Adhocracy for
an agile age
The agile
organizational model gives primacy to action while improving the speed and
quality of the decisions that matter most.
Even as companies from IBM to Caesars Entertainment to American
Express succeed through advanced analytics and big data, a less visible side of
the preoccupation with information may be having the opposite effect.
Academic studies show that information
overload at the individual level leads to distractedness, confusion, and poor
decision making. These problems beleaguer organizations, too, as we have
seen from working with many large companies and through many interviews and
workshops with senior executives in a range of sectors and geographies. Our
experience reveals frequent cases of analysis paralysis (gathering more and
more information rather than making a decision), endless debate, and a bias
toward rational, scientific evidence at the expense of intuition or gut feel.
These pathologies can have a deleterious impact on the functioning of
companies. They can lessen the quality and speed of decision making and
engender a sterile operating environment in which intuitive thinking is
quashed. As a result, many companies end up standing still, even as the world
around them is speeding up.
In short, the undeniable power of information
brings the risk of becoming overly reliant on or even obsessed with it. What’s
more,as the information age advances into an increasingly agile one, something
important is changing: information is less of a scarce resource as it becomes
ubiquitous and search costs plummet. In such a world, as Herbert Simon
speculated more than 40 years ago, the scarce resource we have to manage is no
longer information—it is attention. We believe that large companies today
are poor at managing what might be called their return on attention.
Particularly at the executive level, attention is fragmented; people are
distracted; and even when the data are impeccable, decisions can be unduly
delayed or just plain bad.
Clearly, not everyone has fallen into this
trap. At some companies, executives understand both the power and the limits of
information; they know that at times, getting the right answer is imperative
but that at other times, being decisive and intuitive, and acting swiftly and
experimenting, can work better. As Amazon’s Jeff Bezos says, “there are
decisions that can be made by analysis. These are the best kinds of decisions!
They’re fact-based decisions. . . . Unfortunately, there’s this whole other set
of decisions that you can’t ultimately boil down to a math problem,” such
as big bets on new businesses. Some of Bezos’s bets, like the Kindle and Amazon
Web Services, have paid off; others, such as Amazon’s mobile phone, have not.
But that hasn’t dissuaded the company from continued experimentation and
action.
Clearly, there’s a need for balance—for a
more nuanced understanding of when to dig deeper into the data, when to
stimulate the kind of extended debate that can help eliminate hasty or biased
decision making, and when to act fast. In our experience, many companies
are more comfortable analyzing and debating than they are acting decisively and
intuitively. Their default orientation toward more and better information binds
and restricts their ability to move surely and quickly.
The purpose of this article is to suggest a set of
capabilities—about how work is organized and people think—to complement the
default orientation of companies and to help them manage their return on
attention in a more systematic way. These capabilities, we suggest, are part of
an organizational model—adhocracy—that differs from the bureaucratic and
meritocratic organizational models currently in favor. By clarifying the pros
and cons of these three models, and the conditions when each should be used, we
aim to provide guidance on how to get the right balance between information and
attention.
Three organizational models
The concept of adhocracy was first proposed
several decades ago, essentially as a flexible and informal alternative to
bureaucracy. Here we’re intending to redefine the concept in a way that further
distinguishes it not only from bureaucracy but also from the meritocracy model
of organization.
Adhocracy’s defining feature is that it privileges
decisive (and often intuitive) action rather than formal authority or
knowledge. For example, when bureaucracies face a difficult decision, the
default is to defer to a senior colleague. In a meritocracy, the default is to
collect more data, to debate vigorously, or both. The default in an adhocracy
is to experiment—to try a course of action, receive feedback, make changes, and
review progress.
Adhocracies are also likely to use more
flexible forms of governance, so they can be created and closed down very
quickly, according to the nature of the opportunity. By emphasizing
experimentation, motivation, and urgency, adhocracy provides a necessary
complement to progress in advanced analytics and in machine learning, which
automates decisions previously made through more bureaucratic approaches.
Specifically, we view adhocracy as an organizational model that maximizes a
company’s return on attention, defined as the quantity of focused action taken
divided by the time and effort spent analyzing the problem.
The right organizational model, often varies according to the business
environment in which a company (or a part of it) competes. Bureaucracy still
has merit in highly regulated and safety-first environments. Generally
speaking, meritocracy works well in, for example, professional-service
environments, universities, and science-based companies. Adhocracy is well
aligned with the needs of start-ups and companies operating in fast-changing
environments. The appropriate model also varies by function, with compliance
more likely to be a bureaucracy, R&D a meritocracy, and sales an adhocracy.
That said, executives must carefully weigh their overall
approach and the extent to which any of these models should hold sway. A
professional-service firm, for example, might take an adhocratic approach to
organizing its teams so as to exploit opportunities, even as its
professional-development and strategic-planning groups use more meritocratic
approaches. The selective application of all three models is a core executive
task.
In the rest of this article, we describe adhocracy in
more depth, explaining its key features and comparing its pros and cons with
those of the bureaucratic and meritocratic models.
Three key features of adhocracy
An adhocracy can be readily observed in many
organizational settings. For example, if you go to a hospital’s emergency room
or an investment bank’s trading floor, the focus on getting things done rapidly
is clear. Many companies have used “skunkworks” operations: small project teams
that tackle a one-off problem outside the organization’s formal processes at an
accelerated pace. Many small companies have adopted the lean start-up model,
which emphasizes early prototyping and pivoting rapidly to new business models
as circumstances change. In all these settings, informed, decisive action
matters more than formal authority or knowledge.
Three key features distinguish adhocracy from bureaucracy
and meritocracy. Each helps increase a company’s return on attention.
1. Coordinating activities around
opportunities
Bureaucracies coordinate their activities
through rules, procedures, and routines; meritocracies, through adjustments
based on flows of information. In an adhocracy, by contrast, coordination
coheres around discrete opportunities. For example, many companies have
experimented with decentralized business units focused on specific customers or
projects. One such company is the UK-based pharmaceutical firm GlaxoSmithKline,
which has broken its drug-discovery operation into about 40 units that compete
with one another for funding.
Valve, the gaming company (based in Bellevue,
Washington) that’s behind such best sellers as Half-Life and Counter-Strike,
has developed an interesting version of adhocracy, though it doesn’t use the
term. Valve claims to have no managers. Employees are encouraged to initiate
new projects and to choose which of them to work on. Self-selected teams emerge
spontaneously where the most exciting opportunities appear to be rather than
according to a strategic plan or a product-development road map.10 As employee Michael Abrash noted in his blog, this
approach is appropriate because “most of the value [in gaming] is now in the
initial creative act. . . .What matters is being first and bootstrapping your
product into a positive feedback spiral . . . Hierarchical management doesn’t
help with that. . . .”11 Nor, we might add, would the meritocratic model,
for speed to market could be sacrificed to disputes and debates.
A key feature of this form of coordination is the
disbanding of project teams once activities are complete. Opportunities are
ephemeral by nature, and work in an adhocracy should reflect this. Mundipharma
is a fast-growing midsize player in the pharmaceutical industry. Traditional
pharmaceutical companies make long-term commitments to specific therapy areas.
Mundipharma organizes its business units around specific drug opportunities.
When a business unit successfully launches a new drug, that unit continues to
operate, but it shuts down if the launch fails, and the employees move over to
other, more promising areas. As a result, the company is quite market
focused—its model resembles that of a venture capitalist: it invests only when
it sees a clear pathway toward a commercially viable drug.
In sum, adhocracy’s ability to coordinate workers around
tangible external opportunities keeps them closer to the action and less
inclined to spend time deliberating. That, in turn, generates a higher return
on attention than the traditional coordination processes of bureaucracies or
meritocracies do.
2. Making decisions through experimentation
In a bureaucracy, decisions are made through the
hierarchy: superiors tell their subordinates what to do, and so on down the
line. In a meritocracy, decisions are made through argument and discussion, and
everyone is entitled to weigh in with a point of view. The decision-making
model in an adhocracy, in contrast, is experimental, which means consciously
cutting short internal deliberations and trying things out with customers to
gain rapid feedback. While this concept has been around for many years, in our
experience most large companies still fall back on formal stage-gate processes
and committees rather than risk releasing unproven ideas in the market.
In 2012, Costa Coffee, the world’s second-largest coffee
chain, developed an ambitious plan, codenamed Project Marlow, to transform its
vending-machine offering by creating an entirely new self-serve coffee system
that would engage all the five senses of the customer. Project Marlow was
agreed on with a handshake in January 2012. The formal kick-off meeting, with
20 people, was held on April 19th. The beta version was delivered, on time and
on budget, on September 20th of the same year. “The pace of work was
uncomfortably high,” recalled project leader Eric Achtmann, “the team was small
and world-class without exception, and decisions were made on a 24-hour cycle.”
One key principle of Project Marlow was to base decisions
on what would move the effort forward. For example, potential partners that
required a legal agreement to be in place before starting work were eschewed in
favor of those prepared to get going on the basis of a handshake. Project
Marlow’s ground rules included rapid decision making (less than 24 hours); a
relentless focus on results, not activities; and a preference for asking
forgiveness, not permission.
In one instance, technical problems with a key subsystem
threatened to delay the project as a whole, so Achtmann created a parallel team
to find a way around them. Decisions were made by the person closest to the
action, whose proximity gave the company a better-informed and more instinctive
understanding of what had to be done. “On a project like this,” observed
Achtmann, “people are making decisions on the fly, very aggressively. But they
are informed decisions. The purpose is always just to get to the next stage as
effectively as possible; and once there, the next target becomes visible.”
This approach to decision making, by nature, has a strong
intuitive component. While that can entail greater risk and doesn’t work out
every time, it helps companies to avoid analysis paralysis—an increasingly
costly pitfall in a world with more and more information but fewer and fewer
clear answers. Adhocracy is extremely well suited to help generate such
intuitions.
In a meritocracy, employees gather
information to persuade their peers. In a bureaucracy, they pass information
upward, often in a bid to influence budget allocations. Decisions are passed
down from more senior levels, often in the form of budget distributions.
Adhocracy keeps decision makers more deeply immersed in the flow of a project
or a business rather than more removed from it. For individuals, this place in
the flow is a powerful position for inspiring useful intuitions, although such
a flow can be generated by various means, including the collective activity
that takes place in online communities or internal social-media platforms.12
This experimental approach to decision making
has already found its way into some management processes. Agile techniques, for
example, have been shown to be a better way of developing software in many
settings than the traditional waterfall model.13 But many other management processes—from budgeting
to capital allocation to new-product development to project staffing—continue
to be managed through the traditional bureaucratic or meritocratic models.
As the rapid experimentation characteristic of adhocracy
gains sway, a company’s return on attention improves. The ratio’s numerator
rises with the quantity and quality of quick, experimental decisions, even as
less time is spent (or even available for) disputing data or managing upward in
a hierarchy.
3. Motivating people through achievement and
recognition
Generally speaking, bureaucracies motivate people
primarily through extrinsic rewards—above all, money. Meritocracies and
adhocracies both motivate them through achievement and recognition. But
meritocracies also emphasize giving people interesting work and enabling them
to achieve personal mastery in a field of expertise. In adhocracies, motivation
centers on giving people a challenge and providing the resources and freedom
they need to surmount it.
Consider again Costa Coffee’s Project Marlow: Eric
Achtmann deliberately built an elite team and gave its members an almost
impossible deadline. Of course, this doesn’t mean that an adhocracy can’t offer
financial rewards as well; the Marlow team members all had a stake in the
upside growth of the project—the sale of lots of machines—which ensured an
alignment of material interests. Achtmann also spent a good deal of time
working on team spirit, coupling demanding standards and grueling milestones
with celebratory events every time a milestone was achieved. He also created a
plaque that would be permanently mounted inside every production machine, with
the names of all 38 key team members who made “an extraordinary and enduring
contribution to Marlow, above and beyond the call of duty.”
Valve offers a slightly different proposition to its
employees. Challenge is the starting point: the handbook for new employees
says, “Valve has an incredibly unique way of doing things that will make this
the greatest professional experience of your life, but it can take some getting
used to.” Employees have very high levels of responsibility (“You have the power
to green-light projects. You have the power to ship products.”), and the
company emphasizes that hiring great colleagues is “your most important role.”
There is also a significant extrinsic component to motivation at Valve—one that
would not be out of place at GE: employees rate their peers, and a
forced-ranking system gears discretionary pay toward those who contribute the
most. Valve is a competitive and challenging place to work, and its founders
believe that this makes it attractive to the most talented game developers.
Again, this approach to motivation helps overcome
analysis paralysis and increases a company’s return on attention. The heroes
are the people who make something happen—for example, completing a pilot
project quickly and ahead of budget—rather than those who come up with the
cleverest ideas (which would be celebrated in a meritocracy) or who oversee the
biggest budgets (the mark of respect in a bureaucracy).
Choosing the right model
So which is the right model for your company? It is worth
noting, first of all, that bureaucracy, meritocracy, and adhocracy are all
about the relative emphasis on formal authority, knowledge, and action. When we
ask executives which model they prefer, they typically say they want the
benefits of all three: people who bring their knowledge and formal authority to
bear, take decisive action, and act intuitively when necessary.
But we would argue that this is a hedge. Companies can’t
put equal emphasis on all three dimensions at once; they have to make it clear
which one takes precedence, at least in specific business environments and
units. For example, if your company aspires to be focused and action oriented
but continues to operate on traditional bureaucratic principles, don’t be
surprised when things move more slowly than you expect. To get a better sense
of your current overall organizing model—and which parts of your organization
might be best suited for bureaucracy, meritocracy, or adhocracy—think about the
descriptions in the exhibit, then download and try out our simple
diagnostic(PDF–186KB).
The demands of the business world often change more
quickly than the organizations where we work. Many companies are still moving
from the traditional bureaucratic model, which has been around for 100 years,
toward a more meritocratic one built around the primacy of information and
knowledge. But our analysis suggests that for many companies, this isn’t
enough. Meritocracy has its benefits, but we believe adhocracy will become
increasingly important in the decades ahead. By understanding the benefits of
all three management models, you will have a better chance of creating a style
of working that positions your organization for future success.
About the authors
Julian Birkinshaw is
a professor of strategy and entrepreneurship at London Business School, andJonas
Ridderstråle is an author, most recently of Re-energizing the
Corporation: How Leaders Make Change Happen (Wiley, 2008).
FOR EXHIBITS http://www.mckinsey.com/insights/organization/adhocracy_for_an_agile_age?cid=orgfuture-eml-alt-mkq-mck-oth-1512
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