The Mechanical Organisation

If you ask someone to draw their concept of an organisation, they will often draw some kind of machine, with each team and individual playing the role of a tiny cog in a giant clockwork edifice. Each doing their allotted task to keep the whole machine running smoothly. This mechanical view of the organisation came to us from the factory owners who began the industrial revolution. As we mechanised our work, we also mechanised our view of the way work was done. Those early factory owners looked at the machines that were revolutionising work - the water and wind powered mills, and later the steam engines that powered their factories. They looked at their gears, belts, and pulleys, and saw in them a model for how the work itself could be structured. With themselves as the operator on the platform, working their various levers and valves to send signals to speed up or slow down this or that part of the great machine to keep things running smoothly. The workers - the many cogs and gears of the machine - meshing smoothly together to produce the end products.

Define the right combination of gears and the right systems and processes to manage them and the machine can run smoothly, ticking on forever, efficiently producing whatever it was designed to produce.

The limits of a mechanical model

While this view of organisations was sufficient for the industrial age, as we have moved into the information age, this view of the organisation is no longer sufficient. Organisations face two kinds of change - transitional change and transformational change. During the industrial age, most change was  transitional - a new, more efficient, or cheaper to produce machine would replace an older type, and improve the way the factory operated, but the way the factory operated could remain basically the same - a cotton mill still produced cotton and a foundry still smelted metal. They may do so more efficiently now but their fundamental organisation could remain the same. The machine, with a few cogs replaced, kept running.

Transformational change, on the other hand, requires more fundamental changes to the machine. If, in order to take advantage of cheap imported thread coming in from somewhere else in the empire, we want to switch from producing thread in our factory to producing finished cloth instead, we are looking at a transformational change. We can’t just tweak our machine, we need to re-design and rebuild it. Mechanical models of organisations don’t handle transformational change well. 

This is fine when transformational change is infrequent as it was in the industrial age. We no longer live in the industrial age. We live in the information age. The pace of change is becoming more and more rapid. Technological shifts that fundamentally change the way organisations need to operate are coming faster and faster.

It took over 50 years for the telephone to reach 50% of US households which it did in the 1950s. It took colour TV only 15 years in the 1960s. The Internet reached 50% of households in under 10 years. Smartphones reached 50% in under 5 in the early 2000s. ChatGPT took less than 2 years to go from zero to 300 million active users in the 2020s.

We live now in a world ruled by VUCA - Volatility, Uncertainly, Complexity, Ambiguity. VUCA requires constant change. It often requires transformational as well as transitional change. 

As an example, the Internet has gone from a niche plaything for geeks (like me) to being the main, and in some cases only, way organisations interact with their customers. All in under 30 years. This has forced many organisations like banks, where IT was traditionally a tiny function that kept people’s adding machines - and later desktop computers - running, to invest hugely into web development to the point where their IT departments are now often the largest part of the business. This was a huge, transformational change. The impact of smartphones requiring further investment into apps and other online services is another transformational change. The impact of AI will be similarly transformational.

We see the impact of these transformational changes in the constant cycle of re-organisations that many organisations are caught in. They will bring in some consultants who will re-design the organisation, often from the ground up at great expense. The new model will work for a few years with more and more tweaks being added to cope with the changing environment. Finally the model reaches its breaking point and the consultants are called back again to do it all again.

How many times have we worked in organisations where we talk only half jokingly about the “monthly re-org”? 

The problem with mechanical models is that when change reaches a certain point, they fail catastrophically and need major work to re-design and rebuild. Whole industries of consultants exist to do just that - re-design organisations from the ground up. Zero based design (which is favoured by many of the consultancies in this space) literally means starting from a blank piece of paper and re-designing from scratch.

These re-designs are massively expensive and massively disruptive to the organisation. I worked with one organisation where the latest re-organisation, which was 2 years ago at the time, was so traumatic that people literally refused to say the name of the program. They would refer to it as “the program” or “the disruption” but they would never say the actual name of the program. It was like that organisation’s beetlejuice - if you say its name it will come again. 

In another organisation we looked at internet logs and showed that come re-org time, which was in September every year, visits to several well known job sites spiked and there was a similar spike in resignations every year. That’s good talent walking out the door due to the pain and disruption these re-orgs cause. We also showed that productivity plummeted for a good 3 months leading up to and after the re-org. We were able to quantify the actual cost to the organisation of these re-orgs and it was in the tens of millions of dollars in lost talent and lost productivity. Every year.

Worse, they produce models based on the same view of the organisation as a rigid machine of processes and structures, which means that when the next change inevitably occurs, we are stuck with the same sort of rigid structures that don’t cope well with change and need to re-design from scratch again.

Organisations as Dynamic Structures

The reality is that organisations have never been static, clockwork structures. They have always been dynamic systems, constantly changing and evolving to better meet market needs. What allowed a clockwork model to make sense for so long was that the pace of change was slow enough to keep the cost of change relatively low. Today, as we have seen, the pace of change is increasing. This is making the cost of change more and more significant. No organisation can afford to throw away millions, or tens of millions, of dollars in lost productivity every year or two in a major re-organisation. We will look at how we can address this next time.