Oticon, a Danish company in hearing aids, was experiencing heavy weather when CEO Lars Kolind came on board in 1987. The corporate culture was hierarchical, conservative and complacent. Kolind wanted an innovative, self-directing organisation, where the walls between departments would disappear and people would choose their own projects to dovetail with their passions and talents. In spite of resistance from higher management, in the years that followed he built his Organisation of the Future. And it worked. The company launched one innovation after another, such as the first digital hearing aid. Production times were halved, sales doubled between 1990 and 1994 and the company expanded into various European countries, America and Australia. However, in 1995 a violent confrontation took place between staff and the old managers, who had retained their old positions of power in the Products and Projects Committee. Because of his international involvement, Kolind had failed to notice the signs of growing discontent and had insufficiently monitored the new culture. His vision turned out to lack clarity and direction, as a result of which everyone was striving to fulfil their own objectives. The company was divided up into market segments, the hierarchy was reintroduced and many, including Kolind, left the company disillusioned.
In the past decades, countless attempts were made to introduce a more humane and flexible form of organising in bureaucratic organisations. Companies like DuPont, Cisco, Scott-Bader, Rolls Royce, Shell, Herman Miller, ABB and BSO deliberately experimented with other forms of organising. Although some of those organisations were successfully transformed and are still being run non-bureaucratically, such as the Brazilian company Semco, the American Gore & Associates and the French company FAVI, most of the changes have been diluted or reversed with time, either through mergers with other companies, leadership changes or as a result of other factors. Why is it, that so many attempts to make bureaucracy more humane and more flexible have failed? And how can innovative forms of organising be realised successfully?
Bureaucracy absorbs
One explanation given by Parker (2002) is that large bureaucratic organisations are quite successful at incorporating criticism and change activities (by developing a coaching leadership style, for example), but essentially stick to the principles of bureaucracy, such as topdown control, unequivocal rules and extrinsic motivation. Such organisations ‘absorb’ innovations to be able to control them.. Instead of loosening the hierarchy, attempts at participatory management have even led to more bureaucracy, since the gap between the operational staff, still directed in an authoritarian fashion, and highly educated staff who had rather more say, just became wider. Some organisations, such as General Motors, did decide in favour of decentralisation but not with he intention of creating a more humane organisation: the environment had become so unpredictable that employees who were close to the customer simply needed to have more autonomy to make the right decisions.
Partial change
Another explanation for the failure of many initiatives for change is that they were focused on a single aspect, for example the creation of a more humane working environment, or a more democratic form of decision-making. Even if the structure could be adjusted there were other factors, such as management habits, that turned out to be extremely difficult to change. Rolls Royce in England was a pioneer in self-directing teams; after a while, however, the teams would revert to the old ‘command and control’ style. According to Kuipers (2011), most attempts at organisational change lack integral perspective. A change that focuses on only a few factors, such as the organisational structure or HRM procedures, without a resulting change in management processes and other factors, will fail sooner or later. Yet another explanation lies in the organisational concepts used. Perhaps ambitious changers see organisations too much as machines, with individual cogs and wheels that can be exchanged without changing the rest of the machine. By contrast, if you see an organisation as a living organism, it is evident that an intervention in decision-making processes or the structure will always have implications for other aspects of the organisation. From a systemic perception, an organisation can be seen as an integrated and self-enhancing community.
Complementarity
Researchers Paul Milgrom en John Roberts (1995) studied innovative forms of organising and came to the conclusion that these are successful only if the entire system is transformed coherently. Their so-called ‘complementarity theory’ is based on a mutual exchange and interdependency between technical, organisational and other factors. Complementarities refer to mutually enhancing effects between different factors when these are tackled all at the same time and coherently. The effect of more control for employees in operational matters, for example, is enhanced when at the same time, more direction is given in regard to strategic objectives. According to this theory there is complementarity between activities in an organisation if enhancing one activity will result in a necessity to enhance others. According to this theory, an innovative change like the reduction of management layers will only result in better performance if other changes are taking place a the same time. The researchers claim that if such changes are implemented in isolation, this may even lead to a decrease in performance.
An organisation like IKEA has a high degree of complementarity, i.e. procurement and storage, products, customer service and distribution systems are all coordinated. Since all aspects are mutually connected and coordinated this success formula is hard to copy by other companies. A company wishing to copy the distribution system but no other aspects of operational management should not count on better results, according to Milgrom and Roberts.
Negative effects
In the early nineties a large-scale survey was conducted into innovative ways of organising, by researchers grouped around Andrew Pettigrew (Warwick Business School). The survey shows that, when structures, processes and organisational boundaries are changed simultaneously and together, this will result in much improved performance. If only the structure or processes are changed, or only processes and organisational boundaries, performance remains the same or even deteriorates. There are only a few exceptions, such as the facilitation of horizontal networks, which can result in improved performance when made in isolation. By contrast, the isolated implementation of a project structure will result in deteriorating performance in all cases.
Incidentally, the researchers point out that there is a ‘J curve’ effect: when new structure, processes and organisational boundaries are introduced, performance first deteriorates a little and improves only in the somewhat longer term.
What’s new?
The conclusion that organisational change is successful only if various organisational factors are adjusted coherently seems rather obvious. However, I have met many organisations that nevertheless ‘forget’ some factors. An educational institution implemented team structure, for example, and introduced various activities to achieve a more cooperative culture – yet remuneration remained based on individual performance. A health care institution introduced self-directing teams but left the management positions unchanged. A technical company decentralised decisionmaking but did not formulate clear objectives and boundaries. Siggelkow (2001) illustrates how American women’s fashion company Liz Claiborne, which was extremely successful in the eighties, was confronted with declining growth and margins in the early nineties. Year after year, management introduced ad hoc changes that had no effect at all or actually made things worse. In 1994, a new CEO came on board who devised a completely new system, from a new mission and strategy up to and including a revised structure and different management processes. Finally, performance went up.
What does this mean?
A new, innovative form of organising is not a matter of implementing a team structure or decentralising responsibilities. It is about coordinating several changes at the same time, in their mutual dependency. This requires a considerable investment in time, patience and perseverance. In addition, such a transformation requires strong central direction by a leader (or a group of leaders) with a systemic perspective on the organisation. It also requires the ability of management to stay focused on a long-term vision and to engage in and coordinate several interdependent developments at the same time. Such a process implicates, among other things, that leaders who succeed each other must continue to work in the same philosophy, instead of trying to invent their own wheel each time.
 In March 1990, then-top man of BP, Robert Hornton, launched Project 1990 with the purpose of reducing complexity in the company, redesigning the central organisation and repositioning the company for the 90s. From the top, a new vision was formulated (‘The most successful oil company of the nineties’), a new strategy designed and the structure adjusted. Non-core activities were sold. Large-scale training programmes were introduced and the assessment and remuneration systems adjusted to the new vision and values. Although not all facets were given equal attention at the same time, there did seem to be complementary change. However, results were so disappointing that Hornton was asked to resign in June 1992. What went wrong?Researchers Pettigrew and Whittington concluded that the link between the vision and the organisational changes was not clear for employees and that there was a gap between the authoritarian way in which Hornton wanted to realise his ambitions, and the propagated values of openness and empowerment. It was precisely his drive that got in the way of a fundamental dialogue about the strategy. Hornton thought systemically, but did not act consistently in line with this thinking. His successor David Simon stuck to the path the company had started on, but simplified the vision to the slogan PRT (“performance, reputation and team work”). By the time his successor John Browne came on board company performance was going up, a trend that was further enhanced in the years that followed. Browne divided the company into smaller business units, each responsible for its own profit and loss. At the same time, he strengthened the central organisation with knowledge groups, leadership conferences and a joint IT infrastructure. More than his predecessors, Browne had an eye for strategy and gave the company a renewed position in the oil industry. Browne both thought and acted in a systemic way. Source: A. Pettigrew en R. Whittington (2003) |
Lessons
- Start with a mission. A new form of organisation comprises more than just adjusting the organisational structure. It starts with the question where the organisation is going (the mission). All the facets of the organisation are to be designed and arranged in the light of that mission.
- Work with pilots. In a large organisation, it is often difficult to change all facets at once. If you untie one string, the whole network unravels. So start with one business unit but be rigorous there.
- Decentralise and centralise at the same time. When staff are given more say in the operational process the focus of the central organisation should not continue to be on managing these processes. It is actually the strategic focus that should be enhanced, the mission, vision and goals must be clear, and the boundaries of the playing field clearly demarcated. Quality criteria and standards must be clear to everyone.
- The long run. Be prepared (and possibly prepare board and/or shareholders) for results to deteriorate before they improve. Some time will pass before all system variables have joined and fitted into a new cohesive whole.
- Shared leadership. It is near to impossible for a single person to survey all facets of an organisational transition. Because of this, you must work closely together in the Board of directors or management team, and ask each other critical questions about how the organisational facets fit in together.
Sources
Kuiper, H.; van Amelsvoort, P. van; Kramer, E.H. (2010) Het Nieuwe Organiseren. Alternatieven voor de bureaucratie. Leuven/Den Haag: uitgeverij Acco.
Milgrom, P. & Roberts, J. (1995) ‘Complementarities and fit: strategy, structure and organizational change in manufacturing’, Journal of Accounting and Economics, 19 (2/3):179-208.
Parker, M. (2002) Against management Cambridge: Polity Press/Blackwell Publishers.
Pettigrew, A. & Whittington, R. ‘Complementarities in Action: Organizational change and Performance in BP and Unilever’ 1985-2002. In Pettigrew, A. Et al. (eds.) (2003) Innovative forms of organizing. London: Sage Publications.
Siggelkow, N. (2001) ‘Change in the presence of fit: the rise and fall, and the renaissance of Liz Claiborne’, Academy of Management Journal, 44 (4): 838-57.
This is a translation of the article that was first published on www.managementsite.nl
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