Organizational Structure Part 3 (Final)


This is the continuation to Part 2 and the final part to this 3 article.

Deviations from Target

In part 2, we took at a look at MBO. All good is said for having smart goals and defined KPI. However, it is a perfectionist attitude to tie performance ratings and compensation incentives to goals. I believed that there are other alternatives, which I will examine in future articles. One is to explore Verne Harnish’s ideas in his book “Scaling Up”.

Goals, project milestones are less relevant or applicable to routine tasks than work performance standards. W. Edwards Deming pointed out that “Whenever a system is stable, telling the worker about mistakes is only tampering.” The following video uses a funnel experiment to explain the following key points made by Deming:
• Despite good intentions to fix a system and move it closer to the target of the process, manipulations only made outcome worse over time.
• All systems have a certain level of inherent variability (type 2 and 3 errors).
• Attempting to adjust a stable process will make things worse.

There are some thought provoking questions at the end of video questions listed in the above video.

What Impact will a Flat Structure Have on the Salary Structure?

My Comments: A flat structure has a number of implications:
• The current tools, including job evaluation tools, executive stock options, and executive bonus meant for a traditional hierarchical structure may become irrelevant.
• Job evaluation may shift from the current system based on position to a hybrid system based on role, competencies, skills and knowledge.
• The jobs for senior management (such as directors) may no longer exist. This provides the money and opportunity to pay employees more fairly or above the poverty line.

That money will also go into the training the people at the bottom of the traditional hierarchical structure that are doing the actual work of the organization; where the organization interfaces with the customers; and is the source of innovation. People will come to realize that this is where the drivers for pushing up the business revenue and stock price sit.

That money will also go into hiring better people with better self-organization skills (discipline) and thinking skills (key in the X and Y theory).

This is the point where Work and Education meet and interfaces. It becomes important for management to give up commanding and give back the control to these people. The truth is we cannot motivate people; only people can motivate themselves. If we give people a stake in our business, there is a greater chance that they will become engaged.
• Job grades will continue to apply and market benchmarks will continue to be relevant.
• Flexible job description may replace standard job description.
• A knowledge, skills or competency database of all employees may become important for project deployment.
• Start or continue to get rid of toxic employees is required to make the workplace productive.

These above will be in line with W. Edwards Deming’s ideas mentioned below:
• The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers.
• Drive out fear, so that everyone may work effectively for the company.
• Break down barriers between departments. People in research, design, sales, and production must work as a team, to foresee problems of production and in use that may be encountered with the product or service.

Bernd Geropp: Instill or Align Purpose

Who Is To Blame For Employee Engagement

What Matters is Results

Here is 1 of Drucker’s 10 life principles. It is true because we have no control over uncertainty. Sometimes we missed an opportunity because we insisted on sticking to our plans.


In his book, Managing for Results, Peter F Drucker also wrote:

“Results are obtained by exploiting opportunities, not by solving problems. Resources, to produce results, must be allocated to opportunities rather than to problems. One cannot shrug off all problems, but they can and should be minimized. The “maximization of opportunities” is a meaningful, indeed a precise, definition of the entrepreneurial job. It implies that effectiveness rather than efficiency is essential in business. The pertinent question is not how to do things right but how to find the right things to do, and to concentrate resources and efforts on them.”

My Comments: What I think Peter F.Drucker meant by Managing By Results is Management needs to focus on doing what that will grow the business. To understand this, we have to get out the box of corporate mindset and put on the hat of an entrepreneur.

He explained it this way: “Inside an organization there are only cost centers. The only profit center is the customer whose check has not bounced……There is only one valid purpose of business purpose – to create a customer”. He further said: “What a business needs most for its decisions, especially its strategic ones are data about what goes on outside it. Only outside a business are there results, opportunities and threats.” (Source: Peter F. Drucker -Delivering Value to Customers).

Successful Leaders

Giving Back the Control to Autonomous Teams

My Comments: The idea of autonomous teams in Semco BA goes beyond self-managed teams. Not only team members get to schedule their work, they are paid for work done rather than for their time. They are also given a share in the company’s profits and a chance to determine what is their pay going to be; who will be their manager that is supposed to facilitate or support them and probably what services or products to add or drop.

This concept worked for Semco BA because not only it took the business out of financial difficulties but also the company managed to survive in Brazil harsh and turbulent economic environment.

Ricardo Semler – “Demilitarising businesses”

Kevin Burns: How Managers Must Engage Staff

Ricardo Semler – ABC “Interview with Semco’s business guru”

My Comments: Even in war, when the decision on deployment of troops is made in the war rooms, the decisions regarding maneuver have to be made by the fighting units themselves because they are the ones on the ground and their lives are at stake.

The roles of management staff will change focus more on coordination and alignment (getting the parts to move as a whole) and facilitation (providing the support, a key in servant leadership).

The Networked Organization

Ken Everett chose the networked organization structure because he could not afford to employ people in all 7 states of Australia, let alone 30 countries. But out of this necessity, he discovered that networked organizations to be resilient, innovative, and leader-full and that these characteristics arise out of the design. The structure has proven to average over 10% growth each year, and be profitable in each.

In his case, it is his own firm of 3 employees with another 300 people that are affiliated individuals or companies that participate in distributing and delivering his training workshop named “Think on Your Feet” in 30 countries.

Using his own example, he pointed out that networked organizations have 3 characteristics:

• Independence for the members.
• A sense of belonging (identity) to a larger community (Collaboration).
• Shared stuffs – This can be location, interests, protocols, values, passion.

Tapping the Flexibility of Autonomous Groups

My Comments: The concept of autonomous groups goes beyond the concept of self-managed group. Here employee empowerment is at its best. This is what gives the structure its flexibility and nimbleness.


Ken Everett gave another example in his book. He mentioned the example of Visa, when it was under the leadership of Dee Hock, before it was listed in the stock exchange. Visa is a payment system, while banks and other financial institutions issue the cards and provide the credit.

It was set up as a cooperative run by regional boards. On these boards sat representatives of the owners (the local banks) who co-operated and oversaw the services provided by Visa to its clients (also the local banks) who then compete in the marketplace for customers.

Semco SA

“Semco does not have a traditional management hierarchy or typical organizational chart, or even a matrix or lattice management structure. The company is effectively made up of autonomous, democratically run units. The model of organization is that of concentric circles.
At the center are the Counselors, including Ricardo Semler. There are six of them and a different one takes the CEO job every six months. They deal with general policy and strategy, overall financial results, and work to inspire the Partners who make up the second circle.
Partners are six or seven leaders from each Semco division. Everyone else is an Associate. Some Associates also work as team leaders.”
(Source: Supervisory Leadership – Lessons from SEMCO on Structure Growth and Change. The website is agreatsupervisor).

“The replication of business units into smaller units as and when the need arose created units small enough to operate with a commonly shared set of values, philosophy and culture. The organization was bound together by the three interdependent core values: Employee Participation, Profit Sharing and Free Flow of Information.

These three values stemmed from the belief that participation in design and implementation of work procedures would give employees control over their work; profit sharing would bring in a sense of ownership; and the availability of information as and when needed would help the employees understand to improve their work practices continuously…”

(Source: Semco: “A ‘Maverick’ organization”. The website is icmrindia)

SEMCO BA: What a Workplace Should Be

Article Afterthoughts

The following are my afterthoughts related to this article.

Advantages and Disadvantages of Job Competency Based Job Evaluation Systems

The following table is taken from the book Valuing Roles: How to Establish Relative Worth Written by Michael Armstrong and Ann Cummins. It contrasts the 3 approaches. What is not mentioned here is knowledge-based pay.

Competency Based

Even as early as 1992, Pritchard and Murlis mooted the need for a people based role evaluation system.

Jobs Roles People

The Value of Cross Training and the Link between Managing for Results and Spin Offs
The value of cross training employees is that when management spotted a business opportunity, they will have immediately on hand the people that they need to seize the business opportunity.

KSCC Capacity Building Framework


Peter Drucker: Delivering Value to Customers

Lessons from Semco on Structure, Growth and Change

8 Types of Organization Structures

Types of Organizational Designs

Types of Organizational Autonomy

A Guide to Job Flexibility at MIT


Competencies, Job Evaluation and Equal Pay

Person Based Structures

Valuing Roles: How to Establish Relative Worth
Written by Michael Armstrong and Ann Cummins. Published by Kogan Page Limited (ISBN 978-0-7494-5077-9) First published 2008.

International Position Evaluation System

Pay Systems

Standards for a Competency Based Approach to Monitoring and Evaluation Curricula & Trainings

2004 U.S. Master Human Resources Guide Written by Donald W. Myers Published by CCH (ISBN 0-8080-1015-8) Published 2004

Manage Yourself and Then Your Company: Set An Example
Written by Peter Drucker

10 Life Principles Written By Peter Drucker

Managing for Results Written By Peter Drucker

How to Overcome Perfectionism

For Further Reading

The Great of Business: Unlocking the Power and Profitability of Open Book Management written by Jack Stack; Published by Currency/Doubleday (ISBN 978-0385475259)

A Stack in the Outcome: Building a Culture of Ownership for the Long-Term Success of Your Company written by Jack Stack and Bo Burlingham; Published by Crown Business (ISBN 978-0385505093)