How to Design a Problem Resistant Business

In this newsletter, I reveal common business practices that harm organizations, employees, and customers.

Status quo organizational design, operation, and management practices are NOT the best approaches to attract, engage & retain employees or customers, nor do they create breakthrough results and reliable cash flow.?

Here I provide evidence of the harm created by accepted business practices and what to do instead.

Common Business Practice 2: Functionally Based Hierarchical Structure

“We cannot solve our problems with the same thinking we used to create them.”? - Albert Einstein

We are all creatures of habit. Even the most spontaneous among us stick to routines and habits in life whether they serve us well or not. It can be challenging to try different approaches to how we work. When an entire organization is accustomed to doing things a certain way, even if it is not the best way, it is difficult to stop that momentum. Instead of generating problems in the business by following the status quo, why not use that momentum and simply steer towards an easier path?

If we want different results, we must try different approaches. The way we are naturally inclined to organize ourselves has made us always create the same basic organizational structure over and over again, and this common structure is NOT the best conduit to deliver products and services to your customers.

The design of an organization determines how well it will perform.

A common structure that organizations take on is one of a top-down control, functional based hierarchy primarily focused on managing people and controlling performance within segregated departments.

In reviewing definitions of hierarchy, it becomes clear how entrenched we are in living in them. It is ironic how our egotistical nature creates hierarchy which only results in stifling our ability to perform well as an organization.?

hi·er·ar·chy (?hī(?)?r?rkē)

noun

1. a system or organization in which people or groups are ranked one above the other according to status or authority.

"In the corporate hierarchy, Curt is about six levels below the CEO "

2. an arrangement or classification of things according to relative importance or inclusiveness.

synonyms: order, ranking, chain of command, grading, ladder.

?Examples of hierarchy used in sentences

? “One of the first things you can learn by working at a large corporation is that everyone follows a strict hierarchy/chain-of-command.”

? “At most organizations, the CEO or President is at the top of the corporate hierarchy and maintenance staff is at the bottom.”

? “In this global society, there is a well-defined and alarming hierarchy that exists, separating the high born from the lower born.”

Functionally based hierarchical design impedes an organization from reaching its maximum potential. Allow me to illustrate with a simple example of forming an organization.

In this example, we will use a software product idea and we will assume we have a powerful value proposition for this product.

The innovator will form a business to bring the software product to market and typically will take on the role of Chief Executive Officer (CEO) of the company. There may be co-founders involved, but we will stick with a simple scenario.

The CEO will begin to attract various experts to assist in delivering the new product and for supporting the business.?

The new business begins to form into the example structure depicted here:

In the beginning, this model can work. The organization is small enough that gaps in communication are rare, as there are formal lines of communication across all functions and involving all actors. There is little complexity with only a solitary product to concentrate on. There is an elevated level of collaboration as the team begins to assimilate into a traditional working model.

Assume we are successful at creating a demand for our product and the company is growing. We have added another product to our list of offerings. We now have a small supply chain to manage, have expanded in-house development, testing and technical service.

As the business grows, our functional experts will become the heads of their departments as they begin to recruit others to help with all the tasks and responsibilities needed to support business demands in that specialty area. Our organization begins to look like this:

Notice how this organization has grown organically as needs arise in the business. This business structure seems logical – this is a structure we are all used to.

Alas, collaboration is weakening with growth; it is only on occasion that one area asks another area what they are working on and about how to work with the rest of the organization. The good news is that Sales is selling like crazy and making big promises to customers.?

Uninformed of the big promises Sales is making, Operations cannot hire fast enough to meet sales volumes to deliver to Customers. We are beginning to experience chaos in the organization as people try to mitigate issues, creating a higher volume of demands on Customer Service to deal with inquiries and complaints. Profit margins are falling, so the emphasis is for Sales to sell even more product, however they can, to increase revenues.?

We now require additional personnel to help with demand, track performance, and uncover issues in Operations to help meet targets. Each department has target goals and is working to meet those measures. In turn, each leader begins to act on what they believe based on their experience is best for their department - the overall ability for the business to deliver is not the priority.?

Contemplate the picture below. Superimposed on the organizational chart is a simplified view of a sole product delivery flow and the informal lines of communication in play across the business.

As the business grows, this structure is creating increased complexity for the delivery of products and services. The lines of communication and the product or service delivery flow resembles spaghetti on a plate.?Notice how Customers are not depicted as part of the organization (and added here to prove that they should be).

Is this an efficient and effective way to run an organization??

You may argue for a flatter organization – and the organization will still be functionally focused. Note: The lines shown are only a sole product delivery flow, and I have not included in-direct product or service workflows occurring in the organization, such as budgeting, hiring, and implementing technology.

The ineffectiveness of this structure negatively affects customers and employees while hindering the ability for leadership to properly direct the organization. The above illustration portrays the sense of the dichotomy of work life experience between upper management and people working in the lower levels of the organization. There is far less complexity at the top; notice in the above illustration how the “spaghetti” does not touch upper management. That “spaghetti” is the livelihood of the business – if we cannot make our product well and on time, we lose customers.

I want to emphasize that the same reality – the “spaghetti” - exists in service and transactional organizations and is often vastly more intertwined. This is because service or transactional activities are intangible, making “products of work” more difficult and less obvious, and therefore the complexity of the workflow is not clear.

Not a highly effective way to run an organization, is it??

Yet, this is a paradigm most have chosen not to question even though this type of business design increases operational expenses by a minimum of 10% while degrading products and services, directly affecting revenue streams.

Hierarchical structures are so prevalent in society that we design software programs and systems for this construct.

Software companies have developed enterprise resource planning, communication, customer relationship management and workflow tools to better manage work across hierarchical boundaries. These systems help lessen some damaging effects, but do not fundamentally solve the true cause of communication and delivery flow problems – the functional based hierarchy itself.?

The design of your organization drives behavior – design it carefully.

Coming up next: If your enterprise exists to supply value to your customers, and to create a collaborative culture, then why not instead design it to do just that?

Welcome to The Future of Working Together

#thefutureofworkingtogether #problemresistantbusiness #attracttoptalent #scalability #simplifyyourlife

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If every organization on the planet was aimed at a meaningful purpose and delivered on that purpose effectively and efficiently, we would save VAST resources and every human being on the planet would have sufficient food, clothing, water, and shelter.

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What CEOs Need to Know: The #1 Reason Startups Fail and All Organizations Underperform is available as an e-book or paperback at dawnhollyjohnson.com.

*The definitions of Hierarchy in this article are from Oxford Languages?& https://www.businessdictionary.com/definition/hierarchy.html