Hierarchical and network organisation structures

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This paper explores the organisation of actors into hierarchical and network structures.

Contents

What is an organisation?

Centralised versus distributed organisations

Hierarchical management structures

“The management fallacy”

Network management structures – in the style of Morning Star

The place of Enterprise Architecture in Morning Star

Conclusions and remarks

Footnotes

On EA and organisation design

“The consultant’s dilemma”

 

What is an organisation?

Organisation structures are commonly divided into hierarchies and networks.

A hierarchy arranges elements (from the top-down) in a cascade of 1 to N relations.

A network arranges elements in N to N relations.

 

Hierarchies and networks in biology

When the biologist Bertalanffy used the word “organisation”, what did he mean?

He meant how persistent components (e.g. brain, heart, lungs and legs) cooperate in repeatable transient processes (e.g. breathing, running).

Some animals are hierarchical in the limited sense that they have a central nervous system, which directs much bodily activity.

But bodily organs cooperate in a hugely complex network that does not all require direction from the brain.

And other animals (molluscs) have a distributed nervous system; obviously, an oyster is a perfectly viable system.

 

Hierarchies and networks in social systems

When the systems thinker Russell Ackoff said “All organizations are social systems”, what did he mean?

He was thinking of public and private institutions in which humans work.

The organisation is the bureaucracy that administratively organises the many actors who work together to the ends of the business.

 

A core theme of sociological discussion has been the contrast between totalitarian (hierarchical) and individualistic (network) organisations.

Some social groups have a natural dominance hierarchy; consider the pecking order in a chicken coop.

A human activity system may be designed in a hierarchy that constrains how human actors communicate each other

There may be some formalisation of messages sent down and up the hierarchy to convey

·         a decision about which of several pre-defined activities to perform

·         information needed to perform a regular activity or a reply to a request

·         information about the result of performing a regular activity, its success or failure

 

In naïve management methodology, executive directors set goals, which are then cascaded down the organisation structure to all employees.

By contrast, agile system development methods favour peer-to-peer collaboration over top-down direction.

And some propose that managers are the servants of knowledge workers.

A bureaucracy may appear in the surface to be hierarchy, yet actually operate as a network in which the manager’s role is limited to reporting results

This paper goes on to discuss an unusual business (Morning Star) which appears to be a network organisation.

Centralised versus distributed organisations

Many human interactions may be seen as negotiations.

And of course, negotiation and collaboration are vital in any human activity system.

 

Consider the business context that is an agile software development team,

A smallish group of intelligent people must share complex information to jointly create a single coherent, consistent and complex product.

Some business contexts resemble agile software development, but many are very different.

Every organisation finds its own balance between centralisation and distribution of authority.

 

Centralisation of authority implies a management hierarchy.

The word “management” implies a manager with oversight of subordinates; and so implies a hierarchical organisation structure.

The Merriam Webster dictionary says managers “conduct and supervise” what people do.

Managers direct and monitor those they manage towards business aims, track progress, and react to success or failure.

 

Often there is little or no negotiation about the work to be done.

- Hospital consultant doctors are gods, whatever they say goes (perhaps because it is often educated guess work).

- Arable farmers recruit teams of labourers to pick crops.

- Refuse collectors employ people to move bins between properties and refuse collection vehicles.

- Ship builders employ specialist labourers.

In such businesses, negotiations about the work may be limited to work hours, pay, conditions and benefits.

 

Distribution of authority implies anarchy (the literal opposite of hierarchy)

Imagine an organisation that runs on nothing but point-to-point negotiation and collaboration.

This extremely distributed business has no manager (cf. a system based on blockchain technologies?)

If nobody supervises and conducts others in the performance of roles, towards aims, according to rules, there is no management.

 

Even a completely anarchical organisation may be obliged to conform to external principles, codes or regulations.

For governors to govern such a business for conformance to generic principles, they would have to monitor every individual actor.

The governors would have to be engaged directly and probably full time in the organisation.

So, a secondary reason for introducing a management structure is ensure conformance to external principles rather than to internal aims.

 

For further discussion, read below about “Morning Star” in which (it is said) every actor agrees an interface contract with the actors they interact with.

Hierarchical management structures

In a typical business, every employee can trace a reporting line from their position to the chief at the top.

And some or most, business operations are performed according to direction from above.

 

The Roman army was broken down into different groups to have a clear chain of command during battle.

1 legion of about 6,000 men was divided into 10 Cohorts

1 cohort was divided into 6 centuries (only eighty men on average).

1 century was divided into ten conturbenium, a group of about 8 soldiers who marched and roomed together.

 

Classical organisation theory discusses different ways for goals, decisions and plans to be determined in a hierarchy.

For example, you might analyse a hierarchical management structure in terms of its position on five spectrums below.

 

Style

One extreme

The opposite extreme

Freedom from higher authority

Goals, decisions and plans are cascaded from the top or outside

Managers are free to determine local goals, decisions and plans.

Participative democracy

Managers act alone to determine goals, decisions and plans.

Managers consult their peer group and employees

Depth

Deep structure: managers manage a small number of actors

Flat structure: managers manage a large number of actors.

Decision making

Managers make near-random decisions or choices between options.

Managers seek options and detailed information before decisions

 

It is usually difficult to position a business organisation firmly in any of the five spectrums above.

Different business divisions sit in different places in each spectrum, and they move back and forth along the spectrum.

However, different businesses may be compared, and a rough analysis may suggest where changes might be made to one or other.

And this paper goes on to discuss an unusual business (Morning Star) which might be characterised to the right on each spectrum.

“The management fallacy”

Some evidence suggests senior management decisions are closer to random than you might think

“We evaluated 287 allegedly high-performing companies in 13 major success studies.

We found that only about one in four of those firms was likely to be remarkable; the rest were indistinguishable from mediocre firms catching lucky breaks.

By our method, even in the study with the best hit rate, only slightly more than half the high performers had profiles that were credibly attributable to something special about the firms.

In short, what qualifies as remarkable performance is anything but self-evident.”

The full study used to be found here http://www.deloitte.com/persistence

 

A management hierarchy is the norm large business organisations; it may be necessary for reporting and other practical reasons.

Hierarchologists often mistakenly attribute successful business outcomes to the decisions of top-level managers.

And over-estimate the extent to which middle managers direct business operations.

 

In hierarchical organisations, managers don’t make all decisions, don’t always make informed decisions and don’t always direct what happens.

Some managers work mostly as officials or administrators, allowing decisions to be made by people who report to them

Some managers are content to make near random decisions (to keep things moving), rather than seek out, collect and analyse information.

Much ground-level work has an impetus of its own, dependent on skilled employees and/or directed by customers and other external forces.

Network management structures – in the style of Morning Star

In this Harvard business Review piece <https://hbr.org/2011/12/first-lets-fire-all-the-managers> Gary Hamel talks about Morning Star.

Morning Star is a business that works as a network of actors (business units and employees) that define their own roles.

 

Read the paper for details. In short, it is claimed that:

         No one has a boss.

         Employees negotiate responsibilities with their peers.

         Everyone can spend the company’s money.

         Each individual is responsible for acquiring the tools needed to do his or her work.

         There are no titles and no promotions.

         Compensation decisions are peer-based.

 

Before I say any more, note that as many as 50% of seasoned hires leave Morning Star within two years because they have a hard time adapting to the system.

 

Vision, goal and personal mission statements

Morning Star’s vision that all employee will be “self-managing professionals, initiating communications and the coordination of their activities with fellow colleagues, customers, suppliers, and fellow industry participants, absent directives from others.”

The company’s overall mission/goal is to “produce tomato products and services which consistently achieve the quality and service expectations of our customers.”

Every employee draws up a personal mission statement to support that mission/goal: “e.g. turn tomatoes into juice in a way that is highly efficient and environmentally responsible.”

 

The core functions in the value stream

Morning Star is a supply chain business that moves and transforms physical materials.

It has three major functions or capabilities: tomato harvesting, tomato trucking and tomato processing.

The core value stream is: harvest tomatoes > truck tomatoes to 3 processing plants > transform tomatoes into 100s of product varieties > truck products to customers.

 

The management hierarchy

The management hierarchy of this privately-owned business is shallow.

There is 1 president and 23 business units, which each employ less than 20 people each on average.

Each business unit has its own profit and loss account.

It is not clear how business units are opened or closed or whether each business unit has a manager or vice-president.

It is not clear whether business units are divided into teams, some might be.

 

The service-oriented activity network

Every year, the 23 business units negotiate customer-supplier agreements with one another

And each employee negotiates a Colleague Letter of Understanding (CLOU) with associates most affected by his or her work.

“As a colleague, I agree to provide this report to you, or load these containers into a truck, or operate a piece of equipment in a certain fashion.”

A CLOU is an agreement that covers as many as 30 activity areas and spells out all the relevant performance metrics.

The outcome is a network structure in which there are roughly 3,000 formal relationships between Morning Star’s full-time employees.

One actor can be both client and server to another actor.

So Morning Star is a collection of hierarchies that are dynamic.

 

Information sharing

The CEO knows his people will think about the business holistically only if everyone has access to the same system-wide data.

That’s why there are no information silos and why no one questions anyone else’s need to know.

Each business unit publishes detailed financial accounts twice a month, which are available to every actor.

Actors are encouraged to hold one another accountable for results, so an unexpected uptick in expenses is bound to get noticed.

With this sort of transparency, folly and sloth are quickly exposed.

 

My view?

I like it in principle

I assume, like agile software development, it suits the way small social groups work.

It probably implies small teams that are well motivated, and implies they are competent as “knowledge workers”.

Remember that many as 50% of seasoned hires leave Morning Star within two years because they have a hard time adapting to the system.

I’m not sure how well this approach scales up to (say) how millions of customers make claims for compensation against their insurance policies.

Conclusions and remarks

Even in businesses with a formal management hierarchy, much of the work is done according to an informal activity network.

This can be formalised along the lines discussed above.

Be wary of:

·         assuming the structure of the management hierarchy is the most important thing.

·         assuming that process quality will lead to product or service quality

·         underestimating the effect that individual personalities have in business success

·         underestimating the effect that chance plays in business success.

 

See also the “Human Factors in Hierarchical Organisations” page at http://avancier.website.

Footnotes

On EA and organisation design

Enterprise architecture teams are concerned with business roles and processes that create and use information.

They very rarely design an organisation’s management structure, a task usually left to business managers.

 

EA frameworks recognise that a management structure usually evolves faster than its processes. So, what to do?

First, define an abstract version of the management structure – often called a business function hierarchy or capability map

Then, relate other views of the enterprise to that more logical and stable structure.

The capabilities/functions may be mapped to the organisation’s management structure.

But that management structure is a secondary concern to most EA teams.

 

EA teams don’t lead organisation design or cultural change, or recruit employees, or write their job specifications.

These things are usually the responsibility of others - business managers, line managers, human resources and business change teams.

 

EA treats an enterprise as a collection of repeatable determinate processes

What if the majority of business activity is not orderly, repeatable or determinate?

That doesn’t mean EA should abandon its aims or approach; it only means that EA is not a theory of everything;

It can be supported by other approaches that focus more on the human condition.

“The consultant’s dilemma”

Consulting and service provider organisations are often project oriented.

In these organisations, employees have a reporting line in their own organisation.

But for most work, they report to a project manager employed to manage work done for a customer, or directly to a customer.

So they have an alternative management reporting line to the chief of the customer’s business.

This leads to what is called “the consultant’s dilemma”

Consultants are destined to walk the thin line between what is best for their company and what is best for the client.

 

The place of Enterprise Architecture in Morning Star

 

EA as a metasystem

Actors in business operations monitor and direct the activities of actors (customers, suppliers, employees and machines) that the business cares about.

Actors in EA monitor and direct the fitness for purpose of roles played by actors in business operations.

EA plans generational changes; it replaces business system version 1 by version 2, or perhaps a different system.

 

EA as action research

Some schools focus on how a social/business “organisation” can learn from experience,

There is “Organizational learning” after Argyris and Schön.

And “Organizational self-awareness’ after José Tribolet (http://algos.inesc-id.pt/~jpa/InscI/poisson/varwwwhtml/portal/ficheiros/publicacoes/3982.pdf)

And “Action research”, which is iterative refinement of business operations by people involved in the processes.

In our terms, people switching from working in the operational system to the meta system that designs the operational system - and back again.

 

EA in Morning Star

Traditionally, the EA team is composed of actors who sit aside from the employees in business operations.

Suppose the EA team is composed instead of the employees?

Suppose employees and business units, by annually re-negotiating SLAs with each other, make generational changes to business operations?

 

Morning Star’s EA is not the flat management hierarchy.

Rather, it is in the self-defining service-oriented network of activities.

In effect, the CEO is the EA team manager, and every actor is an EA.

 

EA does not tell us how to design an organisation’s management structure, recruitment or remuneration policies.

These things may be done from the top down, or bottom up – as in Morning Star.

EA does encourage us to encapsulate business actors behind documented service-level agreements.

In Morning Star, the SLAs are pervasive and self-documenting rather than imposed.

The outcome is a business that is a service-oriented activity network.

 

Morning Star’s EA is not in the design of harvesting, trucking and tomato product manufacturing processes.

Rather, it is in the information created by those processes and how that information is used to steer the business.

 

EA is about information-intensive activities in information-intensive businesses

It is about formalising, optimising, standardising and integrating information-intensive activities.

And making best use of information captured from business activities.

Morning Star encourages coordination and sharing of business information.

 

My view?

The tension between micro-scale agile development and macro-scale enterprise architecture is addressed in other papers.

The fact is, almost all EA teams today work in more traditional organisations.

 

 

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