Higher hierarchies

Hierarchical decision-making is rooted in levels of authority, not in depth of expertise and specific knowledge of the situation.

It isn’t entirely foolish, either: Presumably, those higher in the hierarchy (which might be a pun but I doubt it) are there because in the past they demonstrated leadership and good judgment in their areas of responsibility.

The world changes faster, though and the detailed knowledge needed to handle a responsibility increases. The result: Those with the proper authority to make a decision are, to an ever greater extent, insulated from both the knowledge and the information necessary to make it well, let alone fast enough for it to be useful.

CEOs who recognize the problem for what it is are rare enough. Connecting the dots between the symptoms — organizational sluggishness and a culture of blame — and their root cause requires an honesty of communication and level of self-awareness that’s sadly unusual.

More often, CEOs exacerbate the problem by blaming employees and managers for failing to take responsibility, instead of creating a decision-making environment in which it’s allowed.

Those who do understand the problem often try to fix it with the band-aid of “de-layering” — of reducing the number of management layers, to speed decision-making by getting decisions to the right level faster.

It’s a nice try, akin to replacing the kitchen cabinets while leaving the leaky gas fittings alone. Fewer layers means more direct reports per manager, a matter of mathematics, not preference.

Which means each direct report gets less attention, translating directly to decision-making delays. De-layering doesn’t fix the problem because de-layering considers the problem to be one of organizational design and not of decision-making philosophy.

The popular catch phrase, “Push decision-making as far down as we can in the organization,” doesn’t achieve much more. It’s a laudable sentiment. It doesn’t fix the primary challenge, though, which, as discussed last week, is making decisions that cross organizational boundaries … decisions owned jointly by two separately managed departments like recruiting practices, where smart hiring managers focus on adaptability, character, and the habit of success, while HR compliance prefers objective criteria — certifiable skills and years of experience.

Pushing this decision “down as far as we can” means assigning final authority for every decision — a laudable goal for organizational design that substitutes delegation of authority (a one-time event) for escalation of decisions (events that recur in large volumes).

It’s a much better approach. In the modern world, though, this particular “better” doesn’t quite make it to “good,” because it creates a new challenge every bit as dangerous as the ones it fixes.

Here’s the issue: Imagine you’ve designed the organization according to a couple of well-chosen principles from among those listed last week. You’ve delegated authority appropriately, and established “responsibility matrices” for every decision everyone can imagine so everyone knows who has the authority to decide what.

Congratulations. You’ve engineered an organization that’s optimized for the set of challenges it faces today.

Along comes an unexpected opportunity — some customers need what your company sells plus what two other companies sell in order to solve one of their problems. It’s an opportunity for which the organization isn’t optimized. Finance defines success, and product margin is a key measure. Joint ventures belong to Legal, which has no reason to care. Supply chain doesn’t buy from competitors. And so on. By the time the CEO has decided to go forward, a competitor has the deal instead.

Organizations like this one choose opportunities based on their organizational design, not on what’s in their long-term strategic interests. It’s one factor in what Adam Hartung, in his excellent book Create Marketplace Disruption, calls “lock-in” (see “Books that are worth your time,” and “The Phoenix Principle,” 5/11/2009 and 5/18/2009, Keep the Joint Running.)

Only one solution provides enough flexibility and adaptability to create an organization that pursues opportunities based on their overall desirability, putting decisions in the hands of those with the right expertise and depth-of-knowledge to make them, and it isn’t a matter of organizational design.

The solution is institution of an entrepreneurial culture — one that emphasizes:

• Marketshare over margin.

• Collaboration over authority.

• Tactical advantage over long-term strategy.

• Fast, good-enough decisions over slow perfect ones.

• Acceptance of risk, which means occasional failures must occur, and shouldn’t result in punishments.

All of which illustrates a rule of organizational design: Fixing an organizational performance problem sometimes requires reorganization, but reorganization rarely fixes organizational performance problems.

At best it can remove a barrier.