Theory of organisation explained

I have known Peter for a very long time. I still remember the day when he said that he had an innovative idea and decided to set up a new company. At first, there were just a few employees in the start-up, and communication was done mostly face to face. The guys trusted each other, and everyone clearly knew what others thought about the company, its vision, and its strategy.

At that time, its enterprise social density was somewhat high as information traveled through the whole little company quite quickly, in a casual way and with low levels of distortion. That meant they got a lot of direct feedback from every single corner, which helped everyone avoid wrong paths and decisions.

Enterprise social density: Flow of relevant, honest, informal, and effective information between people in an organization in an environment where they feel safe.

I should admit that there were some silos around, but employees were happy to collaborate and share their knowledge, even if they were busy. When there was some urgent matter, all the guys gathered together and brainstormed until they resolved the highest-priority matter. Everyone could see what others were doing at all times, as information flowed constantly from their actions, behaviors, and physical panels. People seemed to be happy and the situation looked like it would last for ever.

Enterprise social visibility: Information that is passively captured by people from the environment through social interactions, information radiators, and behavioral recognition of facial expressions.

At that point in time, nobody thought of transforming their implicit social agreements into explicit core values, or that even one day the organization would badly need them.

Peter didn’t know either that core values were the most pervasive aspect of his organization, as they set the basic constraints of where, why, and how his firm was competing. Core values also dictated how people behaved socially and the way that everyone was giving visibility to one another.

He didn’t even realize that a small change in the company’s core values could affect the five main pillars of his organization. And there is no universal truth about companies, but I am pretty sure that no matter what the size of the enterprise is, it always has the following pillars:

1. Strategy (and vision)
2. How power is distributed across the organization
3. Structures and relationships (i.e., hierarchical structure)
4. Control systems in place (how things or people are controlled)
5. Social behaviors or social systems (how people behave/interact)

When one or more core values are changed, a cascading effect takes place that affects all of the five different areas. It sounds like common sense, but sometimes people don’t stop to reflect about the importance of this point. When the core values and all five pillars change, we say that the company has gone through a transformation.

Since we were friends, Peter wanted me to help his company succeed. One day, he started talking about undertaking a transformation by changing the way that people created software. He had heard of the miracle of something called SAFe (Scaled Agile Framework) and wanted to give it a try.

Unfortunately, he didn’t believe me when I said that making changes in the way that people did their jobs — how they were coordinated or how employees were controlled (control systems) — would rarely start a transformation. This is because these areas are weakly coupled with changes in structure, power distribution, or strategy.

Control system: Procedures designed and established to check, regulate, supervise, and authenticate.

I know from experience that many companies are convinced that once they go “digital,” they can start a transformation by just changing the way people do their work. In fact, some enterprises choose SAFe as a means to push a transformation. In theory, it sounds plausible, as it constitutes a relatively big challenge for many enterprises.

But in reality, a change to the control systems or an increase in coordination (which this framework offers) is only weakly related to producing major changes to the other pillars. In fact, organizations won’t generally initiate a fundamental change based solely on modifying their processes. In order to transform something, you need some radical disruption to break the organizational inertia patterns. When you increase coordination, you also raise complexity and complication.

Using Scrum leads to a completely different result, as it simply offers a basic set of rules that can progress into something different, allowing the organization to evolve freely. I will tell you more about what inertia is and how it works soon.

It turns out that my friend was quite lucky. A few months after launching his initiative, the small start-up became a huge enterprise, attracting a lot of attention and hundreds of clients. The obvious result was the creation of new departments, roles, and rules to better serve the customer, support the company, and boost predictability. It was clear to Peter at this point that his organization’s growth had brought with it new formats and processes.

One day, I heard someone in the new offices mentioning that they needed to achieve more effective performance and that could be done just by making things more efficiently. Then she said that the only way to accomplish that was by implementing some new structures.

Peter and everyone started getting used to the idea that every time a requirement was needed (cheaper and more reliable product, etc.), they just had to create a new department to specifically address the matter.

As the company and the number of departments and roles grew (complexity), the number of associated processes and procedures (complication) increased, resulting in more bureaucracy and dependencies and less customer value and enterprise social density.

Everyone had the feeling that the company was getting bigger and bigger, and that it would be better for the organization to use digital boards instead of physical ones. A day after this idea was mentioned, every employee installed commercial software and threw away all the physical boards and post-its.

It was clear that not everyone had visibility with the new tools compared to the old physical system. People needed to ask for usernames, passwords, permissions, etc., and learn how to use the software (a new department was created for that). As a result, visibility decreased and complexity and transaction costs increased.

Nobody realized at that time what an impact such a small change would have, and people were quite happy to send tickets and e-mails back and forth as the de facto means of communication.

Three weeks later, the company opened two new branches in nearby countries. The following Monday, Peter said that he wanted to achieve a clear corporate identity in all offices. He then created a new department to clarify the existing values and make sure the whole enterprise was aligned. This triggered certain organizational inertia toward stability, which allowed people to better understand the organization’s unique character and establish some internal legitimation for accepted behaviors.

It was clear that before the company had grown that big, they had received plenty of feedback from everyone. As they were becoming larger, however, they started replacing many of the feedback loops with coordination, as well as formalizing some habits and expected behaviors. The new team announced the new strategy by email. They underscored what the core values really meant, and many pictures were hung around the company the day after the official values were announced. Some steps were also taken in order to socially enforce the “new” status quo with the idea of giving a clear sense of which rules and norms were now accepted and why.

This plan implicitly constrained employees’ behaviors to the new definitions and helped everyone build a more structured environment and homogenized institutional factors. They put in motion some constrained forces toward greater alignment.

A new hiring system was also instituted, with the aim of finding the right candidates to support the current strategy. At that point in time, Peter didn’t know that his company was passing through another convergent period.
A convergent period is a relatively long period of incremental change and adaptation, which allow organizations to elaborate their structures, control systems, resources, and social systems toward a greater alignment to their core values and strategies.

Many companies confuse convergent periods with transformations. Many scaling frameworks produce a convergent period but not a transformation.

Keep in mind that an enterprise has several convergent periods, one after another, during its lifetime, but those stages should not be confused with what we call a transformation.

During a convergent period, there is no discontinuous change, as values and most strategy is kept intact, and all forces move to support their current status quo. Every time a new convergent period begins, a more solid interpretation of their existing situation is created and new rules are reinforced, which involves a huge amount of organizational resistance to all but incremental change.

As you can imagine, the longer the convergent period, the harder it is for an Agile Coach or any other consultant or member to run a transformation, and the more obstacles arise to prevent information contrary to the status quo to flow into the company’s social system.

An exception to the rules occurs when the company changes its demography. This means that you start hiring people with fresh ideas and new points of view. That can potentially overcome part of the inertia and move the enterprise toward a different direction, as long as part of the leadership team is also replaced.

As convergent periods come and go, the status quo is reinforced by what we call incremental change. This helps to gradually consolidate current values, as well as their implicit and explicit rules. This type of convergent period clearly increases dependencies and complexity, as more rules are added after each adjustment. (This is what we see in many governments, where hundreds of laws, rules, and guidelines are in place as a result of going through many convergent periods but not any transformations.) In these cases, it is essential to “reset” the system and achieve simplicity as the art of maximizing efficiency.

To summarize, in most enterprises, new convergent periods add or formalize brand-new rules or habits. I have seen many teams loaded with reports, metrics, and guidelines after many adjustments (or convergent periods).

One of the few ways to reduce complexity is by having some turbulent times, where rules are questioned and very often simplified. I remember an episode in a different company, when they were quite close to losing one of their key customers. That created some turbulence within the organization, which led to questioning many of its processes and beliefs, and finally to streamlining communication, guidelines, and rules.

That is the beauty of the sense of urgency in a company: It breaks the rules and leads the way to discoveries.

I realized at that point that the only way Peter could run a real transformation was to simplify his company by direct intervention. That would only happen if he had to go through some real trouble, such as a period of sustained low performance that led his enterprise to fail.

One morning I read in the newspaper that some new players were coming into the market with similar products to those by Peter. As the company had been passing through many long and successful convergent periods, I imagined the probability that executives would receive or hear some adverse information was extremely low, so I decided to let them discover the news. That discussion never happened. I assumed that if Peter’s company resisted the fundamental changes required, they would be unable to face more environmental changes.

What was crystal clear was that different companies (contexts) require distinct strategies to achieve better performance, and that there are no generic steps or ideal frameworks to run a transformation. Yes, you can start with something, but the company needs to freely evolve into something different in order to be successful.

It was April 2015, and I had to leave my friend for a few months to travel to Chile for another client. For many weeks I didn’t hear from him and did not hear any other news, so I imagined that everyone was working hard and doing well.

On my return, I was surprised to find a different Peter. He had been passing through a couple of interesting stages, and I was happy to see that he had learned a lot from them. Initially, he had tried to compete with the new players by cutting costs. He hired cheap labor and reduced the quality of his products, with the aim of cutting time to market. He also tried to scale his software department to produce more. The result was more pressure, an increase in control systems, unhappiness, new rules, conflict and turbulence, and decrease in customer value. It was not a good time for him, but he learned his lesson.
Later on that year, he remembered that I had told him to use Cost of Delay for all the enterprise’s decisions, instead of basing them on political facts. That helped him go through what we call a reorientation (or strategic reorientation). A reorientation is a short period of discontinuous change, when you radically modify your strategy. That leads to turbulence and changes in power distribution, control structures, social behaviors, and organizational structures toward a new strategic alignment. At this point, he understood the impact that a reorientation had on the five pillars of his organization. He also recognized that there were no transitions in a company, just convergent or reorientation periods.

My feeling after having a chat with him was that he was finally ready for an exciting episode of his life: a re-creation, which is the most extreme event in any enterprise.

During a re-creation, all or some of the company’s values change, triggering a cascade effect on the five different pillars of the enterprise. This is the company reinventing itself, or what we also know as a transformation.

I realized that Peter was heading in the right direction and his company was evolving thanks to real feedback. I did not have much to do — except visit my other friend, Andrew, who was struggling with his organization. But that is another story. . . .