Structure Before Strategy

Organisations are systems that consist of sub-systems like sales and production. Change impacts the organisational system and subsystems in different ways and speeds – sales may react quickly to the changing external environment, but production may take time to change the process. Unfortunately, people are the hardest to change.

When organisational subsystems change at different speeds caused by external changes, it creates gaps or cracks in the system. This is where the system gets disintegrated.

The higher the rate of change, the faster the organisational system gets disintegrated. When disintegration occurs, it is manifested as organisational problems – for example, production is a problem because it cannot match sales.

Change causes disintegration in the organisational system. Disintegration creates organisational problems. And problems cause stress amongst organisational members.

To keep up with the constant change in their external environment, organisations need to institutionalise a continuously adapting process that proactively identifies and overcomes risks and issues well before they manifest into problems and destructive conflicts.

Management aims to create a continuously integrated organisation that is organic, flexible, and agile; and has interdependent elements that continuously work together complementarily, cooperatively, and synergistically. The outcome is a healthy organisation that has a constructive and collaborative culture.

Organisations that have an unhealthy culture where disintegration occurs will require a significant and continuous culture change from the inside.

Organisational culture change is hard work, especially if you want to achieve lasting, significant change. Organisations are like living organism that wants to maintain homeostasis against a changing environment. It is no accident that the term “culture” derives from “cultivation”.

The four building blocks of change

Organisational cultural change and transformations stand the best chance of success when they focus on the following four key actions to change mindsets and behaviour, as shown in the diagram below: (Basford and Schaninger, 2016)

1. Role modelling – When organisational leaders walk the walk and role model desired mindset and behaviour shifts, it is more likely that employees will follow suit. Leaders can enlist help from influential employees at all levels to champion the change.
2. Fostering understanding and conviction – If organisational members understand the reasoning behind the changes they are asked to make, they are more likely to act in support of these changes. There is a compelling change story across the organisation. Members know why changes need to happen and what they will involve. This ensures that the change story is meaningful and relevant.
3. Developing talent and skills – When organisational members have the skills required to act in a new way, they are more inclined to make the desired changes to mindsets and behaviours. Organisations can develop their talent and help build new skills by assessing current and closing any capability gaps. They can offer a range of targeted development opportunities that equip employees to perform in support of the changes.
4. – Structures, systems, and processes are all formal mechanisms that can support employees’ efforts to adopt new mindsets and behaviours. Organisations can reinforce desired changes by adjusting mechanisms like setting individual and organisational performance goals and motivating people through both financial and non-financial incentives, so they align with the required changes.

Organisations that manage well need to create an internal environment where organisational members have mutual trust and respect for each other – treating and loving others like friends (as opposed to just colleagues) and learning from each other.

Conflicts are natural in healthy organisations. They come from differentiated styles and the disparity of interests amongst organisational members. Mutual respect for each other can overcome the conflict that stems from style differentiation, while mutual trust overcomes the conflict that stems from the disparity of interest.

The key to keeping an organisation healthy that is integrated (as opposed to disintegration) is to manage natural conflicts and organisational performance effectively and efficiently in the short and long term.

Get the sequence right (and get well first)

Many executives and consultants have assumed that today’s problems will go away once a ‘new’ strategy has been developed. They look first at the goals, strategy, mission, vision, values, etc, and plan out for the future through a series of corporate planning exercises.

Notwithstanding that this may be the easiest path, it is a flawed approach especially when the organisation is already in existence and has been structured wrongly. For operating and unhealthy organisations that are facing disintegration, structure causes strategy, not vice versa.

It is easier to hire a consultant to develop a ‘new’ strategy than to go through the pain of organisational structural change. It is the time, the political wars and the repercussions of change that causes the pain.

Get the sequence right. Arrest and over the organisational disintegration.

If your organisation is suffering from performance and disintegration issues despite what you previously considered to be reasonable plans, goals, initiatives, strategies etc, then you have got a range of hard-to-see ‘anchors’ of problems, challenges or conflicts that are already holding you back, or you would be achieving the results you expect by now.

Examples of these ‘anchors’ include dysfunctional organisational structure, ineffective reward systems, poor information flow, inability to take corrective action, authority not aligned with responsibility, lack of engagement, and inefficient operational processes.

Release these anchors of poor performance FIRST so they don’t hold the organisation back from achieving future success, especially with a ‘new’ strategy.

Identify anchors of poor performance and disintegration problems using a cross-functional team from different levels of the organisation. Categorise operational symptoms and root causes. Prioritise based on what is normal, abnormal, and fatal, considering where your organisation is in its lifecycle or maturity. Finally, resolve what you have prioritised using defined treatment plans.

Overcoming a dysfunctional organisational structure

A well-managed, healthy, and integrated organisation is effective and efficient in the short and the long term where decisions are made and implemented well.

Organisations need a functional structure – horizontally and vertically – that clarifies roles, responsibilities, and accountabilities for all their organisational members in terms of decision-making and implementation.

The four basic roles for decision-making

The fundamental role of management for any team, department, company, family, or even country, can be defined by four complementary basic roles. If an organisation can develop these four complementary roles, then it will be effective and efficient over the short as well as the long term.

Adizes (2004) postulates that at every maturity stage of an organisation, consideration has to be taken for its production, administration, entrepreneurship, and integration (PAEI). They are usually attained through four different management styles – producer, administrator, entrepreneur, and integrator, as shown in the diagram below:

1. Producing (P) involves the attainment of a product or a service. This is someone who is effective in the short term, giving a customer what they want now – a person who is task-orientated, dedicated, and hard-working.
2. Administration (A) involves the control of operations and minimising the waste of time in activities and processes. This is someone who is efficient in the short term – a person who is organised, efficient, thorough, and conservative.
3. Entrepreneurship (E) involves seeking new market niches, new opportunities, and new products. This is someone who is effective in the long term – a person who is a creative risk-taker with a global view.
4. Integration (I) involves the coordination of shared attention and the identification with others. This is someone who is efficient in the long term – a person who is sensitive and people-orientated.

At particular instances in the life cycle of an organisation, some PAEI management styles are more prevalent than others.

Quality of decisions using all four PAEI styles

No single person – including a leader or manager – can be great at all four roles, at the same time. It takes a complementary team of these PAEI management styles to be truly effective and efficient in the short and the long term. The management style of a person can also be understood using these four roles.

Complementary team members must collaborate to deliver the required outcome through collaborative decision-making. This could be brought about within a flatter organisational structure that segregates these four complementary roles.

Whenever we have the four PAEI complementary team members, there will be conflict. This conflict stems from the different decision-making or management styles. And we need a system to resolve these healthy and natural conflicts.

Because different styles are necessary for different ways of thinking about problems and solutions, conflict is necessary for good decision-making. Conflict is constructive when it produces the desired change through learning – it could also be destructive if people do not learn from one another.

Learning occurs when there is mutual respect. It is about accepting the legitimacy of the other party being different or thinking differently.

To decide well, organisations need to create a learning environment where organisational members can respectfully know how to disagree without being disagreeable.

Evaluate the quality of decisions by asking two questions:

1. Was there a complementary team that could perform all four PAEI roles?
2. Was there mutual respect between the parties?

Having a brilliant organisational strategy doesn’t mean a thing if the organisation can’t execute it. That is why designing a flatter organisation and placing people with different complementary styles in the right roles for clear and greater accountability will be the biggest decisions you will make and getting it right will dramatically improve your odds of succeeding.

In addition to the design and implementation of a flatter organisational structure, intentionally attract potential organisational members and select and reward people based on their ability to complement and corporate with each other both from effectiveness/efficiency and short/long term perspectives.

Efficiency and effectiveness of strategy implementation

Deciding with the four PAEI imperatives is a necessary condition before implementation can occur. You need authority, power, and influence to implement a decision well. Decision without implementation is useless.

Adizes call this coalesced authority, power, and influence, or CAPI for short.

• Authority is the legal right to make decisions – or a formal or legal right inherent in a person’s job or job description.
• Power is the capability to punish and/or reward.
• Influence is the capability to cause self-directed behaviour through convincing the directed party without using authority or power.

From an organisational perspective, authority usually lies with management. But power usually lies with the subordinates who can either cooperate or not cooperate with management in carrying out the decision that has been made by management, who has the authority. Professionals or technocrats can influence the outcome with their know-how for making the best decisions in technical terms. Reliance on other influencers in the organisation should be considered.

If an individual does not possess the three essential components of authority, power and influence that will enable them to implement a decision effectively, then it must be coalesced. To coalesce people with authority, power, and influence, we must coalesce the different self-interests within a given structure. The fact that managers have different interest than their subordinates create a natural conflict of interest that needs to be managed positively.

One can predict how effective the implementation of a decision will be by how much CAPI any individual or team has over the implementation of a made decision.

Decisions are not implemented or implemented poorly because the decision did not serve the individuals’ interests.

To avoid conflict of interest between people with authority, power, and influence, we need to obtain a win-win climate both in the short and long term. Create mutual trust amongst the people who together comprise the CAPI in a team or the organisation.

If people remain committed to the organisation in the long run, they must sense the organisation’s commitment to them. People must have a vision of the organisation where the short-term win-lose aspects will be eventually compensated by a long-term win-win situation for the parties involved. They must know that there will be a reward later in the future for the sacrifices they make now. This can only occur when we trust the person who has a different interest from ours in the short-term to ‘pay’ us back in the future. Trust goes two ways.

We stopped inviting people to our house for dinner when our actions are never reciprocated. Some people are takers. We shy away from them. People who have no trust in other people will neither give nor take.

To effectively implement a decision, organisations need to create an environment of mutual trust where there is a commonality of common interest between organisational members.

This mutual trust is called love, like the love of a mother for her child. When mutual trust exists, organisational members genuinely care for each other’s interests, or they are not friends as they see themselves merely as acquaintances.

Separate short-term and long-term roles

The four PAEI roles can be used to describe the basic orientation of how departments within organisations are structured to maximise efficiencies and effectiveness in the short-term and long-term.

For example, apart from performance (P), the sales function is closely related to satisfying customers’ short-term needs efficiently, which is a function of administration (A). While the marketing function is orientated toward developing long-term solutions to satisfy customers’ needs tomorrow, which is a function of entrepreneurship (E). Sales and marketing have trouble getting along as their focus is different.

To resolve this natural conflict, one misguided solution is to send someone from sales to marketing. This will not work as that person will maintain their sales orientation in marketing.

The other misguided solution is to unite conflicting departments – combining sales and marketing into one ‘streamlined’ function.

Sales, being a P-orientated short-term and results-orientated function will, unfortunately, always win or prevail over marketing, which is an E-orientated long-range function. When marketing is combined with sales, marketing will end up doing statistical analysis of how well the salesperson performed or preparing sales brochures.

This unfortunate outcome is driven partly by short-sighted compensation schemes that reward people for the short-term output (i.e., profitability), rather than the long-term outcome (i.e., sustainability). Reward systems must incentivise the right behaviours based on their roles.

When sales are rewarded for achieving monthly sales quotas, especially in a combined sales and marketing department, the marketing role of the business will not be effectively implemented. This will lead to a long-term decline because the organisation is not creating, communicating, delivering, and exchanging offerings that have value for their customers, clients, partners, and society at large, which is the role of marketing.

Elsewhere in the organisation, there will be disagreements and conflicts between:

• Production versus R&D and engineering
• Accounting, legal and technology versus everyone
• HR administration versus people development.

Sales, production, accounting, and HR administration are short-term management roles that focus on the now. Whereas, marketing, product development, finance, and HR development are long-term management roles that are focused on developing solutions to satisfy the customers’ needs of tomorrow. People in these short-term and long-term roles must be incentivised differently.

Separate short-term and long-term roles into two different units headed by different people with different but clear accountabilities, deliverables, and reward structures.

Change the internal environment

We cannot directly change people or their attitudes and behaviours, especially when there are already disagreements and conflicts created by dysfunctional organisational structures.

Change behaviours by changing the organisational structure and processes by which organisational members make and implement decisions. Those structures and processes guide positive behaviours and change attitudes that constructively overcome disagreements and conflicts.

Organisations can have the best people and processes, but if their structure is dysfunctional or broken, we have a destructive organisation.

Create an environment or system in which organisational members are empowered to deal with their problems and where problems can be identified, discussed, and solved with mutual trust and respect through cooperation and communication amongst themselves.

Change how meetings are run and who is involved in meetings. Redesigning or flattening organisational structures. Redesigning workflow processes. Changing management practices. Clarifying responsibilities and authority.

People are intelligent and relatively balanced. They will read the writing on the wall when their environment changes or forces them to behave in a certain way. When their environment or system changes, they will naturally change their behaviour, or leave the organisation.

References

Basford, T. and Schaninger, B. (2016) The Four Building Blocks of Change, McKinsey Quarterly, April 2016.

Adizes, I. (2004) Managing Corporate Lifecycles, The Adizes Institute Publishing