Most organizational structures have evolved over many years under a variety of executives. Structural adjustments were made to accommodate new strategies, technologies and services, special projects, and occasionally to handle personal career issues.
Periodically, job descriptions and working relationships were changed as cyclic pressures for centralization and decentralization were felt. The resulting organizational structures seemed reasonable at the time, but now they may, in fact, be haphazard and dysfunctional.
The purpose of an organization is to process more variety than individuals alone can handle. But most organizations evolved in a much simpler, lower-variety period of time.
Now, the variety surrounding organizations is exploding. Consider the following sources of variety:
- Economic volatility instantly ripples around the world.
- Rapidly changing political boundaries and alliances bring new opportunities as well as threats.
- The globalization of markets and competition means that current events anywhere in the world can affect the organization, adding to complexity.
- Increasingly complex legal and regulatory restrictions are putting new, often conflicting, demands on organizations.
- Clients are demanding customized service at the price of mass production, impacting the pace of product development by orders of magnitude.
- Technological complexity is multiplying in every field. In computing, for example, new generations of microprocessors and operating systems appear yearly, and some products (such as laptop computers) are obsoleted within months.
- Strategic partnerships are breaking down the boundaries between organizations, presenting new collaborative opportunities and problems.
- As the size of organizations grows, the number of possible collaborative relationships between people grows exponentially, further adding to the complexity of the work environment.
These changes in the business environment are matched by an accelerated pace of change at every level within organizations. It all adds up to a level of variety that challenges the capabilities of today’s organizations.
If the only problem were the need for increased speed and flexibility, an effective response might be to break the organization up into small, autonomous business units. However, doing so reduces the degree of specialization, making the organization less capable of dealing with complexity.
If the only problem were increased complexity, an organization might partition itself into highly focused groups of specialists and expand the management hierarchy to coordinate them. But this is expensive, and can jeopardize the organization’s ability to get work done quickly and flexibly.
If the only problem were cost, an organization might eliminate layers of management and simplify its processes. But as the management hierarchy is reduced, so are the coordinating mechanisms in the organization. As a result, it becomes difficult to adapt to a changing environment with flexible, cross-functional work processes. And as processes are simplified, the organization becomes more rigid (like an assembly line) and less capable of dealing with rapidly changing business demands.
The real problem is the combination of the need for speed and flexibility, specialization (to handle complexity), and efficiency and cost effectiveness. These factors add up to (actually, they multiply to) an explosion in variety that is taxing the limits of current organizations.
Under the onslaught of variety, many cannot keep up. They find they are unable to simultaneously respond quickly and flexibly to customers’ needs, innovate throughout their product lines, and operate in a cost-effective and reliable manner.
Some say an organization must choose whether it will focus on customer responsiveness, technical excellence, or operational efficiency. In fact, there is no reason why an organization cannot be world-class at all of these things. But to do so, they will have to learn to handle much more variety.
Simply patching old structures to accommodate new functions and technologies no longer works. New types of organizations are required.
By their nature, these new organizations must engender high-performance teamwork among a wide range of both business and technology specialists, without regard to internal boundaries. They must be self-adjusting, to adapt to a rapidly changing environment. They must be highly responsive, dynamic, and customer focused; yet they must evolve toward a stable vision of an integrated product line. In short, organizations must be as well designed as the products they build.