Strategy and Scale in a Complex World
Organizational Complexity
Even businesses that are stagnant or in decline must navigate an increasingly complex environment.* That is, the jobs to be done increase even if revenue does not.
To deal with more external complexity, businesses tend to add people, teams, organizational structures, processes, procedures, metrics, scorecards, etc. There is nothing wrong, per se, with reshaping an organization as it grows. Growth is often a positive indicator, and organizational design requirements must shift to accommodate the realities of size.
This process is organic. And like most organic processes, it can lead to suboptimal outcomes unless a proper equilibrium is maintained.
People remain the most plug-and-play solution. If you have more work than current headcount can handle, the natural response is to hire until business needs are met. But more people means more communication overhead.
Communication overhead increases in a non-linear fashion. A 150-person organization is only 10x the size of a 15-person organization but has 100x the number of communication channels. A 15,000-person org is 100x the size of a 150-person organization but has 10,000x the number of communication channels. And so on.*
The proliferation of communication channels gives rise to the need for channel intermediaries—i.e., managers. Tracking the non-linear increase in communication overhead, management ranks tend to then increase at an accelerating rate relative to the overall growth of the organization. That is, managers beget managers—top-heavy growth is a natural outcome of a labor-centric approach to escalating workloads. As managers proliferate, so, too, do the number of communication channels among them, necessitating their own channel intermediaries—i.e., we create teams of teams in various forms (departments, functions, divisions).
Horizontal distance increases as individuals become buried in silos. Vertical distance increases with the number of layers between the lowest and highest ranked employees. Information fidelity suffers as it passes through more and more distortion layers, in both directions—i.e., the corporate game of telephone.
Yet the fundamental task of management remains the same: to make people capable of joint performance through common goals and common values.* But the more teams, the higher the coordination costs. That is, more meetings—within teams and between teams. To avoid meetings or to make them more productive, we add policies, process, procedures, metrics, KPIs, OKRs, etc. Bureaucracy is a good-faith attempt to maintain alignment and govern behavior in a manner consistent with strategic objectives. But it costs.
While everyone means well, the result is often a morass—a friction-filled maze of stakeholders, gatekeepers, bottlenecks, and veto points.* Incomprehensible to outsiders, the ability to operate within organizational context becomes currency. The work of politics displaces much of the work of work.
Every organization, no matter how venerable, looks like a goat rodeo from the inside. Even the most profitable businesses seem, to those who work inside them, to be successful in spite of their own dysfunction. To a certain extent, this is unavoidable. Organizational context and politics will, and should, always matter to some degree. But while organizational complexity cannot be eliminated, the degree of dysfunction is addressable, and has a material impact on winning*, especially over the long term.
For more on organizational complexity, we recommend Six Simples Rules and Designing Organizations. Though, for a grounding, it is worth starting with Thinking in Systems.
