Strategy < Culture < Structure
The value of decentralization is nothing new - this is why the Apaches defeated the superior Spanish Army for centuries and why the VietCong (and later al-Qaida) gave the US a hard time, despite the clear US advantage of sophistication. However, after recently reading up on beginner-level physics, I found an interesting lens through which to expand on the concept of centralization of management.
A closed system in physics refers to a system that is isolated from its environment and does not allow the exchange of matter or energy with its surroundings. In thermodynamics, a closed system is a system with fixed quantities of energy and matter that cannot exchange either with its surroundings. In this context, the entropy (decay) will tend to increase over time as the amount of disorder or randomness in the system increases.
To put it another way, systems that can’t “trade” with the world around them eventually fail, and this is a perfect analogy for team management. A rigid management system, such as a centralized hierarchy, can be seen as a closed system where the flow of ideas, information, and “energy” is restricted. Managers in such a system may be resistant to change and new ideas and may not be open to the flow of information from employees or external sources. This can lead to stagnation and disorganization within the company and limit the business's growth and development. This is nothing new for many of you but read on.
To avoid this, it is essential for business leaders to ensure that their culture allows for maximum exchange of energy (ideas, attitudes, etc.) in their surroundings. So how can leaders create such an open culture? It is widely accepted that the relationship between strategy and culture is reciprocal, as strategy emerges from the cultural environment in which it operates, but it is less understood that culture emerges from the structural framework that shapes it. (None of this suggests that strategy and culture need not be deliberately codified, but they must be nested appropriately.) In physics, we know that the structure of matter determines its properties and behaviors - the same is true for organizational design.
Southwest Airlines is a good example of how culture emerged from structure. The company operates on a point-to-point system rather than a hub-and-spoke model, which allows for more flexibility and localized autonomy. This structure has led to a culture of teamwork, collaboration, and a willingness to go above and beyond to meet customers' needs. There are many other examples of how they thoughtfully designed their structure to get the desired culture of humor and empowerment.
When we think of structure, we typically think it refers to a clear chain of command crafted to avoid chaos & confusion. This is true, but also limiting - there’s more to a good structure than a chain of command and reporting lines.
Let’s go back to physics: "structure" refers to the arrangement or organization of matter in space. This provides a way to describe and understand the organization of matter at various scales. For our management analogy, the keyword here is “scales.” The structure of an organization needs to be designed in detail. This is where many managers miss the mark; they think that once they choose a structure at the macro level, such as matrix or flat, etc., the structure problem has been solved. But it needs to be solved at the micro level. Otherwise, culture and strategy will be negatively affected. At the micro level, structure in an organization includes formal and informal relationships, roles, and communication patterns/cadences among individual employees or small groups within the organization. This includes the design of individual jobs, the division of work and responsibilities, the systems used, and the patterns of interaction and coordination among individuals and teams.
Some examples of how structure can be thought of at the micro level in an organization include:
Job design: The structure of individual jobs can affect employee motivation, satisfaction, and performance. Job design involves specifying the tasks and responsibilities of a job, as well as the knowledge, skills, and abilities required to perform it.
Work allocation: The structure of work allocation refers to how tasks and responsibilities are assigned to individuals or teams. This can include formal and informal processes, such as job descriptions, project assignments, or self-organizing teams.
Communication patterns: The structure of communication patterns among employees can affect the organization's flow of information and ideas. This can include formal communication channels, such as email or meetings, as well as informal networks and employee relationships.
Decision-making processes: The structure of decision-making processes can affect employee participation, accountability, and effectiveness. This includes the allocation of decision-making authority, the processes for gathering and analyzing information, and the methods for reaching a consensus or making final decisions.
Overall, the structure at the micro level of an organization can significantly impact employee engagement, satisfaction, and performance, as well as the overall effectiveness and success of the organization. It is essential to carefully design and manage the micro-level structure to align with the goals and values of the organization while also providing employees with the necessary resources and support to succeed.
To return to our idea of creating an open system, this structural work leads to a culture of open communication and collaboration. Employees feel comfortable sharing their ideas and suggestions with their managers (trust & cohesion/psychological safety). Furthermore, a thoughtful structure leads to a culture of continuous learning and development. This can be achieved by allowing employees to attend training and development programs and encouraging them to take on new challenges and responsibilities. This not only helps to increase employees' skills and knowledge but also helps create a more dynamic and adaptable team.
To round this all out, the best teams have trust and cohesion, another way of saying “openness,” Having a maximally open culture goes beyond just decentralization and thoughtful leadership - physics is a good guide on structuring an organization so that the culture is open and the strategy wins. The more open we are structurally, the more we will flourish culturally.
