Any organization is fundamentally a pattern of interactions between people. The nature of those interactions—their quality, their frequency, their outcomes—is the most important product an organization can create. Perhaps counterintuitively, recognizing this fact has never been more important than it is today—a time when digital technologies are reshaping not only how we work but also what we do when we come together.
And yet many organizational leaders treat those interactions between people as obstacles or hindrances to avoid or eliminate, rather than as the powerful sources of innovation they really are.
That's why we're observing that some of the most successful organizations today are those capable of shifting the way they think about the value of the interactions in the workplace. And to do that, they've radically altered their approach to management and leadership.
Moving beyond mechanical management
Simply put, traditionally managed organizations treat unanticipated interactions between stakeholders as potentially destructive forces—and therefore as costs to be mitigated.
This view has a long, storied history in the field of economics. But it's perhaps nowhere more clear than in the early writing of Nobel Prize-winning economist Ronald Coase. In 1937, Coase published "The Nature of the Firm," an essay about the reasons people organized into firms to work on large-scale projects—rather than tackle those projects alone. Coase argued that when the cost of coordinating workers together inside a firm is less than that of similar market transactions outside, people will tend to organize so they can reap the benefits of lower operating costs.
But at some point, Coase's theory goes, the work of coordinating interactions between so many people inside the firm actually outweighs the benefits of having an organization in the first place. The complexity of those interactions becomes too difficult to handle. Management, then, should serve the function of decreasing this complexity. Its primary goal is coordination, eliminating the costs associated with messy interpersonal interactions that could slow the firm and reduce its efficiency. As one Fortune 100 CEO recently told me, "Failures happen most often around organizational handoffs."
This makes sense to people practicing what I've called "mechanical management," where managing people is the act of keeping them focused on specific, repeatable, specialized tasks. Here, management's key function is optimizing coordination costs—ensuring that every specialized component of the finely-tuned organizational machine doesn't impinge on the others and slow them down. Managers work to avoid failures by coordinating different functions across the organization (accounts payable, research and development, engineering, human resources, sales, and so on) to get them to operate toward a common goal. And managers create value by controlling information flows, intervening only when functions become misaligned.
Today, when so many of these traditionally well-defined tasks have become automated, value creation is much more a result of novel innovation and problem solving—not finding new ways to drive efficiency from repeatable processes. But numerous studies demonstrate that innovative, problem-solving activity occurs much more regularly when people work in cross-functional teams—not as isolated individuals or groups constrained by single-functional silos. This kind of activity can lead to what some call "accidental integration": the serendipitous innovation that occurs when old elements combine in new and unforeseen ways.
That's why working collaboratively has now become a necessity that managers need to foster, not eliminate.
From coordination to collaboration
Reframing the value of the firm—from something that coordinated individual transactions to something that produces novel innovations—means rethinking the value of the relations at the core of our organizations. And that begins with reimagining the task of management, which is no longer concerned primarily with minimizing coordination costs but maximizing cooperation opportunities.
Too few of our tried-and-true management practices have this goal. If they're seeking greater innovation, managers need to encourage more interactions between people in different functional areas, not fewer. A cross-functional team may not be as efficient as one composed of people with the same skill sets. But a cross-functional team is more likely to be the one connecting points between elements in your organization that no one had ever thought to connect (the one more likely, in other words, to achieve accidental integration).
I have three suggestions for leaders interested in making this shift:
First, define organizations around processes, not functions. We've seen this strategy work in enterprise IT, for example, in the case of DevOps, where teams emerge around end goals (like a mobile application or a website), not singular functions (like developing, testing, and production). In DevOps environments, the same team that writes the code is responsible for maintaining it once it's in production. (We've found that when the same people who write the code are the ones woken up when it fails at 3 a.m., we get better code.)
Second, define work around the optimal organization rather than the organization around the work. Amazon is a good example of this strategy. Teams usually stick to the "Two Pizza Rule" when establishing optimal conditions for collaboration. In other words, Amazon leaders have determined that the best-sized team for maximum innovation is about 10 people, or a group they can feed with two pizzas. If the problem gets bigger than that two-pizza team can handle, they split the problem into two simpler problems, dividing the work between multiple teams rather than adding more people to the single team.
And third, to foster creative behavior and really get people cooperating with one another, do whatever you can to cultivate a culture of honest and direct feedback. Be straightforward and, as I wrote in The Open Organization, let the sparks fly; have frank conversations and let the best ideas win.
Let it go
I realize that asking managers to significantly shift the way they think about their roles can lead to fear and skepticism. Some managers define their performance (and their very identities) by the control they exert over information and people. But the more you dictate the specific ways your organization should do something, the more static and brittle that activity becomes. Agility requires letting go—giving up a certain degree of control.
Front-line managers will see their roles morph from dictating and monitoring to enabling and supporting. Instead of setting individual-oriented goals, they'll need to set group-oriented goals. Instead of developing individual incentives, they'll need to consider group-oriented incentives.
Because ultimately, their goal should be to create the context in which their teams can do their best work.
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