Organizational Design: Hierarchy, Hyperarchy and Facing Business Reality

A business cannot be competitive selling a product for $2 that cost $200 to make. Amazingly many organizations today are operating with this type of knowledge yet continue to avoid making tough choices to address unprofitable financial dynamics in order to survive and possibly even prosper. Many of these organizations delay making tough choices until the consequences of their denials are so dire that their options evaporate and opportunities to rebound vanish; a self fulfilling demise. Why does this situation exist? It is the nature of traditional organizations and the very manner of their operation that greatly contribute to the circumstance. The power centric hierarchy of the old business model is at the center of many of these failings. This form of organization is typically unable to cope with fundamental change because of how it is designed and how it functions. If you fail to design your organization to be effective at grasping and navigating change, you will likely succumb to the same influences as others have.

A good example is Britannica, the former producer of encyclopedias. The organization realized it could not sell its product for more than it cost to make. Britannica was aware that its sales force, unnecessary as the result of technological change, was the company's major cost. The company also knew people bought Britannica to provide their children a quality reference resource that is now achieved by purchasing a PC which offers access to a huge sea of data via search engines. Despite Britannica having these facts, it refused to accept the need to restructure its business, and disaster resulted. The organization failed to deal with the brutal facts despite the obviousness of their circumstance.

The revolution in information technology is similar to the management revolution itself. What works for other organizations is apparent. The challenge is sluggish response, a consequence of hierarchy. Information moves up and down in gaps in hierarchical pyramids and each gap requires delay and effort. The World Wide Web is an example of “hyperarchy” a more appropriate and responsive system. It is based on the notion of network centric methodology and results in more rapid and digestible change. Decentralized design enables more rapid adoption. Old organizational designs that rely on a top down centralized hierarchy cannot cope with the new business age and dynamic. Speed and adoption are at the core of this new era and that is where the old design fails.

Within a completely flat structure, all information on the Web is available to everybody who has access. Hyperarchical is 'the pattern of amorphous and permeable corporate boundaries characteristic of the companies in Silicon Valley ' - the pattern described above. More conservative models offer no real alternative to the Brave New Web World, even in the medium term. Not only can $200 not compete with $1.50: old 'legacy systems' in management are as disadvantaged as they are in IT. The options are expiring fast. Quite soon, the choice will lie between the new model or nothing.