Dual Organizations

Since the functional organization (sometimes called the line organization) developed during the second half of the 19th century, different variants have seen the light of day. They all have in common that they create a structure in the business based on a hierarchy, where one manager or employee is subordinate to another manager, and where information and decision-making are expected to go through these relationships. As early as the 1930s, organizational researchers concluded that much of the daily communication in a business takes place between employees, and not via the formal line. This means that information and daily decision-making do not follow the defined hierarchical structure, but follow actual needs and available solutions.

We can thus say that there are two parallel organizations: one formal line organization and one informal network organization. A large part of the informal organization consists of the myriads of contacts that exist between people at different levels in the company. But there are also many reoccurring meetings, such as management group meetings. This structure of meetings where many decisions are made is not visible either in an organizational chart, even if some decision meetings are highly formalized. Therefore, I have chosen to classify the meeting structure as informal.

The formal line organization is effective when it comes to taking responsibility for resources and employees. At the same time, it is inefficient in processing information and making decisions; it can be said that it has a low bandwidth for decision making. The complexity of a company is much greater than its line organization. This makes it impossible for a line organization to handle the daily diversity of information and decisions.

The informal organization on the other hand is efficient in processing information and making quick decisions. Its major weakness is that the links largely arises spontaneously and is dependent on personal relationships. The established meetings that exist in a company, which I have chosen to classify as informal, are often slow and inefficient. In reality, many decisions are made outside these meetings.

It may seem strange that no organizational model has been developed to make the informal network organization visible, so that we can draw it on a piece of paper. There are two possible explanations for why this has not happened. First, “random network” was the only known network model until the turn of the millennium. I don’t think it’s possible to create a formal organization with a random network. And secondly, I think we tend to follow the main stream without thinking outside the box.

Among theorists who study organizations, it has long been said that networks cannot be used because such organizations would draw more resources and thus cost more money than a hierarchical line organization. With the knowledge of networks that existed until the turn of the millennium, this was correct. Nowadays, however, several different networks have been discovered that have the same or lower energy consumption. Among other things, the Internet is built in a network that is characterized by some nodes that have many contacts, while the vast majority have few contact. This is reminiscent of managers in a company, who often have many more contacts than most employees.

In an organization chart, the organization is built according to a feudal pattern where a subordinate is assigned powers from top to bottom. However, much of a company’s decision-making does not take place through the line; it takes place in various meetings with or without responsible and affected managers. The network of decision-making meetings is thus a more important structure for the company than the line organization. Still, I have never seen such an organization chart drawn, except for those we use in Parmatur Pulse.

I have to make this clear. In a company, it is not individuals who make decisive decisions. Decisions emerge through collaboration between many people. That is why meetings are such a central part of people’s everyday lives in a workplace. It is therefore, in my opinion, more logical to define an organization for information dissemination and decision-making based on a network of meetings, than on relationships between individuals.

Parmatur Puls is a framework with a decision-making structure for product management and product development, which we have implemented over the past 20 years in a number of companies in the Nordic countries. However, the concept itself can be applied in all organizations. The nodes in the network consist of short stand-up meetings, which we call pulse meetings. The length of a pulse meeting is 10 – 20 minutes and they are often held daily.

The pulse meeting is performed in front of a whiteboard or a screen, where key information is visualized. The basic idea is that a few pulse meetings have many contacts while the majority has few. Pulse meetings that are responsible for strategic direction, product management and resource planning have many contacts. Other pulse meetings manage development projects and product maintenance. Together these pulse meetings replace the previously existing meetings and create a cohesive decision-making structure for the business.

The advantage of creating a formal organization for decision-making is that we get the opportunity to evaluate and streamline. The managers in the business will be the owner of the pulse organization and have ultimate responsibility for the design, in the same way as they are responsible for personnel, resources and work environment. It is possible to increase efficiency by more than 10 times with a pulse organization by speeding up the decision-making, which will lead to new, more profitable products and thereby increased sales and profitability for the company.

There will continue to be plenty of informal contacts and decisions will still be made at random in the corridor. But through the network of frequent pulse meetings, the initiative and control over what happens in the company will be based on the pulse organization and above all on the strategic pulse meetings and the decisions made by the senior managers at those pulse meetings.

Read more in the book The Principle of Agile Management.

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