Is Your Organization Too Flat?

6a00d8341c909d53ef0120a919772c970b-320wiMy friends and colleagues Jeff Stamps and Jessica Lipnack have made an art and science of studying complex organizations. Their particular focus is on how communication within and across networks of relationships either enhances or degrades a company’s ability to succeed. I recently looked at some draft work they have in progress, based on earlier work they have done. I think it is timely to share it with you (with their permission).

Jeff and Jessica raise provocative and timely questions for those of us implementing the Lean philosophy in complex hospital settings, or even for those who just are trying to manage in these kind of institutions.

In this long season of forced reorganization how are you facing complexity? Are you reducing or increasing your ability to make good decisions?

For the past thirty years or so, the prevailing wisdom about organizations is this: the flatter, the better. An inch-high and a mile wide. Smash the hierarchy. Nowhere was this more evident than in the corporate press release of the then-new CEO of BP. In October, 2007, Tony Hayward said his company was determined “to improve performance by simplifying how the company is structured and run.” While emphasizing that they have the right strategy and resources, he described BP’s problem this way: “…we are not consistent and our organization has grown too complex.”

Got your attention?

To remedy the situation, BP planed to adopt more standardized procedures and reduce the number of management layers from 11 to seven.”D What major benefit did Hayward expect to gain from redesigning the organization? “… [T]he revenue boost expected from greatly improved operational efficiency over the longer term.”

No one would argue that simplification is indeed more efficient, but here’s the rub: It’s not necessarily more effective.

Back in January, 2008, Jeff and Jessica privately predicted that Hayward’s BP reorganization would be suicidal. Now they say:

In light of the deep water explosion and gusher into the gulf that erupted on April 20, 2010, BP’s management structure is of vital, urgent interest as part of understanding what happened. Ominously, executives from BP promised Senators they would “fix” the management problems. If they do more of the same “reorganization,” they will compound an already disastrous situation.

Dogmatic global mandates, like one that says an organization must have no more than seven levels or that all managers should have ten reports (which a global financial management firm facing layoffs just executed), ignore other realities of business life. The number of levels your organization needs, or the optimal reporting span of your leaders, our research shows, is likely a function of what those units are actually doing.

Extensive study of one organization’s structure shows that some parts of organizations are shallow, others deep—depending on what they’re doing. Groups whose primary need is to communicate call for shallow structures that allow them to quickly spread messages; units engaged in complex decision-making require deeper structures that accommodate more specialization. The best structure fits the work at hand.

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5 replies »

  1. Jeff and Jessica state that the “complexity of decision-making” is the primary determinant of the proper “depth” of management structures. But what about the acuity of tasks that these groups are asked to handle? Certainly this is also important, as hierarchical management structures lend themselves to swift, albeit more unilateral decision-making.
    As a medical student within your academic affiliate, Mr. Levy, I see interesting parallels between this and medical team hierarchies. While the formalities of seniority of residents exist in all fields within medicine, they manifest themselves differently in each field. Internal medicine and psychiatry, for example, are effectively much more “flat” due to the need for communicating complex medical information on a less urgent basis. By contrast, hierarchical systems still predominate in surgery, where urgent situations are faced more often by physicians. And yet, both could benefit from some degree of managerial restructuring, as efficiency of care is sometimes compromised in the former fields, while cross-team communication is sacrificed in the latter. Both stand to benefit with a happier medium.
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  2. Any organizational structure will fail if perverse goals and incentives come from the top. Clearly BP would have failed to prevent this environmental disaster with 11, 7 or 2 layers of management.

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