What is the fundamental flaw in organisations?

Paraphrasing Adam Smith, the fundamental flaw is the division of decisions.

We send our best and brightest off to executive development courses, Stanford, Harvard, Insead, MIT, Wharton, Kellogg, Darden.

We bring in the world’s leading business consultants, Bain, BCG, McKinsey, PWC, EY, Accenture, Deloitte.

We attend industry and process conferences to learn best practices, TGM, Lean Thinking, Six Sigma, LeanSixSigma, The Lean Startup, Agile Development, Systems Thinking.

We email out the latest, must watch, TED talk, Simon Sinek’s, “How great leaders inspire action”, Shawn Achor’s, “The happy secret to better work”, Hans Rosling’s, “The best stats you have ever seen”. 

We implement the latest collaboration technologies, Yammer, Socialcast, Jive.

You can’t say we are not trying! Right? Right. So why is the exception, the exception and not the norm?

All these learning and development programs are akin to completing a drug rehabilitation program only to live back in a meth house. When we return from the latest leadership program, best practices conference, offsite strategy workshop, we find ourselves still stuck in meetings all day long, we still can’t get decisions made, we still write and read enough emails to make War and Peace look like a short story and we still spend our weekends doing our actual jobs. And forget about trying to innovate, anything!

We don’t need to be clever – just less stupid”, is the headline of an article that screams at us about the frustrations of trying to deal with an organization with all the symptoms of the same fundamental flaw.

All of this development, process improvement, collaboration work we are doing is necessary and absolutely right. But the one thing we need to do is stop living in a meth house. The organisational equivalent is the fragmentation and misalignment of decision making.

Adam Smith wrote the Wealth of Nations in 1776, detailing how his division of labor concept applies to an industrial economy. Fast forward to today and the division of labor has morphed into the division of function; sales, marketing, development, service, finance. When applied to today’s knowledge/information/service economy this has become the division of decisions. Today decisions are divided up amongst the functions of an organization and not aligned to the outcomes the organization is trying to achieve.

In your organisations if you want to produce/do/develop/change/discount anything that is slightly different from the standard process, how many people are required to give their approval?

This might be a good place to look when we ask, “why can’t we innovate?”.

Why have we divided achieving a single outcome into so many decision parts? Because we organise and operate around the functions of the organization and not the outcomes. But we can change that, here are some examples;

  • Toyota appoints a Chief Engineer for each Car Model. The Chief Engineer has the authority over every decision to do with the development and manufacture of that car. Not the Design Engineer, the Marketing Manager, the Foundry Manager, the Assembly Line Manager nor the Paint Shop Manager. The Chief Engineer is a revered role, but no one actually reports to the Chief Engineer.
  • Southwest Airlines appoints an Airport Manager. They have the authority over every decision to do with the operation of that airport. Not central procurement, the head of pilots, the Vice President of Ground Crews nor the Cabin Crew Manager. The Airport Manager has the authority, is responsible and accountable for the total operation of their airport, not just some of the piece parts.
  • The division of decisions can be resolved through organizational structures based on outcomes and not function. Examples of this are provided in Horizontal Flow. This is the optimum answer, it is how disruptive start ups start, but we are so entrenched in our “Adam Smith” thinking that we cannot even perceive how to organize in this way. In classic “Smithion” logic we exclaim, “but it won’t scale”.

If the division of decisions can be resolved in these ways why doesn’t the CEO step in and fix it? The main reason is because in their day to day routine they don’t see it. At the CEO level, at the top of the company, there is no division of decisions. When the CEO sits down with their team, all the functions that deliver the end outcome are seated around the table. If there is still disagreement amongst the team the CEO can make the decision. This is the only place inside an organization where there are no division of decisions. The CEO too often is the only manager in the organization with the equivalent authority of Toyota’s Chief Engineer or Southwest’s Airport Manager. No wonder they are very busy!

But why can’t the CEO see that the division of decisions is occurring beyond their immediate team?

The first reason is that management layers are very powerful filters. As described in the Decision Equilibrium Point it is a career limiting move to ask the CEO to make a decision because you cannot cooperate with your peers. To avoid this a compromise decision is made at lower levels. But the decision is a compromise between functions and not necessarily the best decision for the end outcome.

The second reason is when the symptoms of the division of decisions (i.e. FAQs for Orgs) show themselves, no one looks for the root cause. When we find teams not working together or people with self interested behavior or customer satisfaction issues we rollout the development courses, change programs and bring in the consultants, Q.E.D.

They don’t understand the root cause because that takes an ability to think at a level which is beyond CEOs who have been successful in functional silos. If you are successful in a world that operates in this division of decisions paradigm, why question its validity. It is like the fish in the bowl being asked how is the water, the reply is “what water?”.

When you are swimming in it all the time it is hard to see that it is there.

Breaking up the meth lab can be done by understanding Horizontal Flow and Vertical Leverage.