What is a perfect organization?

“We believe that companies are dying younger because they are failing to adapt to the growing complexity of their environment. Many misread the environment, select the wrong approach to strategy, or fail to support a viable approach with the right behaviors and capabilities.

How, then, can companies flourish and persist? Our research at the intersection of business strategy, biology, and complex systems focuses on what makes such systems—from tropical forests to stock markets to companies themselves—robust. Some business thinkers have argued that companies are like biological species and have tried to extract business lessons from biology, with uneven success. We stress that companies are identical to biological species in an important respect: Both are what’s known as complex adaptive systems. Therefore, the principles that confer robustness in these systems, whether natural or manmade, are directly applicable to business.”

The Biology of Corporate Survival, HBR Jan 2016.

When reading the thousands, if not millions, of business books and academic research papers a picture materializes from the case studies, models and theories. The picture describes a natural way of working. This includes how people grow and develop across a range of capabilities; cognitive thinking, skills, ethics, morals, egos and more. It explains how systems, people and organizations interact and produce emergent properties like culture and values.

This has been written in the HBR article above “The Biology of Corporate Survival”, by Kevin Kelly in, “Out of Control, The New Biology of Machines, Social Systems and the Economic World”, by Stafford Beer in “Brain of the Firm” and “The Heart of Enterprise”, and by many others.

The clear message is that unless we listen and learn from this natural way of working we will not in fact survive. It is why companies are dying younger and younger these days.

The picture that materializes, of a natural way of working, provides an answer to the question, what is a Perfect Organization. The key pieces are;

  • The CEO and Board must nurture and understand the necessity of having heterogeneous layers within the organization made up of people with a variety of cognitive thinking, values, skills, egos, ethics, morals.
  • Not a homogenous organization where the belief is there is only one way and it is usually the CEO’s way. Where the style of this “one way” depends on the level of cognitive thinking, values, skills, ego of the CEO who tries to enforce this one way up and down the organization, sometimes called command and control.
  • The organization’s mission needs to be focused on the outcomes it delivers, has nested mission statements that are meaningful to the heterogeneous vertical layers, creates objectives based on their mission and uses aligned measurements to know if they are on course.
  • Not a mission that is internally focused, based on making money for shareholders, which leads to operational structures, measurements and go to market models that are based on products and not outcomes.
  • The daily operations of the organization must be based on systems thinking, heuristics (goals and feedback), that adapt to the local variable conditions on a timely basis, understanding that the world is a complex adaptive system.
  • Not a rules based approach that creates fragile processes, based on the assumption that one size can fit all. Processes and rules that cannot be changed without jumping up several layers for approvals.
  • An organizational structure that enables and fosters heterogeneity, creates alignment to an outcomes based mission, that intrinsically reinforces a systems thinking, heuristic, approach that survives and thrives in the complex adaptive system we call the World.
  • Not a homogenous structure made up of vertical silos each performing their internal function that extrinsically forces people to look inward, destroying a systems thinking approach and creating a fragile organization that cannot adapt to its changing environment.

To many of us our working life feels unnatural. Our working environment is not quite aligned to our values and we find ourselves not behaving the way we would like. There are too many turf wars, internal politics, self preservation actions, stupid processes and a feeling that at the end of the day we didn’t moved the ball forward at all.

We are like Sisyphus from Greek mythology, doomed to push the boulder up the hill, only to find each morning as we turn up to work, that the boulder is back at the bottom.

A Perfect Organization is one that operates in alignment to the natural development, thinking and working ways of people, structures, processes and systems. It is one that materializes from, and is proven out, by all the books and research.

To ignore it is to ignore reality.

Some people reading this will embrace the findings and want to build a better world. Others will realize that understanding this approach gives them an advantage in the economic world against the laggards of the industrial age. The rest will not get it and claim it won’t work, they believe that “there is a one true way of working and we should all follow that”.

This is not a case of, you are either with us, or you are against us. It is about understanding that we all have different world views and these develop naturally throughout our lives. We need everyone; the leaders, the managers, the artisans, the specialists, the experts, the helpers, the thinkers, the doers, the every one.

It is Ken Wilber’s Integral Theory that provides us with the Integral Map to pull together all of the observations, case studies, models, real life scenarios, best practices and thinking that make up our natural world. The Integral Map allows us to plot the hard and soft sides of people, leadership and management, the individual and group dynamics of our culture and the physical world we create.

The end result is a picture of a Perfect Organization which is captured in the Integral Organization Model.

Integral Organization Model

The first thing to note about the Integral Organization Model is that there is no starting point. Everything is linked and influences everything else. There are flow on affects from each area to the other areas. It is a connected system.

Each section of the Integral Organization Model is an attempt at synthesising the countless work done by many authors and researchers into a few key points. As such it is a very, very high level overview. But I hope it provides some insights into this natural way of working.


Internal World: Leadership Approach Based on Development Level

The CEO of our Perfect Organization needs a level of cognitive thinking, values, ego, ethics, morals developed to the point where they can appreciate the need for heterogeneous layers in an organization. They understand that everyone is different and everyone is needed. If they haven’t developed to this level, they believe that the entire organization should think, act and be motivated in the same way as themselves. We see this “one way” approach when stock options are given to first line employees, company based bonus incentives and internally focused mission statements. Not ever layer is motivated in the same way.

The CEO’s way could be power based, the one true way, my way or everyone is equal. In a Perfect Organization it has to be at the level of understanding that we are All Different and All Needed.

An organization needs heterogeneous layers for two main reasons;

1.     Each layer of an organization has a role to play, otherwise why have layers. Front line troops focus on their daily tasks. As per Elliot Jaques Stratified Systems Theory the front line troops operate within a timeframe of 3 months. Their team leads are using their experience and training to help improve the daily tasks while removing systemic roadblocks. CEOs are operating in a much longer time frame, they are scanning the far horizon guiding the organization into a viable, successful future.  

2.     The layers provide the rungs on the development ladder that we need throughout our lives. We don’t start of life with the cognitive thinking, ethics, values, experience, egos required of our All different, All needed CEO. These develop through our life and we need the layers in an organization to provide corresponding environments to nurture our personal growth. Nor does everyone develop to the same levels. We may be a brain surgeon that is the happiest when we are helping patients on a daily basis, not being the Chief Medical Officer.  Or a skilled trades person honing our craft, producing goods and services that people admire. Not everyone is meant to be, or wants to be, a CEO.

When the CEO doesn’t operate at the level of All Different, All Needed, we lose Vertical Leverage. This is because the organization can only behave at the level of the CEO. It is a lowest common denominator effect. Also there is a mismatch between the expectations set by the CEO for each layer and how they naturally need to operate, believe it or not, not everyone is interested in stock options.

Further discussion on the Leadership Approach Based on Development Level can be found at the FAQs;

What does Management Do?

Why do we hire the wrong leaders?

What’s the difference between Leadership and Management?

 

Internal World: Nested Mission Statements, Objectives, Measurements

Our mission tells us, our employees, customers, partners and investors what outcome we produce. It allows us to make decisions regarding products, services, organizational structure, marketing and channels to market. It lets us see the advantages of new innovations and to avoid being disrupted.

Our mission statement needs to be like Simon Sinek's "WHY" and as Sinek says, "It all starts with Why." Sinek explains this thinking with his Golden Circles of Why, How and What.

“WHAT: Every single company and organization on the planet knows WHAT they do. This is true no matter how big or small, no matter what industry. Everyone is easily able to describe the products or services a company sells or the job function they have within the system. WHATs are easy to identify.

HOW: Some companies and people know HOW they do WHAT they do. Whether you call them “differentiating value proposition,” proprietary process” or “unique selling proposition,” HOWs are often given to explain how something is different or better. Nat as obvious as WHATs, many think these are the differentiating or motivating factors in a decision. It would be false to assume that’s all that is required. There is one missing detail:

WHY: Very few people or companies can clearly articulate WHY they do WHAT they do. When I say WHY, I don’t mean to make money – that’s a result. By WHY I mean what is our purpose, cause or belief? WHY does your company exist? WHY do you get out of bed every morning? And WHY should anyone care?”

Sinek explains that inspirational leaders, “every single one of them, regardless of their size of industry, thinks, acts and communicates from the inside out.” They start with WHY.

He goes on to state, “The power of WHY is not opinion, it’s biology”. There it is again, the natural way coming to the fore.

When we communicate from the outside in, when we communicate WHAT we do first, yes, people can understand vast amounts of complicated information, like facts and features, but it does not drive behavior. But when we communicate from the inside out, we’re talking directly to the part of the brain that controls decision-making, and our language part of the brain allows us to rationalize those decisions.”

Our mission statement is the WHY. In the Alignment Diagram above it is the horizontal outcome lines. The WHAT are the vertical product lines. The HOW is the features of our products and how we package them to create value in delivering the WHY.

The old story of drills and holes explains how this works. When we go to the hardware store to buy a drill, do we really want a drill? No, we want a hole. The combination of a drill, drill bit, electricity and labor creates the outcome we want, a hole.

If we are a manufacturer of drills we are actually in the holes business, not drills. That is our mission. By starting with WHY we embrace new innovations that help deliver our mission. It could be a new way of making holes by using lasers. If we are in the WHAT business the new laser innovation is seen as a threat and we combat it with more WHATs, price discounts, product bundles and new models of the same thing.

However, the one organization wide mission statement won’t resonate with the heterogeneous layers aligned to the tasks and people’s development levels of cognitive thinking, values, ethics, morals and ego. We need nested mission statements that translate the organization’s WHY into the tasks down the layers.

For example, Disney’s mission of “World's leading producers and providers of entertainment and information” doesn’t easily connect to the person selling popcorn at Magic Kingdom. But if the popcorn vendor’s nested mission statement is, “Making Magic Kingdom the happiest place on earth” they understand why they need to have the best tasting, freshest popcorn in the World. Making “Magic Kingdom the happiest place on Earth” is nested inside the WHY of being the World’s leading entertainment producer.

In the middle of our organizations there are people who are developing through the highly ambitious, “my way” phase. These people are great at managing people to get things done. They are driven by success. If you ask them to take that hill, they will take that hill, even if it is the wrong hill. Therefore, it is critical to have a nested mission statement, aligned to their layer, to guide them by the WHY and not the WHAT. This nested mission statement tells them to be successful at the WHY and not just any WHAT. “We need you to be the best in the world at making holes.”

Critical in making all this happen are the objectives we set and the measurements we use. These reinforce the decision making and behavior within our organization.

For Disney they need to measure how happy people are at Magic Kingdom and not just how much popcorn they buy. You can imagine how hard this is for our “my way” manager because it isn’t as tangible as measuring revenue and expenses. The good news is today there are new technologies that can help us measure the intangibles, either directly or through proxies. We see this in the number of “Likes” a Linkedin or FaceBook post receives, measuring the sentiment of online reviews, online audience polls and the future promise of the Internet of Things.

When we look at start ups we find that initially their WHY and WHAT are the same thing. The founder has discovered a customer problem that they can solve through new technology, processes or business model. The WHAT they are building aligns directly to the WHY because that was the starting point. Slywotzky and Morrison point out in their book, The Profit Zone, that over time a start ups WHY and WHAT drift apart. Unfortunately, the focus tends to move with the WHAT because the founder’s WHY is the wonderment of their technology or to make money, not the original purpose of meeting a customer need.

There are simple tests you can use to see whether an organization is driven by the WHAT versus the WHY.

Look at an organization’s website to see if they are promoting their products or the customer’s outcomes. Now most marketing departments are pretty smart, they watched the Simon Sinek TED talk, and so you first see a bunch of WHY statements and graphics on the home page. But count how many clicks it takes to end up at a product page. The answer is usually one.

Listen in on a company’s quarterly earnings call to Wall Street. What measurements do they provide and which ones get the most attention? Typically, it is the revenue and profits generated along with the expenses they managed to deliver these results. There will be talk of their strategy and future direction but rarely is this backed up with numbers. Of course we accept that Wall Street analysts are equally to blame because they only want to know what happened this quarter and what is going to happen next quarter. What if the CEO said on each call, WHY we are in business, HOW we are creating value and WHAT we are delivering as our products and services? And supported all three golden circles with objectives and measurements?

Further discussion on Nested Missions Statements, Objectives and Measurements can be found at the FAQs;

Why are mission statements critically important?

Do we have the right measurements?

The Alignment Diagram

 

Internal World: Organizational Structures, Business Models

If there is one main misunderstood requirement in implementing a Perfect Organization then this is it.

If we accept Simon Sinek’s claim that we need to start with WHY, our purpose as articulated by our mission statement, and not WHAT, the “products or services a company sells or the job function they have within the system” then why don't we organise our organization the same way?

This happens to be the fundamental flaw in organizations which stops them being able to operate in a natural way. It is the glaring mistake that no one seems to notice.

If we are organised based on our products, services or our job functions, how can we operate from the basis of WHY? To attempt to do this we try to put in systems, technology, measurements, company level bonuses, matrix structures or exhort our people to work collaboratively to break down the walls. How successful and sustaining has that been? All of these actions are extrinsic, they are management telling us what to do. They are not intrinsic, actions that we naturally want to do for ourselves.

When established organizations claim they are going to start acting like a start up, it is not about having innovation centers or throwing money at new technologies like drones, wearables or big data. It is achieved by being organized by WHY and not WHAT. They can’t do this by the band-aid techniques listed above.

When the vertical silos are managed by “my way” managers who are focused on their results, it is easy to understand why the turf wars and internal politics occur. However, if we turn that same ambition towards achieving outcomes aligned to WHY, we can see how we can harness that same drive to focus externally on what customers want. The “my way” becomes the “WHY way”.

What does a WHY organization look like? There are two concepts that need to be understood to create an alignment to WHY, Horizontal Flow and Vertical Leverage.

Horizontal Flow is the work flow of value adding processes that creates the end outcome. Horizontal Flow cuts across the vertical functional silos. It brings teams together to align to the outcome and not the job function, in their separate departments. First recognized in Toyota’s production system and written up in the many Lean books, we are now seeing the same concepts in agile software development and the Lean Start Up.

However, we have trouble grasping this concept. Womack and Jones provide this simple example in their book, Lean Thinking;

“Recently, one of us performed a simple experiment with his daughters ages six and nine: They were asked the best way to fold, address, seal, stamp and mail the monthly issue of their mother’s newsletter. After a bit of thought their answer was emphatic: “Daddy, first you should fold all of the newsletter. Then you should put on all the address labels. Then you should attach the seal to stick the upper and lower parts together [to secure the newsletter for mailing]. Then you should put on the stamps.” “But why not fold one newsletter, then seal it, then attach the address label, and then put on the stamp? Wouldn’t that avoid the wasted effort of picking up and putting down every newsletter four times?’ Why don’t we look at the problem from the standpoint of the newsletter which wants to get mailed in the quickest way with the least effort?”  Their emphatic answer: “Because that wouldn’t be efficient!”

What was striking was their profound conviction that performing tasks in batches is best – sending the newsletter from “department” to “department” around the kitchen table – and their failure to consider that a rethink of the task might permit continuous flow and more efficient work. What’s equally striking when looked at this way is that most of the world conducts its affairs in accord with the thought processes of six- and nine-year-olds!”

The case studies and research have shown that implementing Horizontal Flow increases effectiveness which increases efficiency. What isn’t written about as much is the fact that it also improves employee morale. It is easy to experience this shift with a simple paper plane building exercise going from batch processing to horizontal, continuous, flow. What is interesting is that not only does moral improve, as evidenced by the smiles on the faces in the second photo below, but so does the quality of the paper planes produced. This is an intrinsic change as it is natural that we want to work together. It doesn’t require extrinsic management pressure. We just need to be organized that way to make it happen.

Vertical Leverage is the understanding that the layers of the organization are there to provide guidance to the lower layers and to help them achieve continuous improvement. The layers also provide the required environment, culture, values for the people at each level. The front line troops need more structure than the middle managers who in turn use their thinking to guide and help the troops. Meanwhile the senior executives are scanning the horizon for new opportunities and threats. They are making longer term decisions about developing or adopting new technologies or ways of working to deliver on the organization’s mission statement.

The layers are all operating with their nested mission statements, WHY based objectives and with a Horizontal Flow aligned to achieve the organization’s outcomes.

This organizational structure is what we find in nature, including the human body. It is actually how we as humans are able to comprehend and survive in the complex world we live in. This approach has been studied extensively by the field of Cybernetics and explained by Stafford Beer in “Brain of the Firm” and “The Heart of Enterprise”.

Further discussion on Organizational Structures and Business Models can be found at the FAQs;

Why do we have vertical silos?

What is the fundamental flaw in organizations?

Why have an organization?

Vertical Leverage

Horizontal Flow 

 

Internal World: Operational Models, Processes

Our world is a complex adaptive system and we as humans are a complex adaptive system. We get hungry, so we eat, if we put on weight we exercise and try to eat less. In other words, we adapt. What is described here is a system and we are using heuristics (goals and feedback) to make adjustments to achieve our goal weight.

Compare this approach to how organizations work. What we find is that instead of thinking in terms of systems and using heuristics to make adjustments we operate by rules.

To explain the difference, think about picking up a hot cup of coffee. Our arm reaches forward adjusting its position based on feedback from our eyes, slowing down as we get closer. We lightly touch the cup to sense (measure) how hot it is. We close our fingers around the cup, testing its weight as we do, taking a tighter grip if needed, we raise the cup to our lips. First we might blow on the coffee if we think it is too hot before taking a sip. Carefully we place the cup back down in a spot we prefer.

If we were to apply a rules based approach how would we go about drinking coffee? The number of rules required is immense. Rules about how hot the coffee can be, how to move your arm into position, weight of cup and contents, pressure to be applied by our fingers, amount that can be consumed each time. Not forgetting the approval requests to management if the coffee is hotter or heavier than expected.

Rules based processes have great difficulty in handling any variation to what the rule expects. The problem with this is that the world is full of variations. To fix this we add more rules. When all this fails we escalate to seek approval to carry out an action the rules don’t cover. In the end we are left with manuals upon manuals of rules and escalation processes in order to get things done. The collective noun for this is Bureaucracy.

At the end of the day rules don’t work. When unions want to cause disruption, but without going on strike and losing pay, they implement a policy of “working to rule”. Ironically the way to cause the most disruption is to follow the rules!

Systems thinking gives us an understanding of how the whole system works together. The Integral Organization Model is an example of this type of thinking. Systems thinking is sometimes called the dismal science, because it often shows that our actions, although well intentioned, are causing more harm than good. As Jay Forrester, one of the founders of systems thinking, illustrates;

time after time I’ve done an analysis of a company, and I’ve figured out a leverage point…  …then I’ve gone to the company and discovered that there’s already a lot of attention to that point. Everyone is trying very hard to push it in the wrong direction!”

Using systems thinking and heuristics (goals and feedback) is the right approach but only if we have outcome based teams, nested mission statements and measurements. If our organization structure is based on vertical single function departments, sales, marketing, finance, we don’t have an outcome based system. Departments like this can only operate as its own internally focused system.

The other reason to have everything aligned to outcomes is we enable feedback loops that reinforce the WHY. This means we can empower the front line troops with the ability to make decisions to adapt to the variations they encounter in the working day. The feedback loops create accountability. In vertical function silos there are no outcome based feedback loops. Work is completed and passed on, or thrown over the wall, with a lot of finger pointing when the different departments disagree on the outcome produced.

When we have empowerment to make decisions with accountability that comes from the feedback loops, we create ownership. Ownership is the missing ingredient for employee engagement.

Just like the nested mission statements up and down the heterogeneous layers so do we have nested systems. Each layer has a system which includes the systems below and takes a broader view of the outcomes. In our holes and drills example the front line troop’s system is to make and sell drills. The system of higher up layers is looking from the perspective of what is the best way to make holes, this could be by changing to lasers or maybe some other new technologies. Even higher up the system is looking at whether the organization should stay in the holes business at all.

This recursive structure is what we find in nature including our self.  It is how we are able to manage in our very complex world. Stafford Beer calls it the Viable Systems Model.

Further discussion on Operational Models, Processes can be found at the FAQs;

How can we fix Bureaucracy?

Why is transparency like annoying facts?

What is the missing ingredient for employee engagement?

 

In summary a Perfect Organization needs a CEO that has developed their capabilities across a range of competencies to the level where they understand the requirement of All Different, All Needed.

That there are nested mission statements with aligned objectives and measurements based on the WHY the organization exists and not the WHAT.

Critically the organization structure has layers that aligns to the corresponding nested mission statements and not to the vertical functional silos of a WHAT world.

And finally the operating models are based on recursive nested systems with corresponding heuristics (goals and feedback) that allows an organization to manage and adapt to all the complexity in the world.

The challenge is that these four areas all operate together, connected and can be undone if only one of them slips back to the wrong approach.

If you want to know where to start please read “Where to start”.

 

But wait there’s more

So far we have only covered the internal world of the organization. In the future we will write about the external worlds. Customers, Competitors and New Innovations. We will update the links to those posts in this FAQ and on our website www.faqsfororgs.com or you can subscribe to our weekly update to be notified when they are published.

 

Integral Organization Model References

  1. Jaques, E 1989, Requisite organization : the CEO's guide to creative structure and leadership, Cason Hall, Kingston, NY.
  2. Torbert, WR & Cook-Greuter, S 2004, Action inquiry: the secret of timely and transforming leadership, Berrett-Koehler
  3. Beer, S 1979, The heart of enterprise, Wiley, Chichester [Eng.] ; New York.
  4. Beer, S 1980, Brain of the firm: the managerial cybernetics of organization, 2d edn., J. Wiley, Chichester [Eng.] ; New York.
  5. Beck, D & Cowan, CC 1996, Spiral dynamics : mastering values, leadership, and change : exploring the new science of memetics, Blackwell, Cambridge, Mass.
  6. Taleb, N 2012, Antifragile, Things that Gain from Disorder, Random House, New York 
  7. Christensen, CM 1997, The innovator's dilemma : when new technologies cause great firms to fail, Harvard Business School Press, Boston, Mass
  8. Wilber K, 2000, A Theory of Everything, An Integral Vision for Business, Politics, Science and Spirituality, Shambhala Publications, Boston, Mass
  9. Senge, P 1992, The Fifth Discipline, The Art & Practice of The Learning Organization, Random House Australia, Milsons Point, NSW