Uncovering unconventional organisational structures

From “flatarchy” to "holocracy", HRM Magazine Asia weighs in on the viability of these unorthodox organisational configurations.

With technology and emerging innovations like blockchain disrupting industries at breakneck speed, the business world is no longer just about the survival of the fittest, but also survival of the most agile.

Certainly, a lot has already been said about how agility can help companies stay ahead of the pack – a large part of the rhetoric is around the upskilling of people and strategic workforce planning – but new trends show there is also a growing focus on the actual organisational set-up itself.

More and more companies are now trading the traditional hierarchy, the beloved organisational design that companies have employed for centuries, for other new-age models that can afford them the flexibility required for them to remain at the forefront during these disruptive times.

Whether you call it the pyramid or a hierarchy, the classic top-down approach is now viewed as passé, overly restrictive, inefficient, and an enemy of innovation.

Several organisations, including the likes of the Australia and New Zealand Banking Group (ANZ) and Chinese manufacturer Haier, have adopted the alternative organisational structures of holocracy, flatarchy, and matrix organisations.

These words sound familiar, but their workings remain a mystery for many. As HRM Magazine Asia discovers, these structures can also possess their own sets of problems.

The real deal?

When US online clothing retailer Zappos first embarked on a complete structure overhaul in 2013, favouring a “holocratic” arrangement over the traditional hierarchy, it seemed clear early on that the model looked much better on paper than in practice.

Adopting holocracy – essentially a manager-less organisational structure that eliminates reporting lines, designations and sometimes entire job scopes – presented a series of challenges right from the outset, said John Bunch, technical advisor to Zappos’ CEO.

Make no mistake, however. Holocracy is not the same as a flat structure. In fact, as Olivier Compagne, Partner at HolocracyOne, states, “flat organisations with informal structures don’t eliminate hierarchy”, but holocracy provides a clear but flexible structure that takes away visible ranks.

Developed specifically as an alternative to the traditional hierarchy, holocracy sees individuals organised into different groups or “circles”. This set-up allows employees to work on a variety of tasks throughout the day.

An employee at Zappos might spend two hours doing a particular task, followed by five hours on another task, and could then be doing something completely different in the next hour.

At the start, Bunch said Zappos’ biggest challenge was in helping its employees understand that the new setup made sense for their work and the business.

“When you make such a large change to the way you operate, a lot of the systems that you used to operate and that work also have to change,” said Bunch.

“When we think about performance evaluation, compensation, recruitment; how do we do those things in an organisation that operates very differently than how most organisations operate? That’s been a challenge.”

The transition definitely took a toll on employees. In 2016, Zappos dropped off Fortune’s 100 Best Companies to Work For list for the first time in eight years.

Online publishing tool Medium also experimented with the system for a few years before abandoning it in early-2016.

Its then head of operations Andy Doyle explained in a blog post that holocracy was simply too troublesome.

“In the purest expression of Holacracy, every team has a goal and works autonomously to deliver the best path to serve that goal,” he wrote.

“But for larger initiatives, which require coordination across functions, it can be time-consuming and divisive to gain alignment.”

Doyle wrote that the system had begun to exert “a small but persistent tax” on both effectiveness and the workforce’s sense of connection to each other. “It was getting in the way of the work,” he said.

Today, Zappos is pressing on with holocracy, but most observers are already calling its “experiment” a failure. Only time will tell if this arrangement will remain practical over the long term. 

A mix of both worlds

Another similar structure, which contains multi-function groups but retains some element of hierarchy, was adopted by ANZ in September last year.

Instead of the cumbersome structures which most large financial organisations typically operate, ANZ decided to reorganise key departments of its Australian business, and turn them into 150 10-person start-ups.

These teams, or “squads”, as General Manager of Technology and Digital Banking Christian Venter explains, are made up of individuals representing a wide range of functions, from sales and marketing, to legal and technology. They then form part of a greater division, otherwise known as “tribes”, of which there are 10 in total.

Adopting this flatter, more “agile” multi-disciplinary group approach, is meant to help the organisation streamline processes and remove bureaucracy, while providing more room for collaboration and innovation.

“That’s 150 components of the organisation who all have autonomy and agility to adapt to customer needs very, very quickly. That’s the benefit,” Venter told The Sydney Morning Herald (SMH).

This flat, yet somewhat complex structure is similar to the unrestrictive models employed by technology disruptors like Spotify and Netflix, which Elliott hopes to emulate.  

Netflix’s organisational design is based on its now famous “culture deck”, of which a key guiding principle is to give employees the “freedom and responsibility” to work, without being monitored or having to constantly report to a higher-up.

But employees still have to update a team leader on their progress. That person is not necessarily the most experienced, but the leader who can transcend the most number of functions.

Dubbed by organisational design practitioners as a “flatarchy”, this model aims to combine the strengths of the pyramid scale with the innovative freedom of a much flatter entity.

Also following the Netflix plotline is Chinese electrical appliance manufacturing giant Haier. The move to such a system had stemmed from its chairman Zhang Ruimin’s goal of letting every employee “become their own CEO”.

The company has over 40,000 employees, who are split up into 2,500 micro-business units, containing a maximum of 15 people each. Each respective team is responsible for their own profit-and-loss statements, and are assessed accordingly. 

Both ANZ and Haier are optimistic about the decentralisation, but some experts say the Netflix model is not universally-applicable.

Dennis Passovoy, a lecturer at the McCombs School of Business at the University of Texas at Austin, says the approach works at Netflix because it is in line with the overall company culture.

“It’s a reflection of the community that exists within the company, and that’s unique to them,” he explained.

Whether that level of conduciveness exists at ANZ remains to be seen, but Venter is positive of the efficiency and increased productivity that the restructure will bring.

“What we do know ... is working in this way means you should need less people to achieve the outcome,” he told SMH.

“There are some functions and capabilities that we have today which are necessary because of the complexity of the organisation; those roles effectively help navigate complexity. In the new world (after the reorganisation), we shouldn’t theoretically require those kinds of functions.”

Another financial institution that has begun to flatten parts of its business is Citibank Singapore.

As its Singapore Head of HR Grace Lee tells HRM Magazine Asia, the restructuring has come as a result of the digitisation of banking services and backend processes.

“Structures will have to change as roles will change, and we are already seeing this in parts of the organisation,” she says, adding that this gives more room for innovation and allows the bank to focus on growth areas like cyber-security, robotics, and anti-money laundering.

The downside of the transformation is that HR needs to approach the change management process sensitively, as some jobs will become obsolete, and more mature workers will be displaced.

To this end, the organisation is committed to helping its workers transition into the new world of work and is doing so through a career development initiative called My Career Week, which first launched in 2017.

During My Career Week, many talks and workshops take place to educate employees about job openings across the bank and even across the wider banking and finance industry. By providing this avenue, Lee says all employees, not only those affected, will get a fair chance at staying with the company.

Cross-functional split

More conservative than the flatarchy is the matrix organisation, an older concept that dates back to the 1970s.

In a matrix structure, an individual has more than one reporting line (usually two):  a functional supervisor and a project supervisor. While this sounds like a reinforcement of rankings, it actually offers organisations the flexibility to share their human resources across different projects at any one time.

The cross-functional nature of each role also means individuals can develop broader capabilities and have a greater impact on the business. 

US coffee chain Starbucks and Japanese healthcare company Takeda Pharmaceutical Company are two organisations that currently employ a matrix structure.

At Starbucks, which has been entrenched in the matrix format since 2008, employees are divided according to geography, products, and teams. This structure has helped the company to put a focus on customer experience, and as a result, has improved its financial performance steadily since implementation.

But the matrix set-up requires ample employee training in order for it to work smoothly, says Takeda Pharmaceutical Vice President of HR for Emerging Markets (including Asia-Pacific) Ana Cardozo.

“It’s working well now for us. At the beginning it was difficult because we were very decentralised; this structure requires a lot of alignment,” she says.

For example, HR reports to the global business, but also has to balance the objectives of the Emerging Markets division. Cardozo says her team cannot implement strategies that are completely out of sync with the goals of the global headquarters.

This lack of clarity can also confuse and frustrate employees, which could affect productivity in the long run.

“It requires the ability to manage different stakeholders, which comes from lots of communication. But once the decision is taken, if it’s aligned, it becomes much easier to implement,” she adds.

Ultimately, just as with other structures, Cardozo says the aim is to be as agile as possible, even if that is sometimes difficult to achieve in a matrix set-up.

“If we can simplify the processes that we have, then we can avoid this back and forth conversation. So I think when you clarify the governance, who is responsible for what, who approves what, who is your go-to person; I think you can be much more agile because you know where to go,” she says.  

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