Organizational Hierarchies Usually Start Out Effectively

September 5, 2012

But they can transition to the “dark side,” even with the best of intentions…

Imagine that you own a small, growing company. As you grow, you hire additional staff to help you deal the work: those activities designed to delight customers and generate a profit. As you grow, the complexity of the business increases because you have more customers and more employees, so you hire people to organize things so that the majority of your employees can continue to serve the customer base.

Let’s say that your company becomes very successful and you receive an attractive offer to you sell your company. The new owners bring in professionals to manage the continually expanding enterprise, and you lose touch with the inner workings of the company because after a short transition period, you move on to “other things.” This turns out to be a small bakery, a business built around your spouse’s hobby and a desire the both of you have to own and operate a small, family-run business.

Then one day you receive a call from a long-time employee who has risen to an executive position at your former company. She tells you that the company is in trouble. She adds that she has approached the owners and they have agreed to pay you a tidy sum to have you consult with them, provided you are willing to do so.

You feel compelled to help because there are people still working there that you hired. Good, hard-working people with families and mortgages. And you also feel that your legacy is at risk; the company that you built from scratch will fail unless you can successfully intervene.

Fortunately school has just finished for the summer and your two teenage children are available to work at the bakery. Since you won’t be leaving your spouse high and dry, and you begin your consulting gig immediately. You start by walking and talking with everyone: customers, executives, line managers, and the workers.

You immediately notice something about the company that is disturbing: employee turnover is increasing, particularly with long-time employees. When you question the executives about this, they reply that this is a result of them setting higher expectations and demanding more from people, and that new blood will help to energize and reinvigorate the company.

You find this to be a troubling perspective because you know that many of those employees were considered to be valued, highly-productive employees when you ran the company. It doesn’t take long for you to see the problem. And it isn’t quite what many of the executives believe it is, either.

They believe that they have two main areas of concern that need to be addressed. First, the market is shifting in ways that they don’t fully understand. New sales are down and customer attrition rates are increasing despite their best efforts to drive new product innovations and improve customer satisfaction.

The executives admit that quality has been an issue in the recent past, but they insist that they have instituted measurements along with a quality-control program to address those issues. Somehow this is failing to resonate with the customer base, they say, and past perceptions of the product line are still plaguing them.

This leads to problem number two, the executives continue. While quality is now up, it is taking longer to get product and new product features out the door than ever before. They have observed that employees don’t seem to understand the customer as much as they used to when the company was smaller.

The executive team feels that this lack of customer focus is a key contributor to poorer company performance. And despite their best efforts to specialize and focus the work efforts of the employees, which includes setting aggressive goals and rigorously measuring performance through a variety of metrics and reporting, revenues and profits are still in decline.

In short, the executives are hoping that you can revive their product lines with some insightful recommendations along with helping them to overcome execution problems with the staff by helping them re-connect with the customer base and being more customer driven in their work.

You start by congratulating the executives on their passion for the business and their discipline. They clearly want to succeed, but they have a blind spot. You can sum up their problems by quoting Princess Leia from the original Star Wars movie: “The more you tighten your grip, Tarkin, the more star systems will slip through your fingers”

You tell the executive team – not pulling any punches – that their well-intentioned efforts at running the company are in effect running the company into the ground. Hierarchal support has given way to hierarchal control, you tell them. There is in turn has eroded a sense of trust and collaboration that used to exist at all levels of the company.

Certain elements of running the business belong to those closest to the customers, you state emphatically. Information and governance should flow from the top, information that can be used by those on the front lines to make better decisions, such as figures on revenue and profitability per customer. The job of senior management should be to guide and support those on the front line as well as managing risk, not to plan and dictate the actions of the entire employee base, you firmly state.

The system that they have created in the name of predictability and control is too cumbersome, you continue, because no one can – or dares to – make a decision without approval from above. This business can’t pivot and adapt when it needs to, nor can the business experiment with new ideas in low-cost ways; the planning, approval and budgeting cycle is too unwieldy.

Another problem, you point out, is that the people on the front lines aren’t as connected with the customers because they can’t be. They have become over-specialized, over-utilized, and over-burdened with reporting to and being controlled from above. The centralized planning and the tight coordination designed to optimize utilization rates of specialists along with enforcing compliance and adherence to the annual plan is a huge barrier creating a customer-oriented and truly engaged workforce.

The business needs to open up, to trust and collaborate more at all levels, you stress. By driving responsibilities and decision-making back down to the front lines – and eliminating the excessive elements of reporting designed to ensure compliance and control, the business can become more responsive and adaptive. It will also drive more accountability and ownership back where it needs to be, with those closest to the customer.

While this is a hypothetical scenario, does it make sense to you that hierarchies can morph into an onerous, unwieldy control structure instead of a support structure?

Opportunities will slip through your fingers if you attempt to predict and control all aspects of your people and business. Instead, provide guidance, information and support that are geared towards growing and nurturing your people and your business. It will grow and blossom in ways that you don’t expect.