When conducting organisation design it is tempting to jump straight in. What are the roles? How should we organise teams? What process to follow? Commonly, the latest trend such as the famous “Spotify Model” is simply copied.
Before jumping into the design, there is a critical question to be explored: What is your optimisation goal?
An optimisation goal guides your organisation design. It enables you to make decisions in context, find a coherent design that does not conflict with the goal.
Without a clear goal, “local optimisation” occurs. This is when part of the organisation works well but overall performance suffers.
A local optimisation example: optimising lines of code written by software developers.
This local optimisation leads to “busy” developers. It will likely lead to more complex solutions, with many lines of code. Harder to maintain than simpler solutions.
Another example: optimising for customer value.
This goal is much closer to the real purpose, to add value to customers. With this optimisation goal in mind, it will often have a profound impact on the organisational design. For example, reduction of layers between the development team and the customer.
A final example: Large Scale Scrum (LeSS)
LeSS is an organisation design framework which is designed for organisations where the optimisation goal is adaptiveness. The ability to turn in a dime for a dime. With this goal in mind, LeSS leads to significant changes to organisational design. Fewer roles, layers and managers.
LeSS, like the Spotify Model is often “Implemented” without contextual understanding. If adaptiveness is not your optimisation goal it will likely lead to sub-optimal results. It may even harm your organisation.
Without optimisation goal clarity, local optimisations will be rampant.
Optimising goals can be subtle and counter-intuitive as this case study highlights…
Optimising for Safety at Alcoa
Paul O’Neill’s tenure at the helm of Alcoa is now the stuff of legend.Introduced to a group of investors and analysts in October 1987, he didn’t talk about revenue and expenses and debt ratios and earnings before interest, tax, depreciation and amortisation. “I want to talk to you about worker safety,” he told the Wall Street crowd.“Every year, numerous Alcoa workers are injured so badly that they miss a day of work,” he continued. “Our safety record is better than the general American workforce, especially considering that our employees work with metals that are 1,500 degrees and machines that can rip a man’s arm off. But it’s not good enough. I intend to make Alcoa the safest company in America. I intend to go for zero injuries.
”When one attendee asked about inventories and another asked about capital ratios – the standard vocabulary for these kinds of sessions – O’Neill returned to the same theme.“I’m not certain you heard me,” said the new CEO. “If you want to understand how Alcoa is doing, you need to look at our workplace safety figures. If we bring our injury rates down, it won’t be because of cheerleading or the nonsense you sometimes hear from other CEOs. It will be because the individuals at this company have agreed to become part of something important: They’ve devoted themselves to creating a habit of excellence. Safety will be an indicator that we’re making progress in changing our habits across the entire institution. That’s how we should be judged.”
In the example, “safety” is the optimisation goal.
Over O’Neill’s tenure, Alcoa dropped from 1.86 lost workdays to injury per 100 workers to 0.2. By 2012, the rate had fallen to 0.125.
Surprisingly, that impact extended beyond worker health. One year after O’Neill’s speech, the company’s profits hit a record high.
How did this happen?
In complex systems, changes can have dynamic side effects creating a chain reaction. In this case study, safety triggered a continuous improvement chain reaction.
Systems Thinking is one way that can start to explore this chain reaction. In particular, Causal Loop Diagrams are a great way to visualise these dynamics.
Here is an example:
This diagram tells the story.
The headline: by focusing on safety, it amplifies other important factors:
Number of improvements implemented
Let's zoom into those areas….
The behaviours of management, especially the CEO, emphasised the importance of safety. This demonstrated to employees that safety was important. As a result, they were more likely to raise issues. As issues are found, and resolved, this reinforced to the CEO the importance of safety. The lesson here, increasing safety, not only physical but psychological, created a chain reaction. The CEO and senior management were critical in role modelling these behaviours. When designing your organisation, think carefully about the behaviours you want senior management to adopt.
Number of Improvements implemented
Safety focus increased improvement efforts engagement across the organisation. The side effect of spending more time investigating safety issues surfaced tangential issues. As issues were addressed it increased employee confidence that issues would be resolved, resulting in more improvement ideas. This success improved the trust between leaders. Improving transparency in the organisation.
The lesson here is that the focus on safety improved other areas of the business. The behaviours over time created a culture of continuous improvement. This culture had a direct impact on the performance of the organisation impacting the bottom line.
Another lesson, culture is the result of behaviours in the organisation. In the case study they “acted” their way to a new thinking. The behaviours of continuous improvement shifted their identity. This demonstrates that culture can only change when behaviours change. Again, the leaders were key role models in enabling this change.
When optimising, for one thing, we need to make trade-offs. Many leaders ignore the fact that optimising for one goal may negatively impact another. They refuse to make difficult decisions relating to those trade-offs. If the optimisation goal is only words you will not get the benefit.
A major trade-off was shareholder push back. Paul O’Neill was under huge pressure from shareholders. The risk under pressure the goal dilutes.
As the pressure increases it puts a strain both on the CEO and the senior management team. The team's cohesion will determine their behaviours. If there is a shallow agreement, it is likely behaviours do not match the goal. Employees will not believe in the goal either if they do not have positive role models. Key here is for the senior management team to embrace dissent as a positive behaviour. This improves their shared mental models increasing team cohesion. Done in the right way, this dissent will also improve Psychological Safety over time.
How to find your optimisation goal?
Clarity, cohesion and coherence in many organisations is few and far between. This leads to confusion and poor decision making. Hidden local optimisation is rampant reducing organisational performance.
So what are practical steps to avoid this problem?
Here are 5 questions to help:
List down all of the explicit and implicit goals within your organisation Which of these goals are in harmony? Which are in conflict? You can do a causal loop diagram to explore these relationships
Based on the purpose of your organisation, what goals most enable you to achieve your purpose?
If you were to pick one, what would it be?
What trade-offs would you need to make when choosing this goal? Again, the causal loop diagram is great for this
Now, explore the elements within your organisation that influence this goal, both positive and negative. More diagramming at this step too!
This will guide decisions to optimise your organisation.
A final disclaimer…
My analysis intends to show how to use Systems Thinking to diagnose your organisational dynamics.
The analysis is also biased to Narrative Fallacy.
However, I hope this example has shown how optimisation goals, systems thinking and causal loop diagrams can help optimise your organisation.
I’d love to hear how it helps!