There is an abundance of captivating and trendy organizational theories emerging these days: self-organization, platform organization, ecosystem organization, three-tiered organization, networked organization, blockchain organization, wiki-style organization, distributed organization, fractal organization, starfish organization, tribal organization, borderless organization, open organization, agile organization, flat organization, amoeba organization, holacracy, and exponential organization…
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All of them point towards a reevaluation of traditional hierarchical organizations, addressing:
- Boundary issues within organizations, which include breaking down internal boundaries as well as external boundaries to facilitate collaborative co-creation. Examples include open organizations, ecosystem organizations, wiki-style organizations, and networked organizations.
- Adaptation challenges for organizations. On one hand, organizations need to adapt to the current environment, meet market demands, and excel in existing business operations. On the other hand, they must prepare for future changes, explore the unknown, and innovate. Examples include binary organizations, agile organizations, distributed organizations, fractal organizations, and biological organizations.
- The human aspect of organizations, involving how to unleash employee creativity and wisdom, and how to make employees’ work and lives more meaningful and fulfilling. Examples include holacracy, self-organization, highly empowered organizations, and highly participative organizations.
Will Hierarchical Organizations Come to an End?
Gary Hamel is a staunch critic of hierarchical organizations. In his article titled “The End of Bureaucracy” published in the Harvard Business Review, he opens with criticisms of the hierarchical structure from prominent figures like Walmart CEO Doug McMillon, Berkshire Hathaway Vice Chairman Charlie Munger, and JPMorgan Chase CEO Jamie Dimon, who referred to it as the “culprit,” “like cancer,” “a disease,” and “shackles that hold back human accomplishment.”
Warren Bennis, the founder of organizational development theory and a leadership guru, predicted the demise of bureaucracy in the 1960s. Peter Drucker, in his 1988 article “The Coming of the New Organization,” predicted at the outset that in 20 years, the number of management levels would be reduced by half, and the number of managers would decrease by a third.
Unfortunately, the predictions of these masters did not come true. Hierarchy not only didn’t disappear but also strengthened.
Three years after Google’s founding, they took a “de-organization” action by eliminating manager positions in product development teams. The two founders, Larry Page and Sergey Brin, loved the idea because they believed that no one wanted to be managed.
However, their management coach, Bill Campbell, advised retaining managerial positions. Larry Page was puzzled and went to ask the engineers if they needed a manager to lead them. The engineers’ response was affirmative because they wanted someone as a learning role model, capable of breaking deadlocks and helping them make decisions. Despite the founders’ reluctance, they eventually reinstated managerial positions.
Hierarchical Organizations Once Represented Advanced Productivity
Perhaps few people realize that what we now call “traditional” hierarchical organizations represent a significant improvement over their “ancient” predecessors.
Max Weber defined hierarchy as having the following characteristics: fixed division of labor among participants, positions with hierarchical ranking, a set of general rules governing behavior, separation of position property and rights from personal property and rights, selection of personnel based on technical qualifications, and participants viewing employment as a profession.
Such organizations have the following features:
First, there is a fixed division of labor among participants. In ancient organizations, there was often a lack of clear and fixed division of labor, relying more on temporary arrangements by managers. Such ancient organizations are unlikely to be liked, as job roles constantly shift, individual expertise is challenging to continuously improve, and efficiency is unlikely to be high. I’ve had managers tell me that constant restructuring of the company’s organizational structure led to blurred lines regarding job responsibilities, often requiring meetings or even arguments involving individuals from different departments. It is essential to clarify departmental and individual responsibilities.
Second, positions with hierarchical ranking are established. In hierarchical organizations, the authority of each manager is clearly defined, and power relationships among individuals are well-established. In ancient organizations, the problem of having multiple leaders often arises. Employees may have to listen to one leader at one moment and another at a different moment, leading to conflicting demands. This situation relies on personal relationships such as trust, loyalty, and may foster political activities based on forming cliques.
Third, there is a set of general rules governing behavior. While rules constrain employees, they also constrain managers. Managers cannot act arbitrarily, based on personal preferences, moods, or special relationships with certain individuals. This serves as protection for employees. Additionally, rules are often based on past experiences, simplifying the work of managers, reducing management costs, and sparing managers from starting from scratch.
Fourth, position property and rights are separate from personal property and rights. A clear distinction between public and private interests protects the property and rights of all parties involved. This clear distinction serves as the foundation for cooperation. When boundaries become blurred, disputes can arise, leading to reduced management efficiency, increased management costs, and a lack of focus on core tasks or innovation. For example, a company seeking to build an ecosystem acquired multiple companies, with individuals serving as both high-ranking executives in the ecosystem company and as bosses in subsidiary companies. The overlap between public and private interests created a complex situation where cooperation was apparent but competition and conflict remained beneath the surface.
Fifth, personnel are selected based on their technical abilities. In ancient organizations, managers were more likely to select and promote individuals based on personal relationships or personal preferences, which often led to unequal distribution of salaries, rewards, and benefits. Such practices are generally perceived as unfair. In hierarchical organizations, the selection, promotion, and corresponding salary and benefit considerations are competency and performance-oriented. Capable individuals are respected and treated fairly, leading to a more equitable environment where the company can create greater value and maintain competitiveness.
Sixth, participants consider employment as a profession. In hierarchical organizations, employees do not need to constantly seek approval or appease their managers; they are not overly dependent on their managers. The career ladder and goals are clear, predictable, and employees can enhance their skills, develop themselves, and gain independence while pursuing their careers. If the current company does not provide opportunities for development and respect, employees can choose to move to another company.
The rules, procedures, responsibilities, and accountabilities of hierarchical organizations may sometimes seem taken for granted, but their value becomes evident when they are absent. Taking a moment to reflect on how organizations operate, one can easily recognize the importance and value of hierarchical structures. It becomes apparent that for many businesses, the issue isn’t excessive hierarchy but rather not effectively utilizing the hierarchical structure.
Organizational Hierarchy and Efficiency
Two watchmakers, Hora and Tempus, both made excellent timepieces, and their shop was always bustling with phone calls. However, Hora became wealthy, while Tempus grew increasingly poor. What was the reason behind this?
Each watch consists of approximately 1000 parts. Tempus handled it this way: if he had just assembled a part and the phone rang, he would put down his work to answer the call. As a result, the parts he had just assembled would fall apart, and he had to start assembling them all over again. The more customers liked his watches, the more phone calls he received, resulting in more rework.
Hora, on the other hand, first assembled 10 loose parts into a small component. These components were then combined into larger assemblies, and finally, 10 of these large assemblies were put together to form a complete watch. Therefore, when Hora put down an unfinished component to answer the phone, he only lost a small portion of his work. Consequently, the time it took him to assemble a watch was only a fraction of the time Tempus spent.
Organizational hierarchy solves problems and reduces risks in a similar way.
The organization corresponds to the goal, decomposing it into a goal chain. For each goal, there is an action plan (including methods, resources, etc.) forming an action chain. Each action is implemented by the relevant personnel, creating a personnel chain. Thus, the organization forms a logical chain of goal-action-personnel, where all actions are integrated, ensuring logical consistency.
Of course, not all companies can clearly define their goals. Indeed, many times, resorting to organizational change is often due to a lack of strategic competence — an inability to provide a clear strategic direction, attempting to find a ‘silver bullet’ in chaos. To leaders who replace strategic thinking with organizational change in such situations, I would like to say one thing: What’s the use?
Organizational Hierarchy and Innovation
A study collected data from over 20 fashion seasons between 2000 and 2010 to assess the innovation levels of fashion stores. The results showed that fashion stores with a single creative director tended to have higher levels of innovation than those with two or more creative directors.
Organizational hierarchy is often seen as a constraint. “Constraint” can be understood as “boundaries.” Organizational hierarchy draws a circle around people, within which their attention is focused, work tasks are defined, and they can concentrate, accumulate experience, and continuously improve, which may lead to better creativity.
Creativity doesn’t just appear out of thin air. Leonardo da Vinci’s ‘Mona Lisa’ began in 1503 and was completed in 1519. The conception of ‘The Last Supper’ took 15 years and differed significantly from the initial sketches. Boundaries not only do not stifle creativity but can also promote it. Another example is classical Chinese poetry, where a multitude of beautiful poems were created within the constraints of format and rhyme.
3M, over the past century, has averaged producing 3 innovative products per year. This is rooted in a core technology chart, much like the ‘Periodic Table,’ listing 3M’s 47 core technologies. 3M encourages employees to use these core technologies as organizational boundaries for product innovation. This is how 3M sets boundaries for innovation. The ‘Periodic Table’ is updated but remains a reference point, and new core technologies are also bounded, ensuring they meet the needs of multiple future fields.
Throughout the process of generating various creative ideas, rules and processes need to be established. When forming a set of creative ideas initially, selection and standardization are needed, and decisions must be made by managers. It cannot be an endless divergence, always waiting for consensus. Creativity does not equal innovation; it’s only when creativity is transformed into real products that create market value that it can be called innovation.
“This process also requires the involvement of the organizational hierarchy. Take the design company IDEO, known for innovation, for example. During the ideation phase, they de-emphasize hierarchy, encourage equal participation, and idea generation. However, when selecting and implementing the best ideas, they leverage the power of hierarchy to coordinate and cooperate, with leaders transitioning from motivating to directing.
Organizational Hierarchy and Change
The rigidity of organizational hierarchy is often attributed to the presence of numerous rules, conventions, and procedures. In reality, rules play a vital role in organizations.
Human decisions can be based on rational choice or rule-based sequences, both of which are forms of rationality, as distinguished by James March. In practice, it’s not possible to “calculate” every decision, and many decisions are made based on rules. Rules are the crystallization of past experiences, significantly reducing the cognitive and decision-making costs for managers. Rules are methods that allow operations without the need for constant deliberation. The establishment of a system of rules is also a hallmark of mature business management.
From a decision-making perspective, rules are indispensable to organizations and serve as a fundamental basis for decision-making. Rules also provide expectations of stable behavior, thereby forming the basis for cooperation.
Rules may lead to managerial rigidity in companies, but it’s not inevitable.
Rules should correspond to situations, meaning the right rule should be applied in the right context. Managers, when preparing to enforce a rule, should exercise judgment to determine if the rule is suitable for the current situation. In other words, rules can be seen as possible, advisory suggestions that can be reevaluated before use. Rules are static, but people are dynamic, and individuals have the ability to refine the rulebook by deleting, revising, or adding specific rules.
Rules can be flexible. For example, the rule “reuse employees who can create performance” can be interpreted differently depending on the company’s growth stage. In a high-growth phase, “performance” might refer to long-term performance because there’s no immediate pressure for short-term performance growth. In this case, the focus is on finding individuals with innovative potential, entrepreneurial spirit, and the ability to contribute to future performance. However, when a company’s growth stagnates, short-term performance becomes crucial, and the rule can be interpreted as supporting employees who can bring immediate results, breaking away from rigid boundaries to clear the path for those capable of delivering results.
Additionally, a company may have numerous rules that are not necessarily consistent and could even be contradictory. These rules are not the genetic code of a company but rather tools that managers can flexibly choose from to meet current needs. Managers are not just rule enforcers; they are rule users and creators. Regardless of their role, rules are essential.
There is a special category of rules known as “simple rules,” as mentioned by Kathleen Eisenhardt. These rules help managers make better strategic decisions in rapidly changing market environments. Simple rules provide flexibility, encourage the pursuit of new opportunities, and maintain a certain degree of consistency. Even in situations with limited information and tight timeframes, simple rules enable sound decision-making that can be translated into actions and sustained over time.
In essence, rules provide stability and continuity for businesses operating in turbulent environments, serving as both “stakes” and “compasses.” The issue is not the existence of rules per se but rather the inability of businesses to update their rules in a timely manner.
Hierarchical Organizations and Human Nature
“Management principles and processes create discipline, precision, efficiency, rationality, and order, but they also suppress art, resistance, creativity, courage, and sharpness. In simple terms, most companies rarely adopt humanistic management because they seldom provide the space needed for human adaptation and creativity.” This is Gary Hamel’s viewpoint. It is undeniable that hierarchical organizations do have a suppressive aspect when it comes to human nature.
However, they also have a protective aspect for individuals. Research on churches in the United States from 1920 to 1939 found that during stable periods, people tended to choose non-hierarchical churches, while during turbulent times, they leaned toward hierarchical ones. The inference drawn from this is that while hierarchical organizations may constrain people, they can also provide individuals with a sense of stability, order, and security, especially in times of environmental turmoil.
Michel Crozier said, “The entire hierarchical system can be seen as a necessary structure for protecting individuals because individuals are quite vulnerable when faced with issues raised in social action.” At times, hierarchies alleviate the burden and pressure on people to make decisions, take risks, and solve problems, providing employees with a stable and orderly work environment—clear division of labor, defined responsibilities, clear career paths and standards, and so on.
While hierarchies constrain employees, they also restrain managers, preventing them from abusing their power, which ultimately protects employees. Therefore, sociologist Peter Blau elevates the discussion of hierarchies to the level of democracy, stating, “Hierarchy management is both the guardian of democratic freedom and the obstacle to democracy.”
Hierarchies set boundaries but also leave room for freedom. As long as one operates within the confines of these boundaries, they can freely manage their work, innovate, and develop their personalities. If people fail to recognize this, it’s often because they are more inclined to see the obstacles.
After his first visit to Haier, Gary Hamel raised a question: how does Haier, an organization where employees compete with each other in a single entity, maintain organizational cooperation? In my view, this involves a question of human nature—whether people prefer to work in an organization composed of colleagues or in an organization composed of competitors. Or, in other words, how does an organization encourage a certain type of relationship between individuals to shape their human nature?
Of course, as Left-Hal and Haier’s collaboration deepened, this minor concern gradually faded away.