HIGH-PERFORMING organizations operate as empowered networks, coordinated through culture, information systems, and talent mobility. Companies are focused on redesigning the organization itself, with nearly half actively studying and developing new models. And many organizations are not only designing but also building this new organization. As networks and ecosystems replace organizational hierarchies, the traditional question “For whom do you work?” has been replaced by “With whom do you work?”
Why has organizational design zoomed to the top of the list as the most important trend in the Global Human Capital Trends survey for two years in a row? The answer is simple: The way high-performing organizations operate today is radically different from how they operated 10 years ago. Yet many other organizations continue to operate according to industrial-age models that are 100 years old or more, weighed down by legacy practices, systems, and behaviors that must be confronted and discarded before true change can take hold.
As organizations become more digital, they face a growing imperative to redesign themselves to move faster, adapt more quickly, facilitate rapid learning, and embrace the dynamic career demands of their people. This year, leading organizations are moving past the design phase and actively building this new organization. Still, many business leaders seem to have little confidence they will get the process right.
This concern is warranted. Organizational design and change are complex. Many organizational redesigns fail because they are reduced to an exercise to cut costs. Others face resistance from company leadership. In fact, many consulting firms anecdotally report that up to 70 percent of reorganizations fall short because of “creative disobedience” from the executive team.
Frustration is also common. Designing the organization of the future is a difficult, sometimes messy project of trial and error, not an exercise on paper. It is a continuous, dynamic, and, in a sense, never-ending process. Yet for companies that rise to the challenge, the payoff can be immense in terms of financial performance, productivity, employee engagement, and a host of other benefits.
In the past, most organizations were designed for efficiency and effectiveness, leading to complicated and siloed organizations. The resulting business models, which were based on predictable commercial patterns, are unsuited to an era of unpredictability and disruption. Instead of mere efficiency, successful organizations must be designed for speed, agility, and adaptability to enable them to compete and win in today’s global business environment.
An important part of designing for adaptability is a shift away from hierarchical organizational structures toward models where work is accomplished in teams. Indeed, only 14 percent of executives believe that the traditional organizational model—with hierarchical job levels based on expertise in a specific area—makes their organization highly effective. Instead, leading companies are pushing toward a more flexible, team-centric model.
As organizations make this transition, they find that smaller teams are a natural way for humans to work. Research shows that we spend two orders of magnitude more time with people near our desk than with those more than 50 meters away.1 Whatever a hierarchical organization chart says, real, day-to-day work gets done in networks. This is why the organization of the future is a “network of teams” (see figure 2).
Top companies are built around systems that encourage teams and individuals to meet each other, share information transparently, and move from team to team depending on the issue to be addressed. Different networks can have different specialties, such as innovation or getting to market quickly, but the principle is the same.
For a company to stay agile, teams must be formed and disbanded quickly. High-performing companies today may build a “digital customer experience” group, select individuals for the team, and ask them to design and build a new product or service in a year or two. Afterward, the team disperses as team members move on to new projects. This ability to move between teams without risk is a critical attribute of today’s high-performing companies.
Recently, a leading North American bank undertook an initiative to design a new way of working to deliver solutions faster while competing with fintechs and other unconventional players that compete based on customer experience, digital interfaces, and rapid time to market in product delivery. The proposed operating model focused on embedding agile practices and using networked cross-functional teams of developers, coders, business analysts, and user design experts focused on a specific product outcome. After finishing work in one area, teams would be redistributed and the next project begun. In initial pilots, the bank proved that this type of organizational approach could radically increase the speed of the development cycle; it plans to scale the model across the organization over time.
Nearly all surveyed companies (94 percent) report that “agility and collaboration” are critical to their organization’s success, yet only 6 percent say that they are “highly agile today”; 19 percent describe themselves as “not agile.” Fortunately, there is tremendous progress in this area. Among this year’s survey respondents, 32 percent say that they are now designing their organization to be more adaptable and team-centric.
High-performing companies often first develop these flexible models at the “edge” of the company. To make further progress, they focus on building a new leadership mind-set that rewards innovation, experimentation, learning, and customer-centric design thinking.2 In short, if what a company needs to know and do is constantly changing, then the organization’s structure must change as well.
Many new tools and techniques offer valuable contributions to building the organization of the future.
One promising technique is organizational network analysis (ONA), which uses specialized software and methodologies to help companies study “who is talking to whom.” This type of analysis, which can use patterns in emails, instant messages, physical proximity, and other data, allows leaders to see quickly what networks are in place and identify the connectors and experts.
Only 8 percent of companies in this year’s Global Human Capital Trends survey are using ONA today, but usage is growing rapidly, with an additional 48 percent of companies experimenting with these tools. One company used this technique to redesign its sales organization and found that many experts were underutilized. After adopting a new team-centric model, total revenue generation rose by more than 12 percent.3
Simplification of work practices and new work tools are critical as well. While a networked organization makes sense for agility and responsiveness, it also increases the need to coordinate teams and can lead to an overwhelming number of meetings, emails, and communications channels. Cognitive overload can dramatically reduce productivity.
New organizational models also require a new approach to leadership. Leaders of networked teams in agile organizations require skills such as negotiation, resilience, and systems thinking. In some cases, the most experienced leaders and business unit heads may be the wrong people to take charge of digital, agile, networked teams. As we discuss in our chapter on leadership, effective leaders in a networked environment must have a high degree of network intelligence, getting to know what’s going on throughout their company, throughout their industry, and throughout the customer marketplace.
As networked organizations continue to emerge, new tools are starting to make collaboration easier. Facebook’s Workplace, Slack, Google Team Drives, Atlassian Confluence, Microsoft Skype, and hundreds of others are helping to facilitate the transition to networks of teams. Nearly three-quarters of companies (73 percent) are now experimenting with these tools—and benefiting in unique ways.4 For instance, a public museum in Sydney now uses Jira, an agile management tool, to keep track of burned-out light bulbs. An auto distributor in Maine uses HipChat to monitor tire pressures and repair items in its warehouses.5
Empowering people to make decisions and relying on networks of interactions does not mean that people are no longer accountable for results. In fact, one objective of an agile network is to use goal-setting to support success.
In teams, accountability becomes more transparent. Individual and team goals and metrics should be shared for everyone to see. The sense of accountability this can create is critical to team and corporate effectiveness. Indeed, among 17 top practices in high-impact leadership, an organization’s ability to clearly define decision-making practices and clarify accountability featured among the top drivers of outstanding financial outcomes.6
For instance, a large telecommunications company in Asia has embraced real-time dashboards that measure customer acquisition, customer satisfaction, hiring, employee satisfaction, and financial profitability across all 1,000 of its small business teams. This infrastructure, built on top of its SAP backbone, gives the entire company transparency, accountability, and the ability to adapt quickly.7
Philips Lighting conducted a series of workshops around the world to help the company identify its traditional current and future values in order to build alignment around a new, more innovative culture. The company created a common manifesto around four new cultural values (Pioneering, Caring, Fast, and External Focus) to help the company empower teams, rapidly innovate, and move into lighting services and a new market for Internet-based lamination.8
One key capability of the organization of the future is the ability to form teams rapidly. This requires a clear understanding of each employee’s skills. One huge organization that has mastered this capability is the US Department of Defense (DOD).9
DOD’s military population includes over 7 million personnel on active, guard, and reserve duty, including Retired/Ready Reserve personnel subject to callback—and, despite its massive size, has created one of the most complete, detailed views of its workforce that any organization has achieved. For every soldier, DOD grades his or her leadership experience and skills; captures occupational specialties with details on levels of experience; and compiles a complete service history that encompasses both DOD and non-DOD skills, including degrees and certifications.
With this information, DOD can make agile, highly targeted deployments—in essence, teams or networks of teams—from its population of 7 million. Over the last decade, DOD has developed the capability to deploy either a single individual or a specifically chosen group anywhere in the world with relative ease.
For business, DOD’s example offers clear lessons. Organizations should create a basic framework for understanding and measuring its complement of skills across the enterprise. Most organizations have not invested in a common framework; without it, a clear understanding of capabilities is impossible. But a framework alone isn’t enough. The system only works if the data are current and easily accessible.
Another example of organizational agility is a leading North American insurance provider’s creation of a digital insurance platform that allows consumers to buy policies online in a few simple steps.
Aside from the legal and regulatory challenges to deploying such a platform, the company had no experience with agile programs. It had to transform itself and learn new ways of working at the same time. Most fundamentally, the organization had to restructure itself to enable greater collaboration, communication, employee empowerment, and information flow.
The structure of the legacy organization, composed of over 2,200 employees under a traditional command-and-control model, was not right for the new venture. The company set up a separate entity of about 700 employees and contractors that reported directly to the senior vice president leadership team and the CEO. The entity both hired new talent and assigned current employees to the program, empowering them to make decisions in the best interest of the program with little or no influence from the legacy organization. It also established a flexible organizational and governance structure centered around the Agile methodology: a network of teams grouped by product functionality, technical domains, and operational readiness, reporting to program leaders with the authority to approve final decisions.
The program entity set up a variety of ways to enable anyone to raise and view issues, escalate decisions when required, and ultimately facilitate a collaborative environment. From a talent perspective, continuous coaching, learning, and teaming employees with other types of workers (such as contractors) allowed for a diverse and collegial environment, increasing agility and removing decision roadblocks.
The legacy organization was engaged with the program team to support the design and delivery of the program. The interactions between the legacy organization and the new entity were defined in advance, and while it took effort and time to reach the point where the model worked effectively, this was critical to the success of the program.
The digital platform that grew out of this work transformed how people purchase insurance and is setting a new precedent for how insurers should do business. Now the company is working to bring key components of this flexible organizational structure into the entire enterprise to change how it does business daily.
As this new type of organization takes hold, working in teams will likely become the norm in business, and dynamism will become an organizational hallmark. Building and supporting teams will be leaders’ principal tasks. Software to help companies benefit from teaming may also become standard.
Leading organizations will offer dynamic developmental opportunities for employees to build their careers, while companies that continue to operate in the old manner will likely struggle to keep up. In this new world, more nimble organizations will have certain advantages, but successful large organizations will keep pace by building stronger ecosystems and partnerships that broaden their workforces and capabilities.
Deloitte’s Human Capital professionals leverage research, analytics, and industry insights to help design and execute the HR, talent, leadership, organization, and change programs that enable business performance through people performance. Visit the Human Capital area of www.deloitte.com to learn more.