The growth of complexity is reflected in businesses’ goals. Today’s companies, on average, set themselves six times as many performance requirements as they did in 1955. And many of those requirements appear to be in conflict.
The problem with complexity is the way companies attempt to respond to it. To reconcile their many conflicting goals, managers redesign the organisation’s structure, performance measures and incentives, trying to align employees’ behaviour with shifting external challenges.
At the Boston Consulting Group, we’ve created an “index of complicatedness”, which measures just how big the problem is. The survey results show that over the past 15 years, the number of procedures needed in firms has increased by anywhere from 50% to 350%. That doesn’t leave much time for managers to work with their teams, and employees are often misdirected and expend a lot of effort in vain.
A far more effective approach entails creating an environment in which employees can work with one another to develop creative solutions to complex challenges. This approach leads to organisations that ably address numerous fluid and contradictory requirements without structural and procedural complicatedness.
These “smart rules” help managers mobilise their subordinates’ skills and intelligence. When the right feedback loops are in place, cumbersome alignment mechanisms can be eliminated, and employees find solutions that create more value.
Rule 1: Improve understanding of what co-workers do
To respond to complexity intelligently, people have to really understand one another’s work: the goals and challenges others have to meet, the resources they can draw on and the constraints under which they operate. The manager’s job is to make sure that such learning takes place. Without this shared understanding, people will blame problems on other people’s lack of intelligence or skills, not on the resources and constraints of the organization.
Exploring the real context of employees’ work helps managers discover when people need to co-operate and how well they’re doing it. Managers need to supplement the formal metrics and reports they receive with observation and with judgment when measurement is impossible. In many cases, just a day on the ground watching the interplay among people from different functions will provide insights into where and how cooperation is breaking down. Once you identify some simple root causes, you can move on to applying the other rules.
Rule 2: Reinforce the people who are integrators
Conflicts between front and back offices are often inherent. Back offices typically need to standardise processes and work, and front offices have to accommodate the needs of individual customers.
A common organisational response is to create some sort of co-ordinating unit – a middle office. But that just turns one problem into two: between the back and middle offices, and between the middle and front offices. The same thing happens vertically in organisations: co-ordination problems between the corporate centre and country operations trigger the creation of regional layers in between. Another common solution is to impose a co-ordinating procedure like computerised job requests.
A better response is to empower line individuals to play that integrative role. In almost any unit you will find one or two managers – often from a particular function – who already interact with multiple stakeholders. These people can act as integrators, helping teams obtain from others the cooperation needed to deliver more value.
Once you’ve identified them, you should reinforce their power by increasing their responsibilities and giving them a greater say on issues that matter to others. Removing some formal rules and procedures also helps increase the discretionary power of integrators. The larger a company gets, the greater the need for integrators, and therefore the fewer formal rules.
Rule 3:Expand the amount of power available
Usually, the people with the least power in an organisation shoulder most of the burden of co-operation and get the least credit. When they realise this, they often withdraw from co-operation. Companies that want to prevent this and increase cooperation need to give these people more power so that they can take the risk of moving out of isolation, trusting others, showing initiative and being transparent about performance.
However, firms have to do this without taking power away from others in the system. The answer is to create new power bases, by giving individuals new responsibilities for issues that matter to others and to the firm’s performance.
New sources of power can also be created around expertise building and knowledge transmission. This works especially well if both project managers and line managers need more power. Project managers can assess and reward project-related performance, and line managers can decide who gets to be trained in the higher-order management skills that will improve chances for promotion.
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