Designing the Perfect Organization

My previous post, as well as the book I’m currently reading (Frederic Laloux’s Reinventing Organizations), reminded me of a term paper I wrote some time ago at university. In our Organizational Planning and Development course, we were given the task to “Design and Describe the Perfect Organization”. Even at that time, I had been thinking a lot about how organizations could be more fulfilling places for the people who work there.

Even though the concept of a Teal organizational culture as described in my previous post was relatively new to me, I found many parallels to that term paper I wrote six years ago. I thought it might be interesting, so I’m sharing a revised and shortened version of that paper here.

Introduction

In today’s globalized world, companies are increasingly facing a rapidly changing business environment. These conditions result in the need for companies to quickly react to changing market demands and come up with innovations and new solutions at short notice. The general trend goes in the direction of a knowledge-based, highly customized, and highly creative business environment. Traditionally managed companies are often not fit to face these new challenges. An organization more suitable for today’s business environment shall be developed in this paper. Even though designing a “perfect organization” might not be possible, this paper shall try to create a framework for an organization that is at least “more perfect” than many current businesses. This framework shall be based on a combination of the so-called BetaCodex (formerly known as Beyond Budget Approach), Daniel Pink’s concept of Motivation 3.0, as well as elements from Japanese management approaches.

Prerequisites

Before going into the details of what a perfect organization might look like, some underlying assumptions shall be clarified within this chapter. First of all, the term “perfect organization” has to be defined for use in this paper. “Perfection” in an organization can be seen in terms of the highest efficiency, of the highest profit, or even in terms of the highest level of happiness of employees. Here, the focus of “perfection” shall be put on content employees, as it is assumed that happy employees will voluntarily contribute to the company’s well-being and raise efficiency and with it the company’s profits. This approach will, in turn, make it easier for the organization to become an employer of choice as content employees will recommend the company to others and raise its reputation – which will, in turn, attract well-educated applicants, possibly with a similar mindset as the current employees. A high employee motivation also means that people are more likely to strive towards generating value for the company.

When designing a “perfect” organization, the size, type, and age of the organization, as well as its business goal or general purpose have a significant influence on what the final model will look like. Although efforts shall be made to introduce approaches applicable to a large variety of organizations, a fictional company acting in the service sector shall serve as a basis and a sample case for this paper. It faces a highly diverse market with the need for customized solutions and thus has to generate a large number of innovations. It is assumed that this company is still quite young and has been designed as a “perfect organization” from the very beginning. As a clear reference to this company in the following chapters, the organization shall be called Kanpeki from here on (Kanpeki means “perfect” in Japanese).

Organizational Design

The pace of change in today’s business environment is rapidly accelerating. For this reason, the traditional approach of a functional or divisional company structure does not seem adequate for a modern, let alone perfect organization. Inflexible hierarchic structures delay decisions which ought to be made quickly. Also, adaptations to changing market demands are slower than they could be. Consequently, the organization designed in this paper shall be based on a combination of the so-called BetaCodex (formerly known as Beyond Budget Approach), Motivation 3.0, a motivational system introduced by Daniel Pink, and elements from traditional Japanese management.

As an overly hierarchical setup should be avoided, the organization shall be designed as a cellular structure (see figure 1). A cell is in this case defined as a relatively small part of the company consisting of no more than 150 members. This number derives from the so-called Dunbar Number, which is the largest number of connections in a network which the human brain can cope with (Power & Power, 2006, p. 157). As an example, it is also the number for the maximum cell size at Semco, a Brazilian company following a similar approach (Killian, Perez & Siehl, 1998, p. 4). At Kanpeki, the cell size might be significantly smaller, as the organization is assumed to be still quite small itself.

Figure 1: Cellular structure of the organization: The inner ring represents “core cells” while the outer ring represents cells with direct market contact.

As this model is strongly decentralized, each cell takes over tasks such as recruitment, training, as well as decision-making, e. g. on the remuneration of cell members and other investments, on its own. Cell members can jointly decide what to do with their share of the available budget. After paying a basic salary to everyone, which is also subject to discussion by all team members, the cell members can decide to reinvest money into the business, hire new employees, pay themselves bonuses or spend money on something everybody profits from, such as new office equipment. All financial data are published so that everyone knows how the company is currently situated and also sees what other cells are spending money on. In this context, training should be offered to every employee to facilitate the understanding of the financial data provided. This approach is also followed by the company Semco, which was already mentioned above (Killian, Perez & Siehl, 1998, p. 6). The cells within the outermost circle (marked in orange color in the graph) have direct contact with the market and are thus responsible for everyday business dealing with customers. They can forward any information on new challenges on the market or changing customer demands to the cells within the inner circle. These core cells take over more general and also more sophisticated tasks such as research and development and innovation management, development of new business strategies and exploration of further opportunities, as well as setting the overall framework the organization is acting in. Finally, the head of the company (marked as CEO in the graph) only takes a supervisory function and has little power within the organization itself. Mainly, his tasks consist of fostering communication between the specific cells, resolving conflicts, managing frequent job rotation to avoid the accumulation of power, and, if necessary, discussing the future direction of the business (Borck et al., 2008, pp. 22-25). The term CEO, of course, is not adequate within this new model but is used here for reasons of simplicity. A better term might be General Advisor.

The cell structure just described shall serve as a basis for a motivational system which Daniel Pink refers to as Motivation 3.0. The idea behind this approach is the assumption that traditional reward systems have a negative influence on highly creative and innovational work, such as needed e.g. at Kanpeki. Pink suggests that companies should instead offer their employees a work environment providing them with the three cornerstones of intrinsic motivation: autonomy, mastery, and purpose (Pink, 2009, p. 204). Autonomy can be granted by letting employees decide themselves on what they do, how they do it, when they do it, and with whom they do the work (Pink, 2009, p. 207). In this context, a so-called results-only work environment (ROWE) approach could be applied, which grants people a high level of freedom concerning the areas just described – as long as they deliver the results agreed upon by a specific deadline (Pink, 2009, p. 86). Moreover, people should be given the opportunity to master something they are working on, i. e. aim on getting better and better at something (Pink, 2009, p. 111). Also, linking the work done to a larger purpose helps employees to see the bigger picture and find meaning in what they are doing. Short-term profit maximization shouldn’t be the only purpose here, but it should rather be long-term goals such as having continuously happy customers and creating better work environments (Pink, 2009, p. 134). As a summary of this approach, it can be said that “[c]ontrol leads to compliance; [whereas] autonomy leads to engagement” (Pink, 2009, p. 110). This is also the reason why the CEO in this model only takes the role of a mere supervisor or advisor in case of problems rather than a traditional “boss”.

In addition to the approaches described above, elements mostly developed by Japanese companies, also including principles from Lean Management, shall be applied within the organization designed here. The most crucial aspect, which goes along with the cells’ significant degree of independence, is the need for employees to think and discuss problems and generate ideas for improvement by themselves. Here, continuous improvement, or Kaizen, should be followed by each company member. Also, a focus shall be put on the customer by including only the steps which create customer value, or which at least enable value, i. e. are necessary for actions following at a later point in the process. Waste, i. e. all parts of the process not contributing to completing the products the customer wants, should be eliminated to as large an extent as possible (Lunau et al., 2008, p. 140). This concept should also be applied internally. In this context, value streams are created throughout the company – across and within cells – and downstream processes act as “customers” of upstream processes. For Kanpeki, this would mean that nothing should be forced upon the customer that is not wanted. Still, the company should work on generating new ideas and stay in constant contact with the customer to uncover new opportunities. Lastly, the concept of pull also takes an essential position in the model developed here. In traditional Japanese business approaches, pull describes the idea of producing only when downstream processes demand it (Bell, 2006, p. 163). In the context of an organization with a cellular structure, however, pull can be seen as encompassing even more. Here, pull, in a sense, replaces management, as the external market and with it the customers provide the framework the company is acting in. Decisions are thus, as implied above, made from the outside rather than from the inside of the organization. This leads to a proactive rather than a reactive approach. Furthermore, the organization is formed more by the market than vice versa (Borck et al., 2008, p. 32). Still, by continuously generating new innovations and offering them to customers, a pull from the market may be created. This, in turn, will help the company to stay ahead on the market.

Conclusion

Even though designing a “perfect organization” is not only challenging but close to impossible, applying the elements introduced above when building a new organization may well help to generate significant advantages on the market. Changing an already existing organization towards such a model, however, might prove to be extremely difficult.

If applied correctly, the approaches introduced in the course of this paper can help a company to be able to react to a changing environment much faster than traditionally managed organizations, generate innovations, manage knowledge well, make employees happy, and become a learning organization. This can be supported by recruiting and developing highly motivated employees ready to take on responsibility and able to generate ideas and solve problems by themselves. A significant advantage, as well as the main challenge of the model, are connected to this: The work in cells acting more or less independently and the high transparency on all decisions made within the firm both create a high level of peer pressure for employees to generate value and work efficiently. This, in turn, pressures everyone to take on high amounts of responsibility for what they are doing and to create new ideas and improvements continuously. It may well be that not every employee can deal with this kind of work environment. However, if a focus is put on team building within the cells as well as conflict resolution whenever necessary, this approach may well be the connection of content employees with an efficiently working and value generating organization.

References

Bell, S. (2006). Lean Enterprise Systems: Using IT for Continuous Improvement. Hoboken, New Jersey: John Wiley & Sons, Inc.

Borck, G. et al. (2008). Turn Your Company Outside-In – How to create the adaptive network organization: A concept paper on Cell Structure Design, part I. Retrieved July 20, 2013, from Beyond Budgeting Transformation Network: http://www.betacodex.org/sites/default/files/paper/3/BetaCodex- CellStructureDesign1.pdf [Unfortunately, the link doesn’t seem to work anymore. BetaCodex white papers can be found under this link today: https://betacodex.org/white-papers/]

Killian, K., Perez, F., & Siehl, C. (1998). Ricardo Semler and Semco S. A. Glendale: Thunderbird: American Graduate School of International Management.

Lunau, S. (Ed.) et al. (2008). Six Sigma + Lean Toolset: Executing Improvement Projects Successfully. Springer-Verlag: Berlin / Heidelberg.

Pink, D. H. (2009). Drive: The Surprising Truth About What Really Motivates Us. New York: Riverhead Books.

Power, P., & Power, T. (2006). A Friend in Every City. Penryn: Ecademy Press

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