Structure follows market – and so does culture

Some of you might remember the American historian, Alfred Chandler’s wise words: “structure follows strategy” which Richard P. Rumelt cynically turned into “structure follows fashion” … well different story.

But I recently came to know, that “culture follows market”. How this? Isn’t this a bit far-fetched? Well, let me explain.

When Henry Ford I had the idea to provide the American people with personal cars he approached an empty market, an unsaturated marked with a huge sales potential. This would have stayed just a potential if not a group of economists at the same time had defined the theory of “scientific management”. The probably most well-know member of this movement, Frederick Winslow Taylor, lent his name to this movement Taylorism. It was about high scale mass production according to pre-defined and pre-optimized efficient processes.

Influenced by these people consequently Henry the Ford T Model cars which left Fords assembly lines were sold in every colour as long as it was black (because black at that time was the colour which dried most quickly).

The model worked fine and Ford thrived. America got motorized. A new age was born. And the “scientific management” model became synonymous with management anyway – and it still is today, more than 100 years later.

These early unsaturated markets demanded high numbers of uniform yet affordable products. Unskilled worked had to be hired from the streets to become productive workers overnight. This a whole organisational layer of middle managers had to define and tailor (no, not taylor) their processes, tasks, assign time-slots, the work place and so on and they had to supervise them and manage them to get the best out of them. In short, they invested high efforts to refine and optimize the business.

And the big bosses at the top were thinking about new market, new technologies, new product lines, in short strategies. The classical three-story pyramidal hierarchy was born. Its organisation is highly adapted to efficient mass production with the tendency to become more and more optimized to be come fit for this special purpose. With optimisation came complexity – but it was worth it because it paid off on the long run. Flexibility, change robustness, adaptability or – to use a word which is en-vogue nowadays – agility were non-issues.

But once the markets were saturated the picture turned completely. Now a standard model no longer was sufficient, having a car per se was not the big achievement like before, for the 2nd one the experienced customer turned out to be more demanding: other colours, different from black, open-tops, pick-ups, sports cars, family cars, station wagons, Pullman limousines, and on top model changes every two to three years.

The environment became much more dynamic. And in a dynamic environment multiple complex decisions have to be made. In the Taylor pyramid with its potential information flow bottlenecks at top level this situation easily leads an information overflow. The demand for increased corporate agility put the whole structure under heavy stress. The increased organisation complexity which delivered so excellent result throughout all the years turned into a heavy burden by the time.The natural organisational response to these new challenges is a less hierarchic, more networked organisation – the expert diamond. It offers higher agility at the cost of lower efficiency.

In the experts diamond peers communicate directly. Management functions merge with operational functions to independent self optimising processes. Experts led by principles follow their own autonomous decisions. They make autonomous but visible decisions.
For leadership the consequences were: the „boss“ becomes a coach rather than the „1st clerk“. Mutual respect of personality and competency replace daily order and detailed rules. The culture has to adapt from “feudal” to “team oriented”.
Lets compare how this organisation changes necessarily influences the corresponding best adapted organisational culture: Taylor Pyramid vs. Experts Diamond.

Pyramid culture Lead by orders and rule Tightly managed departments Remuneration on hours works Penalties on failures Secret knowledge Safe jobs through rigid structures Working for money Vertical communication only External control of work Predefined jobs Operation & control are split Distrust

Diamond culture Lead through principles and values Autonomously acting teams. Remuneration based on success Rewarding success Shared knowledge Confidence through cultural integration Self-confidence through visible contribution to success Direct peer-to-peer communication Self controlled work Evolving (self organising) jobs Self optimizing processes Trust

In large organisations however it can be found that areas of different requirements with respect to the efficiency to agility ratios may well coexist. We found such examples in European banks with a retail-LoB which had to be highly optimised towards efficiency, reliability and compliance with regulatory regulations. Additionally there was a corporate advisory LoB where highly skilled experts had to flexibly solve ever new and differently demanding tasks: two organisations, two cultures, two “hearts” within one large corporation.

This means that whereas in a static environment the best adapted specialist wins. In a dynamic market the adaptable generalist is the winner. Only a few corporations are equally well positioned in both environments.

But in fact successful corporations need the power of the two distinct cultures. Highly efficient processes need an industrial organisation. Market driven substructures need an expert’s network organisation.

For those organisations taking advantage of “the power of the two hearts” obviously is key to success.

Lets remember that market forces determined the organisational structure and the structure in turn led to a specific ‚best suited’ corporate culture. Hence Structure follows market – and so does culture.