Real organizational transformation is structural

In The 3 Structures of an Organization, the BetaCodex Network covers the weaknesses of our existing management and organizational models and shows a better way to design more network-centic businesses. For example, the authors state that the average modern organization expends about 20% of its energy on value creation, while the best may spend 50%. This still accounts for a significant amount of wasted energy. Organizations should dedicate 70% of their energies toward value creation.

These value creation structures have to be externally (market/customer) focused and are the most important parts of the business. Modern work is increasingly dealing with exceptions, which is complex and cannot afford the rigidity of centralized control systems. Informal networks have to be recognized as they provide the glue that keeps the organization together. Formal structures are the least important and only serve to support value creation, the opposite of centralized, top-down hierarchies.

Formal Structure, as can solely serve the trivial purpose of external compliance, should be subdued to or coherent with [the] Value Creation Structure, in which the work is done and where [the] organizational periphery is in charge, not bosses.

This is the kind of world without bosses I referred to in my last post.

The guiding principles make a lot of sense, and reflect what I have seen in organizations. Real change does not begin until you change the formal structure.

Eliminate Formal Structure, as much as possible, by fully aligning it with value creation and by allowing it only for external compliance. Make the work independent of formal structure.

Focus all organizational energy (e.g. with regards to learning and mastery) on the first two structures – not on formal structure, which is trivial. Approach Informal and Value Creation Structures with a systemic mind-set.

Support the positive effects of Informal Structure through high levels of transparency, investment in self-awareness of teams, radical decentralization of decision-making towards the periphery, and also through bonding rituals, and strong, shared values and principles.

This presentation is part of an ongoing discussion at BetaCodex. If you are interested in how these principles might apply to learning and development, here is an excerpt from a draft white paper (in development):

Never, ever, attempt to manage individual performance, though, as individual performance does not exist.

You cannot and need not develop people. People can do that on their own. An organization, however, can create conditions for self-development, getting out of the way by not trying to control or contain it.

Individual mastery is the only viable problem-solving mechanism in complexity … We usually tend to over-rate talent, and under-rate systematic, disciplined learning.

No training budgets, but on-demand learning resources.

I wholeheartedly agree with these recommendations!

Other BetaCodex papers can be accessed from:

5 Responses to “Real organizational transformation is structural”

  1. Jamie Billingham

    I want to love this but have to admit I’m struggling with really understanding it. In other words my gut aligns with it but my head is lagging.

    I understand the informal network The nodes are individuals and the lines connecting them indicate connection, communication or relationship.

    I understand the formal network, The node represent positions held by individuals and the lines indicate reporting relationships.

    What are the nodes and lines representative of in the Value Creation network?

    • Harold Jarche

      From BetaCodex’s draft paper:

      The market and its components:

      Value-creation flows from the inside out.
      Market-pull does the steering.
      A cell-structure network gains stability and resilience not through hierarchical power relationships, or through “resistance to pressure”, but through the “pull” that comes from the external market, and from the complex human relationships it nourishes internally. Market dynamics do the steering.
      Sounds simple? It is.

      From value-creating teams to value-creating network.
      We call the links between network cells strings.
      We call the links of peripheral cells with the market market pull.

      Market pull: Only peripheral cells have direct links to the market and can thus deliver value externally.

  2. Kaitlin Barber

    Hi Harold,

    Really enjoyed your post on Organizational Transformation. I agree that organizations should dedicate 70% to creation. I would almost go as far as to say 80% creation and 20% implementation.
    Thank you for sharing this.

  3. Luis Alberola

    Hi Harold,
    Interesting, thanks for sharing that.
    I think it is interesting to distinguish different types of structures within an organization, but only for intellectual purposes, operationnaly, I think they blur. I would also argue about the names (formal, informal, value creation): the informal structure should become “formal” in the next few years (months ?) through intelligent adoption of social technology.
    In any case thanks, contributes to clarifying things for me, and mainly that social business success needs a higher level of governance that companies usually have

    • Harold Jarche

      That’s not my understanding of the white paper, Luis. The informal exists and is not converted into the formal, though the informal structure can be very influential. My conclusion is that a lower level of governance is required in the social business and that empowered and engaged workers need autonomy (e.g. Wirearchy)


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