Just 12 percent of companies that comprised the Fortune 500 in 1955 were still around by 2015. There are many reasons so few organizations endured: markets transformed, industries consolidated, business models evolved, new competitors arose and so on. Forty years of Harvard Business School research suggests, however, that one under-appreciated reason so many organizations faded is they lacked the organizational structure to adapt to the world as it changed more and more rapidly. The hierarchy, developed in the late 19th century to help administer the complexities of business’ daily life, remains the dominant form of organizational structure today. Developed to predictability, hierarchies excel at “keeping the trains on the track,” but naturally resist change and reinforce the status quo – which can be dangerous in a faster-moving world.
Business academia has seized on the “network” idea as a solution to the need for greater agility, with management consultancies and one-off “gurus” writing about “leaderless teams,” “boundary-less organizations” and “holacracy.” Indeed, as my colleague, John Kotter, introduced in a 2012 Harvard Business Review article, “Accelerate,” the idea of a network is powerful and necessary. But fervor around the concept has resulted in two problems: (1) mistakenly replacing hierarchies with networks, and (2) over-engineering the creation of networks with prescriptive, formulaic approaches.
THE IMPORTANCE OF “AND”
Too often today, organizational leaders and consultants prescribe networks as a remedy for what ails hierarchical organizations — so they attempt the wholesale replacement of hierarchies with networks. The story is often very familiar: faced with a rapidly shifting market or a host of new competitors quickly gaining market share, leadership decides old management structures must go, replaced by a “leaderless” or “collective” organization that “breaks down silos” and “empowers” employees. What results is often confusion, frustration and results that are lackluster, at best.
“Working in concert, networks and hierarchies push one another to help the organization amplify its own potential.”
Take Zappos’ foray into holacracy as a case study. Zappos implemented this highly ordered network structure, transforming 150 departmental units into 500 “circles” to accomplish the same tasks, but with the goal of enhanced collaboration and a less siloed organization. While some of these goals were realized, the wholesale shift from hierarchy to holacracy generated considerable confusion among employees. By 2016, frustration with the system initially led nearly a fifth of employees to leave the organization, fueled a growing turnover rate that eventually reached 30 percent, and saw the company excluded from Fortune’s 100 Best Companies to Work For ranking for the first time in eight years.
The product of nearly a century of management science, hierarchies’ effectiveness in addressing the day-to-day managerial needs of organizations – the activities that keep the trains on time – has repeatedly proven to be unmatched. Hierarchies do not, however, pivot easily. Networks, on the other hand, excel at tackling uncertainty and reintroduce speed to the process of change. To get the best of both, therefore, the two systems must work together symbiotically. The equation is not a matter of “either or” but rather “both and.”
Working in concert, networks and hierarchies push one another to help the organization amplify its own potential, adapt to marketplace shifts, combat emerging threats, and evolve into the kind of powerhouse organization that results in a serious competitive advantage.
CREATE CULTURE, RATHER THAN COMMANDING CHANGE
Even with the understanding that the network structure must serve to supplement the hierarchy and not replace it, many executives jump right to the punch, asking, “How do I create a network to supplement my hierarchy?” And, many management consultancies today are happy to provide a blueprint that starts with defining the mission, delegating responsibilities, assigning strong team leaders and encouraging cross-collaboration among teams. The problem is, this approach, driven top-down by an executive team and drawing heavily on known leaders, tends to produce more of the same – that is, another accidental hierarchy rather than a true network. Ironically, over-engineered networks can produce more bureaucracy!
Rather than delegating a mission, assigning roles and responsibilities to team members, and constructing the culture for them — activities that a hierarchy would help accomplish — organizations should instead empower teams to set their own goals, define their own tasks, and organize themselves fluidly, in a way that links directly to the strategic direction set by senior leadership and capitalizes on the strengths of the organization and its people.
Ask any factory floor worker whom they see as a leader and they may not point to anyone in the corporate office — other than perhaps the CEO. They might instead point to their shift manager who trained them when they first started or their colleague who showed courage when facing a recent challenge. Rather than assuming the answer based off title, tenure, subject matter expertise or those who have historically called the shots, leaders must ask themselves, “Who is willing to go above and beyond the call of duty, and how do I support a culture that encourages this behavior?” These people should be in a network, but aren’t always. Assigning leaders, or even participants, to the network takes the “volunteer” aspect out of the process that’s essential to its creation, survival and success — shifting the tone of the group from “want to” to “have to.”
The network structure must come together organically, depending on the unique conditions of the organization, and not be over-engineered at the risk of simply creating a supplemental hierarchy. To accomplish this, leaders must focus more on creating a culture that supports network structures and empowers their agility (through active engagement, psychological safety and the celebration of short-term wins), rather than dictating network design, assigning team roles and delegating missions.
NETWORKS & HIERARCHIES TOGETHER YIELD 1+1=3
All this interest, experimentation and ideation with networks is a good thing. Yet, like many new management science concepts, there is a risk “networks” become a fad – seen as the silver bullet. We see two potential missteps which should be avoided when establishing a network within an organization: over-reliance and over-engineering. A network is not a replacement for the hierarchy. Most organizations today need a hierarchy to effectively deal with size and complexity. Where the real magic happens is through leveraging the hierarchy and network together to accomplish more than anyone believed was possible. Avoid these two potential missteps and the result (hierarchy + network) will be 1+1=3.
When these principles are in place, imagine how many more Fortune 500 companies today will be around in 2075.