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Are Today’s Organizational Structures Harming the Future of Business?

August 8, 2016 by Michael Rander 34

If the rise of digital workers, changing demographics, contingent workforces, global project-based work, artificial intelligence, and robots are cores premises for the Future of Work, why are companies still operating with the same basic organizational structures used for the past 60 (or even 100) years?

Are current organizational charts set up for changes in how people work and companies compete in the future? Or are we actually ignoring the organizationally sized elephant in the room?

While globalized trade, international organizational structures, and access to virtually any customer around the world may sound great, there’s a catch that still baffles most companies. A recent Economist Intelligence Unit executive study, sponsored by SAP, showed that organizational complexity is, in fact, a major obstacle to company-wide flexibility, productivity, and collaboration.

Worryingly, 38% reported spending 16%-25% of their time just managing organizational complexity, and an additional 17% cited a mindboggling 26%-50% of their time dedicated to the same thing. Looking at the United States alone, that translates into an average of 1.5 hours per day each executive spends on managing organizational complexity. This reality clearly impacts overall productivity, flexibility, collaboration, and growth. In fact, eight percent admitted to slowing down growth deliberately so they can deal with all this complexity.

While flexibility, reduced complexity, and achievement of maximum operational efficiency – in spite of ever-changing internal and external conditions – are clearly the goal for most companies, the organizational structure is most likely not following the strategy – or worse, is harming any future prospects of achieving said strategy.

Some companies are taking radical new approaches to deal with the changing workforce and altered work conditions caused by the digital economy. Open work ecosystems, live collaboration, global engagement, and instantly distributed decision-making for competitive advantage are becoming competitive parameters that cannot be ignored.

Companies need to act accordingly. While there isn’t a “one size fits all” solution, most companies should seriously consider potential alternatives to their current organizational state.

Famously, Zappos adopted a radical structure, which later became a testament to holacracy. This model removes the traditional management hierarchy and allows the creation of self-organizing teams that are much more nimble and empowered when it comes to decision-making. Zappos’ approach hasn’t been without bumps in the road, but distributed authority, the ability to pursue personal interests, and company-wide transparency and flexibility are fundamental criteria that are defining the digital leaders of the future.

3M took a different, but nonetheless novel, approach to organizational hierarchies when it crowdsourced its strategy process to 1,200 employees across 40 countries. This initiative generated 700 new ideas, which resulted in the identification of nine new potential markets with revenue opportunities in the tens of billions of dollars. The company continues to hold “Live Innovation” events to drive new ideas from across the company and engage employees. And when you consider the growth of the millennial workforce, this approach is especially effective, since this generation has a significantly different view on what they want out of their work life than previous generations.

Beyond the demographic changes in the workforce, one thing we do know about the digital economy is that it drives an ever-expanding amount of networks that touch employees, customers, partners, vendors, individuals, and even robots and artificial intelligence-based interfaces. Whether these networks are local or global, they are driving more community-based companies. And because collaboration across the business –previously done in silos – is paramount to success, companies need to align both their internal organization and external partners to a more project-based work model.

According to McKinsey, this collaborative work model leads to a more process-centric approach to organizational design. As markets, competitors, strategies, technology, and resources change, so do our processes. And this creates a high likelihood of ultimately requiring a custom organizational design.

What really needs to change first is the mindset of having an organizational structure that is replicable across all companies and should never be modified. The digital economy is changing the way we work, the way we live, and the way we interact, so it stands to reason that our organizations need to change along with it. For those leaders who take the leap and transform their organizations towards a truly Live Business, there are huge competitive advantages in efficiencies, flexibility, customer satisfaction, employee engagement, and financial performance.

Learn more about the future of work and the impact of the digital economy. Read the executive research “Live Business: The Rise of the Digital Workforce.”

Michael Rander is the Global Research Director for Future Of Work at SAP

This story originally appeared on The Digitalist Magazine as part of the 10 Weeks of Live Business series.

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