Why hierarchical managements are transforming into customer-involved and team-empowered organizational structures?
The world is facing a new industrial revolution driven by technology – which is transforming the way we connect each other. This trend has inevitably affected organizations who constantly work to survive and stay relevant in the market. For some organizations such as Google, Apple and Samsung, the new era has facilitated the creation of competitive advantages for their brands. Moreover, it has allowed them to reach more customers, innovate, and deliver products that meet the individual's needs. As Alan Murray explains, ‘intelligent networks of interactive data are creating an economic dynamic increasingly characterized by low or zero marginal costs, massive returns to scale and platform economics '. Conversely, this result may not come so organically for all organizations. Bureaucracy is the default operating system for every large organization in the economy. As such, some organizations have been built under entrenched management principles such as hierarchies and profit maximization. However, as explained above, an unstoppable revolution is beginning to deem these practices as inefficient and outdated. The challenge no longer is to solely have high revenues in a financial statement, but to adapt and re-invent themselves through successful initiatives that plan down every layer of hierarchy. That facilitate employees to fully grasp their role as key members who are willing to communicate vision and strategy. That are capable of delivering value on a large scale and respond innovatively to a constant changing environment. Thus, this paper will be focused on the impact of technology on organizational and cultural structures. How organizations are expected to embrace modern management structures that allow both managers and employees to become more empowered, motivated, and innovative. And also stresses the outcome for other shareholders such as customers and end users.
How are organizations coping with continuous change?
Bureaucratic ‘teams' are characterized by being a group of employees who have individual responsibilities and little interaction. This behavior was prominently evidenced in most twentieth-century organizations, where staff was limited to reporting to managers who supervised them. The rationale for this unfolded from the belief that teams were unable to deliver coordinated, disciplined, and efficient performance at scale. Even when they were considered as ‘competent' in solving simple transactions, the top-management's plan was a better route to achieve the organization's goals and handle big, complex problems. Nevertheless, this approach has been heavily criticized by several academics such as Mary Parker Follet, Elton Mayo, Abraham Maslow and Douglas McGregor. They agreed that working in teams (not groups of individuals) was a more effective strategy to organize work. The latter position has become more and more common in the late twenty-first century. There is an increasing number of organizations who have employed and discovered modern practices of work that integrate teams, in order to improve their performance. Reality is that, the current trend in organizations is toward less hierarchy and more teamwork .
Case one: Spotify
Some organizations that have embraced new, transparent, and flexible management practices, with self-organizing teams are continuously providing new value for their employees and consequently, to other shareholders. As Peter Drucker explained, ‘what we need is an entrepreneurial society in which innovation and entrepreneurship are normal, steady and continuous' . For example, take a company as Spotify, the fast-growing Swedish digital music service who has fully welcome the idea of self-organizing teams in order to deliver steady value for customers and the company itself. From a managerial perspective, the company considers their teams as both listeners and users of Spotify that are constantly learning about musical trends. As such, they are efficient channels to understand the market and be innovative. Teams responsible for uploading creative playlists, designing new features and recommendations, discovering new algorithms that enhance personalized searches, or creating digital content that is appealing for its users – for example, providing trivia and interesting facts while a user is listening to his favorite artist. This evidences how the organization has created an organizational structure based on autonomous cross-functional teams that are heavily encouraged to innovate, experiment, and propose new ways of creating value for customers.
Spotify has adopted a decentralized culture, where teams do not have to ask for approval for top management nor are required to prepare extensive cost-benefit proposals in order to try their ideas. Instead, the company has cemented a strong learning approach that strongly believes their staff is the most important user and must be given a chance to conduct tests and learn from them. Unlike functional or geographic structures – which are characterized by its mechanistic and hierarchical nature, Spotify has built a flat structure that has resulted in high-levels of staff satisfaction that is achieved by unifying the company's main goal: Provide the best digital music streaming service. Furthermore, from an economic perspective, this approach has not only evolved the listening experience (which replaced old practices such as cassettes and CDs) but won a competitive advantage over its direct competitors Pandora and Apple Music while fueling the company's growth for the past ten years.
Case 2: Barclays
Kirkman and Shapiro argued that self-managed teams produces a number of substantial benefits such as greater levels of productivity, higher quality, greater customer satisfaction, lower levels of cost, greater job satisfaction, and commitment to the organization. However, how would this approach work for companies that are older than Spotify? For instance, for Barclays, a financial company founded in 1690 that was built under traditional values and practices in a sector that is highly regulated and volatile. Recent events such as Brexit will inevitably impact the bank's activities and customers as well as past events, such as the collapse of Lehman Brothers – which led to the latest recession and worst financial crisis of the ten last years. Additionally, Barclays, like most global banks, encounter obstacles such as inherited management practices as well as old data structures that arguably represented a bigger challenge to implement important changes. In light of the above, it would appear unfeasible the idea of ‘reinventing' Barclay's management from hierarchical and bureaucratic to organic and decentralized. Nevertheless, the company is fully aware of the inevitable technological revolution and why is it important to invest time and money in training staff and upgraded and restructuring processes and activities. Plus, the company also understands that both employees and customers expect the same ‘frictionless responsiveness' they would expect from companies like Spotify. This can be seen in the behavior of Barclays competitors such as other financial giants and even small financial startups who have already started to innovate rapidly or companies like Google, Amazon, and Apple – which provide financial services as well.
As a result, Barclays announced a proposal in 2014 to transform its management and begin to experiment and learn from its technology team as a ‘key strategic initiative'. It invested and implemented a massive program consisting of training and coaching that focused on empowering teams and bestowing them with power and authority in order to create more value. The company realized that instead of isolating departments, it would be more efficient to learn, combine, and cover every aspect of the business as a whole. For example, Barclay's loan team suggested to design an online loan application as a solution to reduce time between requests and responses from the banks. These changes naturally impacted the customer's experience but it also cemented a new way of working inside the company. Barclays has decided to fully utilize its resources and engage its staff in the process – which has generated a positive synergy through coordinated efforts and learning experiences. This transition has ultimately resulted in cost savings and improved productivity for the company.
One can assume that Barclays has made a good start and that its new practices have successfully provided satisfactory results. Nevertheless, it is safe to say that modern management processes do not necessarily mean that a company needs to become entirely flat or nonhierarchical for employees to add value though. For some organizations, it can mean that its hierarchy changes from hierarchy of authority to hierarchy of competence, where the top management remains the main provider of direction for the organization. Notwithstanding, that managers understand and interact with the world with a different mindset. This is the case of Apple.
Case 3: Apple
Founded in 1976, Apple's initial organizational structure can be described as purely hierarchical. Its success is often attributed to Steve Jobs, who as a CEO, provided a clear direction for the company. In order to ensure his innovative ideas for the business, he promoted creative marketing, dazzling designs, precise attention to detail, and visionary thinking. In 2011, he was replaced by Tim Cook. Unlike Jobs, Cook is a supporter of decentralization practices that encourage innovation at middle and lower management levels. These changes are arguably a response to the technological revolution and the high competition that the latter it represents. In organizing the work this way, Cook expected to meet as many human needs as possible. To be more specific, Cook implemented a divisional structural design based on ‘product-based grouping' for each product within the Apple's portfolio. Inspired by the need of empowering employees, Cook promoted the creation of a technological platform, where the company invites hundreds of thousands of independent teams of developers to innovate and develop their own ‘apps' for Apple's customers. These teams strategically launch their apps with the option of customers' interaction and customization – which serves to understand the market and be able to configure better devices.
Apple has indeed adopted some modern, unconventional management methods that encourage innovation. However, its top management still has tight control over all aspects of the overall business. Divisional structures are characterized by being a mix or mechanical and organic practices. These structures are suited to fast change in unstable environments, they lead to customer satisfaction, involve high coordination across functions, and decentralize some of the organization's decision-making process. Nevertheless, communication across different product lines tends to be less effective. Thus, there is less flexibility to adapt to rapid changes in the industry. That being said, it can be argued that Apple could still improve and introduce more managerial changes in the medium-term that increase the efficiency of its practices. To be more specific, introducing small cross-functional autonomous teams that adjust rapidly in the light of changeable information. Transforming division structures to matrix or horizontal structures. Or finding an optimal management balance that bestows some authority to its employees – considering that, if Apple did not have a massive number of small teams that contributed their ability and talent to build softwares, hardwares, and apps, the CEO's ideas would be extremely limited.
The ‘Agile Management' Movement
Spotify, Barclays, and Apple are undeniably different companies. All three belong to different industries, have different organizational models and have different transformation processes within their businesses. However, they have one thing in common: they are adaptive entities working towards sustainability. As such, they are embracing a global phenomenon called ‘agile management' . This type of management explains that organizations coping with continuous, complex, and ambiguous change must introduce self-organized teams in order to generate value for the organization as well as the customer. The ‘agile' movement began in 2001 in software development industries. Nowadays, it has expanded to almost every international company. As previously mentioned, this does not necessarily mean that companies must adopt a completely flat, decentralized structure. But a structure that welcomes innovative and interactive practices that change the way work is being done. It is about working smarter, not harder. Generating more value with less work. As per E.F. Schumacher, the fundamental task is to achieve smallness within large organizations .
1. The Law of the Small Team
According to the Law of the Small Team , instead of building a big, intricate organization to solve difficult problems, the organization should break down the problem into ‘tiny pieces' so it can be unraveled in a more efficient way. The first characteristic for this practice is having short working cycles. For example, companies such as Microsoft and Ericsson have implemented three-weeks cycles.
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