Designing Effective Hierarchies

1. Designing Effective Hierarchies Paul Olk December 6, 2008 National Yunlin University of Science and Technology, Taiwan NYUST -- Olk

2. Key Managerial Challenges for Small Business Growth • Control – • Is there trust between managers and employees? • Does resource allocation system imply trust? • Is it easier for an employee to ask for permission than for forgiveness? • Responsibility • In growth, the distinction between authority and responsibility becomes more apparent • Effective delegation -- Key component of success • Tolerance of Failure – identify reasons (e.g., lack of commitment, lack of skill, external factors) • Change – retaining an innovative and opportunistic culture requires variations in planning, operations and implementation • Flexibility – helps companies establish the needed external ties to access and accumulate new resources From Kuratoko & Hornsby, New Venture Management, 2009 NYUST -- Olk

3. Transition from Entrepreneur to Manager • Probably the most difficult but important transition to achieve (Hofer & Charan, 1984) • Problems especially challenging when the company is characterized by: • A highly centralized decision-making system • An overdependence on one or two key individuals • An inadequate repertoire of managerial skills and training • A paternalistic atmosphere NYUST -- Olk

4. Warning Signs for Companies • Slow response time • Rigidity in regard to change • Underground activity • Internal frustration • Customer alienation NYUST -- Olk

5. When we reduce hierarchy, what changes about each of our four managerial levers • Information? • Authority? • Competence? • Rewards? NYUST -- Olk

6. If not command and control, how to control? Four Control Types From Robert Simons (HBR, March-April 1995 – Control in the Age of Empowerment) • Diagnostic Control Systems • Allow managers to ensure that important goals are being achieved efficiently and effectively – • Monitoring goals and profitability – MBOs, budgets, goals and objectives • Often become dysfunctional when folks are left to their own devices to achieve them – managing the denominator • Advantage is to eliminate the need for constant monitoring • Build and support clear targets NYUST -- Olk

7. Belief systems • Empower individuals and encourage them to search for new opportunities • They are concise, value-laden and inspirational • These should reflect deeply rooted values not fashionable • Are required because of decentralization and job switching • Help figure out how a person can contribute NYUST -- Olk

8. Boundary systems • Establish the rules of the game and identify actions and pitfalls that employees must avoid • Tell them what they cannot do, helps them be more creative • A yin to the belief systems yang — dynamic tension between commitment and punishment • Sets ethical behavior and codes of conduct • States where the company will not proceed in business • Organized to do right NYUST -- Olk

9. Interactive control systems • Enable top-level managers to focus on strategic uncertainties; • learn about threats and opportunities as things change, and respond proactively NYUST -- Olk

10. Example – W.L. Gore www.wlgore.com • Maker of Goretex and thousands of other products – fabric, medical, electronic & industrial -- in a wide range of industries • Approximately 8,000 associates in 45 locations around the world • Including Australia, China, Hong Kong, India, Japan, Korea, Malaysia, Singapore, Taiwan, New Zealand • Annual revenues top US$1.8 billion • 11thyear in a row in Fortune’s ‘100 Best Companies to Work For’ in U.S. and also in several other European lists NYUST -- Olk

11. W.L.Gore’s Design Principles • Flat lattice organization. • No chains of command nor pre-determined channels of communication. • Everyone has the same title – Associate • Team-based environment that fosters personal initiative, encourages innovation, and promotes person-to-person communication among all of our associates. • Associates commit to projects that match their skills, rely upon sponsors for guidance NYUST -- Olk

12. W.L. Gore Design Principles (cont.) • Four basic guiding principles articulated by Bill Gore: • Fairness to each other and everyone with whom we come in contact • Freedom to encourage, help, and allow other associates to grow in knowledge, skill, and scope of responsibility • The ability to make one's own commitments and keep them • Consultation with other associates before undertaking actions that could impact the reputation of the company NYUST -- Olk

13. Example: Semcosemco.locaweb.com.br/ingles/and various Youtube videos • Founded in 1953 and has its headquarters in Sao Paulo, Brazil • Redesigned by Ricardo Semler in the early 1980’s, at the age of 22 • Initially focused on shipbuilding, Semco now produces over 2,000 products including dishwashers, digital scanners; banking and environmental services; managing non-core business of multinationals (Wal-Mart, Carrefour). • Annual sales of $160 million, up from $4 million when Semler took charge, often growing at 30-40 percent a year. • Employs more than 3,000 people with an annual employee turnover of just one percent. • Workers set their own salaries, share company profits and hire and fire their own managers. No job titles and no personal assistants NYUST -- Olk

14. Example: Oticon • Danish manufacturer of hearing aids • 150 persons in Headquarters • Under Lars Kolind, in early 1990s, created a ‘spaghetti organization’ • Defined by projects not functions • No formal offices but mobile workstations and cellphones • Individual responsibilities vary by project • Minimal management responsibilities • Much faster in developing innovations than competitors NYUST -- Olk

15. Example: Google • Primarily organized around small teams, especially for product development • Team leadership rotates depending upon project requirements • Most engineers work on more than one team • Want individuals to be motivated to commit to a project – follow their passion • Select hiring: “Keep the bozos out and reward people who make a difference” NYUST -- Olk

16. Google (cont.) • Communication • Learn fast, fail fast • Don’t get much resources for a project until successful but don’t need much approval to launch it • Get a lot of peer review feedback • A company-wide rule that allows developers to devote 20% of their time to any project they choose NYUST -- Olk

17. Haier and the Flexible Hierarchy • Top executives set top-down priorities for the organization, middle managers and employees have great latitude in negotiating their specific objectives and autonomy in executing against them. • Encourages the SAPE Cycle -- sense, anticipate, prioritize and execute. • Ideal for unpredictable markets, which emphasize speed and adaptability. NYUST -- Olk

18. Concrete steps to take: • Priority-based Contracts • Transparency in Monitoring Performance • High-powered Incentives • Limit the Downside Risk of Decentralization • Train a Cadre of General Managers • Keep the Pressure On NYUST -- Olk

19. Transition from Entrepreneur to Manager (Hofer & Charan, 1984) • Entrepreneur must want to make the change in his or her own behavior • Must involve greater participation in day-to-day decision-making • Institutionalize 2 or 3 key operating tasks, including selecting new people to supplement or replace the ‘indispensible’ individuals who currently performed these tasks • Middle-management must be developed • The organizational structure and management systems and procedures must be modified NYUST -- Olk

20. Review from the Readings: General Concepts • Align healthy hierarchy concepts with business strategy • Develop sustained and visible management commitment through action • Take a cumulative approach • Develop a shared mind-set NYUST -- Olk

21. Goals for the four levers • Information: From closely held or integrated at the top to widely shared • Competence: Distributed across all levels • Authority: From decisions made at the top to decisions made all along the line • Rewards: From rewards based on position to incentives and rewards based on accomplishments NYUST -- Olk

22. Information Share information more effectively • Align channel and message • Share good and bad news • Use both cognitive and emotive news • Make messages both complex and simple • Use information to encourage change NYUST -- Olk

23. Competence Increase competence across vertical boundaries • Conduct a competence audit • Improve staffing • Train and develop • Establish career banding • Establish a 360-degree feedback process NYUST -- Olk

24. Competence Audit(Fill out in subgroups and then discuss and integrate as a whole) Competence Gap NYUST -- Olk

25. Career Banding • Develop limited number of career categories within which managers and employees have a wide range of flexible salaries • Challenges of • Defining new job categories – On what basis? How many? • Resistance to changes in employment contracts NYUST -- Olk

26. 360 Degree Feedback • 360 feedback provides information on style – see yourself as others see you • May reveal unknown weaknesses and promote change • Gets manager used to seeking feedback • Opens up line of communication and may lead to enhanced participation and trust • Best used when not part of evaluation • Identify areas for personal growth NYUST -- Olk

27. Authority Locate appropriate decision points • Challenge current decision-making assumptions • Use town meetings to shift authority • Shift manager’s role from controller to coach • Remove layers if necessary NYUST -- Olk

28. Selected Efforts for Challenging Current Decision Making Assumptions • Treat every new assignment as a start-over • Send people shopping for ideas • Put idea gathering on your own agenda • Set up little experiments (10% failure; 3M’s Stretch Goals) • Make it safe for others to experiment • Eliminate ‘firehosing’ (of ideas) • Honor your risk takers • Debrief every failure as well as every success NYUST -- Olk

29. Town Meetings – Phase I: Preparatory Work Identify critical business issue that a cross-hierarchical discussion about can make a difference • Develop a measurable stretch goal • Divide the issue into several sub-themes • Develop thought-starter questions for each subtheme • Identify, invite and assign people throughout the organization who can contribute to each subtheme to a subgroup NYUST -- Olk

30. Town Meetings – Phase II: Conducting the Workshop • Introduce the workshop • The problem • The role of each subgroup • The process for the next few days • Team Session 1: Brainstorming • Each subgroup produces a set of ideas to present • Gallery of ideas • Each subgroup presents to rest of group • Participants vote on ideas NYUST -- Olk

31. Payoff Matrix to Ideas NYUST -- Olk

32. Town Meetings – Phase 2 (cont.) • Team Session 2: Action- Recommendation Session • Subgroup develops top action recommendations and work plans • Town Meeting • Each subgroup presents its action recommendations • A decision is made on the spot NYUST -- Olk

33. Town Meetings – Phase III: Follow-up • Communication of decisions and next steps – subgroup assignments and expected results • Implementation of decisions and work plans • Tracking and monitoring progress – set key dates • Progress reviews and additional work-planning sessions • Closure work session – lessons learned NYUST -- Olk

34. Rewards Use rewards to motivate behavior • Base rewards on performance and skill • Share rewards up and down the organization • Use non-financial rewards as well as financial rewards NYUST -- Olk

35. Selected Efforts for Non-financial Rewards • Make recognition public • Design the reward and recognition system participatively • Provide feedback en route • Schedule celebrations • Be a cheerleader in your own way • Have fun NYUST -- Olk

36. Change Levers Summary Points • The position on each of these four dimension must complement and reinforce the others • Loose vertical boundaries like a jazz band NYUST -- Olk