5 Steps To A Progressive Organizational Structure
“The bottom of the pyramid is...the biggest opportunity for innovation in business models.” When C.K. Prahalad wrote ‘Fortune at the Bottom of the Pyramid’ in 2004, his focus was on commercial opportunities serving large populations in emerging countries.
After visiting 100+ progressive companies around the world, we argue this concept is also valid in most organizations. Frontline employees at the ‘bottom of the pyramid’ have been neglected, leaving enormous untapped potential in traditional organizations.
The familiar hierarchical pyramid
The pyramid is a familiar structure, with senior leaders at the top, a thick layer of middle managers, and front-line employees at the bottom. It reflects the command-and-control mentality that defined armies, monarchies and organizations for centuries.
And it has worked. Command-and-control structures dominated their competitors via a rigid hierarchy. For decades there did not appear to be a viable alternative.
The rebel idea
But progressive firms (like W.L. Gore and Handelsbanken) have known for decades the pyramid is out-dated. It doesn’t suit today’s fast-moving environment, nor does it suit today’s employees. Its rigidity cannot support agility, speed or engagement.
Which is why progressive organizations are adopting alternatives. Rigid pyramids are turning into agile structures – often based on autonomous teams.
These flexible approaches can lift adaptability of the organization, and stimulate entrepreneurship and responsibility amongst employees. The rigid organization belongs in the graveyard!
5 Steps To A Progressive Organizational Structure
Rebel idea in practice
But how do you create such progressive structures? What do you need to think about? How do you change the way you organize?
Fortunately, pioneers have illuminated the path for us. This is our starting point. In this review, we shall start simply and work up to the more radical options.
1. Inverted pyramid
The first step towards a more progressive structure is to simply invert the pyramid, because it is front-line employees who add the most value.
In this inverted structure, front-line employees perform the same tasks, but they sense that the rest of the organization is focused on supporting them.
Managers still make most decisions, but they do so out of the need to serve and support the front-line—not the other way around.
2. Autonomous teams in the pyramid
The next step is to introduce autonomous teams in some parts of the organization. This often starts in IT, because of the current spread of ‘Agile’ approaches.
The most famous example might be the ‘Spotify model’. There, developers work in autonomous teams, giving them more flexibility and agility. These employees account for about a third of the organization. They have far-reaching responsibilities, and determine their own way of working. The other two-thirds largely work in support functions based on a traditional hierarchy.
3. Flat organization with autonomous teams
But it is not only developers that function better in autonomous teams. The next logical step is to smash the whole pyramid, and split into many autonomous teams.
For some, this is a bridge too far. So they start with an interim solution – an extremely flat organization with as few management layers as possible.
Swedish Handelsbanken, for example, has just three layers. The first, and most important, is the autonomous local offices in direct contact with customers. The second is a regional office. The third is global headquarters in Stockholm.
It is important to note in this model that local offices enjoy far-reaching autonomy. Staff at the regional and head offices do everything to serve the local offices—not the other way around.
4. Networks of teams
Organizations that dare to smash the pyramid once and for all often organize into networks of autonomous teams. These networks may be ‘served’ by a small, but very efficient, headquarters.
Dutch healthcare organization Buurtzorg is a great example. They have over 1,000 autonomous teams, ‘served’ by a headquarters of ~50 people. That is, there is only one layer above the teams.
Teams are grouped by region, product, service or customer. They determine their own way of working, and are fully responsible for results. They are multidisciplinary, and rarely exceed 15 employees.
Efficient IT systems allow all employees to communicate with each other. Many organizations also provide a group of coaches who help teams whenever they need it. Buurtzorg has around 20. Note that coaches should not have decision-making authority—otherwise you reinstate the old hierarchy.
Organizations that want to be more entrepreneurial foster healthy competition between teams by letting them share in the (financial) success or failure of their team, and the organization as a whole.
5. Ecosystem of 'small companies'
True radicals go one step further. They create a network of autonomous teams and offer team-members ownership in their team. Teams then become ‘small companies’.
But these teams no longer work in a closed system. They are part of an online platform that other stakeholders can access. This is what Chinese company Haier pioneered. Their 70,000+ employees work in 4,000+ micro-enterprises, and all are connected via online platforms.
These teams no longer experience only internal competition, but also pressure from external providers. If internal HR does not create enough value for you, you can bring in an external party. This dynamic ensures that only teams that really add value survive in the long run.
Note that the role of senior managers changes drastically. They still determine strategy, but their primary concern is investing in the ‘small companies’ they believe in and who need start-up investment.
Remember what Prahalad said: There’s a fortune at the bottom of the pyramid.
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In 2012, Haier gave 12,000 managers a choice: "you can leave, or join our new structure." Some left, many stayed and joined one of 4,000 small independent companies within Haier—the so-called 'microenterprises' (MEs). Many academics, management gurus and other companies were amazed with how the ME structure stimulated entrepreneurship. So why the hell would Haier fiddle with it's structure, again?
Yash Pakka is a compostable tableware manufacturer in Faizabad, Uttar Pradesh. Their products are made from sugarcane waste and are 100% compostable, and the factory is even powered by its own power grid that uses rice husk as fuel. But they’re innovative not just in terms of what they make, but how they organise.