Next Generation Organizations: Distributed Authority

Reflecting on my years as a leader in large corporations as well as start-ups, the most profound cultural difference between the two work environments is trust.  Early stage companies trust their employees; bigger businesses do not. 

Start-ups assume the best in their people.  Founders and leaders freely give away power and control. They have faith in their teams’ judgment and provide means to empower individuals.  As a result, their work teams are highly engaged risk-takers, iterating quickly and adapting to changing markets.

Large firms see the worst in people.  The structures, policies and compliance procedures demonstrate their lack of trust.  Vertical hierarchies, approval processes and sign-offs sap their speed and creative spirit.

Organizational trust is fundamental to collaboration and continuous innovation. 

To foster trust, next generation organizations such as a Collaborarchy™ operate with 

Distributed Authority.

Authority is a right.  In a business context, authority centers on the right to make decisions about product strategy or marketing tactics, verdicts on hiring and firing staff, spending company resources or resolving customer problems.

In traditional hierarchical organizations, titles define authority.  Those at the top have the power.  Making decisions in this vertical structure requires an information exchange between those with situational knowledge and those with authority.  This constant up and down the ladder creates bottlenecks and organizational friction.

In advanced organizations, decision-making rights are granted to those closest to the problem.  Management trusts the wisdom of team members, believing the staff will act in the best interest of the company and it’s customers. By distributing authority, leaders put power in the hands of those best positioned to find the right solution.  This permission speeds decisions so companies can be nimble and outflank competitors.

Clarity of decision-making authority is essential, especially at high growth businesses.  In a Decision-making framework I use with clients, Leaders classify decision situations as Strategic or Tactical.  Categories of decisions can include hiring/compensation, budgets, key company initiatives, product development, etc.  From there, teams or individuals are granted authority over decisions in these realms.

Posting this matrix publicly ensures domains of responsibility are clear.  With mutual understanding of boundaries and expectations, confusion and frustration among staff teams is minimized.

How we make decisions is as important as who pulls trigger.  The decision-making process has several distinct stages from problem identification and information gathering through evaluation of options.  Oftentimes, these activities are conducted simultaneously or worse, in the wrong order.  Many of us choose an option first and then gather the information needed to justify our decision.

Effective teams conduct a methodical decision-making process to ensure wise choices.  Getting the process right upfront saves time and rework down the line.  During the information gathering stage, they reach out to all constituents (including customers) for input.  When riffing through possible solutions, they actively seek divergent ideas and consult the skeptics as well as quiet members of their team.  Selection criteria are clear, defined in advance of the evaluation process and aligned with both customer interests and company Core Values.

In organizations built for speed, the default action is to move an idea forward.  Short of a viable objection or potential harm to the business, initiatives are pushed ahead.  Release reviews and project postmortems enable the team to candidly assess the outcome, learn from mistakes and try again.  This rapid iteration process works best if autonomous teams gain cross-functional input and have the authority to make decisions.

Enlightened leaders are re-examining traditional decision-making criteria.  Most companies base decisions on KPIs.  Ideas and initiatives are assessed for their impact on revenues, units sold, production costs or profits.  These results are lagging indicators, outcomes only measuring performance.  They can answer the question “How much?” but they can’t answer the question “Why?”  Operating via KPIs puts teams in firefighting mode, always reacting to results from the past.

More progressive firms are getting ahead of the curve by focusing on Business Drivers - leading indicators producing future outcomes. Business Drivers can include customer satisfaction, repeat purchase rates, Net Promoter scores as well as staff retention and employee engagement ratings.  Operating by Business Drivers enables companies to anticipate customer needs and market trends while ensuring their teams are working at peak productivity.  Firms focused on Drivers rather than KPIs are more attuned to the end-to-end customer experience enabling them to be out front, leading change and defining the future.

In our next post, we will examine the power of transparency.