Chapter 9
Make Each Level Count

Psychological fallout
Time-based structures


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Chapter 9

Make Each Level Count


Excerpt from Rethinking the Corporation

By Robert M. Tomasko



An architect's work requires more than site selection and structural design. A building also has an infrastructure, a complex and sometimes invisible web of systems that work together to make the building functional and livable. These include the mundane heating, electrical, plumbing, and air circulation systems, as well as the essential channels for people movement and telecommunication hookup.

Infrastructure is not just an add-on. The development of new technologies that provide efficient solar heating also required architects to consider a new set of factors when siting a building. Just as the invention of the elevator paved the way for today's concrete and steel skyscrapers, some new organizational concepts and technologies are needed to make horizontally oriented structures workable and vacuum-free.

This chapter and the three that follow describe the organizational infrastructure needed to make the new corporation work. Issues such as the hierarchy of reporting relations, the career structures they imply, and the middle managers who populate them are considered, along with ways to rethink control and coordination so that new learning, rather than resigned compliance, is produced.

Is hierarchy all that bad?
We like to say we are living in a post hierarchical business world, but rethinking sometimes requires reconsidering the value of some organizing practices that were once popular but now have fallen into disfavor. A surprise occurs when this is done: The post hierarchical corporation turns out to be one not completely without hierarchy. While the age of the corporate dinosaur may have passed and while the Egyptian pyramids no longer serve as role models for good organization structure, the need for reporting relationships and earmarked accountabilities has not yet completely disappeared. But their nature, and the rationale behind their layering, needs, in most. companies, some serious rethinking.

The wave of global reorganizing that began in the 1980s has left many problems in its wake, especially regarding the role of the manager in the new corporation. Middle managers are popular targets for criticism, in large part because of their presence, in some companies, in multiple layers. An employee of a large computer maker, one long overdue for a major organizational overhaul, observed that his employer had a vast hierarchy of managers whose singular talent was that of career advancement. Other critics have been no less blunt. Two Harvard Business School professors who investigated the reasons behind the failure of many factory automation programs (such as computer-aided design, computer-aided manufacturing, robotics, and flexible manufacturing systems) concluded that, while these technologies show great promise, they are generally being installed into organizations too obsolete to make full use of them. Among the most dated aspects of these organizations, according to Robert Hayes and Ramchandran Jaikumar, is their tendency to staff production management positions with "specialized caretakers" who are more comfortable with relationships up and down the hierarchy than across it.

Some companies have found themselves in "damned if you do, damned if you don't" positions regarding middle management. When they eliminate excess layers and attempt employee empowerment programs, they are sometimes faced with an "I wasn't hired to be a manager" backlash. Often the remaining managers are implored to act more like leaders than managers, but they end up feeling unclear about exactly in what direction they are expected to lead.

In spite of these concerns, management jobs remain sought after. A
study of U.S. college student attitudes conducted by Right Associates, career transition consultants, found that more than 80 percent of those with an interest in business expect to be managers or supervisors within five years of starting their careers. The conflicts caused by this strong demand for entry management jobs and the reality that such jobs are likely to be in short supply also will resonate through many corporate hierarchies as employees in mid-career cope with their own concerns about under promotion and plateauing.

Just as it has become popular to deny the value of organization structure, critics often single out hierarchy as an unquestioned evil. But is it really?

Look closely at what was considered in the early 1980s as the model of corporations to come, the start-up airline People Express. This company, which has already vanished from the aviation industry, was a paragon of the "push authority far down the ranks" school of management. In fact, there were hardly any ranks at People Express. Every employee was designated a manager. But, as Robert Levering found in his research into what makes some companies especially good to work for, if everybody is a manager, then-from a political viewpoint-no one really is. Levering found a huge power vacuum between the executives at the top of People Express and everyone else who worked there. The lack of a viable middle management structure resulted in many ignored "mid-level" problems: People at the top were too busy; no one at the bottom had the necessary perspective or authority. The gap in the middle undoubtable contributed to the airline's demise.

The psychological fallout from eliminating hierarchies
Completely dismantling hierarchy may be poor politics, but it is even worse psychology. As hierarchy is reduced, anxiety frequently increases. And this increase is coped with in a number of dysfunctional ways. Some employees become increasingly rigid and bureaucratic, undermining the hoped-for flexibilities that were supposed to emerge from delayering. Others seem more prone to making mistakes and to having accidents, and some suffer from burnout as they try to carry out all their old responsibilities, in addition to providing the early warnings about emerging problems that their boss once gave.

Larry Hirschhom, of the Wharton Center for Applied Research, studied what happens to workers who have had their responsibilities enlarged in the wake of management delayering. In the old order, supervisors and middle managers played two important roles. One was the traditional function of providing coordination and integration of work flows. This was relatively easy to hand off to the computer system or to delegate downward. The second key role, Hirschhorn observed, was less easy to give away or to automate. In that role, managers offered to their subordinates psychological protection against anxiety and fear of the unknown. This buffer effect is something that relationships with effective hierarchal superiors can also provide.

Facing risk and uncertainty is always hard. But it is usually easier when you know you are not alone. Strong ties with teammates and peers certainly help but can also lead to shared delusions or isolating camaraderie unless coupled with a sense of direction and linkage to where the rest of the company is going. For that, someone apart from the immediate work team is needed, someone who can help resolve the increase in tensions and conflict that close teamwork can generate. At People Express, Levering found to his great surprise, the biggest complaint of the airline's "employee self-managers" was they lacked a sense of management direction as the company grew and competition intensified. Ironically, these workers, selected for their ability to be self-motivated, wanted more direction and coordination, not less.

Abraham Zaleznik, one of the few Harvard Business School professors with psychoanalytic training, also confirms the psychological usefulness of hierarchy. He observes that detaching work from authority relations encourages irrational behavior. Some people become devious, whereas other focus more on how to do things than on the substance of what they are doing.

These problems are becoming increasingly common in many "empowerment" programs. Empowerment alone-without connection to a competitively significant task-can leave employees wondering just exactly what they are supposed to be doing so differently. One of Zaleznik's colleagues at Harvard, former PepsiCo president Andrall Pearson, calls empowerment "an idea in search of a place to happen." From where is this substance, these competitively significant tasks, supposed to come? Will they emerge out of the day-today flow of the horizontal organization, or is some superstructure still required to generate them? And if, as appears to be necessary, it is conceded some hierarchy is required, what should be the driving force behind its layering?

A time-based superstructure
Time is one of the key performance measures of a process-driven horizontal organization. The key to competitive success in many markets is minimizing cycle time-how long an important business process takes from start to finish. The horizontal organization reduces cycle time through measures such as eliminating functional fiefdoms, broadening jobs, replacing SBUs with enterprise units, and organizing each of these units around the five or six processes that most drive its competitive advantage. The horizontal organization is a fast-moving place, a bundle of kinetic energy. it is working best when working fast.

Time is also a key factor driving how the superstructure above all this activity is configured. If the horizontal aspect of an organization represents the company's kinetic motion, then its vertical dimension symbolizes potential energy, its ability to maintain a measure of balance in the face of both today's and tomorrow's challenges. The quality of time most important here is its horizon, not its duration. The vertical organization works best when oriented to the future.

Tine frame and organization level
A hierarchy, when layered appropriately, allows several expanding time frames, or horizons, to be mapped on a company's structure. At the structure's lowest level, managers are concerned primarily with the events taking place within the cycle time of the business process they oversee. This may be as short as a day If they are managing Federal Express's overnight delivery business or as long as several years if they are responsible for one of the teams at Merck that stays with a new pharmaceutical from its discovery to its market introduction.

Most first-level managers, the people to whom team leaders or employees with reinforced jobs report, have time horizons of approximately one year. This is the time frame in which operational costs can be planned and controlled, changes in competitors' tactics observed and countered, and deviations from customer requirements spotted and corrected.

Above this level in the hierarchy are the managers of the various enterprise units the company has created. Moat of their activities should produce results that will be readily apparent in a two- to three-year time frame. In this horizon, capital budgets are prepared, competitive strategies for the enterprise unit are developed, and new products are taken from idea to market entry.

Then, depending on a corporation's complexity and scope, a third stratum of managers might oversee a group of enterprise units. These cluster executives concentrate on their group's performance and growth over a five-year period and report to a top management group or a chief executive whose actions are geared to the promises and threats facing the corporation over the next decade.

These expanding time perspectives are directly related to the idea, presented in Chapter 3, that a company is really just a portfolio of capabilities. Some of these capabilities were classified as necessary to the current functioning of the company but not key to distinguishing it from its competitors. These were called core capabilities. Others were defined as more critical to the business's current success, and a few (called cutting-edge capabilities) we said were valuable primarily for their future promise.

Over a five-year time period, some critical capabilities may lose their power to drive competitive success and become part of the business's core. Their place may be taken by what were cutting-edge competences that have become the new basis for competitive differentiation.

Group or cluster executives should spend a considerable amount of time making sure multi year transitions like this happen smoothly. They should also ensure the capabilities of each enterprise unit are easily available to others who can make good use of them. In addition, they should monitor shifts in customer needs and keep alert to new markets that these capabilities can serve.

The ten-year-out perspective of the chief executive or the senior management team has its own way to add value, again keyed to the kinds of events that may take a decade to unfold. This level factors into the company's decision making the implications of long-term political, social, and demographic change, as well as shifts in the underlying structures of the industries in which the corporation participates.

These time periods are illustrative, not set in concrete. They need to be uniquely specified for each company. What cannot vary, though, are their broadening as one ascends the hierarchy, and their discrete nature. Each level needs to be self-contained. Levels that overlap or that come close to overlapping in future orientation are good clues that the vertical structure has too many resting places.

How many layers of hierarchy are enough?
These time horizons are similar to those found by London-based organization researcher Elliott Jaques in over forty years of investigation into what makes for an effective organization structure. Jaques has long advocated adding a measure of rationality to organization hierarchy by grouping work assignments by the length of time they require to complete. His research, rooted in cognitive psychology, provides a useful way to think about the maximum number of levels an organization structure should have.


© Robert M. Tomasko 2002

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