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An effective hierarchy provides enough central control for coordinated action in achieving the aim of the organization. At the same time, the hierarchy must provides enough autonomy for subsystems to function, self-organize, flourish.
Yes. But how to do that? Let me walk you through a scenario that describes the challenge.
I’ve seen a number of organizations decentralize control and decision making, only to pull it back to the home office. If you watch long enough, many of these companies after experiencing centralized control for a while, go back to decentralized control–like a pendulum swinging back and forth.
Here’s how it goes.
As a result of centralized control, decisions are slow. Slow decisions and top down plans that require an act of god to change lead to poor financial performance, and customer dissatisfaction. Because people are effectively denied discretion, creativity plummets. Rigid plans and targets don’t allow people to take advantage of new opportunities.
When the financial results start to trend down, senior management notices. They want faster decisions, and front-line people who are responsive to customers. They want creativity, innovation. They want to seize emergent opportunities and respond nimbly to change. They want better financial results. Who wouldn’t want all those things. So they decentralize.
After the initial flush of enthusiasm, they start noticing problems. Visibility decreases. Decision making and spending feel out of control. Some subunits make inappropriate decisions. Subunits optimize at their level, forgetting the overall goal of the organization. Some subunit managers go rogue, and strike out in directions that make no sense for the overall company strategy. Financial results dip.
And the managers want a return to clear lines of communication and authority. They want visibility, coordinated action. They want predictability, consistency. They want CONTROL. So the pull decision making, planning, budgeting back to the center.
While the supposed solution seems to be swinging between two poles, the organization and the people in it experiencing an oscillating effect.
In truth, the company doesn’t want either end of the pole. They want the upside of both centralized control and decentralized control. They want enough control to effectively coordinate actions of the various parts of the system to achieve the goal of the organization, And they want enough autonomy so that all parts of the system can flourish, self-organize and respond to opportunities and change.
Why do systems oscillate? Delayed feedback and an over-vigorous correction. This happens on the organizational level, but it can also happen on a smaller scale anywhere in the system where feedback is slow and well-intentioned people over-correct when they do get feedback on system performance.
In order to achieve the upsides, organizations need to manage the downsides. And that requires faster and more robust feedback loops. Those feedback loops will provide information about system behavior sooner, and allow smaller more nuanced adjustments.
I’ll write about some of those feedback loops next.