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Financial TimesConsidering so many of us are supposed to be working in something called the “knowledge economy”, it is absurd how stupidly designed so many businesses and organisations actually are.
Matrix structures are piled on ad hoc reorganisations, divisions are divided, parcelled up and then redivided all over again. No wonder accountabilities get blurred, employees are confused and performance suffers.
A key problem in this digital age has been the failure to adapt the way businesses are organised. Few leaders see their company as a complete system. Instead, they try to carry out partial running repairs, leaving a fundamentally outdated structure in place.
This is the argument put forward by McKinsey’s Lowell Bryan and Claudia Joyce in their ambitious new book, Mobilizing Minds.
The authors believe that the great majority of businesses are underperforming precisely because their most important intangible assets – the ideas and creativity of their knowledge workers – are unwittingly suppressed by the way in which these businesses are set up to operate.
“Trying to run a company in the 21st century with an organising model designed for the 20th century places limits on how well a company performs,” they write. “The plagues of the modern company are hard-to-manage workforce structures, thick silo walls, confusing matrix structures, e-mail overload and ‘undoable jobs’.”
Having studied the performance of the most successful businesses, Bryan and Joyce conclude that “thinking-intensive” companies do best when they unleash talent rather than constrain it. And looking at a new measure, profitability per employee, is a useful discipline towards raising overall levels of performance. “Profit per employee is a good proxy for earnings on intangibles,” the authors say.
It should become the most important measure of success, ahead even of returns on capital. That should be looked at “just to ensure that they are sufficient to cover the costs of capital,” Bryan and Joyce say.
The authors know what success looks like. It involves a virtuous circle of productive activity: knowledge being exchanged, reputations being built, relationships being established and developed, “competencies” growing stronger. And, all the while, profits per employee climb.
The numbers involved are not trivial. “If a company with 300,000 employees can add $13,333 of “rents” per employee (that is, earnings requiring no additional employment of capital or labour), by reducing unproductive complexity, it can add $4bn in additional earnings,” the authors argue. They estimate that this could add as much as $40bn in market capitalisation.
Leaders have failed to grasp the possibilities of the digital era. “The trial-and-error period of discovery has been under way for over a decade now,” Bryan and Joyce say. (At which point you have to ask: so what have the strategy consultants been doing all this time?) Business has botched the introduction of new technology. “In cities the problem is congestion. In companies, the problem is unproductive complexity.”
So much for the – extremely good – diagnosis. What about the cure? Bryan and Joyce advocate a radical overhaul of the way organisations are designed. For example, even the largest organisations need no more than four layers of management from top to bottom. Front-line managers, like military captains, should be free “to make tactical decisions close to the front line”, within the context of a strategy set by top management.
There should be “one company governance and culture”, supported by a partnership ethos at the top. And a “portfolio of initiatives” approach would lead to more dynamic management, while maintaining the discipline of meeting earnings targets.
There are other, more radical suggestions for practical steps here concerning the management of people. Formal networks will help spread good ideas. There should be “talent marketplaces”, with capable employees free to plot their own career path internally. New performance measurement is required to reward people’s contribution to team as well as individual success.
This is a densely written, powerfully argued book. Cynics will interpret the call for organisational redesign as a make-work scheme for management consultants. But even they would have to concede that this critique of organisational stasis is very well done indeed.