A classical restructuring - if done the right way - is and remains a powerful means to tame organizational complexity. A complementary approach is to increase decision making authority across the organization and empower your people to manage complexity decentrally.
In our discussions with Management Kits users and clients, an often-cited pain point is organizational complexity and fragmentation and the resulting ambiguity, coordination needs, and slow decision-making and execution.
How can you tackle organizational complexity? In short, there are two answers to this question. One is simple: reduce complexity by restructuring. The other is slightly more sophisticated, as it involves a controlled increase of variability to help people manage the complexity they’re confronted with: fight fire with fire. Let’s look at each approach in turn.
Reduce organizational complexity by adapting the organizational structure
One straightforward approach to managing complexity in organizations is a restructuring that re-aligns the organization with its purpose and the requirements of its environment.
Frequently, strategic positions and market environments make inherited structures obsolete – and this can drag on because organizations have many priorities and reorganizations can be costly. So managers tinker with the given structure, adding a few roles here or a coordination committee there, addressing the most pressing pain points as they arise and kicking the can down the road. A typical example is functional organizational structures where value creation requires the handover of projects or products from one function to the next. While this may be sensible for small companies, growth and an increasing variety of project types and customers makes handovers and cooperation increasingly complex. Often a product- or process-centered organization becomes a more sensible approach.
Work with the Organizational Structure Kit
to reduce complexity
When defining an organizational structure, we recommend a sequence of steps (which will typically require some iterations between them). First, get straight the strategic goals and their implications for your structure (e.g. by defining principles for organization design). Next, thoroughly understand the activities that the organization needs to pursue in order to deliver these strategic goals. What is it that your people need to do to reach the goals? (It sounds simple, and it is!). Once you have a clear picture of the necessary activities, consider different options for grouping them into units, including questions of centralization and decentralization.
At this point, complexity should be a key criterion for assessing different unit grouping options. A powerful benchmark can be to simulate a small number of key business processes and decisions, and see how they run through the organization. We also recommend testing unit grouping options by discussing them with senior managers as well as with relevant stakeholders across the organization: Do your people understand how they will get stuff done within the proposed structure? A Management Kits user we worked with recently sought to “show our managers the complexity they have created”, assuming that senior management in that organization didn’t understand how complicated it was to navigate the roles, units, committees and alignment needs within the structure that had grown over time.
Tests like these also serve to identify where you’ll need links between units: e.g. to facilitate key processes running across the organization or to enable information sharing and allow for coordination requirements between units. Indeed, the complexity criterion can be operationalized as the number of key interfaces resulting from the organizational structure.
Last but not least, take a hard look at spans of control and organizational layers, and only retain layers that are justified by a higher level of competence and capabilities compared to a lower level.
As an approach to taming organizational complexity, organizational restructuring comes with a number of caveats. First, deciding on an overall structure will, most of the time, be a question of trade-offs: choosing one more fitting structural option over another. Second, the more profound the restructuring, the greater the cost in terms of change management. Third, and finally (and already alluded to above), the chosen organizational structure may seem less complex to senior management, but it might in fact increase complexity for middle managers and their people further down in the organization. As a result, a cost-benefit consideration should factor into the cost of supporting organizational members as they manage complexity from where they are in the structure. This brings us to the second approach to taming complexity by adapting the organizational structure.
Controlled increase of variability to manage organizational complexity: introducing some principles of agile organizing
The more sophisticated approach to complexity management depends upon:
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a process that allows structural changes to emerge from within
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the transparency of those changes to organizational members, and
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those members’ capability and ability to manage the complexity they are confronted with in order to effectively fulfill their roles.
This approach is based on a more or less radical decentralization of authority within the organization. This can go as far as guaranteeing mechanisms to adapt the organization in a decentralized manner, as in self-organization models such as Holacracy. It can also be based on an organizational culture that promotes lateral networks and empowers its people to use those networks to get stuff done, e.g. by defining temporal organizational scaffolds to tackle the complexity of a particular project.
Two approaches to reducing managerial complexity across the organization: complementary, not mutually exclusive
The two approaches laid out above should be seen as complementary rather than mutually exclusive. If you chose to restructure, there is usually no good reason not to empower your employees at the same time. And vice versa, if you focus on decentralizing authority so that people can be more effective in their roles, it often makes sense to review the overall structure within which this decentralization is meant to happen.
The Organizational Structure Kit provides you with the framework and tools to redesign your organizational structure. The Agile Organizing Kit is designed to collect key resources and tools to design organizations for decentralized authority. The Leadership Development Kit give you a framework and tools to build leadership capabilities across your organization.
