As we approach (re) organisation design work to support business transformation, we are often faced with the fact that few organisations address one of the critical components of Org Design: Governance. It’s essential to make decisions on who decides, at all levels of the organisation, to avoid stall and bottlenecks. A truly agile organisation can only be built on a firm decision making backbone.
I’ve recently been involved in a large organisational redesign process, and have kept meeting functional leaders who always started the discussion by introducing a new Org Chart for their function. I’ve already discussed the fact that I think Organisational Charts way too often end up being a simplistic representation of an Organisation. What however is way too often missing in these design efforts, are answers to what I think are the key questions to be answered in organisational design:
- How do we align on priorities?
- How do we make decisions?
- How do we communicate decisions?
- How do we ensure that decisions are followed up?
- How do we mitigate risk?
- How do we ensure teams are aligned to the decisions taken?
These questions define what I believe are the critical components of a Governance Framework.
Corporate vs. Operating Governance
Too often, Governance considerations are limited to board level or C-level design. This is what is usually called Corporate Governance, which is the complex set of “means by which business corporations are directed and controlled“.
But most of the hiccups in organisations happen below those levels. We need to ensure we address decision rights, responsibility matrixes, feedback mechanisms, escalation routes, formal and informal communications channels, as early as possible in or (re)design work. This is true, particularly in all those cases where organisations become more flat and lean. This is what is called Operational Governance. Which “refers to the way managers within the business make decisions and the ways they delegate decision-making vertically into the organisation (driven by structure, policy and process)“.
Operating governance is the process—intentionally designed or by happenstance—by which power is managedGregory Kesler
Way too often Operating Governance is addressed only in the continuum of “centralisation” vs “decentralisation”, looking at decision rights over some key business aspects. But again this is not the only reality. Especially as organisations get more and more entangled into matrixes decision making structures, reflecting on who takes decisions when is vital. Plus, there is a tendency of delegating decision making horizontally, which is often not captured in the traditional org chart based view.
So, how much of your Operational Governance comes from Intentional Design, and how much Just happens. From my experience, a lot is pure happenstance. And everything works well… until the one person that was making things happen leaves the role.
Intentionally clarifying decision power for each role, sensibly improves the performance of organisations. Already in 2006, Paul Rogers and Marcia Blanko had suggested a methodology to design, known under the acronym RAPID. “The letters in RAPID stand for the primary roles in any decision-making process, although these roles are not performed exactly in this order: recommend, agree, perform, input, and decide—the “D.”
The system, in a nutshell, works by identifying, for each process, the key actors involved.
- R – Those who recommend action and create a proposal
- A – Those that agree by signing off on the proposal
- P – Those who perform or execute the decision
- I – Those that have input or are consulted about the recommendation, usually are actors
- D – Sole person who will make the final decision and commit the organisation to action
Compared to the more traditional RACI matrix, is that RACI is very tasks oriented and focused on deliverables (How), whereas RAPID is focused on making decisions about (What) will be acted on. There are other ideas about simplifying this further, but the focus on the decision part stays and is the most important one.
A good decision executed quickly beats a brilliant decision implemented slowly.Paul Rogers
Wherever there is ambiguity over who is accountable for which decisions, a bottleneck is created. The entire decision-making process can stall, delaying execution. The authors have identified four typical bottlenecks they found in organisations:
- Global vs Local
- Center vs Business Unit
- Function vs Function
- Inside vs Outside Partners
I guess you can all identify cases where the above have manifest. The fourth is probably the most difficult to acknowledge and is intrinsically linked to the way the organisation leave and breath networks.
I think that today there are two more bottlenecks to add, that are specific for organisations transforming to Digital.
- Waterfall vs Agile
- Human vs Automation
The first is linked to the coexistence of decision-making processes that are inherited from Waterfall methodologies, while the organisation is pursuing agile. A typical example is funding systems, still based on business cases per project, while the organisation is now being built by product. Which is why Governance needs to be consistently addressed in Agile transformations.
The second area is more linked to the automation of some business processes and the application of AI to decision making. This territory is somehow new and uncertain but is already showing several areas of stalls linked to the expectation of machines taking some decisions.
Designing an Operating Governace Model
Defining who takes decisions by adopting the RAPID methodology is just part of the game. When talking about GovernanceGovernance, we need to consider four layers:
- Structure: reporting line and overarching Operating Model.
- Responsibilities: who does what and how decisions are taken.
- Talent and Culture: which includes how performance is evaluated, and how incentives are managed, the more significant business operating principles and leadership styles.
- Infrastructure: which includes everything connected to policies, procedures, communication tools and technologies.
The last two points are those more overlooked. And are the one that cause higher rates of failure of re-organisations.
I give an example. In my consulting career, I happened to meet several companies that were transitioning from a traditional wholesale business to a more consumer-centric one. The transition, however, was never smooth, and in many cases, we could notice that despite an apparent strategic direction, implementation decisions down the organisation were still aligned to a B2B model. Why? Simple: the Incentive Model was still fully aligned with the traditional “sell-in” model of the organisation, accounting was always channel focused. The incentive mechanism was again directing decision opposite to where the company wanted to go.
For what concerns Infrastructure, I think the critical component here is the availability of information. Too often stall moments are reached because the system is not designed to support the revised decision making processes.
Building Governance for Agility
One of the problem when addressing change for Digital Maturity, is that many think that building an agile organization and building a solid governance are antithetic.
Truly agile organizations, paradoxically, learn to be both stable (resilient, reliable, and efficient) and dynamic (fast, nimble, and adaptive).McKinsey on Organization
I believe that the analogy that McKinsey has found in a recent booklet on the subject is perfect. The comparison is with a Smartphone. The phone’s fixed hardware platform joined with the space for new apps mirrors the agile organisation’s stable backbone and dynamic capability to add, abandon, replace, and update “apps.”
Together, these allow the organisation to respond quickly to market changes by gicing solidity and flexibility.
A truly “digital” way of seeing the organisation, with an “Architecture” that provides Agility.
And you, what do you think of the challenge posed by Governance?