If your critical path is driven by knowledge, then you might consider an organizational structure that leverages that knowledge for the critical path. The classic article “Leveraging Intellect,” by James Brian Quinn, Philip Anderson, and Sydney Finkelstein looked at organizations where knowledge provides key value to the customer, ranging from airline operations and brokerage firms to medical practices, software companies, education, and professional firms. The authors then examined how the knowledge was developed, where it was located, the direction of the knowledge flow, and how it was leveraged to produce the value. Based on these criteria, they identified four different organizational structures that optimized the knowledge for the critical path:
Infinitely Flat;
Inverted;
Starburst;
Spider’s Web.
In the “Infinitely Flat” structure, the central hub of the company acts as a knowledge resource for an almost unlimited number of nodes. Think of a large fast food operator, like McDonald’s. The corporate group controls the recipes for the food items, the safety protocols, the operational layout, etc. It then dispenses that knowledge to the nodes and acts as the main knowledge reservoir when the nodes need help. The nodes neither create nor own the knowledge that leads to customer value. Instead, they apply the knowledge supplied to them. Since the nodes operate individually, they seldom have a strong need to interact or coordinate with each other. As such, you do not need many layers between the central hub and the nodes to control or coordinate them and the organization can be relatively flat.
In the “Inverted” structure, the most important knowledge is at the nodes interacting with the customer. Think of medical practices within a hospital. The doctors and nurses already possess the leading-edge knowledge needed to provide value to the patients. They do not look to “Corporate” for knowledge. Instead, Corporate is more of a service provider (thus why the authors use the label “inverted”), providing logistical support, accounting, etc. The nodes again do not have a strong need to communicate with each other. When they do, it is informally and directly, instead of flowing up to Corporate first. The corporate hierarchy is also inverted in that the corporate line managers do not really have authority over the professionals in terms of how they perform their work, i.e., an MBA manager has no say in how a heart surgeon does her job.
In large hospital systems, this inversion has become a bone of contention, as line managers have tried to “corporatize” the hospitals by exerting control over the professional interactions between the doctors and their patients, such as how much time can be spent during an office visit or which drugs can be used.
The “Starburst” structure is useful when the core contains some deep technical knowledge, while the nodes may have deep market or customer knowledge. Examples are mutual fund companies, venture capital firms, or movie studios. Vanguard has deep knowledge about investing in no-load funds, while its divisions know what portfolio of funds the customer segments (i.e., company pension plans vs. individual investors) want (i.e., equity vs. bonds, small vs. mid-size vs. large cap, or domestic vs. international). The core distributes the technical knowledge to the nodes, and the nodes send market information back to the core. The nodes rarely send knowledge directly to each other. Rather, the core decides which specialized knowledge from a node will be usefully shared with another node.
As the authors note, “Starburst organizations work well when the core embodies an expensive or complex set of competencies and houses a few knowledgeable risk takers who realize they cannot micro-manage the diverse entities at the nodes. They work well in very ambiguous environments where it is difficult to estimate outcomes without undertaking a specific market test.”
This requires an entrepreneurial mindset, and Starburst organizations will often spin out nodes into free-standing subsidiaries that can still draw upon the deep knowledge and competencies of the core. The ongoing risk of this organizational structure is that bosses in the core often lose faith in their freestanding spin-offs. They eventually will try to rein these units back in and consolidate them under the guise of efficiency or economies of scale. They generally regret these decisions since they do not have the needed deep market knowledge of the entrepreneurs in the nodes and will reverse themselves as the units sputter.
The “Spider Web” structure exists without a centralized core. Instead it is a network of independent nodes that join together on projects that need the knowledge, skills, or larger staffing that exceed what any one node can provide. Many independent professionals or researchers operate in Spider Web form, and many larger professional firms in law and consulting will simulate it within their firms. For example, in a multi-country research project, the principal investigator may reach into her network to find specialists within each country to take on that piece of the research project. That country project leader may then reach into his network to put together a team to conduct the research there. All the nodes will be in touch with each other to agree on schedules, common procedures to be used, and problems to be solved.
The Spider Web brings together the unique abilities of each node. As the authors note, “The Spider Web form releases the imaginations of many different searchers in diverse locations, multiplies the numbers of possible opportunity encounters, and encourages the formation of entirely new solutions from a variety of disciplines.” While autonomy at the nodes is necessary given the unique conditions faced by each country in our research project example, coordination and communication are key to keep the independent nodes in sync with each other.
If the customer values the creativity embedded in your products or services, then you can adopt a more open, adaptive structure to make that happen. This approach was pioneered by W.L. Gore Company, the maker of Gore-Tex, in the late 1950s. Gore decided that rather than have managers who told people what to do, it was better that employees figure out how they could be useful to add value to the critical path. Then they should do it. If Gore and his colleagues saw the value, the new employee got to stay. If not, then the employee got another chance to prove their worth before they were let go. In essence, the organizational structure was to allow the employees to align themselves along the critical path.
Valve Software, the Seattle-based video game developer and digital distribution company, took this flatter, open, organizational structure to another level to leverage the talents and creativity of its workforce. Everyone in the company knows that Valve’s purpose is to produce great games for their customers. To do this, Valve’s founders created an even flatter structure than Gore. Outside of the top executive team, Valve has no managers, and everyone self-manages, choosing what they want to work on and whom they work with. They created an open market where people pitch ideas to their colleagues trying to attract them to the project. The employees “vote” by joining the project and figuring out how to apply their talents to add value. Since every desk is on wheels, they can leave projects anytime they like, though it’s not cool to drop your work at critical times in the project.
To serve its customers well, Zappos, the online shoe company, has adopted a newer version of the open organizational form called “holacracy” which means no managers, job titles, or executive hierarchies. It starts with the purpose, which is to serve the customer well. You self-manage personally and gather together into circles, which are based on tasks and responsibility. Circles are structured within a task-ordered hierarchy, which is done in a consensual manner, but people are not structured. Instead you and your circle get to decide how you will carry out your responsibilities. Everyone takes full personal responsibility for her or his decisions and actions to serve the customer, and no one has the power to tell you how to do it differently.
The common thread of these open structures is the belief that smart employees who are committed to the critical path will figure out better and more innovative ways to make it happen than any CEO or managerial chain of command. Just like Adam Smith’s “invisible hand” will make economies more efficient than any top-down government central planners, open organizations are designed to capture both the best individual contributions and the “wisdom of crowds.”
These flatter, open organizational structures have not been without criticism. For example, holacracy requires lots of meetings to get to consensus and to coordinate the circles. So, if you are in a fast-moving, dynamic market, holacracy may be too slow for your critical path. On the other hand, if every employee is aligned and attuned with the critical path, then you might overcome these limitations and gain critical-path advantages.
Critical Path Action Items
Which type of organizational structure does your company have?
Does your structure utilize the knowledge assets and knowledge flows best for your critical path/
Could your company benefit from organizing in ways similar to Gore, Valve, or Zappos? How would the employees respond?