It is no secret that every industry is changing at a rapid and seemingly ever increasing rate. Let’s take a look at how Harley-Davidson and DaVita Health Systems created an organization able to adapt to the constantly changing business environment. Organization: Think about the word for a minute.
- A body of people arranged in a systematic way with a particular purpose, especially a business, society, association etc.
- The action of coordinating something.
The words that stand out to me are arranged, systematic, particular purpose and coordinating. All these are about putting structure around something that is inherently messy and chaotic.
We love organization. Think about how nice it is to walk into a clean house or to crawl into a bed with new sheets. We love order, organization and predictability. We use order and organization to help us understand our world and to get things done. We make lists, use post-it notes or software to help organize. As CEO, it is part and parcel of your charge to organize the company to serve your customers.
Yet, the very organization you create in order to understand the world and serve your customers, limits you and keeps you from innovation. Most organizations attempt to control, reduce or eliminate change because it feels risky. That is why they have things like “change control” processes.
If you attempt to control change today, someone else is right there to leverage that change and eat your lunch. Instead of resisting change, businesses need to create new systems built to leverage change for the benefit of the customers.
Organizational agility creates a new system, a system with the sustainable ability to adapt quickly to changing business contexts as its core?
Distributed Decision Making
In order to respond quickly to change, leaders need to understand where the bottlenecks are in their organizations. Bottlenecks are constraints upon the organization that restrict the quick flow of information, decisions and value to your customers.
One of the most common and hardest to overcome bottlenecks is decision making. Leadership models predicated upon a few people with decision making power who direct the rest of the organization to execute their decisions is known as a command and control. This model is risk averse and prefers the maintenance of the status quo to change and innovation. Command and control organizations are not able to quickly adapt to changes.
For a command and control system to work, those with authority need information to make good decisions. However, the necessary information is available only to those on the front line of interaction with the product and/or the customers.
The need for a decision and the information required to make that decision must be communicated up the chain of control to the decision maker and then back down the chain of control to the implementers. This is a very slow process fraught with the potential for miscommunication.
Leaders need a new way they make decisions to improve the speed of decision making. Creating a flatter, more democratic or distributed decision making model solves this problem. It is like the difference between a whale and a school of mackerel. Both swim and both can turn, but the school of mackerel can turn on a dime taking a new direction instantly. A whale is centrally controlled by one brain. It too will sense the changes in its surroundings but can only turn very slowly by comparison.
Now, let’s take a look at two corporations and see how they implemented a distributed decision making model to reduce the decision making bottleneck and increase their organizational agility: DaVita Healthcare and Harley-Davidson. In both, centralized command and control decision making is replaced by centralized direction setting and distributed decision making. The corporate office is no longer responsible for making the decisions; instead, they are responsible for setting the organizational direction and establishing the parameters within which team members make decisions.
In DaVita Healthcare, one of the largest kidney care centers in the USA, the local dialysis center operates relatively independently, which allows them the ability to focus upon the needs of their unique customers.
Likewise, Harley Davidson gives much of the authority for decision making to its dealers and teams, letting the corporate leadership focus on direction. Harley Davidson calls their approach, “freedom with fences.” These organizations run with centralized vision and guidance with decentralized empowerment to make decisions within the intent of the organizational direction.
This is no easy transition. At Harley-Davidson it took over 18 months to complete the transition from centralized command and control to the “Freedom with Fences” model.
Making the shift requires a change in leadership approach and in organizational culture. You cannot just say, “Now everyone has authority to make their own decisions” and it will just happen. Three things must be in place to do this well:
- Clear understanding of organizational intent
- Information and tools to make informed decisions
- Authority / Permission to make decisions
If you have intent and information but no authority (area 1) you get frustrated people. They know why, and they know what to do, but your organizational bureaucracy prevents them from doing what is right and delays decisions. This may allow your competition to get ahead of you.
Intent plus authority, without the information or tools to make good decisions, leads to bad decisions (area 2). Imagine you made a policy that your employees have the authority to purchase whatever computer they like for themselves at work, but you didn’t tell them what other people are ordering, what the overall budget is for the company or what the next year’s projects look like. They would not be able to make an informed decision. They would optimize for their own benefit but would not optimize for the rest of the organization.
If they have the authority and the information but do not understand intent (area 3), their decisions will be all over the map, not moving the organization toward a common goal, but spreading the organization out in random directions.
The sweet spot is right in the middle (area 4). In this area, teams have the information, the authority, and understand the intent of the organization. They have freedom with in fences, as Harley-Davidson calls it.
Now it is your turn. What are you going to do with the info in this article? Are you going to click on the funny cat picture and move on, or are you going to potentially save your company from a slow fade into irrelevance. Does your organization practice distributed decision making, or are you still practicing command and control? If you still practice command and control, do you believe that change is the ever increasing constant in business? Then you know what is going to happen. Change will come, and if you are not practicing distributed decision making, your business will be left behind like a whale in a sea of mackerel.
Are you willing to let that happen?
You can act. As CEO or a senior executive, you have the ability to start making the change. It can only come from you. Grass roots efforts will help and you should engage them wherever they are in your organization. Grass roots efforts may see localized success but will always be limited by the organizational beliefs of leadership elsewhere in the organization. Start meeting with your peers and contact a consultant that specializes in distributed decision making models to obtain advice and strategic experience. Ideally though, consultants are short term help. My intent in my engagements with organizations is always to help them become self-sufficient as quickly as possible.
Make your first act to share this article with your peers and your direct reports. Start a discussion about it and see where it goes.
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