As successful products increase in revenue, companies grow. Growth allows a company to improve their products, support more customers and create additional value-add services.
Growing up isn't easy. As a handful of engineers become hundreds, or even thousands, the added weight introduces many issues. These can often lead to the opposite outcomes of what growth should have brought: products falling short of providing value and unhappy customers.
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Why is that?
As companies grow in size, chaos takes over. There is a need for structure to allow humans to successfully exist with one another. Typically, employees are grouped into "teams" and each team is assigned ownership over part of the product. This allows teams to work alongside others to achieve a larger outcome. Often, metrics are put around these areas to understand if progress is being made.
For example, an e-commerce product would usually be split up based on customer flow (or funnel). There will be teams tackling home and landing pages, search, product pages, payment, receipts and so on. Landing and homepage teams only work to increase SEO rankings and "click through rate" to product listings. Product page teams care about converting customers by sliding them to payment.
To ensure all these groups work well, we add management. Managers keep track of progress and tackle a constant stream of people problems. Sometimes, they are also to blame for these problems.
That's not enough. There has to be a way groups can communicate effectively and coordinate tasks. This layer of protocols is "process". Process mandates its participants work to a standard. When mistakes happen, process tightens up to prevent future occurrences. When efforts are successful, process digs deeper. In all instances, process wins.
These pieces that form the structure -- team layouts, metrics, management layers, process -- overtime leads to an organisation becoming more rigid. Rigidity, unfortunately, takes the innovative drive away from organisations.
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Safi Bahcall, author of Loonshots, managed to capture this in an equation.
From "Innovation Equation" (HBR): In organisations, the competing forces can be described as “stake in outcome” versus “perks of rank.” When employees feel they have more to gain from the group’s collective output, that’s where they invest their energy. When they feel their greatest rewards come from moving up the corporate ladder, they stop taking chances on risky new ideas whose failure could harm their careers.
M = E x S² x F / G
M = certain size at which human groups shift from embracing radical ideas to quashing them
- E = equity fraction — the extent to which incentives reflect the outcome of projects as opposed to rank within the organisation
- F = fitness ratio — relationship between project-skill fit (PSF) and return on politics (ROP): F= PSF/ROP
- S = management span — average number of direct reports that executives of the company have
- G = salary growth — average step-up in base salary
He points out that organisations can alter the point in which they become too rigid by employing certain strategies to move the "freezing point".
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Rigidity has its purpose.
Rigidity brings order to the chaos of having a huge community of people. Society needs laws, companies need rules too. Drawing lines between disciplines, roles and product teams help keep things under control. But, of course, you won't find innovation in excel spreadsheets.
Rigidity helps an organisation be more disciplined and operationally excellent. It protects revenue. That is a key thing to think about: at some point, the organisation will squash attempts to innovate because it could hurt current revenue. Only proven, incremental changes are allowed. Changes have to be discussed, reviewed, checked, approved by many layers of management (that's why most employees just sit in meetings all day without building stuff). It won't even matter if the products are slowly degrading, as long as revenue stays on green.
If an organisation is full of professionals and makers, can't they override these tendencies? It is not quite that simple. In 1960s, Stanley Milgram ran an experiment to understand authority and obedience. He had an authoritative figure order a teacher (participant) to give increasing amount of electric shocks to a learner as they incorrectly answered questions. Two-thirds delivered fatal shocks to learner and no one checked on the suffering humans in the next room or stopped the experiment. Milgram concluded that people can exist in two states: autonomous, where they direct their own actions and, agentic, where they pass off responsibility of consequences to someone else.
Yep, it is hard to break out of a hierarchy of authority. Autonomy doesn't come for free. We have to create the right environment for it to flourish.
It is tough to steer culture back. It can be done.
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Some companies try to break out by hiring high profile individuals from already successful companies. In the book Inspired, Marty Cargan talks about how many of these new hires have acclimatised to an organisation that's slowed its growth. So they aren't always best equipped to push the organisation towards innovation.
I've only had the opportunity experience the reversal of rigidity in one team thus far. In my previous team, the leadership team actively worked to bring part of the organisation to a more fluid state. While it will take this entire series of posts to explain pieces of it, there are some basic observations I made.
- We made a hard turn to focus heavily on outcomes
- We dropped all notions of what process works. We taught everyone how we worked and told them to change it.
- We worked extremely hard to take power away from leadership and push it down to the grassroots. In fact, we went as far as to break HR management hierarchy from the project work we did.
- We came up with a new branding for people who were willing to forego their silo and breakout... we called them Makers.