Destroy The Hierarchical Pyramid And Build A Powerful Network of Teams
The organization chart depicted below originates from IBM and was draw in 1917. Exactly a century ago! While in the last century major things have changed in the world, this antique organization chart is identical to most of the organizations we work in today. It symbolizes the outdated command-and-control model that was designed more than a century ago. It was designed for a world that no longer exists; a stable, slow-moving, predictable world.
That's why the move from hierarchical pyramids to a network of teams is one of the most important findings of our research. Out of the eight trends we see, this one is the most disruptive to an organization. But because of that, it might also be the one that has the most impact on the engagement of employees and the success of an organization.
In reality, our organizations are simply not a collection of clearly distinguishable departments and roles as shown in the picture above. Therefore, we should stop designing them like this. No wonder that most of the progressive organizations we've visited moved away from this traditional organizational structure. The new organizational structures they have created can best be called a "Network of Teams".
Luckily, the most progressive organizations around the world shows us there is an alternative. An alternative way of organizing that better fits the world we are living in. Many of the progressive organizations we visit welcome a so-called "Network of Teams".
Destroy the good old familiar hierarchical pyramid
Let's start with throwing out our outdated organization charts and let the changing nature of work impact the structure of roles and teams in a more organic way. For this to happen, we should begin to tear down our familiar organizational structures so we can start rebuilding them along more fluid lines. We need to dissolve the barriers that once made organizations efficient but are now slowing them down.
Then let us design structures that actually work and aim to distribute authority and autonomy to individuals and teams. The Bucket List companies we visited, have established flexible structures that allow individuals to gather as members of multiple teams within multiple contexts. They structure themselves far beyond the disingenuous 'dotted line' nonsense of the traditional organization and welcome a network of teams.
Embrace a network of small autonomous teams
More and more organizations start embracing a new way of organizing. Often, traditional hierarchies are replaced with structures that enable self-organizing teams to organize and collaborate through internal networks.
They have evolved themselves from structures that look like static slow-moving pyramids to something that looks more like a flexible and fast-moving swarm of start-ups. We have witnessed them in all kinds of shapes and sizes, all called slightly different. Spotify talks about squads and tribes. Buurtzorg about self-governing teams. Stanley McCrystal about a team of teams. Finext and Incentro about cells. And FAVI calls them mini-factories.
FAVI's ecosystem of mini-factories
Jean François Zobrist, ex-CEO of FAVI, came up with the idea of a network of mini-factories. A typical mini-factory consists of 20 to 35 operators and solely focuses on one client or one specific product. The mini-factories operate freely within an informal network of factories, without any form of centralized coordination. It's like an ecosystem of autonomous cells that are always able to find ad hoc solutions to problems that arise from their clients or by the evolution of the market.
They are supposed to take up all the responsibilities that a factory would normally take up. Among many things, they decide about salaries, holidays, recruiting, hiring, on-boarding and training. They are in direct contact with the clients and enjoy complete independence in the process. No influence from any kind of management is desired nor allowed.
How a network of teams works
Team of teams, squads, self-governing teams, self-organizing teams, cells, mini-factories; they all work slightly different but the fundamentals of these networks of teams are strikingly similar.
1. Small multidisciplinary teams and divisions
Teams and divisions are built up around maximum sizes. Teams are often not allowed to exceed more than 15 people, where their ideal size seems to be between 10 and 15 for most organizations. Once teams reach their maximum size they split into two different teams which operate independently from one another.
There must a diverse skill set available within each team to perform all the tasks necessary, which makes the teams highly multidisciplinary. Tasks and responsibilities are evenly divided and based on talents and interests, not on job description or position.
Divisions can often not exceed more than 150 people, based on Dunbar's number. This is a suggested cognitive limit to the number of people with whom one can maintain stable social relationships—relationships in which an individual knows who each person is and how each person relates to every other person. Robin Dunbar, a British anthropologist, explained it informally as "the number of people you would not feel embarrassed about joining uninvited for a drink if you happened to bump into them in a bar".
2. Connected teams within a decentralized structure
Teams are granted lots of operational autonomy within a decentralized structure. The highly autonomous teams, set up like mini businesses, have complete self-control over most aspects of their business and often even over their own profit and loss. They make their own decisions about things as hiring, on-boarding, lay offs, R&D, production, marketing and sales. With one remark: whatever they do, it should always be in coherence with the purpose and values of the "network" or organization in which they operate.
The pioneering companies make sure they leverage the power of technology. Their network of teams relies heavily on tailored IT structures to connect the teams. It's through this technology that the teams connect, communicate and learn from each other. The IT structures stimulate transparency by allowing a fast, efficient and free flow of information about things like goals, projects and feedback.
3. A team's purpose that fits the organizational purpose
The network of teams are all designed around a clear purpose and a set of core values of the organization. Fighting as a whole for a higher goal is what binds all teams together. A clear sense of a common purpose keeps the network connected and provides guidance and direction for individuals and teams. It's like the north star that guides and inspires teams on their mission to success.
However, each team has its own clear focus on one particular thing that distinguishes them from other teams. This thing can be anything like a certain client, (niche) market, product, services, technology, area, or country. When someone within the organization spots a new opportunity, this person is encouraged to create a new team around him or her. Once they have succeeded in setting up a new team, the team has the autonomy to explore and exploit this opportunity.
4. Teams come and go
Within a Network of Teams, teams are fully responsible for their own results. In most cases, they benefit when their team is doing well but also feel the pain when teams are under performing. When a team is responsible for its own business, and business is not going well, teams can be dissolved. The people either find a new team to join, get others to join their new team, or leave the company.
This sounds harsh and it maybe even is. But it helps to keep the organization as a whole more healthy and it doesn't drain the profits of other teams just to keep the loss-making team alive.
Why it works
There's a number of reasons the Networks of Teams we've visited are so successful. Some of the most important ones are:
- It breaks down silos. All needed tasks and responsibilities lie within the teams themselves.
- It creates a strong sense of ownership as team members are fully responsible for their own results.
- Employees feel like they run a 'business'. They don't focus on a single part like sales, purchasing, or production. It therefore significantly increases entrepreneurship.
- A healthy dose of peer pressure arises between the teams.
- Teams can quickly adapt and respond to changing customer needs. They don't need to wait for slow top-down change programs.
- The increased autonomy level leads to an increased engagement level.
Even though a Network of Teams is (in most cases) a strong improvement, it's not all rosy either.
- A Network of Teams requires a significant change in the way an organization is run. The change is not an easy process and is often quite a struggle. We see two main approaches to make the change:
- A radical transformation from old to new. The organization decides to go all-in and takes an initial dip in productivity and engagement for granted.
- A viral change starting in one team or department and slowly spreading throughout the organization.
- It's hard to keep all teams aligned in a Network of Teams. Therefore, strong communication, powerful technology, and radical transparency are needed to create alignment.
- Some people are not ready to take on the responsibility of working in such an environment. Be aware: this is also one of the most heard reasons to not move to such a structure. We believe it's (mostly) a wrong preconception. There are certainly people who can't handle such an entrepreneurial environment, but our research shows that only 15-20% of the employees leave during such transformations. The other 80 to 85% flourish in their new environment.
The move towards a Network of Teams is one of the most powerful trends of our research. It has helped several organizations to create highly engaging workplaces where people thrive and success skyrockets. It's certainly not an easy switch, but it's well worth the effort. To conclude, here are some of the most important takeaways to start the journey:
- Create small, multidisciplinary teams and split them when they grow over 15 members;
- Have each team craft its own purpose within the organizational purpose;
- Make teams responsible for their own results and give them a (financial) stake in the outcome;
- Create transparency to foster a healthy dose of competition;
- Leverage the power of technology to create alignment.
Download a free sample chapter of our book. Subscribe to the newsletter.
Companies wanting to be rebels / mavericks may well want to replace functional structures with project teams, networks or communities (not all networks of teams are the same). But for most the solution may be a meld - integrating networks etc on top of functions - I don't see hierarchies disappearing (and actually, they don't really need to).
As part of our collaboration with Haier - one of the world's most pioneering companies - we research and share how they work. Recently, we chatted with leaders of the company, including Zhang Ruimin (CEO of Haier), Kevin Nolan (CEO of GE Appliances - the US part of Haier) and Yannick Fierling (CEO of Haier Europe). In this post, we share the recordings.
Bags and accessories made of truck tarpaulins - that's what Freitag is known for. With headquarters in Zurich, around 250 employees work for the cult label which uses holacratic methods. They introduced a new salary model in early 2019. Pascal Dulex is responsible for Organizational Culture & Creative Direction. He spoke to us about their sometimes-painful path to a new compensation system.