Designing Effective Hierarchies

December 2008December 2008 NYUST -- Olk NYUST -- Olk

Designing Effective Designing Effective HierarchiesHierarchies

Paul OlkPaul Olk

December 6, 2008December 6, 2008National Yunlin University of National Yunlin University of

Science and Technology, TaiwanScience and Technology, Taiwan11

Key Managerial Challenges for Key Managerial Challenges for Small Business GrowthSmall Business Growth

Control – Control – Is there trust between managers and employees?Is there trust between managers and employees? Does resource allocation system imply trust?Does resource allocation system imply trust? Is it easier for an employee to ask for permission than for forgiveness?Is it easier for an employee to ask for permission than for forgiveness?

Responsibility Responsibility In growth, the distinction between authority and responsibility becomes more apparentIn growth, the distinction between authority and responsibility becomes more apparent Effective delegation -- Key component of successEffective delegation -- Key component of success

Tolerance of Failure – identify reasons (e.g., lack of commitment,Tolerance of Failure – identify reasons (e.g., lack of commitment, lack of skill, external factors)lack of skill, external factors)

Change – retaining an innovative and opportunistic culture requires Change – retaining an innovative and opportunistic culture requires variations in planning, operations and implementationvariations in planning, operations and implementation

Flexibility – helps companies establish the needed external ties to Flexibility – helps companies establish the needed external ties to access and accumulate new resourcesaccess and accumulate new resources

December 2008December 2008 NYUST -- Olk NYUST -- Olk 22

From Kuratoko & Hornsby, New Venture Management, 2009

Transition from Entrepreneur to Transition from Entrepreneur to ManagerManager

Probably the most difficult but important Probably the most difficult but important transition to achieve (Hofer & Charan, 1984)transition to achieve (Hofer & Charan, 1984)

Problems especially challenging when the Problems especially challenging when the company is characterized by:company is characterized by: A highly centralized decision-making systemA highly centralized decision-making system An overdependence on one or two key individualsAn overdependence on one or two key individuals An inadequate repertoire of managerial skills and An inadequate repertoire of managerial skills and

trainingtraining A paternalistic atmosphereA paternalistic atmosphere



Warning Signs for CompaniesWarning Signs for Companies

Slow response timeSlow response time

Rigidity in regard to changeRigidity in regard to change

Underground activityUnderground activity

Internal frustrationInternal frustration

Customer alienationCustomer alienation44


When we reduce hierarchy, what When we reduce hierarchy, what changes about each of our four changes about each of our four

managerial leversmanagerial levers

• Information?Information?

• Authority?Authority?

• Competence?Competence?

• Rewards?Rewards?

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If not command and control, If not command and control, how to control?how to control?

Four Control Types Four Control Types From Robert Simons (HBR, March-April 1995 – Control in the Age of EmpowermentFrom Robert Simons (HBR, March-April 1995 – Control in the Age of Empowerment) )

• Diagnostic Control SystemsDiagnostic Control Systems

Allow managers to ensure that important goals are Allow managers to ensure that important goals are being achieved efficiently and effectively –being achieved efficiently and effectively –

Monitoring goals and profitability – MBOs, budgets, Monitoring goals and profitability – MBOs, budgets, goals and objectivesgoals and objectives

Often become dysfunctional when folks are left to Often become dysfunctional when folks are left to their own devices to achieve them – managing the their own devices to achieve them – managing the denominatordenominator

Advantage is to eliminate the need for constant Advantage is to eliminate the need for constant monitoringmonitoring

Build and support clear targetsBuild and support clear targets

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• Belief systemsBelief systems

Empower individuals and encourage them to search for Empower individuals and encourage them to search for new opportunitiesnew opportunities

They are concise, value-laden and inspirationalThey are concise, value-laden and inspirational These should reflect deeply rooted values not These should reflect deeply rooted values not

fashionablefashionable Are required because of decentralization and job Are required because of decentralization and job

switchingswitching Help figure out how a person can contributeHelp figure out how a person can contribute

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• Boundary systemsBoundary systems

Establish the rules of the game and identify actions and Establish the rules of the game and identify actions and pitfalls that employees must avoidpitfalls that employees must avoid

Tell them what they cannot do, helps them be more Tell them what they cannot do, helps them be more creativecreative

A yin to the belief systems yang — dynamic tension A yin to the belief systems yang — dynamic tension between commitment and punishmentbetween commitment and punishment

Sets ethical behavior and codes of conductSets ethical behavior and codes of conduct States where the company will not proceed in businessStates where the company will not proceed in business Organized to do rightOrganized to do right

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• Interactive control systemsInteractive control systems

Enable top-level managers to focus on strategic Enable top-level managers to focus on strategic uncertainties; uncertainties;

learn about threats and opportunities as things change, learn about threats and opportunities as things change, and respond proactivelyand respond proactively

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Example – W.L. Gore Example – W.L. Gore www.wlgore.com

Maker of Goretex and thousands of other products – Maker of Goretex and thousands of other products – fabric, medical, electronic & industrial -- in a wide fabric, medical, electronic & industrial -- in a wide range of industriesrange of industries

Approximately 8,000 associates in 45 locations around Approximately 8,000 associates in 45 locations around

the worldthe world Including Australia, China, Hong Kong, India, Japan, Korea, Including Australia, China, Hong Kong, India, Japan, Korea,

Malaysia, Singapore, Taiwan, New ZealandMalaysia, Singapore, Taiwan, New Zealand Annual revenues top US$1.8 billion Annual revenues top US$1.8 billion 1111thth year in a row in Fortune’s ‘100 Best Companies to year in a row in Fortune’s ‘100 Best Companies to

Work For’ in U.S. and also in several other European Work For’ in U.S. and also in several other European lists lists

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W.L.Gore’s Design PrinciplesW.L.Gore’s Design Principles Flat lattice organization. Flat lattice organization.

No chains of command nor pre-determined channels of No chains of command nor pre-determined channels of communication. communication.

Everyone has the same title – AssociateEveryone has the same title – Associate

Team-based environment that fosters personal Team-based environment that fosters personal initiative, encourages innovation, and promotes initiative, encourages innovation, and promotes person-to-person communication among all of our person-to-person communication among all of our associates. associates.

Associates commit to projects that match their skills, Associates commit to projects that match their skills, rely upon sponsors for guidancerely upon sponsors for guidance

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W.L. Gore Design Principles (cont.)W.L. Gore Design Principles (cont.)

Four basic guiding principles articulated by Bill Four basic guiding principles articulated by Bill Gore:Gore: Fairness to each other and everyone with whom we Fairness to each other and everyone with whom we

come in contactcome in contact Freedom to encourage, help, and allow other Freedom to encourage, help, and allow other

associates to grow in knowledge, skill, and scope of associates to grow in knowledge, skill, and scope of responsibilityresponsibility

The ability to make one's own commitments and keep The ability to make one's own commitments and keep themthem

Consultation with other associates before undertaking Consultation with other associates before undertaking actions that could impact the reputation of the actions that could impact the reputation of the companycompany

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Example: SemcoExample: Semcosemco.locaweb.com.br/ingles/semco.locaweb.com.br/ingles/

and various Youtube videosand 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

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Example: OticonExample: Oticon

Danish manufacturer of hearing aidsDanish manufacturer of hearing aids 150 persons in Headquarters150 persons in Headquarters Under Lars Kolind, in early 1990s, created a Under Lars Kolind, in early 1990s, created a

‘spaghetti organization’‘spaghetti organization’ Defined by projects not functionsDefined by projects not functions No formal offices but mobile workstations and cellphonesNo formal offices but mobile workstations and cellphones Individual responsibilities vary by projectIndividual responsibilities vary by project Minimal management responsibilitiesMinimal management responsibilities

Much faster in developing innovations than Much faster in developing innovations than competitorscompetitors


Example: GoogleExample: Google

Primarily organized around small teams, Primarily organized around small teams, especially for product developmentespecially for product development Team leadership rotates depending upon project Team leadership rotates depending upon project

requirementsrequirements Most engineers work on more than one teamMost engineers work on more than one team

Want individuals to be motivated to commit to a Want individuals to be motivated to commit to a project – follow their passionproject – follow their passion

Select hiring: “Keep the bozos out and reward Select hiring: “Keep the bozos out and reward people who make a difference”people who make a difference”


Google (cont.)Google (cont.)

CommunicationCommunication Learn fast, fail fastLearn fast, fail fast Don’t get much resources for a project until Don’t get much resources for a project until

successful but don’t need much approval to launch itsuccessful but don’t need much approval to launch it Get a lot of peer review feedback Get a lot of peer review feedback

A company-wide rule that allows developers to A company-wide rule that allows developers to devote 20% of their time to any project they devote 20% of their time to any project they choosechoose


Haier and the Flexible HierarchyHaier and the Flexible Hierarchy

Top executives set top-down priorities for the Top executives set top-down priorities for the organization, middle managers and organization, middle managers and employees have great latitude in negotiating employees have great latitude in negotiating their specific objectives and autonomy in their specific objectives and autonomy in executing against them.executing against them.

Encourages the SAPE Cycle -- sense, Encourages the SAPE Cycle -- sense, anticipate, prioritize and execute. anticipate, prioritize and execute.

Ideal for unpredictable markets, which Ideal for unpredictable markets, which emphasize speed and adaptability.emphasize speed and adaptability.


Concrete steps to take:Concrete steps to take:

Priority-based ContractsPriority-based Contracts Transparency in Monitoring PerformanceTransparency in Monitoring Performance High-powered IncentivesHigh-powered Incentives Limit the Downside Risk of Limit the Downside Risk of

DecentralizationDecentralization Train a Cadre of General ManagersTrain a Cadre of General Managers Keep the Pressure OnKeep the Pressure On


Transition from Entrepreneur to Transition from Entrepreneur to Manager Manager (Hofer & Charan, 1984)(Hofer & Charan, 1984)

Entrepreneur must want to make the change in his Entrepreneur must want to make the change in his or her own behavioror her own behavior

Must involve greater participation in day-to-day Must involve greater participation in day-to-day decision-makingdecision-making

Institutionalize 2 or 3 key operating tasks, Institutionalize 2 or 3 key operating tasks, including selecting new people to supplement or including selecting new people to supplement or replace the ‘indispensible’ individuals who replace the ‘indispensible’ individuals who currently performed these taskscurrently performed these tasks

Middle-management must be developedMiddle-management must be developed The organizational structure and management The organizational structure and management

systems and procedures must be modifiedsystems and procedures must be modified



Review from the Readings: Review from the Readings: General ConceptsGeneral Concepts

Align healthy hierarchy concepts with Align healthy hierarchy concepts with business strategybusiness strategy

Develop sustained and visible Develop sustained and visible management commitment through actionmanagement commitment through action

Take a cumulative approachTake a cumulative approach Develop a shared mind-setDevelop a shared mind-set

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Goals for the four leversGoals for the four levers

Information:Information: From closely held or From closely held or integrated at the top to widely sharedintegrated at the top to widely shared

Competence:Competence: Distributed across all levels Distributed across all levels Authority:Authority: From decisions made at the From decisions made at the

top to decisions made all along the linetop to decisions made all along the line Rewards:Rewards: From rewards based on From rewards based on

position to incentives and rewards based position to incentives and rewards based on accomplishmentson accomplishments

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InformationInformation

Share information more effectivelyShare information more effectively

Align channel and messageAlign channel and message Share good and bad newsShare good and bad news Use both cognitive and emotive newsUse both cognitive and emotive news Make messages both complex and simpleMake messages both complex and simple Use information to encourage changeUse information to encourage change

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CompetenceCompetence

Increase competence across vertical Increase competence across vertical boundariesboundaries

Conduct a competence auditConduct a competence audit Improve staffingImprove staffing Train and developTrain and develop Establish career bandingEstablish career banding Establish a 360-degree feedback processEstablish a 360-degree feedback process

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Competence AuditCompetence Audit((Fill out in subgroups and then discuss and integrate as a whole)Fill out in subgroups and then discuss and integrate as a whole)

Type of Type of CompetenceCompetence

Skills We Skills We Have NowHave Now

Changes Changes Facing our Facing our BusinessBusiness

Skills We Skills We Will Need in Will Need in the Futurethe Future

TechnicalTechnical

CulturalCultural

Competence Gap

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Career BandingCareer Banding

Develop limited number of career Develop limited number of career categories within which managers and categories within which managers and employees have a wide range of flexible employees have a wide range of flexible salariessalaries

Challenges of Challenges of Defining new job categories – On what basis? Defining new job categories – On what basis?

How many? How many? Resistance to changes in employment Resistance to changes in employment

contracts contracts

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360 Degree Feedback360 Degree Feedback

360 feedback provides information on 360 feedback provides information on style – see yourself as others see youstyle – see yourself as others see you

May reveal unknown weaknesses and May reveal unknown weaknesses and promote changepromote change

Gets manager used to seeking feedbackGets manager used to seeking feedback Opens up line of communication and may Opens up line of communication and may

lead to enhanced participation and trustlead to enhanced participation and trust Best used when not part of evaluationBest used when not part of evaluation Identify areas for personal growthIdentify areas for personal growth

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AuthorityAuthority

Locate appropriate decision pointsLocate appropriate decision points

Challenge current decision-making Challenge current decision-making assumptionsassumptions

Use town meetings to shift authorityUse town meetings to shift authority Shift manager’s role from controller to Shift manager’s role from controller to

coachcoach Remove layers if necessaryRemove layers if necessary

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Selected Efforts for Challenging Current Selected Efforts for Challenging Current Decision Making AssumptionsDecision Making Assumptions

Treat every new assignment as a start-overTreat every new assignment as a start-over Send people shopping for ideasSend people shopping for ideas Put idea gathering on your own agendaPut idea gathering on your own agenda Set up little experiments (10% failure; 3M’s Set up little experiments (10% failure; 3M’s

Stretch Goals)Stretch Goals) Make it safe for others to experimentMake it safe for others to experiment Eliminate ‘firehosing’ (of ideas)Eliminate ‘firehosing’ (of ideas) Honor your risk takersHonor your risk takers Debrief every failure as well as every successDebrief every failure as well as every success

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Town Meetings – Phase I: Town Meetings – Phase I: Preparatory WorkPreparatory Work

Identify critical business issue that a cross-Identify critical business issue that a cross-hierarchical discussion about can make a hierarchical discussion about can make a differencedifference

Develop a measurable stretch goalDevelop a measurable stretch goal Divide the issue into several sub-themesDivide the issue into several sub-themes Develop thought-starter questions for each Develop thought-starter questions for each

subthemesubtheme Identify, invite and assign people throughout Identify, invite and assign people throughout

the organization who can contribute to each the organization who can contribute to each subtheme to a subgroupsubtheme to a subgroup

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Town Meetings – Phase II: Town Meetings – Phase II: Conducting the WorkshopConducting the Workshop

1.1. Introduce the workshopIntroduce the workshop The problemThe problem The role of each subgroupThe role of each subgroup The process for the next few daysThe process for the next few days

2.2. Team Session 1: Brainstorming Team Session 1: Brainstorming Each subgroup produces a set of ideas to presentEach subgroup produces a set of ideas to present

3.3. Gallery of ideasGallery of ideas Each subgroup presents to rest of groupEach subgroup presents to rest of group Participants vote on ideasParticipants vote on ideas

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Payoff Matrix to IdeasPayoff Matrix to Ideas

Easy to Easy to ImplementImplement

Difficult to Difficult to ImplementImplement

Small Small

PayoffPayoff

Quick Hits!Quick Hits! Time WasterTime Waster

Big Big

PayoffsPayoffs

Bonus Bonus OpportunityOpportunity

Special EffortSpecial Effort

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Town Meetings – Phase 2 (cont.)Town Meetings – Phase 2 (cont.)

4.4. Team Session 2: Action- Team Session 2: Action- Recommendation SessionRecommendation Session

Subgroup develops top action Subgroup develops top action recommendations and work plansrecommendations and work plans

5.5. Town MeetingTown Meeting Each subgroup presents its action Each subgroup presents its action

recommendationsrecommendations A decision is made on the spotA decision is made on the spot

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Town Meetings – Phase III: Town Meetings – Phase III: Follow-upFollow-up

Communication of decisions and next steps – Communication of decisions and next steps – subgroup assignments and expected resultssubgroup assignments and expected results

Implementation of decisions and work plansImplementation of decisions and work plans Tracking and monitoring progress – set key Tracking and monitoring progress – set key

datesdates Progress reviews and additional work-planning Progress reviews and additional work-planning

sessionssessions Closure work session – lessons learnedClosure work session – lessons learned

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RewardsRewards

Use rewards to motivate behaviorUse rewards to motivate behavior

Base rewards on performance and skillBase rewards on performance and skill Share rewards up and down the Share rewards up and down the

organizationorganization Use non-financial rewards as well as Use non-financial rewards as well as

financial rewardsfinancial rewards

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Selected Efforts for Non-financial RewardsSelected Efforts for Non-financial Rewards

Make recognition publicMake recognition public Design the reward and recognition system Design the reward and recognition system

participativelyparticipatively Provide feedback en routeProvide feedback en route Schedule celebrationsSchedule celebrations Be a cheerleader in your own wayBe a cheerleader in your own way Have funHave fun

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Change Levers Summary Change Levers Summary PointsPoints

The position on each of these four The position on each of these four dimension must complement and reinforce dimension must complement and reinforce the othersthe others

Loose vertical boundaries like a jazz bandLoose vertical boundaries like a jazz band

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Designing Effective Hierarchies

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