Jeanne Ross is principal research scientist for MIT’s Center for Information Systems Research.
Digital technologies offer ubiquitous data, unlimited connectivity, and massive processing power. These capabilities have created a business environment in which decision-makers can more readily acquire data to inform decisions and then shrink bottlenecks between knowing and doing. In this way, digital technologies are accelerating the pace of business.
All this speed is making business agility de rigueur. No matter how big or old they are, companies that hope to avoid a fate like that of the Titanic — sinking because they can’t change course fast enough to avoid calamity — must learn how to respond quickly to unanticipated opportunities and threats.
Well-designed systems and processes can certainly help make a company more agile. But even great systems and processes are responsive to change only if the people who use them recognize what needs to be done and how to do it.
Organizational structures are designed to clarify how a company will meet stated objectives. But they’re not necessarily good at helping people adapt to changing objectives. The result: Leaders will be able to operate as true digital leaders only when they shake their reliance on structure as the primary tool of organizational design and instead start assigning accountabilities in ways that instigate focused responses to opportunities. This is unlikely to come naturally.
What’s Wrong With Structure?
Traditionally, business leaders have structured companies to allocate responsibilities to distinct functions, product lines, geographies, or other business areas. This divide-and-conquer approach to organizational structure creates business silos, which are usually designed as hierarchies. In these structures, leaders assign increasingly specific responsibilities and tasks at lower levels of the hierarchy.
These siloed, hierarchical structures support operational efficiencies, but they are not effective in supporting digital, integrated services to customers. Integration requires coordination of activities across silos. Recognizing this interdependence, decision-makers refer a growing number of decisions up the hierarchy, where senior people can resolve conflicts across all affected business silos. As a result, key decisions are made far away from the operational reality, and then communicated back to where action will be taken.
Digital companies cannot wait for such elongated decision-making processes. But because they also cannot afford to ignore the need to coordinate across silos, leaders are reluctant to empower teams within silos to take independent action.
Restructuring Is Not the Answer
As business leaders recognize the limitations of business silos and hierarchies, they invariably attempt to add new structures, like matrices or networks, to make their structures more agile.
But adding structures is likely to make a company more complex rather than more agile. There are at least four reasons why executives should not rely on structure to provide improved organizational agility:
- Restructuring is a bad use of management time (and everyone else’s). Reorganizations are exhausting. Constant introductions of new structures will consume precious management attention that should be focused on meeting new business demands.
- Structures trap rather than empower employees. Roles within formal structures rarely encourage people to do what it takes to solve a problem. Rather, they encourage people to do the job they were told to do. It’s agile employees who solve problems.
- Formal organizational structures often limit experimentation. Risk-averse individuals may be reluctant to try new things or note that an experiment is failing, if it bodes poorly for their organizational unit. Commitment to structure as a key design lever can limit learning.
- Formal structures don’t fully leverage a company’s smarts. Traditional structures come with annual goals, budgets, and performance metrics. This means that the people at the top need to know what resources are necessary — they need to be the smartest people in the room. But when companies are moving fast, business awareness and creativity are highly distributed.
Most leaders recognize these limitations — they just fear the chaos that could result if they rely less on formal structures. Indeed, structures won’t go away. But what can go away is the reliance on restructuring as a way of introducing important strategic changes.
Lead Change by Assigning Accountabilities
Instead of restructuring, companies can initiate change by assigning accountabilities for specific business outcomes to small teams or individual problem owners.
For example, in our research at MIT’s Center for Information Systems Research (CISR), we’ve seen that at the banking and investment company BNY Mellon, more than 50 service leaders are accountable for creating and maintaining services like opening an account, making a payment, and reconciling a transaction. These service leaders are responsible for cost, reliability, and customer satisfaction (often internal) related to their service, so they coordinate with other parts of the company through collaboration as opposed to working through the hierarchy. This arrangement is allowing BNY Mellon to provide a more integrated face to customers without restructuring the business.
Leading change by assigning accountabilities involves specifying a desired outcome, putting someone in charge, and letting the responsible person decide how to accomplish the objective. Senior leaders need not divvy up necessary tasks; individuals or teams can quickly pivot as they identify what is and isn’t working.
For instance, like many digital companies, the Swedish streaming entertainment company Spotify supports its customer offerings through the efforts of small autonomous teams, known as squads. These squads define their own missions and develop their own goals, as well as hypotheses as to how they will meet their goals, testing and adjusting as they go along. Team membership shifts as the company refocuses priorities or as a team grows beyond an optimal size.
Assigning accountabilities like this differs from structuring in several important ways:
Individual flexibility. Companies designed around accountabilities focus on current issues and outcomes. For digital companies, most accountabilities revolve around digital offerings. These are natural because offerings start as minimum viable products that can grow if customers demonstrate enthusiasm. For successful offerings, assignments are likely to become longer term (and could lead to a more formal structure). Other individuals take on accountability for specific process problems that, once resolved, will lead to reassignment. People start to expect (and, in most cases, desire) to move to where they are most needed.
Less budgeting and more market-based resource allocation. Accountability owners take responsibility for making their solutions cost-effective. Owners of accountabilities attempt to meet the needs of their internal or external customers at a price those customers are willing to pay. They are inclined to recruit resources as needed rather than simply accrue a reservoir of talent. In some cases, they’ll recruit people to their teams; in others, they will look for collaborators. Thus, an internal market, rather than a budget, will dictate resource levels.
Experimental mindset. Because every accountability owner designs experiments to test hypotheses, it’s important to track whether an experiment is meeting with success or failure. Accountability owners accompany their hypotheses with proposed milestones that indicate if an experiment needs scaling up, tweaking, or abandonment. Failure is an option as long as the company has identified how to capture learning.
Coaching rather than managing. Because accountability owners are proposing hypotheses, defining metrics to track progress, and assuming responsibility for recruiting and paying for resources, they will usually know more about their roles than their leaders do. Thus, leaders must rethink their roles. To lead empowered teams, leaders have two important responsibilities: (1) aligning multiple accountabilities and (2) coaching individual accountability owners.
Assigning accountabilities rather than developing structures will be a radical new way of working for people who have climbed the corporate ladder in traditional ways. The demands for agility, however, make it imperative that leaders learn how to help their people adapt quickly to new demands and opportunities.
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To develop accountability at all organizational levels, leaders must learn to empower their people without creating chaos. In turn, accountability owners must learn how to take responsibility for organizational outcomes.
When former BNY Mellon Global CIO Suresh Kumar revamped the IT unit at BNY Mellon around accountabilities, he noted that he was asking people to act like “mini-CEOs.” He found that some of the people he placed in this role were natural problem-solvers who seized the opportunity. Others regularly asked their bosses what they should do next. Not all could be trained out of old ways of thinking.
To get started, leaders should solicit the names of people who feel they have far more to add to the company than they are contributing in their current roles. This will help identify problem solvers and risk-takers. Leaders can assign them a single issue or digital offering. As they gradually designate new tasks to new accountability owners, leaders themselves will learn how to coordinate and coach.
There will be mistakes, and people throughout the company should know about those mistakes and learn from them. But as the process unfolds, it will accelerate the company’s digital transformation.