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(originally published by Booz & Company)


The Organization Is Alive

If you’ve ever tried to change a company, or a part of one, you’ve undoubtedly encountered these systems. But you probably haven’t thought about them as distinct systems, each requiring its own form of intervention to effect change. And that may make all the difference.

The Scale-seeking Hierarchy

Most managers think of a hierarchy as a structure: the lines and boxes on the org chart. But it is actually the communications medium that allows a company to grow to global scale and still stay organized. The eminent business historian Alfred D. Chandler Jr. wrote that the railroad enterprises of the 19th century were the first modern managerial organizations, and their most significant feature was a new form of communication up and down the hierarchies. Owners needed to make sure that overseers and systems were in place to manage the widely dispersed parts of a railroad line, with coordinated methods for scheduling trains, charging fees, and keeping track of profits. Otherwise, the whole system could (literally) crash.

Companies have grown in size and complexity since then, and executives have shaped and reshaped the hierarchical structures accordingly — creating the reporting relationships and financial standards that would maximize control and coordination with the least effort and oversight. Because they are set up to compare data easily and quickly, hierarchies tend to emphasize information that can be easily compared and aggregated: estimates, budgets, operating figures, and across-the-board rules. At the same time, hierarchical structures resonate psychologically with primal attitudes about authority: the king, the boss, and the owner.

To manage hierarchies effectively, you have to learn about systemic structure and design. You have to be willing to put in place the kinds of layers and reporting relationships that make people feel comfortable and willing to contribute. The most credible theorist about hierarchies in this regard was the late Elliott Jaques, who proposed that some hierarchies are “requisite” (well suited to the nature of human beings who worked within them) but that most, in real life, are not. Jaques’s preferred hierarchical design bore some resemblance to the golden mean, the classical ratio used in the design of buildings. A good hierarchy places people at a level of authority consistent with their cognitive capabilities, and it manages them so that they rise gradually through the system as their capabilities increase.

Some things don’t travel well through even a well-designed hierarchy — including in-depth explanations, trust, open inquiry, and knowledge. That’s because the price of great scale is oversimplification. The original local meaning of any given metric may well be stripped out or lost as it is transmitted up, level by level, and combined with others. Judgment and business acumen develop not through rules and regulations, but through personal contact, as people who work together learn from one another. This helps explain why research on strategy execution, conducted at Booz & Company by Gary Neilson and others, suggests that effective cultural change starts not with rearrangement of the lines of an org chart, but with information flow and networks.

The Network

General understanding of the value of networks has increased dramatically since the 1970s, when Stanford University professor Mark Granovetter began to research what he called “the strength of weak ties.” Since then, many people have analyzed the patterns of informal connection among people, particularly in such measurable forms as phone and e-mail contact. As network researcher Karen Stephenson has found, key people in an organization fulfill one of three roles that pop up again and again in the mathematics of human exchange:

  • Hubs: people who regularly communicate with a lot of other people, and thus act as central nodes for the flow of information.
  • Gatekeepers: people who provide the only links into a subsection of the organization or a body of knowledge, and thus control access to that domain.
  • Pulsetakers: people who are relied upon for their perspective, and thus maintain connections to a significant and select group of others.
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  1. Art Kleiner, “Karen Stephenson’s Quantum Theory of Trust,” s+b, Fourth Quarter 2002: Introduction to network theory and “hubs, gatekeepers, and pulsetakers.”
  2. Art Kleiner, “Elliott Jaques Levels with You,” s+b, First Quarter 2001: The great theorist of hierarchies explaining his requisite structures.
  3. Art Kleiner, Who Really Matters: The Core Group Theory of Power, Privilege, and Success (Doubleday, 2003): The clan system and the nature of the core group, in detail.
  4. Gary L. Neilson and Bruce A. Pasternack, “The Cat That Came Back,” s+b, Fall 2005: How Caterpillar rebuilt its organizational DNA (and its workflow and hierarchy).
  5. Gary L. Neilson, Karla L. Martin, and Elizabeth Powers, “The Secrets to Successful Strategy Execution,” Harvard Business Review, June 2008: How implementing a strategy starts with information flow and decision rights.
  6. Sherwin B. Nuland, The Wisdom of the Body (Knopf, 1997): How biochemical interactions, via our circulatory systems, explain the quintessence of Homo sapiens.
  7. Authentic Leadership in Action Institute website: Programs include weeklong courses on social innovation, collaboration, and human systems dynamics. 
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