Rethinking Hierarchy

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, January 25, 2023

by Nicolai J. Foss and Peter G. Klein

Chris Gash/theispot.com

For all the hype and promise swirling around the idea of eliminating management to create agile, flat organizations, bosses and corporate hierarchies have remained extremely resilient. As we argued in the pages of MIT Sloan Management Review in 2014, under the right conditions, having such hierarchies in place is the best way to handle the coordination and cooperation problems that beset human interactions. They allow human intelligence and creativity to flourish on a larger scale. They provide a larger structure, with predictability and accountability, for specialists to do their work.

But that doesn’t mean traditional, command-and-control organizations are right for today’s environment. We see a confluence of business and social trends influencing the development of new kinds of hierarchies. Rapid technological progress, instant communication, value creation based on knowledge rather than physical resources, globalization, and a more educated workforce require us to rethink how we wield managerial authority. Meanwhile, individual views on politics, religion, and culture also inform our attitudes toward hierarchies — such as whether we value autonomy or admire authoritarian figures. All of these factors point to a new, different role for hierarchy to play in meeting the challenges of the 21st century.

The key challenge for designing and operating hierarchies today and tomorrow is to balance two opposing forces. The first is the desire, common to us all, for empowerment and autonomy, which helps companies mobilize employees’ creativity and exploit their unique knowledge and capabilities. The other is the need — particularly in environments characterized by rapid change and interdependent activities across the enterprise — to exercise managerial authority on a large scale.

Companies need clear, fairly enforced policies and procedures that achieve coordination and cooperation while respecting employee desires for empowerment and relative autonomy. Managers have to figure out when to intervene and when to let employees handle problems themselves.

These are tough issues without easy solutions. Which decisions should be decentralized (or delegated)? How much discretion should employees have over the decision areas delegated to them? How are these employees incentivized and evaluated? How do executives make sure that all these decentralized decisions mesh together? A central lesson of theories and evidence on organizational structure is that there are no universally “best” answers to these questions, only trade-offs that depend on the contingencies facing the company. Identifying and acting on those trade-offs — not decentralizing everything, everywhere — is the key to successful leadership. Read the rest here.

Can bossless management work?

strategy+business, January 10, 2023

by Theodore Kinni

Photograph by Tom Werner

If you’ve been feeling like your leadership contributions are underappreciated, add a copy of Why Managers Matter to your reading list. In it, Nicolai Foss, a strategy professor at the Copenhagen Business School, and Peter Klein, the W.W. Caruth Chair and professor of entrepreneurship at the Hankamer School of Business, Baylor University, examine the various iterations of manager-free organizations that have been proposed—and occasionally adopted—over the past 50 years or so. Their conclusion: nonsense!

Foss and Klein lump the ideas of management thinkers, such as Gary Hamel, Michele Zanini, and Frederic Laloux, and approaches to decentralized management, such as holacracy and agile, into what they call the bossless company narrative. “The basic thrust of the genre is that while bosses are still around, the less control they exercise the better,” they write. “What the Harvard historian Alfred D. Chandler Jr. called the ‘visible hand’ of management should give way to worker autonomy, self-organizing teams, outsourcing, and an egalitarian office culture.”

Then the duo bales the entire genre into something resembling a straw man and puts a match to it. “The near-bossless companies—and there aren’t many of them—with their self-managing teams, empowered knowledge workers, and ultra-flat organizations are not generally or demonstrably better than traditionally organized ones,” declare Foss and Klein. “Bosses matter, not just as figureheads but as designers, organizers, encouragers, and enforcers.”

Foss and Klein make a detailed and extended case against the bossless company narrative with which it is hard to take issue, especially in the realm of large enterprises. Schemes like holacracy, in which decisions are made by teams, may work for small companies with distributed ownership, such as boutique consultancies and other kinds of partnerships, but they haven’t worked in large companies like Zappos, which have many more employees and require far more coordination. Agility, too, tends to work better for running projects than for running whole companies. In short, hierarchical management structures are, as the authors put it, “the worst form of organization—except for all the others.” Read the rest here.

It’s Time to Take Another Look at Blockchain

MIT Sloan Management Review, December 8, 2022

Ravi Sarathy, interviewed by Theodore Kinni



It wasn’t long after the developers of bitcoin first used a distributed ledger to record transactions in 2008 that the blockchain revolution was announced with all the fanfare that usually accompanies promising new technologies. Then, as often happens with emerging technologies, blockchain’s promise collided with developmental realities.

Now, a decade and a half down the road, that early promise is becoming manifest. In his new book, Enterprise Strategy for Blockchain: Lessons in Disruption From Fintech, Supply Chains, and Consumer Industries, Ravi Sarathy, professor of strategy and international business at the D’Amore-McKim School of Business at Northeastern University, argues that distributed ledger technology has matured to the point of enabling a host of applications that could disrupt industries as diverse as manufacturing, medicine, and media.

Sarathy spoke with Ted Kinni, senior contributing editor of MIT Sloan Management Review, about the state of blockchain, the applications that are most relevant now for large companies, and how their leaders can harness the technology before established and new competitors use it against them.

MIT Sloan Management Review: Blockchain has been slow to gain traction in many large companies. What’s holding it back?

Sarathy: Blockchain is a complex technology. It is often secured by an elaborate mathematical puzzle that is energy intensive and requires large investments in high-powered computing. This also limits the volume of transactions that can be processed easily, making it hard to use blockchain in a setting like credit card processing, which involves thousands of transactions a second. Interoperability is another technological challenge. You’ve got a lot of different protocols for running blockchains, so if you need to communicate with other blockchains, it creates points of weakness that can be hacked or otherwise fail.

Aside from the technological challenges, there is the issue of cost and benefit. Blockchain is not free, and it’s not an easy sell. It requires significant financial and human resources, and that’s a problem because it’s hard to convince CFOs and other top managers to give you a few million dollars and a few years to develop a blockchain application when they do not have clear estimates of expected returns or benefits.

Lastly, there are organizational challenges. A blockchain is intended to be a transparent, decentralized network in which everyone talks to each other without any intermediaries organized in a world of hierarchies. Making that transition can require a long philosophical and cultural leap for traditional companies used to a chain of command. Trust, too, becomes a huge issue, particularly when you start adding independent firms to a blockchain. Read the rest here.

How “Corporate Explorers” Are Disrupting Big Companies From the Inside

Insights by Stanford Business, August 24, 2022

by Theodore Kinni


|iStock/Alexey Yaremenko

The conventional wisdom holds that disruptive innovation is beyond the ken of large, incumbent companies. But then there are companies like Microsoft, which transformed its ubiquitous Office software suite into the Office 365 subscription service. “If Microsoft had done that as a startup, it would be a multi-unicorn,” says Andrew Binns, a founder and director of the strategic innovation consultancy Change Logic. “Office 365 is a whole new business model, but nobody talks about it as disruptive innovation.”

Binns, along with Charles O’Reilly, a professor of organizational behavior at Stanford Graduate School of Business, and Michael Tushman of Harvard Business School, finds that more and more established companies are overcoming the obstacles to innovation with the help of what they call corporate explorers. Corporate explorers are managers who build new and disruptive businesses inside their companies. Sometimes with a formal mandate, sometimes not, they use corporate assets to support and accelerate the development of these new ventures.

Binns, O’Reilly, and Tushman studied a number of these entrepreneurial insiders and report their findings in The Corporate Explorer: How Corporations Beat Startups at the Innovation Game. The book builds on the trio’s continuing research into ambidextrous organizations — companies that succeed over the long haul by simultaneously exploiting their existing businesses and building new ones that drive future growth.

In a recent interview, O’Reilly and Binns described the traits of corporate explorers and the conditions they need to thrive. Read the rest here.

When it comes to changing culture, think small

strategy+business, August 11, 2022

by Theodore Kinni


Illustration by PM Images

Effective leaders know that long-term corporate success requires a strong organizational culture that is well aligned with a company’s purpose and strategy. As Lou Gerstner wrote, describing the turnaround he orchestrated at IBM in the 1990s, “I came to see, in my time at IBM, that culture isn’t just one aspect of the game—it is the game.” Nevertheless, it remains commonplace for corporate transformations, mergers and acquisitions, and other large-scale initiatives to lose momentum after running headlong into cultural barriers. What gives?

This is a question that Roger Martin, a CEO advisor and the professor emeritus of strategic management at the University of Toronto’s Rotman School, has been mulling for 30 years. In his latest book, A New Way to Think: Your Guide to Superior Management Effectiveness, a compendium of his writings for the Harvard Business Review, he observes that leaders typically approach culture change in one of two indirect ways.

Most often, Martin told me in an interview, they attempt to change the culture by edict. “They say something like, ‘I’m CEO, and this is a very bureaucratic organization. Everything takes too long. This will be a nonbureaucratic company because I say so.’”

The other commonly used approach relies on structural changes, Martin explains. “The CEO says, ‘This place is bureaucratic because the finance department is overbearing. So, the CFO will now report to the COO, and the COO has a mandate to keep finance from getting involved in things in which it shouldn’t get involved.’”

Unfortunately, neither approach is powerful enough to successfully change an organizational culture on its own. “They don’t work, because they don’t change the shared interpretations and norms within an organization,” says Martin. “The truth about culture is that the only way you can change it is by changing the way individuals work with one another. If you can change that, then you will find the culture has changed.” Read the rest here.