformtayloristicorganizationsintopost-tayloristicorganizations,whicharecapableofreintegrating thinkingwithdecision-makingandexecution,hasbeenpatchyatbest.Soifwewanttodepartfromthe currentstandardofcorporatemodern-world“slavery“,basedonnowobsoletethinking,weneedtwo things.First,weneednewmentalmodelstobuildandgovern21stcenturyorganizations.Andwealso neednew,systemicmodelsforchange,inordertoenablewide-spreadtransformationoforganizations. Theproblem,overall,isnotthatpeoplewerenotfitforaccelerateddynamicandmorefiercecompetition. Weclearlyholdadifferentview:that,instead,organizationsastheyaredesignedtoday,arenotfitforthe capabilitiesofthehumanbeingsthatworkinsidethem.Thetayloristic“machineorganization”isdoomed, inanageofdynamicsandcompetition.Thetayloristicmodelnowhasbecomeanimmoralchoiceasa blueprintfororganizationaldesign.Why?Because,quitesimply,itstandsinthewayoftheirpeopleto fulfilltheirpotential,andfurthermorebecausequiterecently,thevisionandpracticalroad-maptoan alternativemodelhasemerged.Wecallthisalternativethe“BetaCodex”.

  9. Outliningthe‘industrialage’modelanditspitfalls “commandandcontrol“ “keepontrack” strategy •  Toocentralized •  Tooinward-looking •  Toolittlecustomer-oriented •  Toobureaucratic •  Toomuchfocusedoncontrol •  Toofunctionallydivided •  Tooslowandtime-consuming •  Toode-motivating •  … Fixed performance contracts control Fromthefilm‘ModernTimes’withCharlieChaplin,1936

  10. Recurringthemesinorganizationaldesignthatanyrobust designmodelmustaddress Clarify ownership Allocate authority andpower Define resourceand valuecreation flows Embed governance Assure coherenceand cohesion … Create robustnessfor growthand evolution

  11. Commonalternativewaystovisualizeorganizations– accordingtoHenryMintzberg Organizationsas“pyramids andchains” • Processchainstrengthenstheverticalchain (hierarchy) • Sustainscentralizationandheroicmanagement: “Thetopmanagerasanimportantperson,removed fromoperations,takingdecisionsbasedonanalyses andcalculation” • Imagineahospital,alaboratoryoraproject– theysimplydon'tworkthisway! Organizations as“hubs” • Thepointsoffocusarehubs:it'sthem whoattract, emitandmovepeople,thingsandinformation • Lessfocusedonsequentialactivities • Example:Hospital -thepatientasfocalpoint • Someorganizationsnaturallydon'thaveacentre (e.g.labs,orprojectteams...) • Theyarenetworkswithfreeinteraction,embeddedin collaborativerelationshipsthatworkinanydirection • It'snotamodel“withoutstructure”– itjustfollowsanotherlogic. Onethatisnotfocusedonactivitiesormanagers. Organizations as“networks” Source: Mintzberg, 2004

  12. Howtoovercometheburdensoftaylorism Highlydevolvedorganizations,asopposedtocommandandcontrolorganizations,arenotstructured hierarchically.Infact,sincehierarchiesdon’tacceptanyotherrulersbut“topmanagement”,or “bosses”,radicalempowermentbaseduponthedecentralizationofdecision-makingisnotcompatible withstructuresbasedonpowerrelationshipsandhierarchy.Althoughitiswell-knownthatmany organizationsarefactuallyrulednotbyformal,butbyinformalnetworks,thecommonwaytomake teamsactresponsiblyisstilltogivesomeoftheorganization'smembersa“commanding”,or “managing”position. BetaCodexorganizations,ontheotherhand,wanttoachievesomethingentirelydifferent:Theywant everybodyinacompanytothink,tobeandactresponsible,inordertoincreasethevalueandwealth creation.Therefore,aBetaCodexorganizationdoesnot“believe”inhierarchy.Itbelievesin empowermentandinthecapabilitiesofitspeople.Andthebest-knownandsuccessfullypracticed routetoempowermentistoturntheorganizationintoanetworkofinterrelatedcells. Acellstructure (asopposedtoadesignbasedon“departments”and“functions”) iscapableof interactingsituationally,inmorediversewaysthanfunctionallydividedhierarchies.Evenmoreso,it doesn’tneedcommandstobecontrolled–itcanbecontrolledandgovernedjustthrough“market pull”.Othercontrolmechanismsthatmakesensewithinadecentralizedcellstructureareself-control, “peerpressure”,culturalcontrolinspiredbystrongsharedvaluesandculture,aswellasafarhigher levelofinternalandexternaltransparencythaniscommoninthetayloristicmanagementmodel. Overall,bycreatinganetworkofthesecells,andbymakinguseofpeople'sfullpotential,businessis beingturnedassimpleandasstraight-forwardasexecutivesalwaysdreamtitwouldbe.

  13. Sowhatorganizationshaveactuallyaccomplishedthis, inpractice? EricSchmidt,CEOofGoogle,oncehumorouslyandwithanodtocoinedit“theborg”,referringtothe extraterrestrialraceonStarTrek.DennisBakkeandRogerSant,ofUS-basedenergyfirmAES,dubbed it“thehoneycomb”.RicardoSemlerofSemcofromBrazilcallsitthe“circularorganization”. TerriKelly,CEOatW.L.Gore,talksaboutthe“latticeorganization”,aconceptthecompanyhas appliedsincethe1960s.Inthepast,othershavecalledit“theonion”. Ultimately,theyarealltalkingaboutthesame:Anewwayofthinkingaboutorganizationswithouta commonhierarchy.Asonecansee,wearestillfarcryfromreachingaconsensusonwordingwith regardstothe“alternative”organizationalmodelthatwillsucceedtayloristiccommandandcontrol pyramids.Schmidt,Bakke,Semler,Kellyandothersarealldescribingthenotionofanorganizational structurethatisaneitherbasedonpowerrelationships,noronhierarchyorfunctionaldivision.These organizationshavebuiltdevolved“senseandrespond”networks. Anexample:Semco'sSurvivalManual,thecompany'sonlywrittensetofprinciples,claimsthat: “Semcodoesnotuseaformalorganizationalchart.Onlytherespectoftheledturnssomeoneintoa leader.Whenitisabsolutelynecessarytosketchthestructureofsomepartofthecompany,wealways doitinpencil,anddispensewithitassoonaspossible.” MuchlikeSemco,severalotherBetaCodexpioneers,suchasGuardianIndustriesandHandelsbanken, donothaveanorgchartatall,andtheygetalongwiththreelayersofhierarchyonly.Thatsaid,the pioneersstillhavesomehierarchy,thoughusuallynotmorethanthreelayers,regardlessoftheirsize. Intheirorganizationaldesign,thus,“hierarchydoesn'tmatter“.Itisperceivedasarathertrivialfact, andonethatisnotreallyrelevantforday-to-daywork.

  14. Thechallenge:Fromhierarchytonetworkstructure.Butwe needmethodologiesforredesignandforcreatingthechange! Traditionalmodel (centralizedfunctionalhierarchy) Newmodel (decentralizedleadershipnetwork) Changing leadershipand structure •  “Bosses”rule! •  Top-down commandandcontrol •  Topmanagement isalwaysincharge •  Centralizedleadership •  “Themarket”rules! •  Outside-in senseandrespond •  Front-lineteamsarealwaysin charge •  Devolvedleadership

  15. Whatisnewaboutthis? Althoughpreviousconceptshavefailedtofullyexplaincellstructureasabusinessorganizationstructure, thereisstillalotwecanlearnfromotherthinkersonthesubject. Oneofthemostsignificantcontributionstothefieldoforganizationaldesignprobablycomesfrom systemstheory.StaffordBeer,thefatherofBritishsystemsthinking,whodiedin2002,laidthe foundationsoftheViableSystemsTheory–atheoreticalconceptthatlackspracticality,butthathas inspiredmanywithinthefieldoforganizationaldevelopmentanyway.DirkBaecker,afollowerofGerman systemstheoristNiklasLuhmann,convincinglypointstothesystemicincoherencebetweengeneral knowledgeofsystemsandwhathappensinbusinessorganizations.Buteventhoughsystemstheory explainslotsofthephenomenathatoccur,withinfirms,theadviceofBaeckerandothershasbeen insufficientforpractitionerswithadesiretotrulytransformtheirorganizations. Othertheoristshaveexplainedimportantelementsofanalternativemodel,butinvariablyfailedtodescribe acoherenttheorythatwouldworkforanycompany,ortheconsequencesthatcomewithimplementingit: Mostscientists,forexample,haveignoredtheimpactofsteeringprocesses,suchasperformancetargets, planning,andcompensation,onorganizations.Evenworse:Mostleadingthinkerspartiallyremained withintheboundariesoftheold,tayloristicmindsetwithregardshowbusinessorganizationshavetowork andbeled. CharlesHandywroteaboutwhathecallstheCloverleafOrganization,basedonhisobservationsaboutthe individualandhisresponsibilityinsociety,andtheeffectsofthatwillbeseeninbusinessorganizations oneday.HenryMintzbergmadepromisingattemptsatderivingconclusionsfromdifferent“typologies”of organizations.JayGalbraithdevelopedwhathecalledthe“starmodel”oftheorganization,andrecently, expertslikeThomasW.Malonehavebeentalkingoforganizationsas“democracies”,“freemarkets”,or “loosehierarchies”,inwhich“nodirectiontakesplaceanddecisionsaremetatthefrontlines”.Butone mightask,if”frontline”,“democracy”,or”loosehierarchy“aren'tratherfeebleconceptstobeappliedin reallife.Again,thisadvicehasnotbeentooactionable,overall.

  16. Whyhavesofeworganizationsadoptedanetworkeddesign? Notsurprisingly,maybe,someofthebest-understoodnetworkorganizationsofthepasthavecome fromtherealmsofthenon-profitsector.Assuccessandimpacttheredepends,primarily,on volunteersthatresistto“beingmanaged”,convincingalternativesto“management”havealways beenastandardthere.ManyexpertshavedescribedkeycharacteristicsoforganizationsliketheWWF ortheinternationalboyscoutmovement,asproofthatcellstructureorganizationscanactuallywork. Butisthesamepossibleintheprofitsector?Attemptsondecentralizedorganizationalmodelsmade bypreviouslytraditionallyorganizedfirmsoftencouldnotmeettheexpectations.Ahigh-profilecase fromthe90swasABB-buttheirmuchlauded“matrix”organizationsoonwentintodecline.Andfor goodreasons.Othertransformedorganizationshavefaredmuchbetter,astheychosemorecoherent waysofworking,waysthatwerefirmlyrootedinmoreradicallydifferentmentalmodels.Surprisingly, though,somefirmswithnotablecompetitivesuccessthatabandonedtayloristicmanagementlong agohaveneverbeenrecognizedasnetworkstructures.Afewofthesefirmshavesucceededin buildingandsustaininga“decentralizednetwork”structureoverthecourseofmanydecades,asis thecaseofW.L.Gore,ToyotaandHandelsbanken.Butalthoughtheevidenceisthere,runninga profitablecellnetworkactuallyisseenasanexoticachievementofsomeexceptionalleaderslikeGore. Neitherorganizationaltheory,normanagementsciencehavebeenabletofullydescribetheprinciples ofsuchstructures,orhaveformulatedadecentroadmaptowardscreatingthiskindofinnovative design.Thisisabouttochangenow.Wewillarguethat,basedonthe12principles,orlaws,ofthe BetaCodex,itispossibletobuildahighperformancecellnetworkforanycompanyofanysize.

  17. Organizationalevolution:Typicalphaseswithinthe lifespanofanorganization,accordingtosystemsthinking Cyberneticsrightlystatesthatorganizationshavemuchincommonwithlivingorganisms.Inthesame wayinwhichorganismsevolvethroughdifferentstagesthroughouttheirlives,sodoorganizations typicallychangeoverthecourseoftheirexistence.Systemstheoryhasaddedtothisaconceptwhich relatesintimatelytowhatwecalltransformation. Organizations,inthisview,typicallybegintheirlivesconsistingofveryfewpeople,andina“Pioneering Phase“,whichischaracterizedbyahighlevelofentrepreneurship,informality,autonomousand improviseddecisionmaking.Thereislittle“structure“here.Apioneerorganizationmayfeelchaotic-but acertainamountofchaosseemsnormaltoeverystart-up,doesn'tit? However,asanorganizationbecomessuccessfulandgrows,sometimesveryquickly,newforcesstart toapply:Thereisapressureto“professionalize“,tocreateamoreformalstructure,tohirespecialists, toimplementsystems,tostandardizeprocessesandtodolotsof“planning“.Inthis“Differentiation Phase“,hierarchy,functionaldivisionanddepartmentalizationincreasestrongly,decision-making becomesmorecentralized,andrulesandprocessesstarttosubstituteimprovisationandfreedomtoact. Thoughperceivedasablessingbymany,differentiationisalsoalwaysaccompaniedbythedeathofthe organization'smoreentrepreneurialfounding,orpioneeringculture.Theplacebecomes“lessfun“,in ordertobecomemoreorderly.Manyofushaveseenthishappeningtoorganizations,andwehaveoften observedthelossofentrepreneurshipthatcomeswithdifferentiation. Mostorganizationsremainforeverinthetayloristicparadigm.Fewhavesofarescapedthedifferentiation trap,activelymovingtowardswhatwemaycallthe“Integrationphase“.Integrationmeansapplyinga thinkingthatturns“large“organizationsintosmall,functionallyintegratedmini-firms,whichcanactwith greatindependencyanddecision-makingpower.Avisualizationofthe“phaseconcept“isshownonthe followingpage. Asnoted,feworganizationsfirmshaveactuallymadethistransformation.WithintheBetaCodex researchsince1998,however,wehaveidentifiedacoupleofnotableanddiverseexceptions,suchas dm-drogeriemarkt (Germany),Semco (Brazil),Toyota (Japan),andHandelsbanken (Sweden).

  18. Organizationalevolution:Typicalphaseswithinthe lifespanofanorganization,accordingtosystemsthinking Whoshould“integrate”– andhowdoesthisconceptrelatetoanorganization´sevolution? youshouldbe! Evolution withinthedecentralizedmodel (cultureofempowerment andtrust) Sustainingand deepeningofthe decentralizedmodel, throughgenerations THISiswhere Integration phase Beta!Highdegree ofdecentralization/ empowerment Transformation throughradical Decentralizationofdecision-making Differentiation phase Stagnation withinthetayloristicmodel Alpha!Lowdegreeof decentralization/empowerment Bureaucratization throughgrowinghierarchy andfunctionaldifferentiation Pioneering phase Beta!Highdegreeof decentralization/empowerment Severaldecadesold Foundation Timescale:organization'sage

  19. Part2: Principleddesign&structureforanewera

  20. Whatmakesthedifference? Insteadofcentralizedfunctionsanddepartments,BetaCodexorganizationshavealeanandorganic networkofindependentteams,orcells,whicheachworkasfullyaccountablebusinessunits,orprofit centers.Tocreateanetworkofcells,however,youwillhavetofundamentallychangethewayyou havethoughtaboutorganizationalstructure. ?  Youwillapply“functionalintegration”–asopposedtofunctionaldivision,practicedbytayloristic organizations.Thissoundseasierasitis:Becauseourbrainsareastonishinglyhard-wiredinto thenotionoffunctionaldivision.Youmaynoticethatfurtheron. ?  Youwillcreateastructureinwhichthereiscontrolintheformsoftransparency,“marketpull”, self-control,andpeerpressure–asopposedtocontrolthroughhierarchyadmanagementstaff. Cellsthemselvesareaccountableforresults–notmanagersmanagingtheteamexternally,or managerswithinthecell.Thisrequires,firstandforemost,amassivechangeinthinking. ?  Youwillbuildindividualcellsthatconsistofpermanentteams,of (temporary) projectteams,orof ad-hocandvoluntarytaskforces.Thoughnotatallcommonintraditional,functionallydivided commandandcontrolorganizations,teamsbasedonvoluntaryparticipationcanbehighly effectiveandenthusiastic,asseveralofourcasestudiesshow. Anetworkedcellstructurehasalotincommonwithlivingorganisms,aswesawbefore.Celldivisionis acommonfeatureaswell.Ithappensbothinorganismsandinnetworkedorganizations. Organizationsofthenewkindsharethebeliefthatasinglecellshouldneveroutgrowapsychologically soundsizethatcangranthigh-trustcommunicationamongteammembers.Consequently,incell networkfirms,onceateamexpandstoomuch,thisteamgetsdivided“asneeded”.Thiskindofcell divisioncanbefoundatplacessuchasAES,Aldi,Handelsbanken,DellandW.L.Gore.Maximumcell sizedefinedbyanindividualfirmmayvarygreatlyfromindustrytoindustry,anditvariesamongthe caseexamples.W.L.Gore'sunitsize,forinstance,islimitedtoaround150teammembers.

  21. Howislifewithina“networkcell”differentfrom workinginacommand-and-controlhierarchy? Generallyspeaking,singlecellswithinadevolvednetworkdonotentailhighlyspecializedpeople,but mostlygeneralistswhosharetheworkloadflexiblyamongthemselves.Furthermore,traditionaltayloristic jobdescriptionsfocusingonanindividualaredisplacedbyroledescriptionsforentireteams,whichfocus ontheresponsibilitiesthathavetobeassumedbyindividualcells.Theserolesareoftenjuggledwith amongteammembers,whichmeansthat“rolerotation”isverycommonhere.Inordertoallowforthis flexibility,generalisttalentsofpeoplearemoreappreciatedinnetworkedorganizations,asopposed detailedtechnicalknowledge,whichistypically (over)valuedintayloristicorganizations:Here, organizationssadlyclassifytheirpeoplebytheirwork,orjobdescriptions-notbytheirtalentsorabilities. Inordertomakeadevolvednetworkbecomereal,thinkingaboutworkandperformancehavetoundergo adeeptransformation.Inasinglecell,employeeshavetobeentrepreneurialthinkersanddoers,whereas managersinthesestructuresserveasadvisorsorkeepersofsharedvaluesandprinciples.Theirrole extendstonotmorethantostewardtheorganization.Inthewordsofsomeofthepioneers,thismeans beinga“catalyst” (RicardoSemler) oran“enabler” (VineetNayar).Managersintheirtraditionalroleas commander,inspectorandexecutorarenotneededinanetworkedstructure,butthereareroles traditionallyfilledoutbymanagerswhichcanbeassumedbysinglepersonsorbydifferentpersonsinthe cell'steam.Theleadcanbeandistakenbyeveryonewhotakestheresponsibilitytoactfortheteam. Besidestheneedforpeopletoassumetheroleof“temporaryleaders”,thereisaneedfor“newroles”, whicharenotcommonintayloristicorganizations,butwhicharevitalfordecentralizednetworkstosustain coherenceandlearning.The“master”role:Theseinitiatelearningprocessesintheorganization,inorder tokeepthecellspreparedforcurrentchangesandkeeptheminnovative.The“symbolist”role:Symbolists havethesenseforsymbolicgestures,signsandritualsinordertomake,maintainanddevelopinternal andexternalrelationshipsaswellasmaintaining,keepingconsciousandpenetratingtheorganization repeatedlywiththeitsprinciples,reasonforbeing,values,identityandvisions).The“anthropologist”role: Anthropologistsprovidetheunderstandingofnormsandculturalvalues,ofdesiredattitudes,mindsets andconvictionsofpartnershipinternal/externalinthenetwork.

  22. Let'stakealookatthedesignprinciples foranalternativeorganizationalstructure. Ifyouaresomewhatfamiliarwith theBetaCodex,thenyoualreadyknowtheseprinciples...

  23. The12lawsoftheBetaCodexare afullsetof“designprinciples“forthenewstructure Law §1Freedomtoact §2Responsibility §3Governance §4PerformanceclimateResultculture §5Success §6Transparency §7Orientation §8Recognition §9Mentalpresence §10Decision-making §11Resourceusage §12Coordination Beta ConnectednessnotDependency Cells Leadership Alpha notDepartments notManagement notDutyfulfillment notMaximization Fit IntelligenceflownotPoweraccumulation RelativeTargetsnotTop-downprescription Sharing notIncentives Preparedness notPlanning Consequence notBureaucracy Purpose-drivennotStatus-oriented MarketdynamicsnotCommands

  24. Comparingthemodels

  25. Theimportanceofdesignprinciples Inthispaper,wearesuggestingtwomainconcepts: 1.  TheorganizationdesignmodelthatistheBetaCodexwithits12laws. 2.  ThetransformationmodelthatwecalltheDoubleHelixFramework-asthewaytoadopting theorganizationmodel,ortobringitintolife. Itisnotverycommon,actually,thatacoherentandfullorganizationalmodel (BetaCodex) andan implementationmodel (theDoubleHelixFramework) arebroughttogetherintoasingleapproach, thusallowingnotonlytoenvisionaneworganizationalform,butalsotodevelopit. Havingtherightdesignandtransformationprinciplesiskeytotransformation.Thereasonforthis isthat,ideally, ?  Designprinciplesshouldbesoclearandsimplethat anyoneinanorganizationcanunderstandandapplythematalltimes. ?  Thepeopleinanorganizationthemselvesaretheonesbestsuitedtodevelopthenew organizationalstructure.Consultantsshouldonlyprovidemoderationandguidanceinthe processofshapingoutthestructure. ?  Foranorganizationtomaintainanorganizationalstructurethatisnotcommandandcontrol, thenewprinciples (orthenewmentalmodel) havetostickwithpeople.

  26. Thedesignprinciplesofthenewmodel Conventionalmanagementpracticehasignoredtheimportanceofunderstandingprinciplesbefore leapingintoaction.Usually,organizationsfeelpressuredintoadoptinganewmethodbecause “everyoneelseisdoingit“.SixSigma,Lean,theBalancedScorecard,BusinessReengineering,or CRMaresuchmethods.Typically,neithermanagersnortherecipientsofsuchschemescanarticulate thedesignprinciplesthataredrivingthemethod.Andusuallythemajorityoforganizationalmembers don’thaveaclearideaofwhyspecificchangesarebeingmadeandhowsuchchangewillaffect them. ThisisdifferentwiththeBetaCodex.Thecodexemploysasetof12designprinciplesforthenewtype oforganization.Thedesignprinciplesarenotrigidrules,butinstructivecodesthatshapeourthinking abouthowrelationshipsbetweenpeople,roles,tasks,andresponsibilityshouldbestructured.They (andtheirtayloristiccounterparts) reflectdeepculturalassumptionshavingtodowiththeissuesof power,authority,controlandvaluecreationinorganizations.Designprinciplesareequivalenttoa mentalmodelthatactsasasystemicframeworkforconstructingorganizations.Thedesignprinciples thusgettotherootsofhoworganizationsshouldbestructuredtogettheworkdone,andtoachieve superiorcompetitiveperformance,together. Becauseorganizationsarehumanandsocialcreations,designprinciplesprovidethecriteria– implicitlyandexplicitly–thatguidethewaywestructureandleadorganizations.Itisimportantin BetaCodexTransformationtomakethe”old“setofdesignprinciplesandthenewoneexplicit. Thisway,thementalmodelsofallmembersoftheorganizationcanchange.Thedesignprinciplesare farmorethanjustrhetoric–theygototheheartofunderstandingtheunderlyingpremisesandthe structurallogicthatinfluenceleadershipandbehavior.

  27. Howmarketsgovernorganizations“fromtheoutsidein” Periphery Center Decision Information Command Centralistcommandand control“collapses“in increasinglycomplex environments Impulse Reaction

  28. Why“make-and-sell”businessmodels,combinedwith “commandandcontrol”management,don'tfitanymore Classic20thcenturyorganizationsfromtheindustrialageusuallyappliedmake-and-sellbusiness models,whichmeansthatyoudevelopproducts,producethemandthengivethecustomeran incentivetobuythem.Highperformanceorganizationstodayuseasense-and-respondapproach, whichappliesanoutside-inphilosophy. Anyorganizationcanapplyanoutside-insense-and-respondapproach. ?  Famously,ToyotaandDellhaveinventedoutside-inbusinessmodelsintheirindustries (cars andcomputers,respectively),submittingproductiontosinglecustomerordersorprojects. ?  GuardianIndustriesoriginatedasimilarbusinessmodelforflatglassandmirrorproduction, beingthefirstcompanyintheindustrytoselldirectlytocustomers. ?  Handelsbanken,dmdrogerie-marktandScandinavianretailerAhlsellwork fromthebranchoutside-in. ?  SouthwestAirlines,AESandSemco,EgonZehnderInternationalandW.L.Goreworkfrom singlevaluecreationstreamsorcustomerprojects. Thehighperformersofthe21tcenturyare“managed”bymarketpull,notthroughinside-out commandandcontrol.Wasteandevendamageoccursifinsidemanagersinterferewiththe mechanismof“market-pull”.Everysinglepersonneedsafreeandclearviewtothemarketforces thataredrivingtheorganization.

  29. Waystoorganizeforempowerment Hierarchicalorganizationchartsdissimulatetheviewthatorganizationmembers“servetheboss”,or hierarchy.Theythusstandinthewayofthemarketforces,bymakingpeoplelook“up”,not“out”.In thisway,hierarchieslimitthepotentialoftheirmemberstoservethemarket. BetaCodexorganizations,ontheotherhand,don’t“produce”withoutmarketpull.Theyactually makeuseofthepullfromtheoutsideintoenergizeandstabilizetheiradaptivenetworksofcells.That way,BetaCodexorganizationsusethesomehowdifferinginterestsofthemarketforceslike legislation,investorsandcustomersto“manage”theirnetworksofcells. Therearedifferentwaystoorganizeforempowerment,whichareallcoherentwithBetaprinciples. Thedifferenttypologiescanalsoexistincombination. ?  Profitcenternetworks (e.g.Handelsbanken,ToyotaandScandinavianretailerAhlsell) ?  Multi-projectorganizationorprojectorientatedorganizationwithtemporarycentersofproject teamsestablishedinsteadofpermanentprofitcenters ?  Cross-organizationalvaluecreationnetworksbetweenself-dependentcells Adoptingacellstructuredesignisvitaltomakingintegration,ortransformationwork.Withoutthis kindofconcept,buildinganorganizationwithlittlehierarchyandnocommandandcontrol,isnear- impossible.

  30. Thebuildingblocksofthedevolvednetworkedorganization Accordingtothesystemicviewofanorganization,adevolvednetworkconsistsof onlyfourtypesofstructuralelements,whichwewillexplainmoreindetailinthissection. Understandingtheroleofeachoftheseelementsiskeytodesigningatrulydevolvedorganization. Thefourstructuralelementsofthemodelare: 1.  Spheresofactivity 2.  Networkcells 3.  Networkstrings 4.  Marketpull That'sit.Simple,isn'tit?Solet'stakealookatthesedifferentstructuralelements.

  31. BuildingblocksofthenetworkedorganizationI: “Spheresofactivity“-distinguishingtheinsidefromtheoutside •  Everyorganizationoperateswithinitsown“sphereofactivity”. Consciouslyorunconsciously. Thesphereoriginatesfromthecombinationofanorganization’spurposeand identity.Thisencompassesitsbusinessmodel,itssharedvaluesand principles,itsbrandproposal,itsvisionandmission. •  Traditionalcommandandcontrolorganizationsfrequentlyfailtomaketheir sphereofactivityexplicittoitspeopleandstakeholders.Thespherethus remainsambiguoustotheinvolvedpartieswithinthesystem. Notsoinpioneeringorganizationsofthenewmodel,whichalwayshavean extremelystrongcorporateculture,aclearvaluesystemandexplicit boundaries.Thepioneershaveaneedforawell-definedsphere,becausetheir governancedoesn'trelyoncommandandcontrol,useofpower,andfear. •  Intraditionalorganizations,consequencescauseactions. Inpioneeringorganizations,ontheotherhand,allactingisaconsequence. •  Definingthesphereofactivityisakeyingredientofthecaseforchange, whichhastobewrittenupinthetransformationfromcommandandcontrol (Alpha) totheBetaCodex.

  32. BuildingblocksofthenetworkedorganizationII: “Networkcells“–howtheydifferfromfunctions&departments •  Networkcellsintegrateseveralfunctions,rolesandduties, whichwouldbetraditionallyseparatedintodifferentdepartments,divisionsandareas. Acellthuscontainsdifferentfunctionsandroles! •  Networkcellsofferandsellproductsand/orservicesonitsown,andonlydependonits marketinitsdecisionsaboutthem. •  Networkcellsarecustomerfocused,astheyrespondonly tointernalorexternalclients,nottohierarchy. •  Networkcellsareheldaccountablebyother membersoftheorganizationandareresponsible fortheirownvalue-creation.Eachcellhasits ownP&Lstatement.Cellsaresociallydense. •  Networkcellsapplythefullsetof 12lawsofthebetacodex.

  33. BuildingblocksofthenetworkedorganizationIII: “Networkstrings“-thecommunicationandvaluecreationlinks • Stringsdepicttheconnectionsbetweencells,showing ahighlevelofelasticity.Suchconnectionsarisefrom severaldifferentkindsofinteraction: ?  Valuecreationflowsfromtheinsideout, ?  Formalcommunication,and ?  Informalnetworking. • Internalmarketsandpricingmirrorthevaluecreationflow frominside-out:Cellnetworkspracticeinternalpayments, fromtheoutside-in,tocompensateforinternalservices.

  34. Buildingblocksofthenetworkedorganization,IV: “Marketpull“-theforcethatactually“manages“organizations •  Marketpulliswhatconnectsthemarketwiththeorganizations,andthustheouter partofthesphereofactivitywiththeinnerpart.Wheneveranexternalstakeholder ofanorganization“wants“or“demands“,“orders“ordoessomethingrelevantto theorganization,itoriginatesmarketpull. •  Marketpullcanbeappliedbycustomerswantingsomething,butalsoby shareholdersdemandingacompensationfortheirinvestments,orabank demandingpaybackofaloan,orthestatedemandingthepaymentoftaxes,ora competitorlaunchinganewproduct.Marketpullthushasvariedsources. •  Intherealworld,thereisnosuchthingas“marketpressure“. Thismightatfirstsightappearasacounter-intuitiveclaim.Butifyouconsider organizationsasoperatingwithintheirown,self-definedSphereofActivity,then marketssimplycannotapply“pressure“.Whatmarketsreallydoisthattheyapply “pull“.Theydothisallthetime.Andpullisapowerfulforce.Allmarketactorspull. Theystimulatebypulling.Theywantthings.Theygoverntheorganization.

  35. Theimportanceof“marketpull“ Marketpullcomeswithaninterestingcollateral.Becauseoncemarketpullisacceptedasagoverning andenergizingforce,consciouslyandbyallmembersofanorganization,itiscapableofturning managementasaninternalfunctionunnecessary. Infact,managementhasbeenoutsourcedtomarketslongago.Thishappenedwhencompetitionand dynamicchangetookoverwithintheenvironmentsofourorganizations.Inconsequence,anyeffortto “manage“anorganizationfromthetopdowntodaymeansmakingapainstaking,butultimately fruitlesseffortto“steerfromwithin“,ortointernallyduplicate“whatactuallymanagesus“. Inotherwords:managementthesedaysusuallymeanstryingtodosomethinginternallythatthemarket alreadydoesforyouinamuchbetterway,becauseitdoessoinamorerelevantandtimelyfashion.

  36. Someguidelinestocreatingaworkingcellstructure: Whatcharacterizesatrulynetworkedorganization •  Itgainsstabilityandresiliencenotthroughpowerrelationships, orthrough“resistancetopressure”,butthroughthe“pull”thatcomesfromthemarket outside. (Soundssimple?Itis!) •  Itistransparent,throughopeninformationsystems. •  Itshowsitsinternalinteractionsinasimplemanner, basedon“market”and“pull”relationships. •  Itcreatesasharedunderstanding ofthe“inside”and“outside”relationshipsoftheorganization. •  Itdoesn’tcareabouthierarchy (whichisregardedas“trivial”, butaboutvaluecreationstreams,basedonnetworkingpatterns. •  Ithastheinterconnectionsneeded-notmore,notless •  Itappliesthefullsetof12BetaCodexprinciples.

  37. Furtherrecommendationsforyou •  Turnthispaperintoastarting-pointforyourorganization. Ifthispaperismeaningfultoyou–justshareitwithyourpeers.Thisisasensibleandalways adequatewayofinspiringotherstojoinadialogue. •  Givefeedback. Giveusfeedbackaboutthispaper-weareexcitedtohearfromourreaders. Feelfreetousethismaterialinyourwork.Ifyoufindituseful,wewillalsobehappytohear aboutthat. •  Readthe2ndpartofthiswhitepaper.Itcoverstworeal-worldcaseexamplesthatillustrate howtheBetaCodexcellstructuredesignconcepthasbeenappliedintwoindustrial organizationsfromtwodifferentcontinents.ThatpaperalsoshowshowtoembedCell StructureDesignintotheprocessoftransforminganorganizationfromAlpha (“commandand control”) toBeta,andhowtoavoidcommonimplementationtrapswehavediscoveredinour workwithclients. •  Getmoreinformation. Tolearnmoreaboutthe“Beta”wayofleadership,andabouthowtoapproachorganizational transformation,pleasevisittheBetaCodexNetworkwebsite,orgetintouchwithanyassociate youlike.Wewillgladlyassistyouinlearningmoreaboutit.

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

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

  40. 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.

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