Your org chart needs a rethink

Why many companies are ditching traditional hierarchies for team-based management

Team based management in the age of AI
  • Outdated organizational structures can dilute the benefits of new technology
  • Companies like Zappos and REA Group have implemented org models intended to encourage teamwork and rapid response
  • Human nature, which inclines toward hierarchy, is the biggest impediment to these new ways of working

The growing influence of automation and artificial intelligence in the workplace has sparked an endless stream of studies and debates about which jobs will be created, augmented, or eliminated. But the human impact of these technologies goes far beyond individual jobs and tasks.

The new tools help accelerate decision‑making and free up people to focus on higher‑level responsibilities such as mentoring and strategic planning. Adopting them can be challenging, of course, but the biggest barriers have little to do with the technologies themselves.

Managers today face challenges that their predecessors never imagined: How do you create highly adaptable organizations in an era of accelerating technological change? How do you balance rapid innovation with efficiency and profitability? How do you design human organizational models that get people and machines working collaboratively to make smarter decisions?

Could it be that CEOs are handicapping the utility of 21st century technologies by implementing them inside organisations whose structures were largely defined by management models built for the 1900s? A number of studies, including a 2018 report by Gartner, suggest that 20th century management artifacts such as hierarchical org charts and functional silos are among the biggest roadblocks to progress.

While business management might be considered one of mankind’s most important inventions, as it helped spawn modern industry, it’s also due for an upgrade. Core business disciplines such as workflow design, project management and budgeting were all defined in the early 1900s.

Some companies have already broken free of older structures. Software developers have broadly embraced the principles of lean manufacturing, developed by Japanese car manufacturers in the 1980s. Lean manufacturing was eventually repackaged as “agile” production, a methodology that accelerates product delivery by forming cross‑functional teams that complete projects as a series of “sprints.”

Thousands of software vendors and corporate IT organizations are now devout agile practitioners. But while agile and its newer, more advanced cousin, DevOps, have become industry standards for software development, they have not been widely adopted by other business functions or company types.

More companies will soon adopt flexible, team‑based production regimes as automation and other advanced technologies take hold, says Toby Walsh, professor of artificial intelligence at the University of New South Wales.

“People’s jobs are going to become much more flexible and adaptable,” says Walsh. “You want people to be able to form ‘hit squads’ and fly in and fly out, as everything will be constructed on the fly for whatever is challenging the company at that time.”

Don’t blame McKinsey

Management consultants aren’t driving these changes. Instead, it’s the realization that customers are expecting higher levels of service from their chosen brands. That, in turn, demands greater responsiveness to their needs, and experimentation within organizations to deliver it.

At Nevada‑based online retailer Zappos, which built its brand around relentless focus on customer service, CEO Tony Hsieh ditched traditional management hierarchies and embraced a new “self‑management” concept called holacracy.

Zappos has replaced many functional teams with more diverse groups called “circles,” says Jamie Naughton, the company’s corporate culture lead. Zappos has also replaced numerous managers with group reps called “lead links,” who act in the best interest of a circle and report to other circles on everyone’s behalf.

“When the work that needs to be done is better served by a team of people rather than a single person, then a circle is created with multiple roles to support that work,” Naughton says. “Circles are held accountable for the work being produced by whatever works best for them.”

The irony of the shift? The team structures might be unusual, Naughton says, but many of the roles remain the same.

“Our company is made up of all the same job descriptions you might find elsewhere,” she says. “The main difference is that we empower employees to bring their whole selves to the table. We have managers and front‑line employees just like most other companies, but we’ve tried to make sure that, no matter what your job title is, every employee has the same path when it comes to impacting our customers.”

Bureaucracy busters

The agile and Zappos models both dismantle traditional siloes. REA Group, an Australian digital media company in the real estate sector, applied the same principle to a recent reorganization.

Instead of trying to revamp separate marketing, IT, legal and finance teams servicing product groups, REA Group formed five new operating teams. Each is focused on a specific customer type and includes all the embedded functional skills. REA Group’s chief inventor Nigel Dalton describes them as “full stack management teams.”

“Hierarchical bureaucracy as a way of organising humans is very old,” Dalton says. “Functional organizations optimised for bureaucracies are not as suitable to modern businesses that serve customers.”

For example, REA Group’s 150‑person business team for residential listings has all the capabilities of a small company, including sales, legal and HR. At the same time, the teams manage shared groups, called platform teams, for business cases that require wider coordination.

“We don’t want five general ledgers and five CRMs and five help desks,” Dalton says. “So we have our lines of business, which are customer‑focused and moving fast and experimenting. They don’t run completely independently. The clever bit of management is coordinating across them.”

Battling human nature

Hierarchy and inertia come naturally to humans. That’s probably the biggest obstacle to implementing flatter, nimbler org models.

In a 2017 survey of more than 7,000 Harvard Business Review readers, nearly two‑thirds of respondents reported that even during years of major technological advances, their employer’s organizations had become more centralised, less innovative, and more rule‑bound.

“Human beings will never move as quickly as tech is moving now,” says Lani Refiti, a technology partner at Deloitte. “Humans are tribalistic by nature, so when we gather in groups, hierarchies form immediately. Instead of vertical structures, we need more of a team‑based dynamic to take advantage of emerging technologies.”

That won’t stop organisations like Zappos and REA Group from blowing up the traditional org chart. But just like the technology that’s shaping the new models, the path of evolution may be endless.

In other words, there’s no such thing as an ideal organization because the best models are constantly evolving. “We’re in the crossover period between caterpillar and butterfly,” Dalton says. “We will have to keep experimenting, testing and learning forever.”