The Golden Rule of Reorganization

Most of us who have worked in big organizations have experiences numerous reorganizations and managerial trends. They all have an intention to fix something that doesn’t work well, and they all have unwelcome side effects. Wouldn’t it be great if there was some golden rule of reorganization? Something like a handlebar that guarantee we don’t end too far out in the swamp. In this blog post I try to offer that.

Managerial trends – a historical exposé 

Throughout enterprise history, there has been a number of managerial trends. One of the first was the Taylorism which addressed the preindustrial problem of low productivity. Frederick Taylor (1856–1915), a foreman at Midvale Steel Company, was astonished by the low productivity in the factory. Using scientific method, such as time studies and flow orientation, he was able to increase the output of the steel mill. Basically, what Taylor did was to put Adam Smith’s (1723-1790) “division of labor by process” into the context of a big industry. The Taylorism was a significant contribution to the jump in productivity that mark out the industrialization. The most famous example of this might be Henry Ford’s (1863-1947) creation of the assembly line, that led to the first afFordable car, when the T-ford was introduced 1908. The development along the lines of Taylor and Smith continued throughout the first three quarters of the 20th century with fantastic productivity and GDP growth as an outcome. Somewhere here, the first significant unwanted side effects of a managerial system started to be visible. It is said about Henry Ford that he once uttered “Why is it, that when I ask for a pair of hands, they come with a brain attached”. The downside of the assembly line was that the workers were treated as disposable machines. Their job was monotone and wore down their bodies, but more troublesome for the unsentimental factory leaders was that the motivation of the workers plummeted, leading to poor quality. Although, automobiles came out of the assembly lines at an unseen pace, to a price suiting the average Joe, the quality was crap. 

The managerial trend aimed to tackle the industrial system-failure to deliver quality was TQM – Total Quality Management. Shortly, it is a system installed to make a permanent climate where employees continuously improve their ability to provide on demand products and services that customers will find of particular value. TQM address the fact that the engagement and motivation of the employees is crucial for the outcome, and that too much focus on productivity risk hamper the quality. In order to standardize the quality work and to be able to certify, ISO 9000 (first published 1987) came along. ISO 9000 was a guiding framework for systematic quality work, but also became a “legitimate whip” on the back of TIER-suppliers from OEM’s to hold suppliers accountable. If you as a supplier in the 90ies didn’t had a framed ISO 9000 certificate hanging in the lobby, you were not to count on. Again, the control and initiative of the managerial trend floated towards centralization and hierarchy. Moreover, ISO 9000 built a standardized framework for quality, adding new paragraphs and pages to the ever-growing ISO-document. It was too much focus on standardized methods and to little on science and analysis. 

The countermeasuring managerial trend to fix the stifling structures of ISO 9000 came to be Six Sigma. It was introduced in the 1980ies at Motorola, but when Jack Welsh (1935-2020) made it a part of General Electric’s standard agenda in 1995, it become the overarching trend of the time. Six Sigma is a continuous effort to achieve stable and predictable process results that are of vital importance to business success by reducing process variation. The parallel to Robust Design (also named The Taguchi Method) is obvious. Six Sigma builds much on statistical methods and compensated ISO 9000’s more bureaucratic and mechanistic view on industrial processes. But it also has a clear hierarchical element in the certification of the facilitators (trainers) in Green belts, Black belts and Master Black belts. By the clear rank order system of belts, Six Sigma was the managerial trend fastest highjacked by consultants, all of whom were Black belt Certified, offering companies expensive training programs. 

So far, all of the managerial systems had been rather instrumental in their nature. They described some best practice, documented in standards and certificates, in the purpose for others to follow. Just follow protocol and all problems will be solved was the name of the game. Next managerial trend took a little other approach. Lean Manufacturing was developed from the 1930ies at Toyota as a reaction to their visit to the Taylorian factories in the US. Instead of focusing on well documented methods, Lean focused on five principles: 1) precisely specify value by specific product, 2) identify the value stream for each product, 3) make value flow without interruptions, 4) let customer pull value from the producer, and 5) pursue perfection. It was popularized by Womack, Jones and Roos (1990) in the book The Machine that Changed the World and further detailed in the book Lean Thinking (1996). The problem though with Lean lays in the second and third principle. Those lead to extensive process descriptions in which the waste was supposed to be eliminated. Nothing bad in that. However, the general idea of a process is to create predictability i.e. follow the process (best practice) and you will get there result you expect. Perfect for complicated and predictable problems like manufacturing flows. But what if the problem you try to address is truly unpredictable i.e. the problem (or habitat we entering) is complex (ref to Cynefin, se my blog https://www.dhirubhai.net/pulse/can-you-cope-uncertainty-only-handle-risk-magnus-mackaldener/?trackingId=dlf4d5OoSUSWxfgwYUIpJQ%3D%3D). When is accepting unpredictability a better approach than defining a flow (process) to predict the outcome? This was the weakness of Lean. And to rub salt on the wound, innovation is a truly complex unpredictable problem.

So here we are: the Taylorism lacked the motivation of the employees leading to poor quality, TQM missed the scientific approach, ISO 9000 became a bureaucratic giant, Six Sigma got highjacked by consultants and Lean lacked the ability to address complex problems.

The managerial flavor of the day

The managerial trend sweeping over the world right now spells Agile. The principles of Agile were created in 2001 by a group of software developers who were fed up with documentation heavy, rigorous spec books and requirement govern development projects. Instead, they wanted to learn with the customer by adapting to the unforeseen and continuously deploy customer value. Proof of concept was “working code” not finished documentation. The manifesto states the following:

• Individuals and interactions over processes and tools 
• Working software over comprehensive documentation 
• Customer collaboration over contract negotiation 
• Responding to change over following a plan

Along the same lines of reasoning is the philosophy of Design Thinking (developed by IDEO and Stanford described in Tom Kelley’s book The art of Innovation) and The Lean Startup (book by Eric Ries).

Nowadays, the philosophy of Agile has left the software domain and all big businesses are trying to adapt to the thinking. How can we understand the appetite for Agile? One reason is that the incumbents of every industry now are looking to the tech giants of Silicon Valley, with both fear and envy. What the hyped FANG-companies all have in common is that they are software heavy, hence often have adapted the principles of Agile. The logic at the incumbents goes: They have growth, they got big, they do Agile, let’s also go Agile. Another argument is that with AI, 5G and IoT many industries truly are facing a transformation; hence they realize the need to reinvent. Innovation is a complex task that require the motivation of the employees and Agile seems to promote that.

The managerial trends in perspective

Agile will most certainly not be the last managerial trend coming our way. What managerial trends have in common is that they all try to fix something, and they all create collateral damage. One way to understand the historical path of managerial trends is to plot them out in a diagram with two axles, one describing focal point for initiative, power and control (organizational upwards and centralized or downwards and autonomous) and the other dimension reflecting analytical versus heuristic approach. Then it is possible to spot what the new managerial system attempted to correct.

The golden rule of reorganization

I have learned that for every organizational or process change you should ask yourself one crucial question, which I call the Golden Rule of reorganization. 

Does the change push initiative and decision power upwards or downwards in the organization? If they move power upwards in the structure, you always pay with the motivation of the employees. At the same time, when you move authority upwards you emphasize control and coordination.

What is most crucial for your industry right now? Is it need for control and coordination, possibly with internal efficiency and economy of scale as a result (see my blog post https://www.dhirubhai.net/pulse/economy-scale-over-rated-magnus-mackaldener/), or is it initiative and innovation that is the most urgent need, then motivation and autonomy is the secret sauce. 

Closing

In my business, the automotive business of heavy transportation, we stand in front of a change of a magnitude not seen the last 50 years. The future has never been more unpredictable (complex with the terminology of Cynefin). What we need is innovation, a probing mindset and some humbleness that what seems to be an obvious strategy today might turn out to be wrong tomorrow. In that environment we need more motivation and contribution from the grass roots of our organizations. Under such circumstances,

the entrepreneurial initiative of the many is better than the coordinated centralized plan of the few. Hence, appropriate changes of processes and organization should push power downwards, not upwards. 

The principles of Agile might not be that bad after all.