Are Your "Efficiencies" Creating Inefficiencies?

This week, I thought I would direct you towards an interesting post by Dan Cristo: How to Build a Company that Outlasts a City. Lesson 4 makes a great point that I would like to expand upon, and that is “Companies…tend to make employees less productive as they grow larger.”

As Dan points out, the drop in productivity is a result of organizational structures becoming too hierarchal. And he’s right. Many are. Dan observes that when we encounter structures that are too hierarchal, “Creativity and innovation are slowed down by risk assessments and business justifications. Information has trouble passing between different departments which creates confusion and rework.”

Even if you didn’t take the time to read his post, the title gives away his solution. “The key is to build your company like a city. Groups should function like little shops on the street where an employee can visit one group, then walk across the aisle to stop by another group.”

But doesn’t this create inefficiencies?

Yes, but control-oriented hierarchies also create inefficiencies. The notion of centralizing a key activity and leveraging that capability across the organization isn’t wrong, but it becomes wrong when the emphasis shifts from supporting those conducting the business to controlling the actions of those who are responsible for the day-to-day operating of the business in the first place.

Consider this quote from the book Beyond Budgetingby Jeremy Hope and Robin Fraser that neatly captures the problem:

“…the management model used by most organizations today is not up to the job. It was designed to enable leaders to plan and control their organizations from the center. Enabling business units and subunits throughout the organization to focus on creating value for customers and shareholders was never part of its design.”

The solution is clear. If those little shops (small businesses) that Dan is talking about grow, they don’t hire additional staff to control them from the head office. No one thinks, “Let’s take all of our direction from people who aren’t close to the customer and who are in fact many-times removed from conditions on the ground.” It doesn’t happen.

The owners hire staff to take care of those necessary but distracting activities so that those who understand the business and the customers can continue to focus their attention on the customers and the actual business at hand. They wouldn’t tolerate the interference that is so prevalent in many large, control-oriented hierarchies.

Ask yourself if your own organization is – in an effort to create efficiencies – actually creating inefficiencies. And if inefficiencies exist, consider loosening up and concentrating on allowing those responsible for creating value and interacting with customers to actually spend more time doing just that, while spending less time reporting up the hierarchal chain to obtain approvals for every little thing that they need in order to run the business.