Organize for Complexity, part I (BetaCodex12)

1. Makeitreal! ORGANIZE FOR COMPLEXITY Part1.Howtomakeworkworkagain. Howtobreakthebarrierofcommand-and-control– andcreatethepeak-performance,networkedorganization 12 BetaCodexNetworkAssociates NielsPflaeging&SilkeHermann&LarsVollmer&ValéryaCarvalho IllustrationsbyPiaSteinmann BetaCodexNetworkWhitePaperNo.12,June2012

2. Thispaperaddressesfundamentalquestionsofinterestto businessowners,managers,professionalsandchangeagents Don'tweallaskourselvesquestionslike: •  Howcanorganizationsdealwithgrowingcomplexity? •  Howtoadjustagrowingorganization,withoutcreating fallingintothebureaucracytrap? •  Howtobecomemorecapableofadaptingtonew circumstances? •  Howtoovercomeexistingbarrierstoperformance, innovationandgrowth? •  Howtobecomeanorganizationmorefittohuman beings,andachievehigherengagement? •  Howtoproduceprofoundchange,withouthittingthe barrier? Inthispaper,wearguethatinordertoaddressthese issues,wemustcreateorganizationsthataretrulyrobust forcomplexity,aswellasfitforhumanbeings.Wealso discusshowthatcanbedone.Youwilllearnaboutconcepts thatallowtodesignentireorganizationsforcomplexity, regardlessofsize,age,industry,countryorculture.

3. Part1. Complexity:itmatterstoorganizations.Bigtime. Crafts ? manu-? facturing ? Tayloristic ? industry ? Global ? markets ? “OrganizeforComplexity“-BetaCodexNetworkWhitePaperNo.12

4. FrederickTaylor’sgrandideaandhowmanagementwasinvented: Thedivisionbetweenthinkersanddoers In1911,FrederickTaylorpublishedhislandmarkbook ThePrinciplesofScientificManagement.Heproposed managementasa“revolution”thatwouldsolvethe productivityconstraintsoftheindustrial-age organization.Taylorismachievedjustthat. WhatTaylorpioneeredwastheideaofdividingan organizationbetweenthinkingpeople (managers) and executingpeople (workers) –thuslegitimatingthe managementprofessionasthatof“thinkingprincipals ofthenon-thinkinghumanresources”.Tayloralso introducedfunctionaldivisiontoshop-floorwork. Taylor'sconceptsweresoondecriedasinhumaneand non-scientific,hisconsultingmethodsasineffective. Buthierarchical/functionaldivisionbecamewidely adoptedafterhisdeath,in1915,hisprincipleswere appliedtonon-industrial,non-shop-floorwork. Management,asweknowit,isnotmuchdifferentfrom whatTaylorproposedacenturyago.Indynamicand complexmarkets,however,command-and-control turnstoxicforbothorganizationalperformanceand human/socialadvancement. WecalltayloristicmanagementAlpha. “Thinkers”/ Managers strategize,steer, control,decide “Doers”/ Workers execute,obey, follow

5. Thepriceofsimplicity:Tayloristicdivisioncauses“managed“ organizationstoexperiencethreesystemic“gaps“ 1TheSocialGap Hierarchicaldivisionandtop- downcontrolcauseanerosion ofsocial/grouppressureand dialog,andabiastowards managementbynumbersand leadershipbyfear 3TheTimeGap Personaldivisionbetween thinkingthinkersandnon- thinkingdoerscausesneed formanaged/imposedroles, complicatedIT,strategy, forecasting,andplanning 2TheFunctionalGap Functionaldivisionproducesa needofmanaged/imposed coordinationthroughprocess control,interfaces,planning,rules, standards,hierarchicpoweretc. 9am:Doing 3pm:Thinking Noneofthisfeelsgood.Noneofthisisvalue-creating.Thethreegapsallleadtowaste.

6. Thehistoricalcourseofmarketdynamics andtherecentriseofhighlydynamicandcomplexmarkets highdynamic sluggishness/lowdynamic highdynamic Dynamicpart ofvalue creation Solution:man Ageof tayloristic industry Ageof craftsmanu- facturing Ageof global markets Outperformersexercise marketpressureover conventionalcompanies Localmarkets, highcustomi- zation Spaciousmarkets, littlecompetition Formalpartof valuecreation Solution: machine 1850/1900 t 1970/80today Thedominanceofhighdynamicsandcomplexityisneithergoodorbad.It‘sahistoricalfact. Wecallthegraphshownherethe“TaylorBathtub”.

7. Thedifferencebetweenthecomplicatedandthecomplex •  Complicatedsystemsoperatein standardizedways.Here,imprecisionis diminished,non-objectivityand uncertaintyarereducedasfaras possible.Canbedescribedthroughnon- ambiguouscause-and-effectchainsAre externallycontrollable. •  Anyhigh-precisionmachineis complicated:Everythingisdonetoavoid imprecision/toincreaseprecision.A watch,forexample,iscalibratedto diminishmistakes,uncertaintyand illusion.Itisconfiguredtosupply objectivedata,certaintyandaminimum ofillusion. •  Complexsystemshavepresenceor participationoflivingcreatures.Theyare livingsystems-that'swhytheymay changeatanymoment.Suchsystemsare onlyexternallyobservable–not controllable. •  Acomplexsystems´behaviorisnon- predictable.Here,it'snaturalthatthereisa leveloferror,uncertaintyandillusionthat ismuchhigherthanincomplicated systems. Acomplexsystemmaypossesselements thatcanoperateinstandardizedways,but theirinteractionwouldbeconstantly changing,indiscontinuousways

8. Consequencesofcomplexity: Theimportanceofmasteryforproblem-solving Theonly“thing”capableofeffectivelydealingwithcomplexityishumanbeings. Whatmattersincomplexity,thus,asfarasproblem-solvingisconcerned,is neithertools,norstandardization,norrules,norstructures,norprocesses–all thosethingsthatusedtoserveuswellintheindustrialageanditsdullmarkets. Incomplexity,thequestionisn’thowtosolveaproblem,butwhocandoit. Whatmattersnow,thus,isskilfulpeople,orpeoplewithmastery. Peoplewithideas. Problem-solvinginalife-lesssystemis aboutinstruction.Problem–solvingin alivingsystemisaboutcommunication. Complexitycanneitherbemanaged,norreduced.Itcanbeconfrontedwithhumanmastery.

9. Theimprovementparadox:Incomplexity,workingonseparate partsdoesn'timprovethewhole.Itactuallydamagesthewhole Workingonindividualpartsofthesystem doesnotimprovethefunctioningofthe whole:Becauseinasystem,itisnotso muchthepartsthatmatter,buttheirfit. Whatreallyimprovesasystemasawhole isworkingnotonthepartsitself,but ontheinteractionsbetweentheparts. Youmightcallthisattitude“leadership”. Systemsarenotimprovedbytinkeringwiththeparts,butbyworkingontheirinteractions.

10. Part2. Peopleandwork “OrganizeforComplexity“-BetaCodexNetworkWhitePaperNo.12

11. Humannatureatwork-McGregor'scriticaldistinction. Askyourself:whichtheorydescribesme,andpeoplearoundme? TheoryY TheoryX Attitude Peopledislikework, Peopleneedtoworkandwanttotakeaninte- restinit.Underrightconditions,theycanenjoyit Direction finditboring,andwillavoiditiftheycan Peoplewilldirectthemselves towardsatargetthattheyaccept Responsibility Peoplemustbeforcedorbribed tomaketherighteffort Peoplewillseekandacceptresponsibility, undertherightconditions Motivation Peoplewouldratherbedirectedthan acceptresponsibility, (whichtheyavoid) Undertherightconditions,peoplearemotiva- tedbythedesiretorealizetheirownpotential Creativity Peoplearemotivatedmainlybymoney andfearsabouttheirjobsecurity Mostpeoplehavelittlecreativity-except whenitcomestogettingroundrules Creativityandingenuityarewidelydistributed andgrosslyunderused Source:DouglasMcGregor,‘TheHumanSideofEnterprise’,1960

12. Humannatureatwork:McGregor'scriticaldistinction Askedwhichtheoryabouthuman nature–XorY–describesus, everyoneimmediatelyknows:“Iama TheoryYsortofperson!”Whenasked aboutotherpeople,however,the answerisusuallynotasclearcut. Haven'tweallexperiencedTheoryX peoplemanytimesinourlives?At work?Inourorganizations? Behavior HumanNature Context DouglasMcGregor,inhisseminalworkfrom1960,distinguishedbetweentwoimagesof humannature,ofwhichonlyoneis”true”,inthatitholdsuptoscienceandavailabletheory. Theotherone,TheoryX,isnothingmorethanaprejudicethatwehaveaboutotherpeople. Therearetworeasonwhythistheory,besidesbeingasuperstition,iscommonplace.Firstly, itreflectscommonthinkingfromourpre-democratic,pre-enlightenmentpast.Secondly, whileobservingotherpeople'sbehavior,wetendtomakeconclusionsabouttheirhuman nature–frequentlyignoringbehavior-shapingcontext. Thismatters.Becauseassumptionswehaveinourmindsaboutotherpeopleshapeour behavior,andthewaywetendtodesignandrunorganizations:ifyoubelieveinthe existenceofTheoryXhumans,thencommand-and-controlsystemsdesignwillfollow.In ordertobuildcomplexity-robustorganizations,asharedviewofhumannatureisneeded.

13. Thenatureofmotivationandwhyleaderscannotmotivate Peoplearedrivenbymotives.Itissafetosay thateveryonecarriesallkindsofmotives,toa certaindegree.Everyonethusisa“carrierof motives”,or“intrinsicallymotivated”.The specificlevelsorthedominanceofdifferent motives,however,varygreatlyamong individuals. Whatthismeansfororganizations,or employers,is:theycannotmotivate.Because motivationis.Themainthingthatorganizations candotostimulateperformanceisfacilitating optionsforconnectionbetweenindividuals andtheorganization,throughpurposeandwork. Wecallthephenomenon,whenanindividual connectsitselfvoluntarilytoworkandan organization,connectedness. Unfortunately,beliefinthemythofmotivational powerofleadershipisstillwidespread.Truthis: becauseofmotivation'sintrinsicnature,leaders, throughtheirbehavior,canonlyde-motivate.

14. Appreciatingbehavioraldistinctiveness:Peopleandpreferences Anindividual'sbehaviorisalsostronglyinfluencedbypreferences.Theconceptof “preferences”wasintroducedbyCarlG.Junginhispioneeringwork“PsychologicalTypes”. Attitude.Jungdifferentiatedtypesfirstly accordingtotheirgeneralattitude:Attitude describespeople'swayofreactingmoreto outerorinnerexperiences. Introversion Thinking Sensing Extraversion Decision-making“functions“.'Heady’ individuals,whoprefertomakedecisions bythinkingthingsthrough,rationallyusing the'thinkingfunction‘.'Heart'peopleprefer toevaluateandmakedecisions subjectivelyusingthe‘feeling'function. Feeling Intuition Perceiving“functions“.Weviewtheworld usingacombinationof‘sensing'torecord thesensorydetails,and‘intuition'tosee patterns,makeconnectionsandinterpret meaning.

15. Makinguseofdistinctivenessinpreference todealwithcomplexity Thereisgreatvarietyofbehaviorwithinthethreecategories ofpreferences,dependingonwhichpositiononeachofthe threebi-polarscalestheperson’sbehaviorisplotted.The majorityofpeoplewillnotbeextreme,demonstratingaclose balance–assuchtheycanbemoredifficulttoread. Everypersonhastheabilitytouseeithersideofthebi-polar scales,althoughwewillallhavepreferencesforoneside morethantheother–mostofthetime. Whenpeoplewithdifferentpreferencesworktogether,they cancomplimenteachother. Incomplexity,distinctivenessinmotivationsandpreferencescanbeanasset–oraliability

16. Individualcompetencevs.collectivecompetence “Welearnedthatindividual expertisedidnotdistinguish peopleashighperformers.What distinguishedhighperformers werelargerandmorediversified personalnetworks.” “Engineersareroughlyfivetimes morelikelytoturntoapersonfor informationastoanimpersonal sourcesuchasadatabase.” Cross, Rob et.al.  The Hidden Power of Social Networks. Boston: Harvard Business School Press, 2004

17. Mostorganizationsareobsessedwithindividualperformance. Butindividualperformanceisactuallyamyth Individualperformanceisnotjustoverrated. Itsimplydoesn'texist,inorganizations. Why?Becausevalue,orresults,neverarise fromindividualaction,butfrominteraction betweenvariousindividuals,orwithinteams. Asalespersononlydoespartofthesale– theotherpartsarebeingdonebypeople whomaycallthemselvesbackofficestaff, productionandprocurementstaff, accountantsandHRprofessionals. Becauseinterdependencyisin organizations,tryingtodefineindividual targets,ortomeasureindividual performance,leadstodeception.Appraisals ofindividualperformancecanonlyhavea de-spiritingandde-motivatingeffecton peopleanddamageteamspirit.

18. Peoplecommunicate&connectinwildlydifferentmanners. Aboutthe“archetypes”ofcommunicators Hubs Gatekeepers Pulsetakers drawinformationandbroadcastit carefullymanageinformationflows greatobserversofpeople KarenStephenson,Quantum Theory of Trust. Harlow:PearsonEducationLtd,2005 Connectors Mavens Salesmen MalcolmGladwell,The Tipping Point. Boston:BackBayBooks,2002 exchangeinformationwithmanypeople investmoretimeinpeople mastersofinterpersonalcommunication Itisnotimportantwhichoftheseconceptsis“true”or“better”: Thereispotentialinmakinguseofsocialpatternsandthesevariedwaysofacting. Makeuseofthem,orignorethematyourperil!

19. Whatmakespeoplecomplex:puttingitalltogether Anindividual'sbehaviorisshapedbymotives, preferencesandcompetencies.Motivesas personalcharacteristicsarequitestableovertime –theydescribehowimportantcertaingoalsare fortheindividual.Preferences,bycontrast,can partlyevolveduringthecourseofalifetime- dependingonenvironment,challengesand personalgoals.Motivesandpreferences, combined,influenceourinteresttoacquirecertain competencies:Thereareabilitiesthatarepresent orthatcanbelearned.Competencies,thus,are directlyrelatedtolearning. Aswesaw,onlybehavioriseasilyandreadily observable.Itisstillquiteeasytodescribean individual'scompetencies.Withalittlemoreeffort yet,preferencescanbemappedanddescribed. Properidentificationofsomeone'smotivesrequire evenmoreeffortanddelicacy.Humannature Behavior (visible) Competencies Preferences Motives Nature cannotbeobservedatall:itisamatterofconviction,orpartofthesocialtheoriesthatwe hold.Problemis:observingbehaviorseducesusto (mis)judgeothers´competencies,motives, oreventheirnature.Organizationforcomplexityrequiresmorereflection!

20. Part3. Self-organizingteamsandthenetworkedorganization: Fromtheolddesignprinciplestonew,andbetterones “OrganizeforComplexity“-BetaCodexNetworkWhitePaperNo.12

21. Formingteams “Theideaof“chunking”:agroupofitemsisperceivedasasingle“chunk”. Thechunk’sboundaryisalittlelikeacellmembraneoranationalborder.It establishesaseparateidentityfortheclusterwithin.Accordingtocontext,one maywishtoignorethechunk’sinternalstructureortakeitintoaccount.” Hofstadter/Douglas. Gödel, Escher, Bach. New York: Basic Books, 1979 Wecalltheindividualchunkacell,anditsboundary thecellmembrane. Wecalltheclusterofcells (thesystem),acell-structurenetwork. Wecallthesystem'sboundaryormembranethesphereofactivity.

22. Organizingthework:Commonformsofteamsegmentation– andwherethedifferencelies Designprinciple "Beta": Teams are cross- functional, orfunctionally integrated. “Diverseindividuals whoworkinter- connected,with eachother”- individualswho committowork together toreacha commongoal Designprinciple"Alpha": Groups are uni-functional,orfunctionally divided. “SimilarIndividualswhoworknexttoeachother,in parallel”,eventuallycompetingagainsteachother

23. Top-downcommand-and-control versusself-organization commands, control problems, information Designprinciple"Alpha": Control through bosses. Information flows up, commands flow down. Top-down decision- making. Use of rules for containment. boundary:rules, responsibilities, jobdescriptions radicaltransparency, socialdensity, grouppressure boundary:values, principles,roles,shared objectives Designprinciple"Beta": Self-regulation within the team. Control through peer pressure and transparency. Principles and shared responsibility. Self-organizationisnotthe“right”term:Betterwouldbe:Sociallydensemarket-organization.

24. Makinguseofsocialpressure 1.Letpeopleidentifywithasmallgroup. 2.Givethemsharedresponsibilityforsharedgoals. 3.Makeallinformationopenandtransparenttotheteam. 4.Makeperformanceinformationcomparableacrossteams. Socialpressure,usedright:farmorepowerfulthanhierarchy,nodamagingside-effects.

25. Self-organizationmustbeteam-based Ultimately,organizingforcomplexityand self-organizationisalwaysabout empoweringteams… …notaboutempoweringindividuals Theempowermentmovementofthe1990´salsomissedthispoint.

26. Aseemingparadox:Givinguppoweranddecentralizing decision-makingbacktoteamsactuallyincreasesstatus >Low,oraverageperformance >High,orsuperiorperformance Successisnotazero-sumgame.

27. Communicationacrossteams Designprinciple"Alpha": Coordination/communication through a manager, usually combined with functional division; taylorism >Sufficientindullmarkets Designprinciple"Beta": not through a manager, but laterally >Superiorincomplexmarkets Centralizedcoordinationisaluxuryorganizationsincomplexmarketscannotafford.

28. Thedifferencebetweena“department”anda“cell” Designprinciple"Alpha": A department implies functional differentiation and thus the grouping of functional specialists -marketers withmarketers,salespeoplewithsales people,etc.,allofwhichhavetobe coordinatedhorizontally.Business processes cross different departments. Result:groupsofpeopleworkingin parallel,notteams Designprinciple"Beta": A cell implies functional integration, or cross-functional teams. Coordination occurs laterally, among peers. Business processes flow within teams. Result:actualteamsofpeopleworking forandwitheachother Product management Sales Backoffice Businessteam2 Businessteam1 Businessteam3 Complexmarketsrequiredecentralization,combinedwithmarket-likecoordination.

29. Morereadingandresources Formoreaboutorganizationalstructures,seeourwhitepaperno.11. Formoreaboutcell-structuredesign:seeourwhitepapersno.8,9and11. Formoreabout“relative“performancemanagement:seeourwhitepaperno.10. Formoreaboutproblem-solvingincomplexity,seeourwhitepaperno.7. FormoreabouttheBetaCodex,seeourwhitepapersno.5and6. Allpaperscanbeaccessedfromthispage:www.betacodex.org/papers Youarefreetouse&sharethismaterial.Ifyoumakeuseofthismaterialinyourwork, pleaseletusknow–wewouldlovetolearnaboutthat! Wewelcomeyoursuggestionstoimprovefutureversionsofthispaper. ThankstoPiaSteinmann,whocraftedallillustrationsusedinthispaper, andtoJurgenAppelo,whosedrawingsoriginallyinspiredit.

30. TheBetaCodexNetworkwhitepapers-sofar Special   Edi+on   Special   Edi+on   FindallBetaCodexNetworkwhitepapersonwww.betacodex.org/papersandonSlideshare. Whitepaper–The3StructuresofanOrganization ©BetaCodexNetwork–Allrightsreserved 25

31. The“OrganizeforComplexity”book Paperbackedition Deluxeedition (withbonuschapter) www.organizeforcomplexity.com

32. Make it real! ValéryaCarvalho mvaleriacarv@gmail.com LinkedIn SãoPaulo NielsPflaeging contact@nielspflaeging.com nielspflaeging.com NewYork,Wiesbaden SilkeHermann silke.hermann@nsights-group.de insights-group.de Wiesbaden,Berlin,NewYork LarsVollmer me@lars-vollmer.com lars-vollmer.com Hannover,Stuttgart betacodex.org GetintouchwithusformoreinformationaboutleadingBetaCodextransformation, andaskusforakeynoteoraworkshopproposal.