From the pyramid to the circular organization
"Never change a running system" - there are numerous forms of organization and many companies are forced by the VUCA world to change them in order to remain competitive. But which form of organization, which operating system, fits best? How to become agile and adaptive as quickly as possible?
Classical-hierarchical organization - the cash cow of the last century
The classical hierarchical organization is the mother of all organizational structures. The shape of a pyramid reflects a clear hierarchy. The majority of employees are at the lower levels and a ruling minority at the upper levels. The individual strands of the organization are usually divided according to functions, regions or products.
The advantages of this organizational structure: easy orientation, clear responsibilities and roles, and a clear assignment of responsibilities. Hierarchical structures are particularly suitable in sluggish mass markets or markets with low volatility. In calm waters, these structures lead to enormous efficiency, which is why they have long dominated the corporate structure of the past.
How do they behave in the VUCA context?
With the change of markets, globalization and digitalization, the disadvantages of the organizational structure are becoming obvious: high bureaucracy, inertia, operational blindness, resistance to change and contextual ignorance. But: If a democratic approach (bottom-up) is chosen and employee empowerment is promoted, a classic hierarchical company can certainly be successful in the next decade.
Successfully hierarchically managed company: Trigema
The hierarchically managed company reacted quickly. In the Corona Pandemic, Trigema was one of the first suppliers to switch production to fabric masks. Managing Director and Patriarch Wolfgang Grupp is personally involved in all decision-making processes. He guarantees all children of employees a job or training position in the company and produces in Germany.
Why we see a trend for network organizations
Network organizations are defined by a decentralized organizational structure and a high level of interaction and communication. Intensive networking is the guiding principle of such a structure.
Clear advantages: quick and easy networking and communication, effective cooperation in partnerships as well as efficient transfer of information and knowledge. Employees with different areas of responsibility can complement each other and work together to solve complex challenges. The advantages of a network organization are clearly in the area of flexibility and agility, followed by a high level of information exchange. The organization can thus learn and act more quickly and therefore achieve competitive advantages through its adaptability.
The disadvantages: Redundancies due to multiple processing, the loss of overview of who is doing what and a high communication effort.
The network organization fits New Work - Why?
The network organization promotes agility and high resilience. The VUCA market environment makes exactly these demands on companies. Important for success are efficient coordination and a transparent regulation of collaboration.
Successful network organization: Umlaut AG
The company is successfully operating as a network organization and founds four to five new subsidiaries each year. The innovation comes from the networking and the freedom of the employees. But even a network organization needs structure and a framework for orientation - for example, when it comes to the question of who decides, who informs, how money is distributed and where innovation is generated. So there are leadership roles as well as official and unofficial hierarchical levels at Umlaut.
Why we see the circular organization as the organizational form of the future
A circular organization (e.g., sociocracy, holocracy, collegial enterprises, adaptive system) is characterized by the absence of classical hierarchies, managers* and titles. Instead of individual leaders with delegating functions, authority is distributed throughout the entire company with the help of self-organizing teams. Instead of people with different authorities, a circular organization focuses on different roles and circles.
Advantages: Decisions are made locally and quickly because authority is highly decentralized and teams can therefore work independently, autonomously and self-steering. Thus, innovation can be created while maintaining a hierarchical order.
Disadvantages: Frequent problems, especially in holocratic organizations, are salary structures and career opportunities. Often an informal hierarchy develops which is quite close to the classical model. Furthermore: listed companies are bound to certain reporting structures, so as a holocratic organization they have to install reporting positions.
Successful district organization: Freitag lab.ag
FREITAG is not only committed to the circular economy, but is also organized in circles: In 2016, the company, which is still owned by the Freitag brothers, abolished the classic hierarchy including the management and introduced the organizational form Holacracy. The classic organization chart has become a cityscape in which there is no longer a management, but self-organized cells, represented as buildings. Hierarchy still exists, but consistently from professional roles. The success factor: transparent communication.
How do you make your company fit for the future?
Companies are like the individual. They are different in their history, culture, values, products, markets and people. That's why you can't just put an agility hat on a classically hierarchically structured company. We definitely see potential in circular organization, since this form of organization both takes on the needs of people and finds answers to the demands of the markets.
Changing the structure of an organization is a lengthy process. Our holistic consulting approach is designed to identify the potential of your company and to guide you safely through the process. Please contact us and arrange a non-binding consultation appointment.
Kallenbach, Ingo (2016). Leadership in a Healthy Organization. Exceptional performance through potential development. Stuttgart: Schäffer-Poeschel.