Gary Hamil's provocative views were on full display at the Commonwealth Club on April 7 in San Francisco. The noted business strategist and management iconoclast, postulated that hierarchical organizations are an outdated model in the age of the network.
Hierarchy and Ambition Deficit Disorder
In Hamil's description hierachies enable organizations to accomplish large scale things, building pyramids, manufacturing assembly lines but it also creates what he calls 'ambition deficit disorder' by structurally and pre-emptively empowering the few at the expense of the rest. The hierarchical model is a 'busted flush', a liability for innovation and market nimbleness and process improvements are 'fiddling at the margins' In a world that needs audacious ambition on all fronts, modern organizational modes of structure and behavior don't cut it in his view.
Modern management derived from a mashup of hierarchy and industrial engineering valuing precision, stability, efficiency and reliability. Benchmarking, he says a question for followers, not innovators (or to quote P.B. Pedawar 'dull and piffling problems yield dull and piffling answers'). How does one, for instance, benchmark a land rover for a Mars explorer?
Management hierarchies he sees as inherently a tax on the organization - if there's a 1 to 10 ratio for span of control, the structure becomes one with managers who manage managers rather than front line employees, and those employees often have little autonomy. As he notes initiative and autonomy are correlated: shrink a persons authority diminish initiative. Hierachy's other disadvantage is to increase risk in decision-making. As you move up the ladder its harder and harder to challenge executive decision-making, fewer people are available to challenge inadequate decision-making.
In a world requiring rapid adaption, organizations often require a 'near-death experience' to adapt to new circumstance - deep change, he indicates is almost always 'belated, convulsive and too infrequent. At their core, organizations aren't very innovative, and it's often the newcomers who have new ideas, but incumbents have the resources. Resources are a poor substitute for innovation, as recent study by McKinsey noted, only 24% of CEOs are satisfied with level of innovation in their company.
Lack of Engagement = Lack of Innovation
Innovation requires inspiration, and Hamil notes that organizations are often not inspiring places to work. A Towers Watson global survey of employee engagement asked employees if they felt their ideas matter, and if they felt connected to a sense of purpose. Only about 14% are highly engaged, 24% are disengaged and 62% moderately engaged. The survey also asked employees what percent of senior management communicates reasons for businesss decisions? only 40% communicate openly and honestly, and 35% are sincerely interested in employee well-being.
Hamil bemoaned that year after year companies seem to accept the way we manage our human resources that yields such results. He noted Richard Florida's work, The Rise of the Creative Class-who documented how critical engagement is in a creative economy. For Hamil the negatives of top down structures add costly overhead, creates friction for innovation, communication flows and thoughtful decision-making, reduces diversity of thought, allocates power narrowly, and rewards sychophants. Before the audience could march out of the Commonwealth auditorium in a depressed state, he offered some interesting company examples of very different organizational models.
Beyond Hierarchy - New Model Examples
Hamil described a uniquely structured company located in the Central Valley of California. Morning Star Company is the world's largest processor of tomatoes with $700m/year in revenue. With 500 employees, the company has no hierarchy, no supervisors or managers. The employees and functions by being 'radically synchronized.' Each employee adheres to the company mission - all team members are expected to be 'self managing professionals, initiate communications and coordinate their activities with fellow colleagues, customers, suppliers and fellow industry participants, absent directives from others.'
From the company mission each employee develops a personal mission statement called a 'colleague letter of understanding' which is detailed and has performance targets. But employees also have high levels of discretionary authority to carry out their work. People have responsibilities, but no jobs, and there are no formal promotions. Employees are able to access real time information about their performance and the company's performance. Skills and tools not typically associated with front line workers have been pushed to the employee level. Employees are trained in consultation models of decision making, and business concepts and practices such as how to calculate and understand internal rate of return, net-present-value, and return-on-investment.
W.L. Gore has 3,000 employees organized as a lattice, not a hierarchy. Business cards are issued sans titles. They also use 360 degree compensation model -colleague committees review an individual's performance. Every employee has to rank 20-25 of their peers. It actually provokes interesting behavioral outcomes according to Hamil - people become more entrepreneurial and collaborative. One's peers evaluation is based on added value.
Companies around the world are looking to new models. HCL Technologies in India inverts the leadershop model, employees evaluate leaders and evaluations are posted on the internal intranet. A large 80,000 person company in China has structured the company into smaller 2,000 person units to support a model of self-organizing communities, pushing P&L responsibilities to a lower level.