Toward Becoming a Great Corporation. Part Three. Lowering the Hierarchy

The hierarchy as an organizational model was perhaps built more than two millennia ago when Ch’in, the “First Exalted Emperor, established a hierarchical bureaucracy to control the newly unified China. The corporate version of the hierarchy arose with the beginning of the industrial revolution. The hierarchy is still the norm today even though it makes becoming a great corporation impossible. It remains the norm because it is the perfect place for emperors and imperial CEOs and their managerial classes to accumulate and wield their power over people inside and outside the hierarchy with little or no accountability.

Let’s return to our hypothetical corporation, its board and CEO. They have now decided to shorten the organizational structure, to make it a “lowerarchy” if you will. They came to this decision after reviewing the corporation’s performance equation (Part Two); acknowledging the hierarchy’s false premises; and a visit to a very flat company.

The Hierarchy’s False Premises

The first is that workers are lazy, dishonest, incapable, intractable, and untrustworthy and thus need to be assigned the simplest work and be closely supervised. The second, known as the span of control premise, presumes there is a limit to how many people one person can control at the next lower layer, thought to be seven or eight. The third is that business operations require both simplification and specialization of work. Routine work is atomized into repetitive tasks. Non routine work is sorted out and put into specialties. The fourth is that each person’s work should be organized into a fixed position rather than by, say, the person’s fluid role in a flow of work. Specific tasks are grouped into duties and duties into positions. The fifth is that management is first and foremost a managerial class of people rather than a process for managing performance. The last premise is that bigger is better.

The Hierarchy’s Layering

The premises seemed to make sense originally and so as the business grew so too did the number of organizational layers consistent with the span of control premise. But the hierarchical structure made achieving great performance impossible in several ways. People causing problems looked to the layers for a hiding place. Layering had created a chain of command and control, and the commanded and controlled people lost their initiative. Layering had required costly caring and feeding of the managerial class and had constipated the business process. Communication had gotten distorted with just too many mouths and ears on top of each other, made worse when each of their heads had its own separate agenda. Layering had thwarted quality improvements in services and products. And people were concentrating more on managing their careers up the ladder and had lost sight of managing the corporation’s performance.

The Hierarchy’s Compartmentalization

The false premises lead to excessive compartmentalization such as thousands of occupied positions. They are tiny compartments that effectively imprison potential by narrowly prescribing roles and responsibilities; provide the excuse, “it’s not my job;” require a complicated and costly classification system; and, because management is considered first and foremost a position, provide slots for far too many managers.

The other compartments are the classical corporate silos or functional departments (e.g., procurement, inventory, engineering, manufacturing, etc.), each with its own layering, its own goals, its rivalries and blame games with the other departments, its impossible coordination with the other departments, and its substandard contribution to overall performance.

How Low to Go?

One of the flatter structures I last looked at was a company very profitably making several hundred products and employing several thousand people. The company had been a traditional, unionized hierarchy until a new president flattened it into concentric circles. The people in them have considerable operating flexibility and broad decision-making authority.

Executives from traditionally organized and run corporations who have visited the company reportedly are impressed by what they see but leave convinced that a comparable organizational structure, streamlined operations, and similar policies wouldn’t work in their own corporations. Let’s assume that our hypothetical board and CEO also visited the company but leave thoroughly convinced that shortening and streamlining their own corporation was in order.

Whether concentric circles or some other design is chosen, it needs to eliminate value-subtracting and value-neutral layers of managers by eliminating their silos. That can be done along with streamlining operations by reengineering the work into start-to-finish core processes that flow smoothly and naturally from one to the next. They are “end-to-end” processes in that they go from one end of the corporation’s “soft” boundary, the one next to suppliers, to the soft boundary at the other end next to retailers and customers (“soft” because suppliers and customers are sometimes consulted about the business). Any process has to have a resourceful start and a productive finish or it is a meaningless thread mill activity. Typically there will be no more than three to four start-to-finish core processes in a company (e.g., supply management core process, production core process, etc.), and in some cases there may be only one.

Since no one individual can or should work through the whole process alone, any process needs to be done by cross-functional teams of responsibly empowered people, preferably in self-managed teams. Each team is responsible for a particular phase in the process. Each team needs to have a team leader, which may be rotated among team members. Additionally, someone needs to ensure the whole process across the teams runs smoothly and meets expectations about its performance. That person is often called a “process owner,” but I prefer the term “process leader” instead. Ownership by just one person is divisive and impossible anyway. Everyone associated with the process anywhere along the way needs to have a sense of ownership and pride over it and its overall performance. Moreover, any vertical compartment turned into a horizontal one must not be a chain of command and control laid down flat!

The Issue of Downsizing

Eliminating the silos will expose superfluously layered positions. What needs to be done about them? The answer is not to ax thousands of people indiscriminately. Such downsizing is rarely effective. It is important to remember that lowering a hierarchy requires eliminating layers of managerial positions, not people. People typically become managers by first having acquired skills as non-managers. Some of those skills can be refreshed and new ones added in placing former managers into new roles (e.g., team leaders, advisors, coaches, etc.). But if push should ever come to shove, downsizing can be done humanely with managers and non managers alike (i.e., in a positive manner through advance notice, counseling, outplacement assistance, and the like).

A Turn Up, Not a Turn Around

Transforming a corporation and putting it on the path to greatness represents what I call a corporate “turn up.” It is very different conceptually from a corporate turnaround. The latter really has no conceptual framework for understanding and guiding an organizational transformation. A turn up in contrast requires a fresh new paradigm for thinking about fundamentals like the full meaning of greatness, the finer differentiations of success and failure, and many other important matters such as the ones being treated in this five-part series of articles. A turn up, moreover, connotes precisely the right direction performance needs to take.

The two are also very different operationally. Turnarounds are expeditious and often unsuccessful efforts to rescue (or sometimes to exploit) distressed companies. A turn up, on the other hand, signifies a radical transformation as depicted in this story of our hypothetical corporation. The most radical and difficult part of the transformation is in the lowering of the hierarchy. From research on and experience with organizational change I have concluded that this part of the transformation will benefit the most from the corporation having a “general roadmap” that involves championing the turn-up initiative; conveying determination to succeed; creating and empowering a steering council of a cross-section of personnel (even managers whose positions won’t be saved); removing obstacles before too late; and arranging for short-term wins.

Given a successful flattening and streamlining of the corporation, the rest of the transformation to be addressed in the last two articles, creating a culture conducive to greatness and a process for responsibly managing performance, not people, should be relatively easy and straightforward to achieve.