A large percentage of the books on the 2015 CEO top 40 list evolve around the topic of “agility”. Mega trends such as globalization, technological advances and new generations of customers affects virtually every sector of business in one way or another, and challenge business to be better, faster and stronger.
But are organizations actually becoming more agile? Research has shown that the average life-time of companies is on the retreat, which could be an indication of the opposite.
Lets start by looking at what we’re up against: sources of organizational rigidity.
Organizations that operate across multiple markets face a number of structural agility related trade-offs. The typical pattern is that organizations move from a simple structures toward more complex, functional and bureaucratic structures, eventually transforming into divisionalized matrix structures as they grow and expand into new product and geographical markets
This pattern can be observed also with newer organizations such as Google, that started up as a research project with an adhocratic form, then established itself as a firm with simple structure supervised by Larry Page and Sergey Brin, then turned into a rather conventional functional structure for many years before divisionalizing into product groups by the end of 2015.
The classical structural options imply a number of trade-offs and dilemmas in terms of agility. Functional structures provide economies of scale but make them less responsive and agile in adapting to individual customer needs. Geographically diversified structures allow for local customization but create inefficiencies at the group level, and thus as a whole, agility becomes a challenge. Product driven structures optimize product lines but create inefficiencies in terms of functional duplication across product lines, reducing the agility from a functional perspective. Customer driven organizations may optimize customer relationships but potentially sub-optimizes in terms of focus, standards and resource utilization, thus impacting overall agility in terms of strategic execution ability.
The potential impact of these dilemmas is multiplied when organizations face dynamic market conditions, disruptive innovation and new customer requirements, and this is exactly why the discussion about organizational agility and new organizational forms is so relevant right now in many industries.
Given the dynamic nature of business, it is tempting disregard the rigid structures of yesterday. And many organization will need to review and simplify their formal structures in coming years – to be competitive in the market and to meet expectations stakeholders and employees.
However, it is important to keep in mind that the formal structure is just one of many elements that influence agility. Processes can be simplified and standardized. Decision rights can be delegated to create a stronger sense of accountability and involvement. Cross functional networks and collaboration can help accelerate the diffusion of information and help to build common mindsets of trust and engagement. Motivators and commitments can be adjusted to facilitate rapid decision making.
The quest for a new kind structure that will magically remove all organizational trade-offs remains an elusive one. A holistic approach, that builds on the organization’s key capabilities while addressing both formal and informal aspects of organization design is a better bet to achieve agility.