Is Organization Structure More Important Than Company Culture?
The structure and culture of a company seem closely intertwined. The intuitive belief is that the two are closely related. But there is little research exploring this mutuality. Maybe that’s why we are often asked: “What has more impact on employee engagement: company culture or organization structure?”
Before trying to answer that question, let me try to define both concepts in more detail.
By ‘company culture’ I mean the mutual assumptions, values, norms and attitudes that guide employees in everyday actions. If there is a strong culture I assume they decide, act and collaborate in similar and predictable ways. This supports efficiency and focus.
By ‘organization structure’ I mean the structural framework that determines how roles and responsibilities are assigned, controlled and coordinated. Structure also determines how information flows. I assume companies that operate with a fitting structure find it helps them to be efficient and focused.
(Both these definitions are debatable. But it's not my aim here to propose perfect definitions.)
Defining both concepts raises other questions. Are structure and culture of equal importance in engagement and performance? Is structure more important than culture, or vise versa?
Trying to answer these questions feels like solving the chicken-and-egg dilemma—which came first? Fortunately, research by Marcus Buckingham and Ashley Goodall (in their book, 'Nine Lies About Work, A Freethinking Leader's Guide to the Real World') offers answers. They say people don't care what company they work for—but they do care which team they're on.
Their research shows that experiences we have at work with our closest team-members ("our immediate colleagues, our lunching-on-the-patio companions, and our huddling-in-the-corner partners") have much more impact on engagement than experiences we have with less close colleagues.
They write: "When people choose not to work somewhere, the somewhere isn't a company, it's a team. If we put you in a good team at a bad company, you'll tend to hang around. But if we put you in a bad team at a good company, you won't be there for long."
It is your experience with this group of people that has most impact on how you do your work. And your local team experience has direct influence on how effectively your team works. Furthermore, these experiences influence how long you choose to stay with this group, and thus how long you will stay with the company.
The 'groups of people', a.k.a. 'teams', aren't easy to escape. A 90 country study conducted by the ADP Research Institute showed all work done is, basically, teamwork. The study showed that in companies (of 150+ employees), over 80% of people work in teams, with over 70% reporting they work in more than one team. This doesn't only happen in the West. It proved to be so in every country included in the study.
There are two obvious conclusions:
- First, the majority of us are in groups that do actual work together. Most of us call those groups teams.
- Second, the experiences we have with teammates have a large and lasting impact on our engagement levels. This is a much larger impact than than experience we have with other colleagues that aren't teammates.
What can we learn from this? On the one hand, organization structure seems to be important as we all tend to work in teams. On the other, overall company culture seems to have less impact on our engagement. Our local team culture has much more.
The importance of teams
Interestingly, and despite the apparent importance of local team experience, most companies focus on improving the rather intangible aspects of the overall company culture when trying to improve employee engagement. But Buckingham & Goodall argue, there is a big problem with the idea of overall company culture: "It doesn't actually help us understand what to do more of, less of, or differently. It won't tell you, or your leader, what to do to make things better."
By focusing on changing overall company culture most companies miss the opportunity to change something much more tangible—the organization structure. If we want to make things better we have to focus and structure our organizations around teams, in what we call a 'network of teams', and on the leaders of those teams.
Ironically, most companies seem to miss the importance of teams. Buckingham & Goodall illustrate this by claiming that "Most companies don't even know how many teams they have at any moment in time". And most don't know which employee is on which team at any moment in time. Even more surprisingly, most companies don't know which are the best performing teams in the organization.
Team culture eats company culture for breakfast
In fact, most companies are virtually incompetent in deriving any facts from teams. And that's a big shame. It's a big loss of potential.
That’s a shame, because we now know local team culture eats overall company culture for breakfast. We know that local team culture matters much more than company culture does; simply because the overall company culture is often way too abstract, and too vague.
Local team culture, however, is real. It’s tangible. It's our day-to-day work. Both in the work we do and in the interactions with our direct colleagues, our teammates, with whom we do most of our work.
Teams help us to see where we should focus on in companies and what to do about them. Because we should be identifying our best performing teams, learning from them and encouraging them to help low performing teams find their way—to leverage the potential and unique contribution of every single teammate.
To answer the question we started with, culture and organization structure are both important. However, if we talk about culture we should not talk about company culture but about local team culture.
Moreover, the structure of the company should be so designed that it enables teams to develop their own culture. Then their respective teammates can thrive and be engaged. Many Bucket List companies (like Buurtzorg, Handelsbanken, Haier and NER Group) understand this only too well. They have organized themselves via a network of teams for years.
So, are you looking to improve your company culture? Don't try to create and control the company-wide culture. Start with designing and implementing a network-of-teams structure that focuses on team cultures at the local level!
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I admire your skepticism Sharon. I will add some of the references here:
Read about Buurtzorg here: https://corporate-rebels.com/buurtzorg/
Read about Haier here: https://corporate-rebels.com/haier/
Read about NER Group here: https://corporate-rebels.com/10-components-k2k/
I also wrote a big article about these companies (for my doctoral studies) here: https://corporate-rebels.com/how-to-organize-a-large-organization-without-middle-management/
This is a puzzle we've been thinking about in our organisation. 4 of us have signed up to this 4 day course in London in March to try and make progress. It's well priced. It looks at the culture elements that make a good self organising structure work, like psychological safety. It's come to us highly recommended by people we trust. It might be of value to some.
Hi Joost, I read many of your blogs and really enjoy them. I like to have my thoughts challenged and one of my clients is interested in the Buurtzorg approach. I also have read about Haier too. Please don't look at sceptism as anything more than a curiosity to know more and to challenge the facts presented.
It's good to have a healthy debate rather than expect everyone to agree with us all the time. That's why I'm enjoying the comments functionality attached to the blog posts.
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