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[Copied without permission from Fortune magazine, June 17, 1991 issue]
THE BUREAUCRACY BUSTERS
They're throwing away organization charts in favor of ever-changing
constellations of teams, projects, and alliances. The goal: unleashing
employee creativity. By Brian Dumaine
If you were to ask a CEO in the year 2000 to take out his Montblanc and draw
the organization chart of his company, what he'd sketch would bear little
resemblance to even the trendiest flattened pyramid around today. Yes, the
corporation of the future will still retain some vestiges of the old
hierarchy and maybe a few traditional departments to take care of the
boringly rote. But spinning around the straight lines will be a vertiginous
pattern of constantly changing teams, task forces, partnerships, and other
informal structures. Picture one of those overhead camera shots in a Busby
Berkeley musical: Dozens of leggy dancers form a flower on stage, disband into
chaos, and then regroup to form a flag or a fluegelhorn. Like the dancers,
in tomorrow's corporation teams variously composed of shop-floor workers,
managers, technical experts, suppliers, and customers will join together to
do a job and then disband, with everyone going off to the next assignment.
Call this new model the adaptive organization. It will bust through
bureaucracy to serve customers better and make the company more competitive.
Instead of looking to the boss for direction and oversight, tomorrow's
employee will be trained to look closely at the work process and to devise
ways to improve upon it, even if this means temporarily leaving his regular
job to join an ad hoc team attacking a problem. Says Raymond Gilmartin, CEO
of Becton Dickinson, a New Jersey maker of high-tech medical equipment:
"Forget structures invented by the guys at the top. You've got to let the
task form the organization."
So far, the adaptive organization exists more as an ideal than as a reality.
But you can see aspects of it taking shape not only at Becton Dickinson but
also at companies such as Apple Computer, Cypress Semiconductor, Levi
Strauss, Xerox, and AES (formerly Applied Energy Services), a builder of
co-generation plants. Last year, for instance, an informal Xerox team made
up of people from accounting, sales, distribution and administration saved
the company $200 million in inventory costs. Cypress, a San Jose,
California, maker of specialty computer chips, has developed a computer
systems that keeps track of all its 1,500 employees as they crisscross
between different functions, teams, and projects. Apple is developing a
computer network called Spider that, like a high-tech version of the dossiers
Mr. Phelps used to choose his "Mission: Impossible" team, instantly tells a
manager whether an employee is available to join his project, what the
employee's skills are, and where he's located in the corporation.
If you look hard at your own organization, you'll probably see something
quite similar already going on. In every outfit of more than a few people,
there exists an informal organization - social scientists sometimes call it
an emergent organization - that operates alongside the formal one. It
consists of the alliances between people and the power relationships that
actually get work done. It may be as simple as some workers banding together
to go outside channels to do a job despite the obstacles set in their way by
a pigheaded bureaucrat. This isn't new. What is new is that corporations
are finally realizing the need to recognize the informal organization, free
it up, and provide it the resources it needs.
The adaptive organization incorporates the informal organization and draws
its power from the same fund of energy. It provides openings for the
creativity and initiative too often found only in small, entrepreneurial
companies. It does this by aligning what the corporation wants - innovation,
improvement - with what turns people on, namely a chance to use their heads
and expand their skills. Traditional hierarchies usually have the opposite
effect. Says Paul Allaire, Xerox's new CEO: "When people know some order or
memo is eventually going to come down from above and demand something
different that what they want to do, it's easy to say, 'Hell, I've been
burned enough times. I'm not going to do anything until I'm told to do it.'"
Some influential CEOs like Allaire now believe that unleashing this kind of
energy is the best hope for U.S. competitiveness, better than any quality
program. That's a thought to be take seriously, coming as it does from the
CEO of a company that won the Baldrige award in 19089. Explains Allaire:
"We're never going to outdiscipline the Japanese on quality. To win, we need
to find ways to capture the creative and innovative spirit of the American
worker. That's the real organizational challenge."
Many managers point out, and rightly so, that giving people this kind of
freedom raises troublesome questions. If no one's watching over workers, how
do you prevent them from heading in the wrong direction, or running off the
rails? Who decides which person ends up on which team and for how long? How
do you judge the performance of someone who is constantly rotating from team
to team? What happens to careers where there's no clear ascent up the old
hierarchical ladder? For some answers, read on.
In considering whether this model is for you, says professor Paul Lawrence,
and organizational theorist at the Harvard business school, begin by
imagining a spectrum with a traditional hierarchy at one end and the adaptive
organization at the other. Generally speaking, companies in stable,
slow-growth industries like oil, paper, and forest products should stay near
the hierarchical end of the spectrum. Hierarchies were designed for stable
situations, and if yours is one of those increasingly rare companies lucky
enough to be in a relatively predictable market, it probably doesn't pay to
change. By contrast, companies in fast-changing markets like computers,
telecommunications, publishing, auto, and specialty steel probably need to
move as far as possible toward the adaptive end of the line.
What will the adaptive organization look like? No one knows for sure, but
that hasn't stopped an excited assortment of academics and consultants from
trying to describe it. Raymond Miles, a management professor at Berkeley,
likens it to a network where managers work much as switchboard operators do,
coordinating the activities of employees, suppliers, customers, and
joint-venture partners. Charles Sabel, a sociologist at MIT, dubs it the
Mobius strip organization, after the geometric form that has not identifiable
top or bottom, beginning or end. Sabel means to suggest a body that
constantly turns in on itself, in an endless cycle of creation and
destruction.
No matter what you call them, all these designs for an organization have one
thing in common: fluidity. The adaptive organization will work much the same
way that big construction firms such as Bechtel, Fluor and Brown & Root do,
gathering hand-picked groups of employees and outside contractors with the
right skills for each new dame, refinery, or airport.
About four years ago, Becton Dickinson found itself worrying about the
competition despite a history of fast growth and annual revenues of around $2
billion. To regain its edge, the maker of high-tech diagnostic systems such
as blood analyzers started exploring ways to let its informal organization
bust out. While the company still maintains traditional functions like
marketing, sales, and manufacturing, it now encourages its people to take
the initiative and form teams to innovate and go after business in new ways.
Explains CEO Gilmartin: "We're creating a hierarchy of ideas. You say, 'This
is the right thing to do here,' not 'We're going to do this because I'm
boss.'"
Instead of directing strategy from the top, Gilmartin lays out a very broad
vision - develop proprietary ideas and beat the competition to market with
them - and then lets his 15 divisions develop their own business strategies.
Part of the point is to send a message to employees that there is no rigid
master plan.
Left on their own, Gilmartin's division heads structure their businesses to
meet their needs. Says Chuck Baer, head of the company's consumer products
division: "We reorganized ourselves by the way we work. We organized
cross-functional teams that include not only our own people but also vendors,
suppliers, and people from other divisions. We set the strategy and the team
carries it out."
This is harder than it sounds, and less than completely democratic. In 1990,
Becton Dickinson developed a new instrument called the Bactec 860, designed
to process blood samples. A team leader was assigned and immediately put
together a project team of engineers, marketers, manufacturers, and
suppliers. While the group eventually launched the Bactec 860 some 25%
faster than its previous best efforts, Gilmartin wasn't satisfied.
There was still too much time-wasting debate between marketing and
engineering over product specifications, he found. Marketing argued that
Bactec 860 needed more features to please the customer, while engineering
countered that the features would take too long to design and be too costly.
Further inquiry led management to the nub of the problem: Because the team
leader reported to the head of engineering, he didn't have sufficient clout
to resolve the conflict between the two sides. Today the company makes sure
all its team leaders have access to a division head, which gives them the
authority to settle disputes between different functions.
What's to keep an informal systems from veering off in the wrong direction?
Xerox's Allaire believes something as simple as that old rag "focus on the
customer" is often enough to steer by. A few years ago, for instance, Xerox
prided itself on its ability to ship a copier from its factory to a customer
faster than the competition. Only one problem: That wasn't what Xerox's
customers cared about. They wanted to know when the copier would arrive, to
have it installed on schedule, in working order, and to be presented with an
accurate bill. Unfortunately, Xerox didn't have much grasp of how to do
that. When a customer asked when his copier would arrive, the salesperson
would typically answer "two weeks" because he had no better information.
Says Allaire: "It was a real embarrassment."
Allaire assigned a seasoned middle manager to tackle the problem. Taking the
initiative, the manager pulled a group of people out of their regular jobs in
such functions as distribution, accounting, and sales. The team developed a
system that tracks each copier through the distribution process and makes
sure that it and the accompanying paperwork check out. Changing the process
helped Xerox boost its customer satisfaction, as measured by a company
survey, from 70% to 90%. Says Allaire: "You can't get people to focus on
only the bottom line. You have to give them an objective like 'satisfy the
customer' that everyone can relate to. It's the only way to break down those
barriers and get people from different functions working together.
It's not a one-shot deal either. Soon after Xerox revamped its distribution
system, it tackled inventory by forming a so-called coordinating group that
cuts across hierarchical lines. The team found that no one was coordinating
the flow of copiers through the manufacturing process, into the warehouse,
and out the door. At every stage each department was ordering extra
inventory, out of fear of being caught short. The coordinating team took a
look at the whole chain, set in place procedures to make cure everyone along
the line could always get as many copiers as they needed, and cut inventory
costs by $200 million a year.
When people move from one team to another, they and their companies have to
think about careers and pay in new ways. It's likely that tomorrow's workers
and managers, instead of slowly climbing the ladder, will make more lateral
moves, picking up expertise in different functions like marketing or
manufacturing. For those who do well on teams, Becton Dickinson is trying
out so-called lateral promotions, rotating, say, a financial person into a
marketing or manufacturing job. In one division last year, the company
rotated ten managers out of 50. These people got a raise and change of
title, just as they would with a regular promotion, but they weren't
necessarily put in charge of any more people.
Working in an environment where teams constantly band and disband requires
new sets of skills. Stuart Winby, an organizational expert hired by
Hewlett-Packard to ponder the future, argues that a team leader should be
trained to spend the first two or three days designing the right way to get
the job done. He'd decide who would best fit the team, what reward system is
appropriate, and what information technology is necessary.
Apple is working on a new computer system that should help leaders find the
right people for their teams. Now being developed in the company's Advanced
Technology Lab in Cupertino, California, the Spider system combines a network
of personal computers with a vide-conferencing system and a database of
employee records. A manager assembling a team can call up profiles of
employees who work anywhere from Columbus to Cameroon. On the screen he'll
see a color photo of the person, where he works, who reports to him, whom he
reports to, and his skills. If the manager wants to interview a candidate
in, say, Frankfurt, he can call him over the Spider network and talk with him
in living color on the computer screen.
But how to get the candidate's boss to part with him, even for a temporary
assignment? The experts don't have this one figures out completely, though
they suspect that much barter will go on in the adaptive organization. One
manager may be willing to run short-handed for a while, knowing that when he
really needs the manpower he'll get it from elsewhere in the organization.
Another hallmark of the adaptive organization is its openness to outsiders.
A greater appreciation of flexibility within seems to encourage a greater use
of alliances, partnerships, joint ventures, and other relationships with
parties from outside. While some companies that haven't embraced other
aspects of the adaptive organization are also moving in this direction, they
don't seem to do so with the same gusto.
One key to doing it right, says C.K. Prahalad, a professor at the University
of Michigan and a consultant, is the company's ability to recognize its core
competencies. A core competency, by his definition, is what a company does
best. If its strength is engineering and design, for example, it might want
to farm out manufacturing. Says Apple executive vice president Al Eisenstat:
"If I can lop off one area of activity and say, 'Gee, I can join with such
and such a company,' then I can focus my resources on what I do best."
Companies such as Apple, Nike, and IBM (with respect to its PCs) have set
themselves up as design, engineering, and marketing companies, farming out
much of their manufacturing to those who can do it cheaper and better. Says
Jay Galbraith, a management professor at the University of Southern
California: "These companies control the flow of product from the factory to
the retailer. They act like they own the place, but they don't."
To work smoothly with outsiders, companies must learn to stop thinking like
xenophobes and open themselves to the larger world. As Jack Welch of GE puts
it, tomorrow's organization will be boundaryless. It will work with
outsiders as closely as if they were insiders. For instance, Apple has the
Delta consulting firm of New York City hooked into the California company's
computer network. Anyone at the New York firm can send a message to CEO John
Sculley just as easily as an Apple employee could.
So here you are in the year 2000, and you've got a constantly changing,
adaptive organization. How will you keep track of all this chaos? At
Cypress Semiconductor, CEO T.J. Rodgers has a computer system that allows him
to stay abreast of every employee and team in his fast-moving, decentralized,
constantly changing organization. Each employee maintains a list of ten to
15 goals like "Meet with marketing for new product launch" or "Make sure to
check with Customer X." Noted next to each goal is when it was agreed upon,
when it's due to be finished, and whether it's finished yet or not.
This way it doesn't take layers of expensive bureaucracy to check who's doing
what, whether someone has got a light enough workload to be put on a new
team, and who's having trouble. Rodgers says he can review the goals of all
1,500 employees in about four hours, which he does each week. He looks only
for those falling behind, and then calls not to scold but to ask if there's
anything he can do to help them get the job done. On the surface the system
may seem bureaucratic, but it takes only about a half-hour a week for
employees to review and update their lists.
The toughest part of moving toward the adaptive organization may be selling
it to managers. Says Michael Beer, a management professor at the Harvard
business school: "It's a fundamental change in the way people think, work,
and feel. It's gut wrenching." Xerox's Allaire concurs: "The hardest person
to change is the line manager. After he's worked like a dog for five or ten
years to get promoted, we have to say to him or her, 'All those reasons you
wanted to be a manager? Wrong. You cannot do to your people what was done
to you. You have to be a facilitator or a coach and, by the way, we're still
going to hold you accountable for the bottom line.'" In its efforts to
become more adaptive, Becton Dickinson ran across much the same challenge.
The company had dutifully created cross-functional teams and lectured
everyone on the evils of bureaucracy. Even so, nothing seemed to change -
the company still had too many middle managers who weren't willing to cede
control to others. Says Jim Wessel, a vice president: "We had to get over
the mind-set that said, 'I'm not in control, so it must be out of control."
A restructuring at Becton Dickinson serendipitously solved the problem by
overloading the middle layers with responsibility. Managers found themselves
working 14 hours a day just to keep up with the increased workload.
According to Wessel: "After about a year of this, they said, 'I can't go on.'
And then they started delegating."
Kenan Sahin, president of Kenan Systems Corp., a Cambridge, Massachusetts,
software consulting firm, argues that in an adaptive organization, managers
will have to change gears readily, following the lead of the person who knows
most about the subject. Says he: "Before, when markets were slower, leaders
had time to absorb information from experts. Now markets and technologies
are becoming so complex, the experts will have to do the leading." In
Sahin's vision, a skilled scientist or engineer or marketer who's a leader on
one project may have to turn around and be a follower on the next.
AES, the builder and operator of co-generation plants, already takes this
principle further than most companies. As part of encouraging everyone from
the bottom ranks up to take more initiative, CEO Roger Sant invented
something called work week. Once a year, every senior managers in the
company must spend a week working in one of the company's generating plants.
The employees get to pick what job the boss does. Two years ago, for
example, Sant ended up driving a front-end loader, a piece of heavy equipment
AES uses to scoop coal onto conveyor belts. Says the chief executive: "It
was a mess; there was coal all over the yard."
Work week helped Sant descry some of the obstacles to a more open
organization. At one point, workers in the plant told him they couldn't do
something because "they" didn't want them to do it. "Who's 'they'?" asked
Sant. "You know, 'they'" replied the workers. Sant quickly realized there
was not "they," just old, inefficient work habits and memories of being
throttled by bureaucracy. In response, Sant started a "Theybusters"
campaign, with appropriate buttons and posters. The result was some
surprising employee initiatives: For example, one AES worker figured out how
to avoid costly plant shutdowns by using tennis balls to temporarily stop
leaks in a pollution-control system.
Toward the same end - getting managers and employees to understand how much
they have in common in pursuit of personal and corporate goals - Levi Strauss
conducts what it terms leadership week. The company sends a top manager, a
trainer, and 20 employees off site for up to a week. During that time,
people perform a series of exercises designed to explore, among other things,
why people work. All right, to make money. But the company believes there's
more to it that that.
In one exercise, employees write their own obituaries, which tends to focus
the attention wonderfully on what legacy a person would like to leave behind.
Says Bill Eaton, a member of the Levi Strauss executive management committee
who, like everyone else in the company, prefers to wear you-know-whats to the
office: "People are driven not by little business achievements like how many
jeans you got shipped through the door, but by things you've done to help
other people grow."
Through leadership week, Lynne Southard, a Levi middle manager, realized that
she was spending too much time as a slave to rules and regulations and not
enough time helping along her employees. Says she: "I learned that
leadership is like raising a kid. I clap for my child every time he takes a
step." You have to be prepared, however, for the child to take an occasional
tumble. Last year, for instance, one of Southard's people failed to buy
enough fabric to meet a production run of jeans. It cost the company dearly.
Says Southard: "We sat down and found out what sent wrong and how to prevent
it in the future in a nonthreatening way. Unlike in the old days, there was
no blaming and finger pointing."
How nice, you may say, and how touchy-feely. But what does it do for the
company? Well, reply the managers who have tried it, it just may give the
organization the flexibility first to spot and then to respond to the
challenges of the ever-quickening future. And along the way, they add, you
can pick up a gratifying measure of personal satisfaction. As Levi Strauss's
Eaton testifies, "On a day-to-day basis, my passion comes from backing
people's efforts, getting them what they need to do the job, educating them,
and working with them as a member of the team." If you like how that sounds,
why not start ripping up your organization chart now?
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